West Orange-Cove School Dist. v. Alanis, 03-01-00491-CV.

• Decision Date: 11 April 2002
• Docket Number: No. 03-01-00491-CV.,03-01-00491-CV.
• Citation: 78 S.W.3d 529
• Parties: WEST ORANGE-COVE CONSOLIDATED INDEPENDENT SCHOOL DISTRICT; Coppell Independent School District; La Porte Independent School District; and Port Neches-Groves Independent School District, Appellants, v. Felipe ALANIS, Texas Commissioner of Education; The Texas Education Agency; Carol Keeton Rylander, Texas Comptroller of Public Accounts; and The Texas State Board of Education; Alvarado I.S.D.; Anthony I.S.D., Aubrey I.S.D.; Bangs I.S.D.; et al., Appellees.
• Court: Texas Court of Appeals

78 S.W.3d 529

WEST ORANGE-COVE CONSOLIDATED INDEPENDENT SCHOOL DISTRICT; Coppell Independent School District; La Porte Independent School District; and Port Neches-Groves Independent School District, Appellants, v. Felipe ALANIS, Texas Commissioner of Education; The Texas Education Agency; Carol Keeton Rylander, Texas Comptroller of Public Accounts; and The Texas State Board of Education; Alvarado I.S.D.; Anthony I.S.D., Aubrey I.S.D.; Bangs I.S.D.; et al., Appellees.

No. 03-01-00491-CV.

Court of Appeals of Texas, Austin.

April 11, 2002.

COPYRIGHT MATERIAL OMITTED

George Walter Bramblett, Jr., Nina Cortell, Carrie L. Huff, Haynes & Boone, L LP, Dallas, W. Wade Porter, Austin, Mark R. Trachtenberg, Houston, for Appellants.

Jeffrey S. Boyd, Deputy Attorney General for Litigation, Toni Hunter, Chief, General Litigation Division, Austin, Albert H. Kauffman, Nina Perales, Leticia M. Saucedo, Joseph P. Berra, San Antonio, Randall B. Wood, Doug W. Ray, Ray, Wood, Fine & Bonilla, L.L.P., Austin, for Appellees.

Before Chief Justice ABOUSSIE, Justices B.A. SMITH and PURYEAR.

BEA ANN SMITH, Justice.

Four school districts led by West Orange-Cove Consolidated Independent School District (West Orange-Cove) appeal the dismissal of their action seeking a declaratory judgment that the present school finance system is unconstitutional.¹ The interested parties include Felipe Alanis,² Commissioner of Education, the Texas Education Agency, the Comptroller of Public Accounts, and the Texas State Board of Education (collectively "the State"), and two groups of intervening school districts, collectively the Alvarado intervenors and the Edgewood intervenors, who are generally aligned with the State. We will affirm the judgment of the trial court.

BACKGROUND

The current educational financing system was crafted in response to several federal and state constitutional challenges to the long-standing school financing plan and to the initial attempts to correct the identified constitutional infirmities. The first attacks were brought in federal court;³ ultimately, however, the challenges have been pursued through the state courts. In 1989, the Texas Supreme Court held the school finance system unconstitutional because it violated the following constitutional mandate: "A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools." Edgewood Indep. Sch. Dist. v. Kirby, 777 S.W.2d 391, 393 (Tex.1989) (Edgewood I) (citing Tex. Const. art. VII, § 1). The basis of the court's holding were the gross disparities among the schools throughout the state caused by the system's heavy reliance on local property taxes to provide educational funds. Id. at 392-93. At the time of the Edgewood I decision, local ad valorem taxes accounted for half of all available educational funds. Id. at 392.⁴ As the amount of revenue that can be raised by property taxes depends on the property wealth within each district, there were staggering differences between the state's poorest and wealthiest districts. Id.

The wealthiest district has over $14,000,000 of property wealth per student, while the poorest has approximately $20,000; this disparity reflects a 700 to 1 ratio. The 300,000 students in the lowest-wealth schools have less than 3% of the state's property wealth to support their education while the 300,000 students in the highest-wealth schools have over 25% of the state's property wealth; thus the 300,000 students in the wealthiest districts have more than eight times the property value to support their education as the 300,000 students in the poorest districts.

Id.

Stating that the purpose of an "efficient system" as that term is used in the constitution was to provide for a "general diffusion of knowledge," id. at 396, the court noted that the then-present system "provides not for a diffusion that is general, but for one that is limited and unbalanced," id. "The resultant inequalities," the court concluded, "are thus directly contrary to the constitutional vision of efficiency." Id. In addition, the court found that the system was financially inefficient because property-rich districts could generate substantial revenues at low tax rates, while property-poor districts had to tax at high rates "merely to spend low." Id. at 393. The low rates of property-rich districts also allowed valuable sources of the available tax base to be underutilized; thus, additional revenues were consistently lost to the system. Id. The court noted that many wealthy districts had become "tax havens" and that "if forced to tax at just average tax rates, these districts would generate additional revenues of more than $200,000,000 annually for public education." Id. The court held that the system violated the Constitution because it was "neither financially efficient nor efficient in the sense of providing for a `general diffusion of knowledge' statewide," and exhorted the legislature to fulfill its obligation to provide an efficient system. See id. at 397.

The first legislative attempt to do so failed. In Edgewood II, the court struck down the legislation, holding that the system remained in violation of section one of article VII. Edgewood Indep. Sch. Dist. v. Kirby, 804 S.W.2d 491, 498 (Tex.1991) (Edgewood II). The court noted that while the legislation had made some reforms to the system, it left intact the same funding scheme "with the same deficiencies we reviewed in Edgewood I." Id. at 495. "Even if the approach of Senate Bill 1 produces a more equitable utilization of state educational dollars, it does not remedy the major causes of the wide opportunity gaps between rich and poor districts." Id. at 496. The court noted that the proposed system

does not change the boundaries of any of the current 1052 school districts, the wealthiest of which continues to draw funds from a tax base roughly 450 times greater per weighted pupil than the poorest district. It does not change the basic funding allocation, with approximately half of all education funds coming from local property taxes rather than state revenue. And it makes no attempt to equalize access to funds among all districts.

Id. The court reiterated that "[t]o be efficient, a funding system that is so dependent on local ad valorem property taxes must draw revenue from all property at a substantially similar rate." Id. Emphasizing that "'[a] Band Aid will not suffice; the system itself must be changed,'" id. at 498 (quoting Edgewood I, 777 S.W.2d at 397), the court held that the proposed scheme continued to violate article VII, section one, id.

The Legislature's next attempt to craft an "efficient" system ran into an independent constitutional obstacle. In Edgewood III, the court reviewed a challenge that was based not on the ground that the legislative design was inefficient,⁵ but rather on the ground that it imposed a state ad valorem tax in violation of article VIII, section 1 e. Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489, 502 (Tex.1992) (Edgewood III) ("while the Legislature has some latitude in the manner it chooses to discharge its duty to establish and maintain an efficient public school system, it cannot go so far as to violate another constitutional provision in attempting to comply with article VII, section 1."). In an attempt to ameliorate disparities while retaining the historical dependence on local ad valorem taxes, the legislation created 188 county education districts, or "CEDs," which were composed of school districts. Id. at 498. The CEDs had no educational duties; rather, the CEDs were created to perform what had heretofore been the districts' responsibility to administer local ad valorem taxes. Id. The CEDs had little discretion in fulfilling this duty. The CEDs did not determine their own tax rates but instead "lev[ied], collect[ed], and distribute[d] property taxes as directed by the Legislature." Id.

The state constitution generally authorizes local ad valorem taxes, which are taxes in proportion to the property's value, but when the State imposes an ad valorem tax, it violates article VIII, section 1-e. See Tex. Const. art. VIII, §§ 1(b); 1-e. Various school districts and individual citizens complained that the scheme constituted a state ad valorem tax because the CEDs' lack of discretion meant that the State effectively levied the tax. Edgewood III, 826 S.W.2d at 500. The court agreed, emphasizing the indicia of state rather than local control over the ad valorem tax:

Senate Bill 351 mandates the tax CEDs levy. No CED may decline to levy the tax. The tax rate for all CEDs is predetermined by Senate Bill 351. No CED can tax at a higher rate or a lower rate under any circumstances. Indeed, the very purpose of the CEDs is to levy a uniform tax statewide.

Id. In holding that this CED scheme constituted an unconstitutional ad valorem tax, the court set forth the following test:

An ad valorem tax is a state tax when it is imposed directly by the State or when the State so completely controls the levy, assessment and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion. How far the State can go toward encouraging a local taxing authority to levy an ad valorem tax before the tax becomes a state tax is difficult to delineate. Clearly, if the State merely authorized a tax but left the decision whether to levy it entirely up to local authorities, to be approved by the voters if necessary, then the tax would not be a state tax. The local authority could freely choose whether to levy the tax or not. To the other extreme, if the State mandates the levy of a tax at a set rate and prescribes the distribution of the proceeds, the tax is a state tax, irrespective of...