Because of Lake View, a funding scheme emerged where the first 25 mills, or the URT, collected in each school district were remitted to the State Treasurer and then instantly distributed back to the school districts from which they came. The State then distributed, through the Arkansas Department of Education’s Public School Fund, state general revenue to each school district in order to make up the difference between what the school district collected through the 25 mills and what the General Assembly determined to be the foundation funding per-pupil amount required for an adequate education. For example, the foundation funding amount for the current school year as determined by Act 1039 of 2011 is $6,267 per pupil. If a school district receives $5,000 per pupil from the URT for this school year, the State distributes state general revenue to the district in the amount of the difference between $6,267 and $5,000, or $1,267 per pupil. This is a simplified explanation of the process. The Department of Education (ADE) uses a complicated formula to determine how much and when to distribute such funding, depending on the percentage of the URT actually collected by the districts (the amount of tax assessed and the amount collected are obviously different, because not everyone pays their taxes on time or at all), but for my purpose here, it’s not necessary to explain the entire calculation process.
This scheme works well as long as every school district collects less than the foundation funding amount, but what happens if a school district, due to a strong tax base, collects more? The Arkansas Supreme Court recently answered this question in Kimbrell v. McCleskey. In this case, two school districts, the Fountain Lake School District and the Eureka Springs School District both collected funds in excess of the foundation funding amount for the 2010-2011 and subsequent school years. Operating under the assumption that the URT is a state tax under Lake View, ADE attempted to recoup the funds collected in excess of the foundation funding amount. The districts opposed, arguing that the URT was a local tax, not a state tax, and that ADE did not have legislative authority to recoup the funds.
The Supreme Court agreed with the school districts, and in a majority opinion written by Justice Danielson, ruled that state law requires that all URT funds collected must be distributed back to the school district from which they are derived, that ADE does not have statutory authority to distribute those URT funds to any other school district, that Lake View and Dupree allow some school districts to be funded at higher levels than others due to their property wealth, and that the URT collected is a local school district tax and not a state tax. Three dissenters, Chief Justice Hannah, Justice Brown, and Special Justice George D. Ellis, each filed strong dissenting opinions, arguing that the majority opinion takes us back to before Lake View and Dupree to when school funding was based on a district’s property wealth. The dissenters argue that the URT is indeed a state tax set by Amendment 74, and that the majority opinion is a regression on the process we have made in education equality and adequacy over the last 30 years.
So where are we now? McCleskey, in my opinion, does three things: (1) because the majority opinion is decided on statutory grounds, it leaves open the possibility for lawmakers to make changes to the funding scheme as they see fit, and I certainly expect to see legislation surrounding this topic filed in the upcoming legislative session, which by the way, starts next week; (2) with so many Justices having recently retired and new justices with differing backgrounds being elected, it represents a shift in mindset on the Supreme Court; and (3) due to this shift in mindset and the realization that what we thought were sacred Lake View principles may not be quite so sacred anymore, it opens the door to future school funding litigation, and reminds us that though we’ve come a long way over the last 30 years, we still have a long way to go.