Island County Committee on Assessment Ratios v. Department of Revenue, 41879

• Decision Date: 07 September 1972
• Docket Number: No. 41879,41879
• Citation: 81 Wn.2d 193,500 P.2d 756
• Parties: ISLAND COUNTY COMMITTEE ON ASSESSMENT RATIOS et al., Respondents, v. DEPARTMENT OF REVENUE et al., Appellants.
• Court: Washington Supreme Court

Page 193

81 Wn.2d 193

500 P.2d 756

ISLAND COUNTY COMMITTEE ON ASSESSMENT RATIOS et al., Respondents, v. DEPARTMENT OF REVENUE et al., Appellants.

No. 41879.

Supreme Court of Washington, En Banc.

Sept. 7, 1972.

Schweppe, Doolittle, Krug & Tausend, David G. Knibb, Seattle, for appellants.

Slade Gorton, Atty. Gen., Timothy R. Malone, Olympia, for respondents.

NEILL, Associate Justice.

Plaintiffs consist of individuals, an association of taxpayers, parents of school children and officials of 12 school districts in two counties of the state. By this action, they challenge certain statutory provisions and practices followed by the Department of Revenue and the Superintendent of Public Instruction relating to the computation of state aid to local school districts under the basic school and apportionment formula of RCW 28A.41.130. That statute reads in relevant part:

From those funds made available by the legislature for the current use of the common schools, . . . the state superintendent of public instruction shall distribute annually as provided in RCW 28A.49.010 to each school district of the state operating a program approved by the state board of education, an amount which, when combined with the following revenues, will constitute an equal guarantee in dollars for each weighted student enrolled, based upon one full school year of one hundred eighty days:

(1) Eighty-five percent of the amount of revenues which would be produced by a levy of fourteen mills on the assessed valuation of taxable property within the school district adjusted to twenty-five percent of true and fair value thereof as determined by the state department of revenue's indicated county ratio . . . ¹

The provision of subsection 1 has been characterized by school officials as the 'assumed money' deduction, since it imposes and proceeds from the assumption that local revenues are being obtained at full capacity. To the extent that 85 per cent of the revenue which would have been realized by taxing property within a county at full taxing capacity based on current true and fair value exceeds the property tax revenues actually received, the deduction attributable to such difference is the 'assumed money' deduction. The concern of plaintiffs is with the effect that the statutory apportionment formula has upon the amount of state school funds to be distributed. The greater the excess of the amount of revenue that could be obtained by a school district if property therein were taxed on the basis of seven mills at 50 per cent of current true and fair value and the amount actually obtained under the county's assessment practices, the greater will be the money deducted under the above statutory formula that constitutes 'assumed but not actually collected revenue.'

The negative impact of the statutory 'assumed money' formula was diminished for purposes of 1970 allocations of state funds to school districts by a program of the Department of Revenue whereby 'ratio credits' were added to the computation. The 'ratio credit' (sometimes called 'bonus point') program adjusted the difference between a given county's indicated and stated ratios by means of a percentage or 'weighting' factor. The program was directly tied to the policy (uniformity) and provisions of RCW 84.41 (the 4-year cyclical revaluation statute). To be eligible for 'ratio credits,' the program requires that counties submit to the Department of Revenue and obtain approval therefrom of a revaluation program in conformity with RCW 84.41. Thirty-two counties were eligible and received 'ratio credits' for the 1970 distribution. The 'weighting' factors for that year were, for each eligible county, a function of the length of that county's revaluation program and of its progress toward completion. For example, counties for which 1970 was the second year of a 4-year revaluation program were 'weighted' at 50 per cent, those which were at the first year of a 4-year program were 'weighted' at 25 per cent, and a county which was at the first year of a 3-year revaluation program would be 'weighted' at 33 1/3 per cent. As a result of a 'weighting,' the indicated ratio is increased. Under RCW 28A.41.130(1), the higher the indicated ratio is for a particular county, the lower will be the deduction from and the higher will be the amount of state aid for school districts within that county.

Plaintiffs in this action contest the validity of both the 'ratio credit' program and the 'assumed money' deduction from state support of public schools under RCW 28A.41.130(1). The trial court enjoined the Department of Revenue's 'ratio credit' program, but upheld the constitutionality of the statute.

Defendants on appeal, and plaintiffs by cross appeal, assign error to these and other determinations of the trial court.

We deal first with defendants' assignments of error. The principal issue presented by these assignments pertains to the application by the Department of Revenue of 'ratio credits.' The trial court concluded that this program was invalid because: (1) the program is without legislative authorization; (2) even if generally authorized by the legislature, the program would be invalid as based upon an unconstitutional delegation of legislative authority since the legislature failed to promulgate adequate standards; (3) even if there were sufficient authorization and legislative standards, the program would be invalid as a 'rule' which had not been adopted pursuant to the rule-making procedures of the Administrative Procedure Act (RCW 34.04); and (4) the program 'in its present form' is arbitrary and capricious and a denial of equal protection in that it alters the allocation of state funds on a basis having no reasonable relationship to the right or privilege of school districts and the children thereof to otherwise receive appropriated state funds.

Subsequent to the entry by the trial court of its judgment and order, and while this appeal was pending, the legislature enacted Laws of 1971, 1st Ex.Ses., ch. 288, § 10 (uncodified) which reads:

The indicated county ratios determined by the department of revenue for 1970, as adjusted for the purposes of reflecting compliance with chapter 84.41 RCW, are hereby adopted, confirmed, and approved.

Thereupon the parties stipulated to a partial remand to permit the trial court to consider the effect of the intervening legislation. We granted the requested partial remand by order which stated in part 'that the bond for costs on appeal filed by cross-appellants in this cause shall be deemed to satisfy any requirement for a similar bond in any appeal which may be taken from the trial court's decision following this partial remand.' Upon remand the trial court ruled the statute unconstitutional on the same grounds of arbitrary, capricious, and unconstitutional nature stated in its original decision. Accordingly, the trial court granted plaintiffs' (cross-appellants') motion for an order confirming the injunction against use of 'ratio credits.'

Defendants did not file a separate notice of appeal from the trial court's action on remand. Plaintiffs now contend that this failure deprived this court of jurisdiction over the issue. Plaintiffs misread the above-quoted portion of this court's order. That portion was for the benefit of plaintiffs (cross-appellants) in that a separate cost bond would not be required should they become appellants on the issue by reason of a reversal by the trial court of its prior conclusion. It is incorrect to read the order as imposing additional procedural requirements upon the defendants, who had already perfected their appeal. The issue of 'ratio credits' is properly before us, including the impact thereon of Laws of 1971, 1st Ex.Sess., ch. 288, § 10.

Both the injunction in the original action and the intervening statute have reference to future distribution of state school funds. The enactment of section 10 effectively cured any preexisting difficulties regarding statutory authorization and administrative rule-making procedures. The question is whether the 'ratio credit' is inherently without reasonable relationship to the right or privilege of school districts to receive state funds, and therefore arbitrary, capricious and a denial of equal protection. The trial court so determined. We disagree.

Our constitution commands that 'The legislature shall provide for a general and uniform system of public schools.' Const. art. 9, § 2. The right of school districts to receive state funds derives from that constitutional mandate and from legislation enacted pursuant thereto. It is undeniable that a substantial portion of school funding in this state is obtained from local property tax revenues. We have recently upheld the constitutional requirement of uniformity in local property tax assessments. E.g., Snohomish County Board of Equalization v. Washington State Department of Revenue, 80 Wash.2d 262, 493 P.2d 1012 (1972); Carkonen v. Williams, 76 Wash.2d 617, 458 P.2d 280 (1969). A similar legislative recognition of the requirement of uniformity in real property taxation is expressed in RCW 84.41.010. Other provisions of that chapter establish a definite program for achieving the required uniformity. For present purposes, the important point is that the goals and approach of RCW 84.41 are directly related to the legislature's duty to provide for a 'uniform system of public schools' pursuant to Article 9 of our constitution. To recognize the relationship between the requirement of uniformity in real property taxation and the constitutional requirement that the legislature provide a uniform system of schools establishes, in our view, an amply reasonable relationship between a program which effectively encourages local real property tax uniformity and the right of local school districts to receive state funds. The right of school districts to receive state funds is necessarily qualified by the constitutional mandate that the...