GOVERNANCE
School Funding
LEGAL DEVELOPMENTS
DID THE COMMISSIONER IMPROPERLY INTERPRET THE FUNDING STATUTE?
Case citation: Williams v. Sterling City ISD, __ S.W.3d. __, 2014 WL 5315054 (Tex. App. – Eastland 2014).
Summary: Sterling City Independent School District, Highland Independent School District, and Blackwell Consolidated Independent School District sued the Commissioner of Education alleging that he miscalculated the districts’ excess revenue when he determined the amount of local tax revenue that the State could take back from the districts pursuant to the school funding statute. The dispute centered on whether Texas Education Code § 42.2516(h), as enacted in House Bill 1 (HB1), authorized the Commissioner to use all state aid and current local tax revenues to calculate “excess revenue” when determining the amount of local tax revenue that the State “clawed back” from the districts. The trial court determined that § 42.2516(h) did not authorize the Commissioner to calculate excess revenue in that manner and that the Commissioner committed an ultra vires act (i.e., acted without authority) when he failed to limit his calculations of excess revenue to the factors specified in § 42.2516(h). The trial court held that, as a result, the Commissioner overcharged the districts and that the “amount overcharged … should be credited back” to them.
When it enacted HB1 in 2006, the Texas Legislature added Texas Education Code § 42.2516(h). HB1 had multiple goals, one of which was to address the Texas Supreme Court’s ruling in Neeley v. West Orange–Cove Consolidated Independent School District that local ad valorem taxes had become an impermissible state property tax in violation of Article VIII, section 1-e of the Texas Constitution. The legislature intended for § 42.2516(h) to provide state aid for school districts to replace local funding lost in the tax compression program, which lowered and compressed local property taxes. The statute was an effort to ensure that each school district in Texas received a certain level of funding per student in weighted average daily attendance (WADA).
While § 42.2516(h) was still in effect, the school districts experienced significant property value increases and tax collections that resulted in increased property tax revenues. Based on calculations that took into account each district’s total state funding and all local tax revenue increases, the Commissioner notified them that they owed “claw back” amounts to the State pursuant to § 42.2516(h). The Commissioner interpreted the statute to authorize the State to “claw back” all excess local tax revenue that exceeded the “target revenue” as calculated. In response to the Commissioner’s demand for payment of “claw back” amounts, Sterling City ISD filed suit, alleging that the Commissioner had misinterpreted § 42.2516(h) and attempted to “claw back” amounts not authorized under the statute. Highland Independent School District and Blackwell Consolidated Independent School District joined the suit. Prior to trial, the districts paid all or a portion of the claw-back amounts. After a one-day trial, the trial court found in favor of the districts and ordered that the overcharged amounts should be credited back to the districts. The Commissioner appealed.
Ruling: The appeals court affirmed the ruling in favor of the districts. The Commissioner argued that the district’s claims did not waive the State’s right to sovereign immunity. The district argued, on the other hand, that the Commissioner acted ultra vires, an exception that acts to waive sovereign immunity. Under the ultra vires doctrine, a state official’s illegal or unauthorized actions are not acts of the State. Thus, an action challenging illegal or unauthorized actions of a state official is not a suit against the State, for which immunity applies. According to the appeals court, the trial court properly determined that the Commissioner violated Education Code § 42.2516(h) and committed an ultra vires act when he received excess revenue attributable to factors other than those specified in § 42.2516(h). Consequently, the suit was not barred by sovereign immunity. In addition, the appeals court held that the credits that the trial court ordered the Commissioner to issue constituted permissible prospective relief. The appeals court, therefore, affirmed the judgment in favor of the school districts.
Municipal charges
ARE DISTRICTS EXEMPT FROM MUNICIPAL DRAINAGE CHARGES?
Case citation: Tex. Att’y Gen. Op. GA-1080 (2014).
Summary: The Texas Senate Chair of the Committee on Jurisprudence recently asked the Attorney General whether school districts are exempt from the municipal drainage charge under the Municipal Drainage Utility Systems Act, Local Government Code, chapter 552, subchapter C. The Attorney General observed that a municipality may adopt the Act in an ordinance declaring municipal drainage to be a public utility. The Act authorizes such a municipality to “charge a lot or tract of benefitted property for drainage service.” Under § 552.044(4) of the Act, designated governmental entities, including school districts, and their freehold interests in lots or tracts “may be exempt” from the Act and “ordinances, resolutions, and rules” adopted under the Act.
Ruling: The Attorney General determined that a court would likely conclude that the exemption for school districts from the Municipal Drainage Utility Systems Act in § 552.053(a) and (b) of the Local Government Code is permissive and that a municipality has the discretion, within the limitations of the Act, to decide whether to grant such an exemption. While § 552.053 does not expressly state how an exemption would come into effect, the Act grants broad discretion to municipalities to establish the basis for their drainage services and to classify property subject to those services. According to the Attorney General, those broad powers imply that municipalities have discretion to decide whether to grant permissive exemptions. At the same time, the Act does not permit districts to claim an exemption. Thus, construing the Act as a whole, the Attorney General determined that it is likely that a court would decide that municipalities have the authority to determine whether exemptions to the drainage charges under the Act are warranted.
According to the Attorney General, court would also likely conclude that a reasonable drainage charge under the Act is not a tax from which a school district is exempt. School district property is generally exempt from taxation by other political subdivisions. According to the Attorney General, a “reasonable charge for city-owned utility service is not a tax, and therefore a school district’s tax exemption does not apply to such charges.”