Schools for Fair Funding

Further Analysis of the Gannon Decision – Still a Great Decision

Posted on March 11, 2014

The Supreme Court’s Gannon ruling on Friday runs 110 pages. The court spends the first 65 of those pages knocking down the state’s two main points on appeal: standing and justiciability. The remaining 45 pages are then devoted to its findings on equity and adequacy. I believe the Court spent this amount of ink on the topic because, in so doing, they also firmly set forth that the Court is the ultimate “decider” on whether school finance meets constitutional muster rather than the legislature. I believe this was in response to legislators and others who had vocally taken the position that the court should “butt out” of the issue. No questions are left in this area now. (Actually, there were no legitimate questions before.) The court has a role and it intends to fulfill it.

Standing.

The short version on standing is that the Court found that school districts DO have standing to bring this lawsuit and challenge the school finance scheme as long as it harms the districts by significantly undermining their ability to perform their own constitutional duties under Article 6, Section 5; the section that says “Local public schools under the general supervision of the State Board of Education shall be maintained, developed and operated by locally elected boards.”

The court did find that the student plaintiffs in this case did not have standing because there was no evidence presented specific to the student plaintiffs. We did this intentionally to shield the students privacy issues, as we had in the past lawsuits. It had not been an issue in the past.

This finding on student standing does not matter however since the districts have the ability and the standing to pursue the claims. It is like a city having many roads into the city, we don’t have to drive on ALL of the roads into the city, we just need to find one road that gets us there, which we did with the finding on district standing.

Justiciability.

The court goes into a detailed analysis on whether the questions presented are the kinds of questions that can be addressed by the courts or whether they are political questions that courts should avoid. The short version is that these matters are indeed proper for the Court to hear.

The merits.

Adequacy.

The court finds that the Montoy case remedial phase relied heavily on cost estimates contained in the Augenblick and Myers Cost Study and the Legislative Post Audit Cost Study. The Court found that these types of studies “remain a valid factor to be considered during application of [the proper] test for determining constitutional adequacy under Article 6,” but that a broader test is needed to determine constitutional adequacy.

To articulate the adequacy test, the Court returned to the 1994 U.S.D. 229 case and the Rose Standards.

Rose was the Kentucky case that preceded our U.S.D. 229 case. In the U.S.D. 229 case the Court all but adopted the Rose standards as the measuring stick for adequacy in Kansas. After the U.S.D. 229 was decided the Kansas legislature even adopted the Rose standards and placed them in Kansas statute 72-1127.

Here are the Rose factors set forth in Kansas statute:

(1) Development of sufficient oral and written communication skills which enable students to function in a complex and rapidly changing society;

(2) acquisition of sufficient knowledge of economic, social and political systems which enable students to understand the issues that affect the community, state and nation;

(3) development of students’ mental and physical wellness;

(4) development of knowledge of the fine arts to enable students to appreciate the cultural and historical heritage of others;

(5) training or preparation for advanced training in either academic or vocational fields so as to enable students to choose and pursue life work intelligently;

(6) development of sufficient levels of academic or vocational skills to enable students to compete favorably in academics and the job market; and

(7) needs of students requiring special education services.

The Court sets the adequacy standard in Kansas as follows:

“With our adoption of Rose, we now clarify what Article 6 of our constitution requires. We hold its adequacy component is met when the public education financing system provided by the legislature for grades K-12—through structure and implementation—is reasonably calculated to have all Kansas public education students meet or exceed the standards set out in Rose and presently codified in K.S.A. 2013 Supp. 72-1127.”

The trial court did not make findings about whether all Kansas students meet or exceed these standards, instead relying upon non-adherence to the cost studies to base their finding of unconstitutionality. It is not as though the trial court did not have evidence in the trial record to make these findings, they did. From the trial transcript we count 62 references to the Rose factors in evidence and 18 references to the statutory version of the Rose factors found in K.S.A. 72-1127 in evidence. The trial court actually had the evidence that the Rose standards are not being met, they simply did not include language about it in their opinion or actually base their decision upon these factors as we now find they should have.

The Supreme court ordered the adequacy part of the case back to the trial court to assess whether the Rose standard is being met. How does the trial panel do that? The Supreme Court said “We express no opinion whether the panel needs to reopen the record to make its adequacy determination. That decision is best left to the panel as the factfinder.”  This means that the trial court could simply examine the evidence that is in the record (and there is a LOT of it) or they could reopen the record and we could retry that portion of the case with live witnesses again. The trial panel will decide which way it wishes to go in the near future.

We are confident that, either way, the system will be found to be inadequate and unconstitutional on adequacy grounds.

Equity.

Equity enters into the picture in two instances: Capital Outlay Equalization and Supplemental General Fund (LOB) Equalization. The court finds that both are components required by Article 6, independent of any adequacy analysis.

Capital outlay equalization.

The court found that the test is:

“School districts must have reasonably equal access to substantially similar educational opportunity through similar tax effort.”

“To violate Article 6, the disparities instead must be unreasonable when measured by our test:  School districts must have reasonably equal access to substantially similar educational opportunity through similar tax effort.”

The court made it clear that a constitutional violation can occur either in a defective plan memorialized in a statute or by under appropriation for that function in the appropriations process. Our statutory scheme seems just fine, as the trial court found. Our issue has been under-appropriation of the scheme.

The court said the infirmity can be cured in a variety of ways at the choice of the legislature. It went on to say “Any cure will be measured by determining whether it sufficiently reduces the unreasonable, wealth-based disparity so the disparity then becomes constitutionally acceptable, not whether the cure necessarily restores funding to the prior levels.”

The court then gave a “three scenario” guidance by July 1:

1. If the legislature fully funds capital outlay according to current law, the matter is over.

2. If the legislature acts to cure, whether by (a) statutory amendment of less than full restoration, or (b) otherwise, then the panel must apply the test and assess the cure. The test: “whether the capital outlay state aid, through structure and implementation, then gives school districts reasonably equal access to substantially similar educational opportunity through similar tax effort.”

3. If the legislature fails to act the panel shall declare null and void that portion of the statute that prohibits transfers to the capital outlay aid statute. “This will enable the funds envisioned by the statutory scheme to be available to school districts as intended.”  Note that this is essentially the same as scenario number 1. The districts will get the statutory amount funded.

Supplemental general fund (LOB) equalization.

The court then gave a “three scenario” guidance by July 1:

1. If the legislature fully funds LOB equalization according to current law, the matter is over.

2. If the legislature acts to cure, whether by (a) statutory amendment of less than full restoration, or (b) otherwise, then the panel must apply the equity test and assess the cure. The test: “whether the LOB equalization state aid, through structure and implementation, then gives school districts reasonably equal access to substantially similar educational opportunity through similar tax effort.”

3. If the legislature fails to act the panel shall declare the LOB funding mechanism null and void for everyone. Note that this knocks out all LOB for everyone.

Remedy phase burden on capital outlay and LOB.  If the court follows Montoy the opinion says “During the remedy stage of the litigation, it became the State’s burden to persuade this court that the new legislation cured the constitutional infirmities of the prior law.” If this is followed, it will be the state’s job to convince the court that any “new approach” legislation actually fixes things. This should go a long way toward eliminating “smoke and mirrors” solutions that we have seen from time to time. This won’t come into play if the legislator opts to use the “safe harbor” alternatives set forth in the first numbered scenarios. If the state chooses to go this route, it leaves it open for us to show that the current equalization scheme for both capital outlay and LOB are not robust enough and should be increased.

Printouts.  Dale Dennis put two spreadsheets up on Friday showing the potential entitlement for each district if the legislature adopts the “safe harbor” option (Number 1s above.) We attach a printout we prepared that combines Dale’s two printouts. You will note that the Capital Outlay fix is estimated at $25,200,786 and the LOB fix is estimated at $94,468,486 for a total fix of $119,669,272.  While many legislators cheered the idea that the court gave no number for the fix, it took Governor Brownback’s Department of Education less than an hour to put a number to the fix.

More short term money for classrooms?

Will a $119M interim equity fix provide more money to the classrooms? It depends. While this number largely goes to how budgets are FUNDED and not additional spending authority, it does offer opportunity. Many districts lowered or eliminated capital outlay levies and transferred that spending to the LOB because the LOB was still at least partially equalized while capital outlay was not. This should open up the opportunity to reestablish capital outlay levies, move capital expenditures back to capital outlay and then provide room in the LOB for more classroom spending. This will aid districts that were maxed on LOB by providing some more spending authority. The ones who won’t see much opportunity at this point, and will have to wait for the adequacy decision,  are the wealthiest 20% of districts and those whose LOB AND capital outlay budgets are both maxed already.

As funds get transferred back to capital outlay as a source, it frees up general fund and LOB dollars to meet the classroom needs like more teachers, lower class sizes, more resources, etc.

990243 Cap Outlay and LOB Equalization Aid (1)