1. Legal Issues in School Finance Content from Odden and Picus, School Finance a Policy Perspective

2. The Basis of legal finance issues: Fiscal equity – a situation in which each child receives substantially equal educational resources Fiscal adequacy – a situation when each child receives an education that reaches a certain level of quality If relief to equity or adequacy issues can not be achieved through legislative actions, interested parties seek relief from the courts.

3. Legal Background Constitutional grounds – State legislatures have great discretion in creating school finance systems; i.e., how state funds are distributed to schools. State statutes that govern the finance system must not conflict with the US Constitution or the constitution of the state. Therefore challenging the constitutionality of finance legislation offers the only viable litigation strategy.

4. Litigation considerations concern (1) which constitutional provisions have been violated and (2) how the school finance system allegedly violates the constitution(s). Typically violation of one or more of three constitutional provisions is claimed – the Equal Protection Clause of the 14 th amendment of the US Constitution, the equal protection clause for the relevant state constitution, and the education clause of the state constitution. The two main arguments are what ?

5. (1) the state failed to distribute resources equitably, or (2) the state failed to provide an adequate amount of resources to some or all of the schools in the state. Equity claims frequently revolve around a reliance on property taxes to fund schools. Adequacy claims argue that the education clause requires the state to provide a certain standard of education and the school finance system has provided insufficient resources to meet that standard. (Since the US Constitution lacks an education clause, there are no adequacy claims.)

6. Three waves of school finance litigation 1.Federal Equal Protection Litigation The US Supreme Court defines the meaning of the rights identified in the US Constitution and its amendments and determines whether the president, Congress, state governors, and state legislatures exercise their power in a manner consistent with the Constitution. The 14 th amendment requires that no state shall “deny to any person within its jurisdiction the equal protection of the laws.”

7. The US Supreme Court uses three tests to determine what different treatment violates the Constitution – two of those apply in school finance cases: The Strict Scrutiny Test – courts examine very carefully the language of the challenged law and hold state governments to a high standard in attempts to justify why the law is acceptable even though it treats people differently. Strict scrutiny is applied when a fundamental right is involved or when the state law discriminates against people from a suspect classification.

8. What are some fundamental rights protected by the US Constituion ? Suspect classifications are groupings of people based on their religion, national origin, race, and/or alienage – but NOT their gender and wealth. In strict scrutiny cases states must show that the differences caused by the law resulted from the state’s pursuit of a “compelling state interest,” and that it had “no less discriminatory “ means by which it could achieve the compelling interest – meaning that the law was the very best way to achieve the vital objective. Do you think that states have difficulty proving these conditions ?

9. The Rational Basis Test – courts determine whether the government had any rational reason (not necessarily the best reason) for passing a law under which people are treated differently. Typically do you think that this is easy for a state to prove ? If you were challenging a school finance system, which test would you hope that the courts applied ?

10. School finance challenges in the late 60s in Illinois and Virginia challenged the unfairness of primarily using property taxes to fund schools. Both cases were decided using the rational basis test – in Illinois the court determined that the state funding system (based on property taxes) furthered the legitimate state interest of ensuring local control over educational funding, and in Va. the court ruled that the finance system was constitutional because funding was provided according to a uniform and consistent plan, a portion of which required local contributions; i.e., the fact that each district had to contribute meant that it was not discriminatory.

11. New plaintiff's arguments were developed to require a strict scrutiny test to decide constitutionality. The new argument suggested that education funding adversely impacted a suspect classification defined as students in low- property-wealth –per –pupil districts. In addition, arguments were made that school finance systems that relied upon local funding gave school districts unequal opportunities to raise educational revenues because property values per child varied widely. Thus, school financing systems needed to be “fiscally neutral”

12. Fiscal neutrality meant that expenditures per- pupil could not be related to local district property wealth per pupil. A state could not be required to provide more money than it possessed, but each district should have an equal opportunity to share in the total resource pool, whatever the size of that pool. Serrano v. Priest, Part 1 (California, 1968) – used the fiscal –neutrality argument and claimed that strict scrutiny should apply because education is a fundamental right and because the plaintiffs were members of a suspect class.

13. The case was dismissed by the trial court since it was judged that it failed to provide a standard by which the court could assess the plaintiffs’ claims. The California Supreme Count reversed the ruling in 1972 and permitted the case to proceed to trial. The lower court was advised that the strict scrutiny test should have been applied since education is a fundamental right and the plaintiffs were a suspect class. Lots more cases filed after Serrano. Important to understand that the court did not find that the use of property taxes to finance schools was unconstitutional per se – just that finance systems that rely too heavily on local property taxation face an increased risk of being held unconstitutional.

14. Rodriguez v. San Antonio (Texas, 1973) – case decided by the US Supreme Court (18 months after Serrano). Trial court in Texas had decided the case on the basis of Serrano and held that the Texas school finance system violated the Equal Protection Clause of the US Constitution and ordered the legislature to devise a constitutional system. The US Supreme Court reversed the decision. The court declined to apply the strict scrutiny test and determined that education was not a fundamental right under the US Constitution because education is not mentioned either implicitly or explicitly.

15. The Supreme Court also determined in Rodriguez that property wealth is not a suspect class. So the court used the rational basis test and accepted Texas’s argument that local property taxes reflected the principle of local control of education. The Rodriguez decision eliminated the plaintiffs’ ability to rely on the Equal Protection Clause of the Constitution, because the court ruled that the rational basis must be applied to school finance litigation under that provision. Rodriguez required plaintiffs to argue their cases by alleging violations of state constitutional provisions - this had the effect of requiring school finance litigation to be argued state-by-state on the basis of state equal protection and education clauses.

16. 2. State Law Equity Cases Plaintiffs used the same arguments but applied to state equal protection clauses or education clauses. Many state equal protection clauses use the same language as the US Constitution. However, many states grant rights above and beyond those set forth by the US Constitution. Generally speaking states won well over half of the school finance cases between 1973 and 1989 but two important cases during this second wave involved victories for the plaintiffs.

17. Robinson v. Cahill (New Jersey, 1973) The lower court decision acknowledged that education was mentioned in the NJ constitution, it still ruled that education is not a fundamental right in New Jersey. Similarly, the court held that property wealth per pupil is not a suspect class. The lower court ruled that the NJ financing system for schools did not violate the state’s equal protection clause. However, the court decided that the state’s education clause which required the state to create a “thorough and efficient” public education system was unconstitutional.

18. In other words, NJ’s school finance structure that allowed for wide disparities in spending per pupil that were strongly linked to local property wealth per pupil was not a “thorough and efficient” system and the state legislature was ordered to design a new system that would allow schools to provide “educational opportunities that will prepare (the student) for his role as citizen and as competitor in the labor market.” What does this language sound like ?

19. A footnote to the Robinson case – the legislature procrastinated on designing and funding a new finance system that would be accepted by the court. In 1976, the NJ Supreme Court shut down the entire NJ school system. In response the legislature designed a new school finance structure, enacted a new tax system that included a new state income tax, and provided local property tax relief.

20. Serrano v. Priest, Part 2 (California, 1976) – The lower court that heard Part 1 of Serrano ruled that California’s equal protection clause had been violated. The state appealed and the California Supreme Court ruled that the state constitution granted rights beyond those specified in the US Constitution, which menat that the Rodrigues case was not determinative of the outcome in Serrano Part 2. The court held that the education was a fundamental right under the California Constitution and that per- pupil property wealth was a suspect classification. Therefore what test was applied in this case ?

21. A footnote to Serrano, Part 2 – The California legislature devised an adequate finance system but intended to recapture property taxes from wealthy districts and distribute them more equitably across the state. The voters of California, however, passed Proposition 13, which placed a constitutional limit on the property tax rate and the rate at which property taxes could increase. California’s equitable finance system was poorly funded. Proposition 13 rippled across the country and was viewed as a taxpayer revolt.

22. Adequacy As courts began to consider adequacy arguments, courst had to consider the following: Education clauses requiring more than just an education system - Various courts have reached different conclusions regarding whether the education cluase places an “affirmative duty” on the legislature to create an education system of a certain quality. In 1985 the NJ Supreme court ruled that the constitution ensured higher-education attainment for low-income and minority students in the state’s property –poor an low-income central-city school districts !

23. The historical meaning of the education clause – can provide a court with insight into the poprer interpretations of the clause. Cases are decided on how the court interprets what the constitutional framers had in mind about a variety of issues, including the nature of the state education system, the type of school finance structure that would support it, and whether those notions are relevant to current school finance issues. How does the date of the last state constitution affect these interpretations ?

24. Substantive demands of the education clause – If court determine that its constitution requires the state to provide some quality of education above the bare minimum, the court must determine precisely what the constitution requires – which will require courts to apply modern concepts in the interpretation of the substantive demands of the education clause – essentially the court ends up defining “adequacy.”

25. Rose v. Council for Better Education, Inc. (Ky. 1989) – The Ky. Supreme Court not only overturned the state’s school finance system, but also declared the entire state education system unconstitutional, including its curriculum, governance, and management. Many of the programmatic elements this decision mandated (and was implemented into law by the Ky. Ed. Reform Act) became the core of standards-based education reform and the basis for a definition of adequacy.

26. Generally speaking state appeal courts have left the specifics of adequacy to the state legislature – which has created conflict in several states – but some courts (e.g., the NJ Supreme Court) created their own specific definition of what adequacy means. Does adequacy require equal outcomes ? Most legal analysts argue that adequacy means a level of resources for a district or school that would allow it to provide the type of program in which each student has an equal opportunity to achieve to high standards.