Tuesday, August 3, 2010

School District of Kansas City v. State[1]

Opinion issued August 3, 2010
Link to Mo. Sup. Ct. Opinion

In 2005, the Missouri legislature permitted charter schools to become local education agencies within public school districts. School District of Kansas City has a bold impact on state funding to public schools but, because of the law’s language, only affected the Kansas City Missouri School District (“KCMSD”). The KCMSD and three Missouri taxpayers brought suit against the state, arguing that the law violated the Missouri Constitution by allowing transfer of funds from KCMSD to the Kansas City charter schools and by creating an unfunded mandate for school districts to uphold. After a non-jury trial, the circuit court of Cole County rejected KCMSD’s claims and the Supreme Court of Missouri affirmed.

I. Facts and Holding

The Missouri General Assembly enacted the Charter Schools Act in 1998, which authorized school boards, colleges, and universities to sponsor independent public charter schools within metropolitan school districts, including the KCMSD.[2] These charter schools are hybrid institutions, combining elements of public and private education; however, importantly, these schools are financed by tax dollars.[3] In 2005, the state legislature changed the funding mechanism for charter schools, permitting such schools to declare themselves local education agencies.[4]

Prior to this amendment, Missouri’s school funding formula had required the state to disburse monies for charter schools to the local school district, which “acted as the disbursal agent.”[5] When the charter schools within the KCMSD became local education agencies, the state began disbursing “approximately the same per-pupil amount that the [KCMSD]” had been distributing under the prior law. At the same time, the state reduced the payments to the KCMSD by that amount.[6] Importantly, “[t]he act [did] not require any [of the KCMSD’s] local tax revenue to be sent to charter schools [in the district].”[7]

At the time of the amendment’s implementation, only the KCMSD was affected by these modifications.[8] Believing that the new disbursal system rendered the Charter Schools Act unconstitutional, the KCMSD and its taxpayers argued that (1) permitting the transfer of local property tax dollars to charter schools violated article X, section 11(g) of the Missouri Constitution; (2) permitting charter schools to become local education agencies created a unfunded new program, in violation of article X, sections 16 and 21 of the Missouri Constitution; and (3) reducing state funding to KCMSD siphoned monies from the district’s existing programs, violating article X, sections 16 and 21 of the Missouri Constitution.[9] The last two counts referred to sections of the Missouri Constitution collectively known as the “Hancock Amendment,” which prohibits the state from “requiring any new or expanded activities [of local education agencies] . . . without full state financing” or “reducing the state financed proportion of the costs of any existing activity or service required” of those agencies.[10]

Because this case involved the constitutionality of a state statute, the Supreme Court of Missouri reviewed the trial court’s dismissal of the KCMSD’s claims de novo, but gave deference to the trial court’s determination of the evidentiary issues.[11] The court addressed each of the KCMSD’s three arguments, affirming the judgment of the lower court on all three counts.[12] First, the court held that the act as amended did not violate article X, section 11(g) of the Missouri Constitution because (1) no local money is actually transferred from the KCMSD to the district’s charter schools; (2) the constitution does not prohibit the legislature from considering the amount of local taxes raised in the KCMSD when determining state aid to the district; (3) section 11(g) allows the KCMSD to levy local taxes at a rate that benefits “school purposes of the district,” which include charter school support; and (4) the KCMSD transferred funds to charter schools for seven years prior to the suit without complaint and sponsored two charter schools – a non-determinative, but very persuasive, fact.[13]

Second, the court held that the Hancock Amendment[14] did not invalidate the amended law because (1) the KCMSD did not lose its local tax revenue to charter schools and (2) the law did not mandate the creation of charter schools, nor did it reduce state funding beyond an allowable amount.[15] As a result, the court could not rule in favor of the KCMSD or the individual taxpayers.

II. Legal Background

Charter schools and the funding mechanism to support them were first enacted in Missouri in 1998.[16] Under the original law, charter schools were beholden to their local school districts for money, including state funding calculated under a devised formula and all other state and federal aid owed to each individual child.[17] In 2005, this funding formula was changed to reflect a new class of charter schools: those that elected to become local education agencies.[18] Instead of the district disbursing the money as it had in the past, the state now pays local education agency charter schools directly under a new formula and “then reduces the state’s payment to the [local] district for district-controlled schools in amounts equal to the local effort component of the formula.”[19] This reduction, and the resulting formula, is the critical issue in this case.

A. Article X, Section 11(g) of the Missouri Constitution

The same year that charter school legislation made its way through the Missouri Legislature, section 11(g) of the Missouri Constitution was also ratified.[20] The section targeted the KCMSD and its operating budget, allowing the establishment of a levy “for school purposes for the district.”[21] Because of the special construction, the KCMSD argued that the revenue generated under the local tax was intended to serve the needs “of the KCMSD itself . . . [not] the students of the district whether attending KCMSD schools or other public schools of the district.”[22] Under such construction, KCMSD believed that any transfer of funds raised by their operating levy would be impermissible.[23]

The court first made clear that, in interpreting constitutional language, it must respect the “intent of the voters who adopted the Amendment” through a “broad and liberal” construction.[24] Second, the court looked to the constitutional spirit of the charter school law.[25] The constitution does not require state funding to be specially allocated to certain school districts, and it certainly does not devise a formula to “determine the amount of state funds to send to the KCMSD or to other public schools in the district, including charter schools.”[26] As a result, the legislature is free to consider local levied money when determining how much it wishes the state to contribute and “whether students in the district are being educated by public charter schools rather than by the KCMSD.”[27] Similarly, section 11(g) also does not expressly prohibit the distribution of levied local money to other public schools in the KCMSD, including charter schools.[28] Without a more articulated intent that section 11(g) was enacted to prevent the transfer of KCMSD’s local tax monies to other public schools within the district, the court could not invalidate the charter school law as amended.[29]

B. The Hancock Amendment

The Hancock Amendment, sections 16 through 24 of article X of the Missouri Constitution, prohibits the state legislature from enacting any law that would effectively create an unfunded mandate in Missouri.[30] The Amendment can be violated “either if the state requires a new or increased activity or service of a political subdivision or if the political subdivision experiences increased costs in performing an existing activity or service without receiving additional funding from the state.”[31] In this case, the court looked to three Missouri cases.[32]

First, in Neske v. City of St. Louis, the court held that no unfunded mandate existed merely because it had become more expensive for the city to fund its public retirement systems.[33] Indeed, a violation of the Hancock Amendment had not occurred because no law or formula had been adopted that would cause an increase in costs.[34] Second, in Rolla 31 School District v. State, the state’s department of education mandated that all school districts were to provide special education services to preschoolers, which had never been done before.[35] The court found that imposing such a requirement without providing the necessary funds to successfully carry out the mandate was undoubtedly a Hancock violation.[36]

The court likened the KCMSD’s situation to that of Neske, reasoning that the mere authorization of charter schools does not rise to the level of a “mandate” and therefore does not require any school district to provide new or additional services. As the court noted, “[b]efore the act, the KCMSD (and other public school districts) were required to provide a free public education to all eligible pupils . . . [and] [t]his requirement remains.”[37]

Third, the court looked to Fort Zumwalt School District v. State to determine whether the amended act constituted an increase in mandated costs without provision of additional monies.[38] In that case, the court required the plaintiffs to show evidence of not only a mandated program but also “‘the ratio of state to local spending for the mandated program in that year’ . . . and ‘costs of the mandated program [and ratios] in each subsequent year.’”[39] These costs, as calculated, “‘may not include any discretionary expenditures [paid out by the district] . . . beyond the state mandate.’”[40] In weighing the evidence, the court found the KCMSD’s expert testimony woefully lacking in proof of increased mandated costs and, as a result, “if expenditures are not mandated by the state, they are not relevant for Hancock purposes.”[41]

III. Comment

The Supreme Court of Missouri must carefully construe the statutory language at issue, presuming the constitutionality of the legislative act but still ensuring that each act is properly scrutinized. In cases involving education law, the court has been particularly vigilant in its presumption of constitutionality, as exemplified in both School District of Kansas City v. State and an earlier education case, Committee for Educational Equality v. State.[42]

In Committee for Educational Equality, the plaintiffs challenged Missouri’s state funding formula for public schools, arguing that the calculations resulted in an “unconstitutionally disparate and inadequate” educational system.[43] Deferring to the judgment of the legislature, the court held that the foundation formula was compatible with the Missouri Constitution, even though, in practice, it did fund schools at very different levels.[44]

Similarly, in School District, the court scrutinized the constitutionality of a Missouri law that allowed charter schools to receive funding directly from the state, while, at the same time, deducting state payments to the district in which the charter school is located.[45] The foundation formula devised by the state to fund all public schools determines the reduction by taking into account the district’s local tax levy revenues.[46] This has the effect, as was the case for the KCMSD, of providing less state funding to the district than had been provided before the charter school law change, because the state can be assured that the KCMSD’s local money will make up for the shortfall. While the court certainly adheres to the exact words of the constitution, the precedent of such a strict interpretation can lead to inequitable distribution of public funds.

As the court stated previously in Committee for Educational Equality, “Missouri’s [constitutional] education article contains neither a free-standing ‘adequacy’ requirement nor an equalizing mandate.”[47] Although School District does not address the exact article referenced in Committee for Educational Equality, there is little doubt that, in both cases, the court reflects the same sentiment: the Missouri Constitution guarantees all children a right to an education, but not an economically equal education.[48]

-Brianna L. Lennon

[1] 317 S.W.3d 599 (Mo. 2010) (en banc).
[2] Id. at 602. (citing Mo. Rev. Stat. § 160.400 (2009)).
[3] Chester E. Finn et al., Charter Schools in Action: Renewing Public Education. 15 (2001).
[4] School District, 317 S.W.3d at 603.
[5] Brief of Respondent at *15 (citing Mo. Rev. Stat. § 160.415.2(4) (2000)).
[6] Id. at *16-17.
[7] School District, 317 S.W.3d at 603.
[8] Id. at 605.
[9] Id. at 603-04. (citing Mo. Const. Art. X §§ 11(g), 16, 21).
[10] Id. at 610 (internal citations omitted).
[11] Id. at 604.
[12] Id. at 604-10.
[13] Id.
[14] See infra, note 9. The amendment also contains a provision that only grants individual taxpayers the standing to bring Hancock claims. Id. at 610. In this case, the KCMSD was barred from challenging the law under Hancock, so the court permitted only the three taxpayers to bring these claims. Id.
[15] Id. at 610-12.
[16] Id. at 602.
[17] School District of Kansas City v. State, No. 06AC-CC00639 at *3-4 (June 29, 2009) (citing Mo. Rev. Stat. §§ 160.415.2(1)-(2) (2000)). The original law calculated the per pupil payments as the “product of the equalized, adjusted operating levy for school purposes for the pupils’ district of residence . . . times the guaranteed tax base per eligible pupil . . . times the number of the districts resident pupils attending the charter school.” Mo. Rev. Stat. § 160.415.2(1) (2000).
[18] Id. at *4.
[19] Id. at *5. In essence, the state now pays the charter schools within the KCMSD directly and offsets those payments by reducing the KCMSD schools’ funds so that the state does not pay twice for the same students.
[20] It is important to note that the two pieces of legislation were enacted concurrently because “a contemporaneous legislative construction is entitled to and will be given serious consideration by the court” when interpreting statutes. Id. at 608. (internal citation omitted). One argument of the KCMSD is that section 11(g) could not have presumed to encompass charter schools because they were not yet in existence in 1998, but the coincident passage of both laws shows otherwise. Id.
[21] School District of Kansas City v. State, 317 S.W.3d 599, 604 (Mo. 2010) (en banc). The court construes “school purposes for the district” to adhere with “their plain and ordinary meaning,” in accordance with past precedent. Id. at 607 (citing Rathjen v. Reorganized Sch. Dist. R-II, 284 S.W.2d 516, 524 (Mo. 1955) (en banc)). Because charter schools are public schools by definition, funding them supports the spirit of the constitution’s language. Id. at 608.
[22] Id. at 605.
[23] Id. The court found that KCMSD admitted that no direct transfer of local monies ever occurred, nor did the 2005 changes to the charter school law provide for that direct transfer. Id. at 605. As a result, the court analyzes only the potential of “improper indirect transfer of funds.” Id.
[24] Id. (citing Keller v. Marion County Ambulance Dist., 820 S.W.2d 301, 302 (Mo. 1991) (en banc) (internal citations omitted); State Hwy. Comm’n v. Spainhower, 504 S.W.2d 121, 125 (Mo. 1973) (internal citations omitted).
[25] Id. at 606.
[26] Id.
[27] Id.
[28] Id. at 606-07.
[29] Id.
[30] Id. at 610.
[31] Id. at 611.
[32] Id. at 610-11.
[33] Id. at 611. (citing Neske v. City of St. Louis, 218 S.W.3d 417, 422 (Mo. 2007) (en banc)).
[34] Id.
[35] Id. (citing Rolla 31 Sch. Dist. v. State, 827 S.W.2d 1 (Mo. 1992) (en banc)).
[36] Id.
[37] Id.
[38] Id. at 611-12. (citing Fort Zumwalt Sch. Dist. v. State, 896 S.W.2d 918, 922 (Mo. 1995) (en banc)).
[39] Id. (quoting Fort Zumwalt Sch. Dist., 896 S.W.2d at 922).
[40] Id. (quoting Fort Zumwalt Sch. Dist., 896 S.W.2d at 922).
[41] Id. at 613.
[42] School District, 317 S.W.3d at 599; Comm. for Educ. Equality v. State, 294 S.W.3d 477 (Mo. 2009) (en banc).
[43] Comm. for Educ. Equality, 294 S.W.3d at 481.
[44] Id. at 482. The Committee for Educational Equality argued that the funding formula violated the equal protection clause, the Hancock Amendment, and article IX of the Missouri Constitution because the state was required to provide an equitable education to all Missouri students. Id. at 488-90. The court, however, held that the foundation formula passed constitutional muster because “Missouri’s [constitutional] education article contains neither a free-standing ‘adequacy’ requirement nor an equalizing mandate.” Id. at 490.
[45] School District, 317 S.W.3d at 601.
[46] Id. at 602, 606.
[47] Comm. for Educ. Equality, 294 S.W.3d at 490.
[48] School District, 317 S.W.3d 599; Comm. for Educ. Equality, 294 S.W.3d 477.