Gannon v. State, 113,267.

• Decision Date: 11 February 2016
• Docket Number: No. 113,267.,113,267.
• Citation: 368 P.3d 1024
• Parties: Luke GANNON, by his next friends and guardians, et al., Appellees, v. STATE of Kansas; Ron Estes, in his individual capacity and in his official capacity as Kansas State Treasurer ; and Jim Clark, in his official capacity as Secretary of the Kansas Department of Administration, Appellants.
• Court: Kansas Supreme Court

368 P.3d 1024

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

v.STATE of Kansas; Ron Estes, in his individual capacity and in his official capacity as Kansas State Treasurer ; and Jim Clark, in his official capacity as Secretary of the Kansas Department of Administration, Appellants.

No. 113,267.

Supreme Court of Kansas.

Feb. 11, 2016.

Stephen Phillips, assistant attorney general, was on the brief for appellant Ron Estes.

Daniel J. Carroll and Philip R. Michael, of the Kansas Department of Administration, and Tim Keck and Brant Laue, of the Governor's office, were on the briefs for appellant Jim Clark.

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

Tristan L. Duncan and Zach Chaffee–McClure, of Shook, Hardy & Bacon L.L.P., of Kansas City, Missouri, were on the brief for amicus curiae Shawnee Mission Unified School District No. 512.

PER CURIAM:

This is a school finance case concerning Article 6 of the Kansas Constitution, which imposes a duty on the legislature to "make suitable provision for finance of the educational interests of the state." Kan. Const. art. 6, § 6 (b). In Gannon v. State, 298 Kan. 1107, 1163, 319 P.3d 1196 (2014) (Gannon I ), we confirmed that Article 6 contains both adequacy and equity requirements. It necessitates that the legislature provide enough funds to ensure public school students receive a constitutionally adequate education and that the funds' distribution does not result in unreasonable wealth-based disparities among districts.

On remand from Gannon I, a three-judge district court panel made various rulings, from which the State of Kansas now appeals. Paramount among them is a holding the State failed to comply with our directive on equity articulated in that March 7, 2014, opinion. There we affirmed the panel's 2013 holding that the State had failed to meet the constitutional equity requirement when it eliminated capital outlay state aid payments and prorated supplemental general state aid payments—to which school districts were statutorily entitled—beginning in fiscal year 2010. 298 Kan. at 1175, 1182, 319 P.3d 1196. And we ordered the panel to ensure these inequities were cured on remand after it applied our more clearly defined equity standard. 298 Kan. at 1198–99, 319 P.3d 1196. Also before the panel on remand were issues related to the adequacy component of Article 6. See 298 Kan. at 1172, 1199–1200, 319 P.3d 1196. Those holdings are not before the court at this time.

On remand, and based upon early enactments and the State's representations concerning its commitment to resolve the inequities outlined by this court, the panel initially determined that the State had complied with Gannon I's equity directive during the ongoing 2014 legislative session by fully funding the capital outlay state aid and supplemental general state aid formulas as then existing. But the panel retracted its determination after the 2015 legislature amended those funding formulas for fiscal year 2015 (that had begun July 1, 2014) and repealed the existing school funding system, i.e., the School District Finance and Quality Performance Act (SDFQPA)—including the 2015 revised aid formulas—for fiscal years 2016 (beginning July 1, 2015) and 2017 (beginning July 1, 2016).

For fiscal year 2015, the 2015 legislature's amended aid formulas resulted in approximately $54 million of reductions to these statutory entitlements. With the repeal of the amended formulas for fiscal years 2016 and 2017, funding for both types of aid simply was frozen at the reduced 2015 amounts. As a result, the panel held the State was no longer in compliance with the Gannon I directive. It ordered relief that, among other things, effectively restored this funding to the levels calculated under the prior formulas.

To enforce its remedies, the panel sua sponte ordered the Plaintiffs—U.S.D. No. 259, Wichita; U.S.D. No. 308, Hutchinson; U.S.D. No. 443, Dodge City; and U.S.D. No. 500, Kansas City—to join various state officials as additional parties to the litigation. Consequently, State Treasurer Ron Estes and then-Secretary of Administration Jim Clark were joined in their official and personal capacities, with Secretary Clark later being dismissed in his personal capacity.

The parties now raise five issues among them. Estes and Clark contend they should be dismissed from the litigation, while the Plaintiffs argue they are entitled to attorney fees. The State argues (1) the panel had no authority to review the law changing the entitlements for fiscal years 2016 and 2017; (2) the panel erred in concluding the equity infirmities identified in Gannon I had not been cured; and (3) the panel imposed an improper and unconstitutional remedy.

We reorganize the parties' arguments and hold:

1. The panel unnecessarily ordered the State officials to be joined as parties. Accordingly, Estes and Clark are dismissed in their official capacities and Estes is dismissed in his personal capacity.

2. The panel had the authority to review the law changing the entitlements for fiscal years 2016 and 2017.

3. The panel properly concluded the State failed to cure the inequities affirmed to exist in Gannon I.

4. The Plaintiffs are not entitled to attorney fees.

5. The panel's remedy was premature, and we decline to enforce it.

Each of these holdings will be explained below.

FACTS

In Gannon I, we set forth a brief overview of public education funding to give context to the history of the litigation, the panel's holdings, and the parties' arguments. With the same goals in mind, we review the factual background relevant to our holdings here.

School funding under the SDFQPA

For more than 20 years, the SDFQPA established the formula and mechanism through which most funds for K–12 public education were obtained by Kansas school districts. See K.S.A. 72–6405 et seq. The formula provided a fixed amount of funding for each student through "base state aid per pupil," also known as BSAPP. K.S.A. 2014 Supp. 72–6410(b)(1).

Under the SDFQPA, a district's full-time equivalent enrollment was adjusted by various weightings based on the recognition that the needs of some students require more resources for their education than others. Once a district's enrollment was adjusted per the weightings, that figure was multiplied by the BSAPP. The resulting product was the amount of "state financial aid" to which the district was entitled. K.S.A. 2014 Supp. 72–6407(f) ; K.S.A. 2014 Supp. 72–6410(a).

Before our opinion in Gannon I, funding for the BSAPP was derived from two main sources: "local effort" and "general state aid." The majority of school districts' local effort consisted of property tax funds, as each district was statutorily required to impose a 20–mill levy upon taxable tangible property in its territory. K.S.A. 2013 Supp. 72–6431. Because property values vary widely throughout the state, the amount of money each district could raise by the required mill levy also varied widely. So the State provided additional funds to less wealthy districts through general state aid. If a district's local effort funds equaled the amount of its entitlement to state financial aid, it received no additional money from the State, i.e., general state aid. And if a district's local effort funds exceeded its state financial aid entitlement, the excess was remitted to the State. For those districts qualifying for general state aid, their amount of this aid was what remained after their local effort funds were subtracted from their state financial aid entitlement. K.S.A. 72–6416 ; K.S.A. 2013 Supp. 72–6431(d).

After our Gannon I opinion was released on March 7, 2014, the 2014 legislature amended this process. The majority of funding still came from each district's required 20–mill tax levy. But instead of allowing each district to keep the proceeds from its local mill levy and remit any amount above its state financial aid entitlement to the State, the 2014 legislature required all of the proceeds to be remitted to the State. K.S.A. 2014 Supp. 72–6431(c). Each district's general state aid entitlement was then determined by first considering how much money it received from other state financing sources, which included certain unexpended and unencumbered balances remaining in a school district's general fund or program weighted funds, any tuition received from nonresident students, special education state aid, motor vehicle tax receipts, mineral production tax receipts, industrial revenue bonds, grants, and a percentage of federal impact aid. K.S.A. 2014 Supp. 72–6410(c). Then to the extent a district's state financial aid entitlement was not supplied by these other funding sources, the State provided general state aid to make up the difference. K.S.A. 2014 Supp. 72–6416(b).

State financial aid comprised most of the funding available for K–12 education. But the 2014 legislature continued to allow school districts to access additional financial assistance in several ways. Two of them remain at issue in this appeal.

First, under the SDFQPA, the legislature authorized local school boards to still impose an additional mill levy on property in its district to fund a local option budget (LOB) to augment the funds to be distributed through the BSAPP. K.S.A. 2014...