Relying on a unique state constitutional provision that prohibits using any specific state tax for a particular “dedicated” purpose, a Superior Court judge in Alaska ruled last month that a state mandate requiring local municipalities to make education funding payments directly to their respective school districts violated the state constitution.

Early in 2014, Ketchikan Gateway Borough, a local municipality had filed a lawsuit challenging the state’s required local contribution (the “RLC”) as unconstitutional in violation various sections of the Alaska Constitution.  In Alaska, the state is constitutionally mandated to “establish and maintain a system of public schools.”  Under Alaska’s statutory system for funding public education, the state state education department apportions funds from the Public Education Fund funded by the legislature to school districts based on the districts’ “Basic Need,” which is a statutorily determined amount of money necessary to ensure equity amongst districts by taking into account factors that make funding education more or less  costly in a given district.  A district’s Basic Need is satisfied by a combination of three funding sources: state aid, a required local contribution, and federal aid. While state aid distributed from the Fund is subject to reduction if there is not enough money in the Fund to make full payments, the local municipalities’ RLC payments must be made in full directly to the districts.  Municipalities that fail to do so risk losing all of their state aid.

The result of this system, according to the plaintiffs in the case, is that regardless of how much the legislature (or the governor using his veto powers) reduced state aid to districts, municipalities were “being forced to make up the difference” by making RLC payments sufficient enough to satisfy their school districts’ Basic Need.  This funding scheme left many municipalities cash strapped and forced to raise additional funds to supplement the amounts raised by their property taxes.  The Borough here alleged that this system caused it to “suffer devastating fiscal harm.”

The court upheld the Borough’s motion for summary judgment, finding that the RLC violated the state’s “anti-dedication clause.”  Of particular concern to the court was that there was “one unit of government (the municipal district) raising funds at the direction of another unit of government (the State) and paying those funds to a public institution (the municipal district’s schools).”  Despite the state’s protests to the contrary, the court found the state constitution plainly required that “all revenues shall be deposited in the state treasury without allocation for special purposes” and that the RLC was not exempt from this requirement.   The court rejected the borough’s unjust enrichment claim against the state because, among other things, the RLC funds “never passed through state coffers.”  And, according to the court, the state is not constitutionally required to fully fund public schools.  Thus, the court reasoned, “if the state has no duty to fully fund public schools and requiring a local contribution violates no constitutional provision beyond the dedicated funds clause, then payment of the RLC does not provide the state a tangible benefit.”