On November 29, 2012, the Arkansas Supreme Court held that school districts can keep money they raise in excess of the state-mandated foundation funding level. McCleskey v. Kimbrell. Some lawmakers and advocates have expressed concern that the decision will undermine efforts to create a fairer school funding system, including reforms put in place to comply with the Court’s earlier ruling in Lake View School District, No. 25 v. Huckabee (2002).

After the Arkansas Supreme Court declared unconstitutional the state’s school funding system in Lake View, lawmakers devised a series of major reforms and taxes to ensure that the system met the court’s standards for adequacy and equity. Under that system, the state establishes a basic foundation funding level sufficient to provide all students an adequate education. All school districts must also levy a 25-mill property tax, and if the tax does not raise sufficient funds to meet the per-pupil foundation level, the state is obligated to make up the difference.

The McCleskey case was brought by two relatively affluent districts, Eureka Springs and Fountain Lake, in which the mandatory 25-mill tax rate raised more than the per-pupil foundation amount. These districts sued the Commissioner of the Arkansas Department of Education (DOE) for re-distributing the funds they had raised in excess of the state funding level — $825,000 and $1.4 million, respectively. The Arkansas DOE defended its actions as necessary, arguing that it was unconstitutional for a district’s property wealth to determine the amount of funding its schools receive, and thus the state had an obligation to redistribute the funds. A County Circuit court judge sided with the school districts, concluding that the state cannot withhold property tax money from local districts.

The Arkansas Supreme Court justices affirmed the lower court’s decision by a 4-3 majority, describing the property tax as a “one-of-a-kind tax” which, even though it was collected by the state, technically was a local tax that did not constitute state revenue. Writing in dissent, Chief Justice Jim Hannah asserted that the majority ruling “obliterated” the state’s “carefully crafted constitutional system of state-funded public education.” While the collections from property taxes exceeded the foundation funding amount in only six of the state’s 239 districts, Governor Mike Beebe warned that the case “opened the door for future governors and legislative bodies to do all sorts of things backtracking.”

Chief Justice Paul Danielson suggested in his majority opinion that “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.” Legislative leaders are considering passing a measure that gives the state the right to redistribute the funds, but Governor Beebe worries the approach could set a dangerous precedent for future legislators and governors to “change the essence” of constitutional mandates. On December 17, Attorney General Dustin McDaniel filed a petition with the Arkansas Supreme Court to rehear the case, and Governor Beebe filed a separate motion seeking permission to submit an amicus brief in support of the rehearing.

December 19, 2012