Court ruling could benefit Armorel School District

Friday, November 30, 2012

LITTLE ROCK (AP) -- The Armorel School District may benefit from a decision handed down by the Arkansas Supreme Court on Thursday.

A sharply divided court ruled Thursday that school districts that collect more in property taxes than state-mandated school funding levels can keep the money, a decision top officials said threatened reforms intended to provide equitable education funding across the state.

The high court ruled 4-3 that state education officials cannot withhold excess money from the Eureka Springs and Fountain Lake school districts, where higher property tax collections pushed the districts above total school funding levels set by state law. Chief Justice Jim Hannah wrote the dissent, warning the decision "obliterated" a school-funding system that legislators hammered out to end a long-running court case.

The districts sued last year after the Education Department billed Fountain Lake for $1.4 million and Eureka Springs for $825,000, saying they'd received too much money from levying the state-mandated minimum property tax.

The Armorel school district has been similarly billed. Armorel has made payments totaling $245,138.00 since 2010. The money is currently held in an escrow account until a final decision is rendered.

"We are cautiously optimistic," said Armorel Superintendent Sally Bennett. "I talked to the Department of Education this morning and they said the state has 18 days to decide wether or not they want a rehearing. It was a close vote, 4-3, so, that one vote could be swayed if there is another hearing. So right now we're in a holding pattern."

The court sided Thursday with Pulaski County Circuit Judge Tim Fox, who ruled last year that Arkansas law doesn't allow the state to withhold property tax money from local school districts.

The court's majority wrote that the property tax -- known as the district's uniform rate of tax, or URT -- could not be considered a state revenue.

"It is a one-of-a-kind tax, a school-district tax, approved by the voters of the state of Arkansas and levied, assessed, and collected by the counties for the sole use of the school districts," Justice Paul Danielson wrote in the majority opinion.

State officials said the financial impact of the ruling would be relatively small, with only six of Arkansas' 239 districts this year collecting more in property taxes than the state school funding amount. However, they fear the ruling will undermine a series of school funding equity reforms.

"It's the foundation on which we've based so many decisions over the last 10 to 12 years on how we fund education, what we expect our schools to do, what we expect of our General Assembly," state Education Commissioner Tom Kimbrell said. "There have been so many things done based upon this premise. It surprises me and I think it just changes the game."

The ruling prompted critics to complain that it goes against the long-running Lake View school funding case and reforms that lawmakers enacted in response to it. The case ended in 2007 when justices ruled that Arkansas had funded its schools adequately. Two of the justices opposed to the ruling were key voices on the court during the Lake View litigation.

"They've just opened the door for future governors and legislative bodies to do all sorts of things backtracking," Gov. Mike Beebe told reporters.

Not all state officials criticized the ruling. House Republican Leader Bruce Westerman said he believed it was a good thing for the districts to be able to keep the excess money and disputed the idea that it would hurt the state's school funding efforts.

"I'm waiting for somebody to show me how one district is getting less money than they were before," said Westerman, R-Hot Springs.

A 1996 constitutional amendment approved by voters requires each school district to levy no less than 25 mills of property tax for maintenance and operation of schools. Districts are allowed to levy more than 25 mills. A mill produces $1 for every $1,000 of assessed property value.

The state argued it had the authority to withhold the excess money because it would have given the districts more than the per-student funding it receives from the state each year. The four-justice majority said there was no law that allowed the state to redistribute the funds to other schools.

Gene Sayre, an attorney for the districts, said he was pleased with the ruling. He said the state's method for saying the districts' funding levels were in excess only compared them to per-student funding levels, and not other types of funding the schools receive from the state.

"We're saying that the basis of the attack by the Department of Education is shortsighted because it attacks one factor in the formula and doesn't look at the overall formula for public schools," Sayre said.

Attorney General Dustin McDaniel was reviewing the decision and talking with state officials about its impact, a spokesman said. Beebe said he expected the state to ask the court to reconsider its decision.

Hannah, the chief justice, wrote in the dissent that the majority decision tinkered with the state system that was finally deemed constitutional after years of litigation over whether the state's districts received fair and adequate funding. The state Supreme Court addressed school funding cases in the 1980s, 1990s and 2000s.

"The majority nullifies 10 years of difficult and painstaking work diligently undertaken by the General Assembly, the Department of Education, the attorney general, and the governor, to provide this state with a constitutional school-funding system," Hannah wrote. "The state's carefully crafted constitutional system of state-funded public education is obliterated by the majority's decision."

Special Justice George Ellis, who was assigned to the case, wrote in a separate dissenting opinion that "it is as if the majority has entered a time machine."

"Under the majority opinion, we will again have a wealth-driven system of public education which was precisely the problem with our system in the first place," Ellis wrote.

The majority, however, suggested that lawmakers can give the state the power to redistribute the excess funds. The Legislature is set to convene in January.

"Should the General Assembly wish to provide a mechanism or procedure by which excess funds may be distributed to other districts, it is certainly within its purview to do so -- no time machine required," Danielson wrote.

Beebe said he didn't know yet if he would ask lawmakers to allow the state to redistribute the excess funds, but said that option showed the threat the court's ruling poses to the state's school reforms.

"The mere fact that he suggests the Legislature can by statute alter the constitutional amendment in a way as substantive and as basic as that illustrates really what I think the danger is with future governors and future legislators that want to change the essence of the constitutional mandate the people passed," Beebe said.

CN staff writer Aaron FitzPatrick contributed to this report.