Kimbrell v. McCleskey

• Decision Date: 29 November 2012
• Docket Number: No. 11–1289.,11–1289.
• Citation: 2012 Ark. 443,424 S.W.3d 844
• Court: Arkansas Supreme Court
• Parties: Thomas W. KIMBRELL, Commissioner of the Arkansas Department of Education, in his official capacity only; The Arkansas Department of Education; and Martha Shoffner, Treasurer of the State of Arkansas, in her official capacity only, Appellants v. Bob Allen McCLESKEY, individually and as a Representative of all similarly situated Taxpayers who Pay Ad Valorem School Taxes for the Support of the Fountain Lake School District; The Fountain Lake School District; Rusty Windle, individually and as a Representative of all similarly situated Taxpayer s who Pay Ad Valorem School Taxes for the Support of the Eureka Springs School District; and The Eureka Springs School District, Appellees.

2012 Ark. 443

424 S.W.3d 844

Thomas W. KIMBRELL, Commissioner of the Arkansas Department of Education, in his official capacity only; The Arkansas Department of Education; and Martha Shoffner, Treasurer of the State of Arkansas, in her official capacity only, Appellants

v.Bob Allen McCLESKEY, individually and as a Representative of all similarly situated Taxpayers who Pay Ad Valorem School Taxes for the Support of the Fountain Lake School District; The Fountain Lake School District; Rusty Windle, individually and as a Representative of all similarly situated Taxpayer s who Pay Ad Valorem School Taxes for the Support of the Eureka Springs School District; and The Eureka Springs School District, Appellees.

No. 11–1289.

Supreme Court of Arkansas.

Nov. 29, 2012.

Dustin McDaniel, Att'y Gen., by: Scott P. Richardson, Ass't Att'y Gen., for appellants.

Hatfield & Sayre, by: Eugene G. Sayre, Little Rock, for appellees.

PAUL E. DANIELSON, Justice.

Appellants Thomas W. Kimbrell, Commissioner of the Arkansas Department of Education, in his official capacity only; the Arkansas Department of Education; and Martha Shoffner, the Treasurer of the State of Arkansas, in her official capacity only (hereinafter collectively, “ADE”), appeal from the circuit court's judgment enjoining ADE from seeking repayment of any portion of the twenty-five-mill uniform rate of tax (URT) revenues levied and assessed for purposes of school funding from appellees Bob Allen McCleskey, individually and as a representative of all similarly situated taxpayers who pay ad valorem school taxes for the support of the Fountain Lake School District; the Fountain Lake School District; Rusty Windle, individually and as a representative of all similarly situated taxpayers who pay ad valorem school taxes for the support of the Eureka Springs School District; and the Eureka Springs School District (hereinafter collectively, “the School Districts”). In addition, the order enjoined ADE from “levying, assessing, withholding, or setting off [monies belonging to the School Districts for the repayment of any portion of the twenty-five-mill URT revenues required for school funding] from or against any state or federal monies” owed to the districts and incorporated the circuit court's findings of fact and conclusions of law, which were entered that same day. ADE further appeals from the circuit court's order of January 20, 2012, in which the circuit court declined to hold ADE in contempt and clarified its prior judgment, stating that its injunction applied to any amounts that were currently being set off and withheld by ADE and ordering ADE to pay those amounts to the School Districts.

ADE asserts two points on appeal: (1) that the circuit court erred in its finding that ADE was not authorized by the legislature to recoup and redistribute any UTR revenues received from the School Districts that were in excess of the foundation-funding amount; and (2) that the circuit court erred in finding that ADE lacked the authority to withhold monies from the School Districts where they had submitted deficient budgets that erroneously budgeted as ongoing revenue the amounts of URT revenue in excess of the foundation-funding amounts. The School Districts cross-appeal, urging that the circuit court erred in finding that the revenues generated by the URT were state-tax revenues. We affirm on direct appeal and reverse and remand on cross-appeal.

The instant appeal stems from issues involving the current school-funding system and the disbursement of URT revenues to Arkansas's public-school districts. On May 10, 2011, the School Districts filed their complaint for declaratory judgment and injunctive relief, in which they sought a declaration that any attempt by ADE to demand URT revenues in excess of the foundation-funding amount from the School Districts was illegal and unconstitutional. They contended that the twenty-five-mill URT, which is mandated by Ark. Const. amend. 74, is a special, local-ad valorem-school tax, rather than a state tax, in the amount of twenty-five mills that must be levied and collected and may only be used by these school districts for the maintenance and operation of each school district's schools. The School Districts further sought injunctive relief, enjoining ADE from making such demands for these funds or withholding other funds due to ADE's position that it was entitled to the excess funds.

ADE moved to dismiss the School Districts' complaint. In its motion, ADE asserted that the School Districts had received more revenue from the twenty-five-mill URT than necessary to fund the foundation-funding amount for the districts due to the strong tax base in those districts. ADE claimed that it was unconstitutional for the State to allow the tax base of the districts to determine the amount of support they would receive, and therefore, ADE was required to take action to correctthe increase in foundation funding that the districts received. For this reason, ADE maintained, its motion to dismiss the School Districts' complaint should be granted.

The School Districts subsequently filed a motion for preliminary injunction, wherein they requested an injunction directing ADE to cease and desist from any attempt to have the School Districts pay to ADE the monies they received in excess of the foundation-funding amount or any attempt to set off amounts otherwise due to the districts. ADE responded to the motion, stating that the School Districts' alleged monetary harm failed to demonstrate irreparable harm and that the School Districts did not demonstrate a likelihood of success on the merits.

In addition, the School Districts filed a response to ADE's motion to dismiss, asserting that “the ‘special local ad valorem school taxes' (25 mill URT) levied, generated and collected locally for these two (2) School Districts have nothing to do with the amount of foundation funding, which was set statutorily by the General Assembly for the 2010–2011 school year, save and except that the amount of such foundation funding represents the ‘minimum amount’ of monies that the state must assure that all school districts in the State of Arkansas have available for the maintenance and operation of the respective schools.” They denied receiving any overpayment and asserted that the “special local ad valorem school tax” was a local-ad valorem tax and not a state-ad valorem tax, which was constitutionally prohibited.

On September 12, 2011, the circuit court held a hearing on both motions, and on September 20, 2011, the circuit court entered its findings of fact and conclusions of law and its separate order of judgment. In its findings of fact and conclusions of law, the circuit court concluded that the revenues generated from the twenty-five-mill URT were state-tax revenues and not local-tax revenues. In addition, it found that the excess monies were not an overpayment and that there was no legislative authority for ADE to make demands on the School Districts. In its judgment, the circuit court treated the motions as ones for summary judgment and enjoined ADE from undertaking any action against the School Districts seeking repayment of the monies they had received as URT revenues. It further enjoined ADE from withholding or setting off those amounts received in excess of the foundation-funding amount from other monies to which the School Districts were entitled, and it rendered the injunctions in force and effect until the General Assembly passes legislation authorizing ADE to take such measures. Both ADE and the School Districts filed notices of appeal from the circuit court's orders.

On November 8, 2011, the School Districts moved to have the circuit court hold ADE in contempt of court for failing to send to the districts “ all amounts of state or federal funds that have been ‘withheld’ or ‘setoff’ ” by ADE. ADE filed a motion for stay of the circuit court's injunctions, and it responded to the contempt motion, asserting that the motion should be dismissed. The circuit court held a hearing on the motion for contempt on January 17, 2012. At the hearing, the circuit court denied ADE's motion for stay and declined to hold ADE in contempt. It then entered its order, in which it clarified its previous judgment, stating that

by the language of paragraph 8 of the Judgment entered herein on September 20, 2011, that no categorical funding amounts would be withheld by the ADE defendants from these two school districts that should have been paid during the 2010–11 school years.It further ordered ADE to pay and release to the School Districts the contested amounts by 12:00 p.m., January 20, 2012, unless ADE requested a stay from this court.¹ ADE filed an amended notice of appeal, and on February 6, 2012, the circuit court denied the School Districts' previously made motion for reconsideration of the circuit court's ruling on their motion for contempt. Both parties now appeal.

I. Direct Appeal

A. Authority of ADE to Recoup and Redistribute Excess Monies

For its first point on appeal, ADE argues that the circuit court erred in its finding that ADE was not authorized by the General Assembly to recoup and distribute to other school districts any UTR revenues from the School Districts that were in excess of the statutory foundation-funding amount. It urges that the URT is a state tax producing state revenue and that it is unconstitutional for the State to provide state revenue to a school district based solely on the properly wealth of the district. Contending that the School Districts are receiving a bonus based solely on the value of the property in their districts when they receive the total amount of revenues, which exceeds the foundation-funding amount, ADE asserts that the bonuses are inequitable and therefore unconstitutional. ADE maintains that the state's education-funding statutes cannot be read to provide excess foundation funding to the School Districts based simply on their...