Gannon v. State

• Decision Date: 27 May 2016
• Docket Number: No. 113,267,113,267
• Citation: 372 P.3d 1181,304 Kan. 490
• Parties: Luke Gannon, by his next friends and guardians, et al., Appellees, v. State of Kansas, Appellant.
• Court: Kansas Supreme Court

304 Kan. 490

372 P.3d 1181

Luke Gannon, by his next friends and guardians, et al., Appellees,

v.State of Kansas, Appellant.

No. 113,267

Supreme Court of Kansas.

Opinion filed May 27, 2016.

Stephen R. McAllister, solicitor general, argued the cause, and Jeffrey A. Chanay, chief deputy attorney general, M.J. Willoughby, assistant attorney general, Dwight R. Carswell, assistant solicitor general, Bryan C. Clark, assistant solicitor general, and Derek Schmidt, attorney general, were with him on the brief for appellant State of Kansas; Arthur S. Chalmers, Gaye B. Tibbets, Jerry D. Hawkins, and Rachel E. Lomas, of Hite, Fanning & Honeyman, LLP, of Wichita, were with him on the brief for appellant State of Kansas.

Alan L. Rupe, of Lewis Brisbois Bisgaard & Smith LLP, of Wichita, argued the cause, and Jessica L. Skladzien and Mark A. Kanaga, of the same firm, and John S. Robb, of Somers, Robb & Robb, of Newton, were with him on the brief for appellees.

Per Curiam:

This case requires us to determine whether the State has met its burden to show that recent legislation brings the State's K–12 public school funding system into compliance with Article 6 of the Kansas Constitution. We hold it has not.

On February 11, 2016, we affirmed the holding of the three-judge district court panel that found changes made to the State's K–12 funding system through enactment of the Classroom Learning Assuring Student Success Act of 2015 (CLASS) violated the equity component of Article 6, § 6(b) of the Kansas Constitution. Gannon v. State , 303 Kan. 682, 746, 368 P.3d 1024 (2016) ( Gannon II ). Specifically, we determined the operation of capital outlay state aid and local option budget (LOB) supplemental general state aid, as formulated under CLASS, still allowed inequitable distribution of funding among school districts that we had held unconstitutional in Gannon v. State, 298 Kan. 1107, 319 P.3d 1196 (2014) (Gannon I ). 303 Kan. at 729–33, 368 P.3d 1024.

After affirming the panel's decision, we stayed our mandate “to give the legislature a second, and substantial, opportunity to craft a constitutionally suitable solution and minimize the threat of disruptions in funding for education.” Gannon II , 303 Kan. at 741, 368 P.3d 1024. In April 2016, lawmakers responded by passing Senate Substitute for House Bill No. 2655 (H.B. 2655). See L. 2016, ch. 45.

H.B. 2655 restores the prior formula for capital outlay state aid we identified as a permissible cure for the inequities found in that funding mechanism. Gannon II , 303 Kan. at 710–11, 368 P.3d 1024. But the new law, for the first time, also applies the same capital outlay aid formula to LOB supplemental general state aid. L. 2016, ch. 45, sec. 3. As conceded by the State, application of the capital outlay aid formula to LOB funding results in significant reductions in overall supplemental general state aid to the vast majority of school districts.

Because of this result, the new law includes a “hold harmless” provision creating a new “equalization aid” entitlement for the 2016–17 school year. L. 2016, ch. 45, sec. 1(a). Specifically, the law authorizes such equalization aid—to those districts receiving reduced funding under the new bill—in an amount equal to their loss. L. 2016, ch. 45, sec. 5. The new law also moves from the State Finance Council to the Kansas State Board of Education (State Board) an “extraordinary need fund” of approximately $15 million and permits the State Board's disbursement of those funds to further decrease disparity among the districts. L. 2016, ch. 45, secs. 1(e), 9.

We ordered both parties to brief whether the legislative action—H.B. 2655—remedied the inequities that Gannon II affirmed to exist in CLASS. Additionally, the parties were directed to discuss the proper judicial remedy if we ruled the new law failed to comply with our Gannon II decision.

In this remedial stage, the State asserts: (1) H.B. 2655 cures the inequities found in the capital outlay state aid by restoring and fully funding the capital outlay aid formula we previously held constitutional; (2) H.B. 2655 cures the inequities found in the LOB funding by applying the same capital outlay aid formula to supplemental general state aid. It additionally argues any remaining inequities in the LOB funding system are cured through operation of the hold harmless provision and extraordinary need fund; and (3) If H.B. 2655 fails to cure the inequities we found in CLASS, the proper remedy is severing the offending provisions and allowing the remainder of CLASS to operate throughout the 2016–17 school year.

Plaintiffs do not contest the State's first argument. They do, however, assert that H.B. 2655 worsens, rather than cures, the inequities in LOB funding affirmed to exist in Gannon II. They further argue that we should not sever any offending provisions but hold the entirety of H.B. 2655 unconstitutional, lift our stay of the panel's extensive remedial orders, and grant them attorney fees.

After careful consideration of the legislative record and arguments from both sides, we hold the following:

1. H.B. 2655 cures the capital outlay inequities affirmed to exist in Gannon II.

2. H.B. 2655, which includes the hold harmless and extraordinary need provisions, fails to cure the LOB inequities affirmed to exist in Gannon II.

3. The unconstitutional LOB funding mechanism is not severable from CLASS, the general statutory scheme for K–12 public school finance, thus making CLASS unconstitutional.

4. The panel's remedial orders remain stayed, and jurisdiction of this case is retained by this court.

5. The plaintiffs are not entitled to attorney fees.

Each of these holdings will be explained below.

Facts

The procedural and factual history of this case was extensively outlined in both Gannon I and Gannon II. See Gannon I , 298 Kan. at 1112–18, 319 P.3d 1196 ; Gannon II , 303 Kan. at 686–98, 368 P.3d 1024. Accordingly, we limit this section only to those facts necessary to our holding.

The School District Finance and Quality Performance Act (SDFQPA), K.S.A. 72–6405 et seq ., was the comprehensive statutory plan for K–12 public school finance in Kansas at the outset of the underlying lawsuit filed in 2010. See Gannon II , 303 Kan. at 686, 368 P.3d 1024. The basic source of funding within the SDFQPA was provided by the State through “general state aid” entitlements funded by a required 20–mill levy for each district. K.S.A. 2014 Supp. 72–6431. Each district's general state aid was calculated by multiplying a dollar amount known as “base state aid per pupil” (BSAPP) by the district's population of enrolled students. K.S.A. 2014 Supp. 72–6410. Full-time enrollment was weighted by factors recognized to increase the cost of education per pupil, e.g ., number of special needs students. K.S.A. 2014 Supp. 72–6407 ; K.S.A. 2014 Supp. 72–6410.

In addition to this basic payment, the legislature allowed districts “local effort” revenue-raising authority to fund capital outlay expenditures and an LOB. K.S.A. 2014 Supp. 72–8801 ; K.S.A. 2014 Supp. 72–6433. In general, both were funded through optional additional mill levies on property in the district. See Gannon II , 303 Kan. at 687–88, 368 P.3d 1024. The legislature capped the additional levies for capital outlay expenses at 8 mills per district, while the revenues produced by the additional LOB mill levy could not exceed an amount equal to a set percentage—currently 33%, historically as low as 25%—of a district's general state aid. K.S.A. 2014 Supp. 72–8801 ; K.S.A. 2014 Supp. 72–6433. Districts could use capital outlay funds only for limited purposes, e.g ., improvements such as building construction and maintenance, equipment purchases, and other authorized investments. K.S.A. 2014 Supp. 72–8804. On the other hand, LOB funds had few restrictions and districts could use them to supplement their general state aid. K.S.A. 2014 Supp. 72–6433.

Because of the dissimilarities among the overall property values of the 286 school districts, these local revenue-raising programs created inequities in the amount of funds districts could generate and the tax effort required to do so. A district with high property value, for example, implementing the maximum 8–mill levy, generated more capital outlay funds than a property-poor district doing the same. Similarly, a property-wealthy district fully funding a 15% LOB could do so with less tax effort, i.e. , a lower mill levy, than a district with lower property values. See Gannon I , 298 Kan. at 1175–88, 319 P.3d 1196.

To remove these disparities, the legislature implemented programs through SDFQPA intended to equalize property-poor districts' local revenue-raising authority. The State Board calculated an assessed valuation per pupil (AVPP) for each district in the State by dividing the total assessed property value of a district by its schools' enrollment population. The State Board ranked all the districts by their AVPP—from low to high. K.S.A. 2014 Supp. 72–8814 ; K.S.A. 2014 Supp. 72–6434. This AVPP schedule was then utilized in two distinct formulas to calculate what was commonly called “equalization aid” for the capital outlay and LOB funding. See Gannon I , 298 Kan. at 1180, 1185, 319 P.3d 1196.

For capital outlay, a “state aid percentage factor” for each district was established at 25%. This factor increased 1% for every $1,000 a district fell below the median AVPP with a cap of 100%, and decreased 1% for every $1,000 it rose above the median. The resulting percentage factor was then multiplied by the district's total capital outlay mill levy revenue, and the product was provided to the district as capital outlay state aid. K.S.A. 2014 Supp. 72–8814 ; Gannon I , 298 Kan. at 1176, 319 P.3d 1196.

For the LOB, the State Board multiplied the amount of a district's LOB-generated revenue by a ratio—obtained from dividing the district's AVPP by the one located at the 81.2 percentile of the AVPP schedule and then subtracting the quotient from 1. The resulting ...