IN THE SUPREME COURT OF THE STATE OF OKLAHOMA, Independent School District #89 of Oklahoma County STATE OF OKLAHOMA, } ma ae MICHAEL S. RICHIE CLERK HLA484 4 BRIEF IN SUPPORT OF APPLICATION TO ‘ASSUME ORIGINAL JURISDICTION AND. PETITION FOR WRIT. (OF MANDAMUS,IN THE SUPREME COURT OF THE STATE OF OKLAHOMA, Independent School Distict #89 of Oklahoma County lependent School District #57 of Garfield lependent School County (Midwest City-Del City); Independent School District Case No, BRIEF IN SUPPORT OF ‘APPLICATION TO ‘ASSUM NAL SURISDICTION AN PETITION FOR WRIT OF MANDAMUS, (Muskogee); Elementary County (North Rock Cret of Kay County (Newkirk ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )Paget) INDEX 70 OS. § 1810.11) on seven 10S. §18:17 123 TOS. § B118(C) ron . 2 I. THIS COURT SHOULD ASSUME ORIGINAL JURISDICTION State ex rel Dept of Transp.» Post, 2005 OK 69, 125 P.3d 1183. ‘State ex rel. Indep. School Dist. No. 1». Barnes, 1988 OK 70, 762 P.24 921 34 State ex ret. Tulsa Classroom Teacher's Ass'n, ne. ». Board of Ea Tulsa Coury, 1979 OK 129, 600 P24 861 3 ‘Okla. Const. Art. 7, § 4 3 TOS. §18-109.1(1) : 4 DOS. § 18-117, - so sl DOS. § 181180)... 4 I THE OKLAHOMA PUBLIC SCHOOL FINANCING SYSTEM. s Fair School Finance Council of Oklahoma, ine. v. State 1987 OK 114, 746P.24 1135, s Okla. Const. Art. 1 §5 on s (Okla. Const. At. 13,§1 sn s Locally-Generated Revenue. 5 Fair Schoo! Finance Council of OWahoma, Inc». State, 1987 OK 114, 746 P24 1135, 6 Okla. Const. Art. 10, §9 co 6 Okla. Const. Art. 10, § 916) os : 5Mm. Vv. ‘State-Generated Revenue. Fair School Finance Couneil of OWahoma, Inc. v. State, 1987 OK 114, 746 P.2d 1135. OS. § 18-2001 TOS. § 18-200.1(0). TOS. § 18-2001 0 Q. DOS. § 18-200.1(D)3). ‘THE IMPACT OF CHARGEABLE CAPP REVENUE ON THE, CALCULATION OF STATE AID ‘State ex rel Indep. School Dist. No, 1». Barnes, 1988 OK 70, 762 P.24 921 Okla. Const. Art. 10, § 8 Okla, Const. Art. 10, § S(AXI). ‘The computation of chargeable CAPP revenue under the State formula prior to the 1991/1992 sehool year. 70 0S. (1982) § 18-109.1 ‘The computation of chargeable CAPP revenue beginning. with 1991/1992 school year. 70 OS. § 18-109.1 OS. § 18-109.1(1) Paget) 68 Aid the ‘THE DOE FAILED TO IMPLEMENT THE LIMIT ON CHARGEABLE CAPP. REVENUE FOR 22 YEARS, TO THE DETRIMENT OF THE DISADVANTAGED DISTRICTS, A ‘The DOP’s failure to apply the 11% caused the DOE to underpay State to the Disadvantaged Districts. OOS. § 18-109.1(1) it on the assessment of CAPP has The failure to apply the 11% limit on the assessment of CAPP has caused the DOE to overpay State Aid to the Advantaged DistrictsPages V. ‘THE DOE HAS AN AFFIRMATIVE DUTY To ADJUST APPORTIONMENTS AND COLLECT OVERPAYMENTS OF STATE AID... Independent School District No. -20 of Muskogee County v. Oklahoma State Department of Education, 2003 OK 18, 65 P.3d 612 70 Okla. Stat. § 18-117 14 70 Okla. Stat. § 18-118(C). 4 VL THIS COURT SHOULD REQUIRE THE STATE TREASURER TO HOLD RECOVERED OVERPAYMENTS OF STATE AID IN TRUST FOR THE DISADVANTAGED DISTRICTS 15 1.20 of Muskogee County v. Oklahoma State Department of Education, 2003 OK 18, 65 P.3d 612 15 70 Okla, Stat. § 18-117 5County (Waukomis): Independent cogee County (Webers Falls; and Independent School District #31 of Okfuskee County (Weleetka), ) ) ) ) ) ) ) ) Petitioners, ) ) } Joy Hofmeister, Superintendent of Oklahoma State j ‘of Education; Oklahoma Tax Commission; and Ken } Oklahoma State Treasurer, ) ) ) Respondents BRIEF IN SUPPORT OF APPLICATION TO ASSUME ORIGINAL JURISDICTION AND PETITION FOR WRIT OF MANDAMUS, JOE E. EDWARDS, OBA #2640 CLYDE A. MUCHMORE, OBA #6482 MARY H. TOLBERT, OBA #17353 ‘ROWE & DUNLEVY (405) 235-7700 405) 239-6651 joe edwards @erowedunlevy.com Iyde.muchmare@erowedunlevy.com molly.tolbert@erowedunlevy.com March 28, 2016 ATTORNEYS FOR PETITIONERSThis Court should assume orignal jurisdiction to coneet an acknowledged enor of ‘monumental proportions inthe allocation and disbursement of State Aid to public school Smaller local sources of revenue for financing public schoo taxes and fees, tuition and transfer fees, and proceeds from the Fair School Finance Council, 987 OK 114, § 9, 746 P24 Doc. at 1,4, 2, Tech Assistance 6The State Aid program consists of two parts, Foundation Program Aid and Salary Incentive Aid. Although the actual calculation ofan individual schoo! distr ‘State Aid Formula is extremely complicated, for purposes of the P ‘understand, generally, thatthe calculation involves four basic steps. ‘See 70 Okla, Stat. § 18-200.1(D\3). Step 4 The Net Foundation Aid and the Net Salary Incentive Aid are added together to yield, subject to cerain adjustments, the district's Total Net State Aid. See 70 Okla, Stat. § 18-200.1(C), ‘See App. 3 (illustrating State Aid calculation). The State Aid formula thus apportions more funding to those school districts with lower local revenues, and apportons less funding to ‘those school districts with higher local revenues, In this way, the State Aid formula attempts ages and conditions of students require more intensive superv Sint with am is counted a3 students for purposes enelaing WADM. See A. 2, Technical Assistance Documenta 18. 5 After the caleulations described in Step 2, a transportation supplement is added to 2 istrie’s allocation of Foundation Aid, Because the calculation of the supplement is not at issue inthis litigation, and does not impact the other cae not addressed herein, 7‘to equalize educational opportunities for students throughout the State of Oklahoma. See Fair ‘School Finance Council, 1987 OK 114, $13, 746 P.2d 1135, ML THE IMPACT OF CHARGEABLE CAPP REVENUE ON THE CALCULATION OF STATE AID ‘As shown above, the DOE makes two calculations that consider chargeable CAPP revenue as a ftctor. First, the chargeable CAPP revenue attributable tall schoo! part ofthe General Fund tht is divided to yield the state-wide base Foundation Aid Factor distriet_would_be lower. Second, 2 school district's own chargeable CAP revenue is ‘deducted fom its base level of Foundation Aid and Salary Incentive Aid. reduction in an individual school district's chargeable CAPP revenue would thus mean thatthe State Aid allocation of that district would be higher. See Independent School Dist. No, 1, 1988 OK 70, 17, 762 P.2d 921 (“the higher the distie’s assessed valuation, the lowe becomes”) (emphasis added). A school distict’s chargeable CAPP revenue is caleulated by multiplying the fair ‘market value of the CAPP within the school district's boundaries by the county assessment ‘ate. This product is then mulplied by the schoo! district's millage rte. Pursuant to Article 10, Section 8 of the Oklahoma Constitution, a county may assess CAPP at a level that is not lower than 10% and not higher than 15% of its fair cash value, Okla, Const, art. 10, § 8 ‘There is substantial variation in the assessment rates implemented by the counties ‘Currently, 49 of Oklahoma's 77 counties assess CAPP at ratios over 11%. See App. 4 (OTC Report of 2014 Fract | Assessment Percentages for CAPP). Of these, five counties assess ‘CAPP at the maximum 15% rate, Id.A. The computation of chargeable CAPP revenue under the State Aid formula prior to the 1991/1992 school year. Prior to the 1991/1992 school year, the full amount of each schoo! distict’s chargeable CAPP revenue was used in caleulating the Foundation Aid Factor and Salary Incentive Factor applicable to all schoo! districts. Additionally, the full amount of each district's chargeable CAPP revenue was deducted from its Foundation Aid and Salary Incentive Aid, See 70 Okla. Stat (1982) § 18-109.1 (omiting any reference to limiting ions atu chargeable val the 1991/1992 schoo! t0 CAPP), As an exan ‘year, when calculating chargeable CAP revenue for the Ponca City Public School District, ‘the DOE would (a) receive a report of the fair market valuation of all CAPP within the Ponca that number by 14% (he assessment ratio for Kay County); and (e) multiply that product by 3$ mills I the fir ‘market value of all CAPP within the boundaries of the Ponca City Publie School Distriet had been $100,000,000, then the chargeable CAPP revenue considered by the DOE in its State Aid calculations would Have been $490,000 (caleulated as $100,000,000 x 0.14 x 0.035). B, The computation of chargeable CAPP revenue beginning with the 1991/1992 school year. In 1990, the Oklahoma Legislature amended § 18-109.1(1). The Legislature declared ‘Therefore, the Legislature declared that, beginning with the 1991/1992 school year, for those school districts in counties having an assessment rate for CAPP in excess the revenue yielded by that portion of the assessment over 11% would not be considered “chargeable” revenue; ie. would not be included in the caleulation of the Foundation AidFactor and Salary Incentive Aid Factor, and would not be deducted from the district's base ‘per-pupil funding. 70 Okla, Stat. § 18-109.1(). ‘To use the prior example, if the fair market value ofall CAPP within the boundaries of the Ponca City Public School District was $100,000,000, then under § 18-109.1(1), the revenue ftom the district's 3S-mill levy considered by the DOE in apportioning State Aid ‘would only be $385,000 (calculated as $100,000,000 x 0.11 x 0.035). Thus, the statutory amendment would cause the Ponca City Public School Districts allocation of State Aid to ‘increase by $105,000, IV. THE DOE FAILED TO IMPLEMENT THE LIMIT ON CHARGEABLE CAPP REVENUE FOR 22 YEARS, TO THE DETRIMENT OF THE DISADVANTAGED DISTRICTS. In late 2014, former State Superintendent of Public Instruction Janet Barresi publicly acknowledged that “the plain language of the statute requires the Department to place the percent cap on commercial and agricultural personal property.” See App. 1, Barresi E-mail, She farther acknowledged that “t]he Department historically has not applied the statutory ty.” Id. emphasis added). Instead, the DOE continued to consider the full amount of a school district's chargeable CAPP revenve, both in calculating the Foundation Aid Factor and Salary Incentive Factor applicable t all schools, and in determining the chargeable valuations attributable to the individual school distiet, The DOE did not correct this error until February 2015, Thus, between the 1991/1992 school year and the 2014/2015 school year, every dishursement of State Aid toA. The DOE's failure to apply the 11% limit on the assessment of CAPP has caused the DOE to underpay State Aid to the Disadvantaged Districts. ‘An audit or other review of all allocations and disbursements of State Aid will be necessary to detemine the full extent of the underpayments tothe Disadvantaged Districts Nevertheless, the fact that there has heen significant financial harm to the Disadvantaged Districts can be easily demonstrated from the DOE's own State Aid calculation worksheets ‘before and after the DOE finally implemented the mandate of § 18-109.1(1).. On January 29, 2015, the DOE published the midyear adjustments to the end-of-year tax revenue data from all school distrets and counties, but did not apply the 11% limit on the assessment ratio for CAPP. On June 8, 2015, the DOE published the final end- of-year calculations of State Aid. These calculations used the same 2014 end-of-year tax revenue data from all school districts and counties but, for the L126 mit ‘The June &, 2015, State Aid calculation worksheets thus essentially isolate the effect of the 11% limitation on State Aid all ns for the 2014/2015 school year. 09, The following examples illustrate the impact of the application of § 1 the calculation of State Aid to the Disadvantaged Districts: Ponca City Public School District: The “ad valorem chargeable revenue” deducted from Foundation Aid declined by $424,873.87 from $4,122,009.80 . valuation” deducted from Salary 2.28 (from $5,222,16632 to © All calculations under the Salary Incentive Aid portion of the State Aid Allocation ‘worksheet are expressed in mils, rather than in dollars. To convert mills to dollars, one must multiply by 20. As expressed in mills on the State Aid Allocation worksheet, the “adjusted district valuation” deducted from Salary (rom (Ponca City 1/29/15 Midyear Adjustment) co App. 6 (Ponca City 6/8/15 Final Calculatioa). 1$12,785,854,00). Compare App. 5 (Ponca City 1/29/15 Midyear Adjustment) 9 App. 6 (Ponca City 6/8/15 Final Calculation). {$108,702,121,00). Compare App. 7 App. 8 (OKC 6/8/15 Final Cale ‘chool District: The “ad valorem chargeat id, declined by $333,025.82 fon Sa) $9,381,306:70)" and Midyear Adjustmes ‘See also App. 13. This demonstrates the diflerence to the above school districts for a single school year. The DOE error deprived the Disadvantaged Districts of similar revenue for 22 additional years. Until the DOE performs a full recaleulation of State Aid for all affected 7 As expressed in mills on the State Aid Allocation worksheet, the “adjusted As expressed in mills on the State Aid valuation” deducted from Salary Incentive 15.0090 (from 235,529.6450 to 223.484.6360). Co Midyear Adjustment) fo App. 10 Enid 6/8/15 Final Calculati ° As expressed in mills on the State Aid Allocation worksheet, the “adjusted district for the Mid-Del Public Schoo! District 3350), Compare App. 11 (Mid-Del 5 Final Calculation)‘years, it is not possible for Petitioners to establish their damages with precision "Nevertheless, the above calculations establish with certainty the fact of damage. B. The failure the DOE to. n the assessment of CAPP has caused Advantaged Districts, AAs previously shown, the first step in apportioning State Aid is to calculate the General Fund, 4¢. the otal revenue available from all sources (both slate ant divided by the total weighted number of school-children in the state, The larger the General Fund, the higher the per-pupil base funding guaranteed by the Foundation Aid Factor and the Salary Incentive Aid Factor. Because the DOE failed to apply the 11% it on the calculation of chargeable CAPP revenue, the DOE included too much chargeable CAPP revenue in the General Fund. The result of this eror is that, for each affected year, the base per-pupil allocation of State Aid available to each school district was too high, resulting in overpayments to many districts Further, because State Aid is apportioned among the school distits from a single fund of money, State Aid is a “zero sum game.” Petitioners have already shown tl the DOE’s failure to implement the ststutory limit on chargeable CAPP revenues resulted in underpayments of State Aid to school districts located in counties assessing CAP at rates over 11%, Because there were underpayments of State Aid to certain school districts (Ze, ‘those districts located in counties assessing CAPP above there were necessarily ‘overpayments to others (Le, those districts located in counties assessing CAPP at ot below Again, itis impossible to determine the umount of such overpayments until the DOE recalculate State Aid for every year since the 1991/1992 school year, Nevertheless, the fact ‘of overpayment is certainV. THE DOE HAS A DUTY TO ADJUST APPORTIONMENTS AND COLLECT OVERPAYMENTS OF STATE AID. If state funds have been “illegally apportioned” toa school district, those funds must be retumed, or the DOE must institute legal action to recover the funds, 70 Okla, Stat. § 18- 117; 70 Okla. Stat. § 18-118(C). This Court has held that any funding a school district receives which is based on erroncous calculations under the State Aid formula is “illegally apportioned." Indep. Schoo! Dist. No. 1-20 of Muskogee County ». Oklahoma State Department of Education, 2003 OK 18, 65 P3d 612. In Indep. School Dist. No. 1.20, the Muskogee Public School District (“the School Distro) ha, through an eror that was not the result of bad faith oF wrongdoing, over- reported its wADM to the DOE. Based upon the inflated attendance figures, the Schoo! in the 1996/1997 and 1997/1998 school years, totaling . The Schoo! District argued that, in the absence of bad faith, dishonesty, ‘wrongdoing, fraud, or malice on the part ofthe district's officers or employees, the State Aid ally apportioned.” This Court disagreed, stating: Any funding that a school district receives which was based on erroneous calculations for whatever reason would have been received contrary to the state ai statutes and formulas, Jn out-view, the Legislature intended by the ‘state aid statutes and formulas, Indep, School Dist. No, -20, 2003 OK 18, $17, 65 P.3d 612 (emphasis added), This Court also held that, where State Aid allocations are i DOE “i Schoo! Dist. No. 1-20, 2003 OK 18, $31, 65 P-3d 612 (emphasis add); id. (stating that recoupment is required “regardless of whether the overpayment was a result of knowing and willful conduct”). The Court further held that the recoupment provisions “do not constitute 4any kind of deficit financing for purposes of constitutional debt limitations.” Indep. Schoo! Dist. No. 1-20, 2003 OK 18, $22, 6 P.3d 612. The Court stated, “recovery of the funds does ve the funds.” Jd. (emphasis added, This Court's holdings in Independent School District No, 1-20 contol the instant the DOF dispute and lead 10 two inescapable conch legally apportioned and dishursed” State Aid to all school districts from the 1991/1992 school year through the 2014/2015 school year. Second, the DOE has a mandatory duty to adj the apportionments ‘and collect ftom the Advantaged Districts any overpayments in State Aid found to have ‘occurred. This Court should compel the DOE to fulfill hat duty. ‘VL THIS COURT SHOULD REQUIRE THE STATE TREASURER TO HOLD RECOVERED OVERPAYMENTS OF STATE AID IN TRUST FOR THE DISADVANTAGED DISTRICTS ‘Any overpayments recovered by the DOE must be returned to the State Treasurer. 70 Okla. Stat. § 18-117, Nevertheless the recovered funds do not properly belong to the State, just as they did not legally belong to the Advantaged Districts. Indep. School Dist. No. -20, 2003 OK 18, $ 22, 65 P.3d 612. Rather, the money recovered actually belonged to the Disadvantaged Disticts, incuding Petitioners. This Court should therefore issue a writ of ‘mandamus compelling the State Treasurer to hold all funds recovered from the Advantaged Districts in trust forthe Disadvantaged Districts, including Petitioners, CLYDE A. MUCHMORE, OBA #6482 MARY H. TOLBERT, OBA #17353, CROWE & DUNLEVY. ‘A Professional Corporation Bran Building is324N. Robinson Ave,, Suite 100 (405) 239-651 (Facsimile) joc.cdwards@erowedunlevy.com clyde:muchmore@erowedunlevy.com ‘molly tolbert@erowedunlevy.com ATTORNEYS FOR PETITIONERS (CERTIFICATE OF SERVICE [hereby certify that on this 28th day’ above and foregoing was served by U.S. mail, Receipt Requested, on the following: Joy Hotineistr, State Superintendent (Oklahoma Stats Department of Education Oliver Hodge Building 2500. Linco (Oklahoma City, Oklahoma 73105 of March, 2016, a teue and correct copy of the postage prepaid, and by Certified Mall (Oklahoma Tax Commission Office of General Counsel TOON. Broadway Ave. Ste. 1500 ‘Oklahoma City, Oklahoma 73102 Scott Pritt, Oklahoma Attor