IN THE SUPREME COURT OF THE STATE OF OKLAHOMA, Independent School District #89 of Oklahoma County (Oklahoma City); Independent School District #57 of Garfield FILED > SUPREME COURT County (Enid); Independent School District #52 of Oklahoma STATE OF OKLAHOMA County (Midwest City-Del City); Independent School District #71 of Kay County (Ponca City); Independent School District #29 of Osage County (Bamsdall); Independent School District ) ) MAR 28 2016 #30 of Washington County (Bartlesville); Independent School MICHAEL S. RICHIE District #22 of Beaver County (Beaver); Independent School District #45 of Kay County (Blackwell); Independent School District #5 of Bryan County (Caddo); Independent School District #48 of Bryan County (Calera); Independent School District #26 of Atoka County (Caney); Independent School District #42 of Garfield County (Chisholm); Independent School District #4 of Bryan County (Colbert); Independent School District #94 of Garfield County (Covington-Douglas); Independent School District #28 of Pittsburg County (Crowder); Independent School District #67 of Payne County (Cushing); Independent School District #21 of Creek County (Depew); Independent School District #85 of Garfield County (Drummond); Independent Schoo! District #72 of Bryan County (Durant); Independent School District #6 of Beckham County (Elk City); Independent School District #3 of Muskogee County (Fort Gibson); Independent School District #6 of Woods County (Freedom); Independent School District #11 of Pittsburg County (Haileyville); Independent School District #1 of Pittsburg County (Hartshorne); Independent School District #2 of Muskogee County (Haskell); Independent School District #29 of Muskogee County (Hilldale); Independent School District #25 of Pittsburg County (Indianola); Independent School District #14 of Pittsburg County (Kiowa); Elementary School District #9 of Pittsburg County (Krebs); Independent School District #18 of Garfield County (Kremlin-Hillsdale); Independent School District #37 of Oklahoma County (Millwood); Independent School District #3 of Kiowa County (Mountain View-Gotebo); Independent School District #20 of Muskogee County (Muskogee); Elementary School District #10 of Pottawatomie County (Nerth Rock Creek); Independent School District #125 of Kay County (Newkirk); Independent School District #26 of Okfuskee County (Okemali); Independent School District #14 of Okfuskee County (Paden); Independent School District #56 of Garfield County (Pioneer-Pleasant Vale); Independent School District #63 of Pittsburg County (Pittsburg); Independent School District #30 of Pittsburg County (Savanna); Independent School District #1 of Bryan County (Silo); Elementary School District #56 of Pittsburg County (Tannehill); Independent CLERK #14484 4 BRIEF IN SUPPORT OF APPLICATION TO ASSUME ORIGINAL JURISDICTION AND. PETITION FOR WRIT OF MANDAMU:IN THE SUPREME COURT OF THE STATE OF OKLAHOMA Independen: School District #89 of Oklahoma County (Oklahoma City); Independent School District #57 of Garfield County (En'd); Independent School District 452 of Oklahoma County (Midwest City-Del City); Independent School District #71 of Kay County (Ponea City); Independent School District #29 of Osage County (Barnsdall); Independent School District #30 of Washington County (Bartlesville); Independent School District #22 of Beaver County (Beaver); Independent School District #45 of Kay County (Blackwell); Independent School District #5 of Bryan County (Caddo); Independent School District #48 of Bryan County (Calera); Independent School District #26 of Atoka County (Caney); Independent School District #42 of Garfield County (Chisholm); Independent School District #4 of Bryan County (Colbert); Independent School District #94 of Garfield County (Covington-Douglas); Independent School District #28 of Pittsburg County (Crowder); Independen: School District #67 of Payne County (Cushing); Independen: School District #21 of Creek County (Depew); Independen: School District #85 of Garfield County (Drummond); Independent School District #72 of Bryan County (Durant); Independent School District #6 of Beckham County (Elk City); Independent School District #3 of Muskogee County (Fort Gibson); Independent School District #6 of Woods County (Freedom); Independent School District #11 of Pittsburg County (Haileyville); Independent School District #1 of Pittsburg County (Hartshome); Independent School District #2 of ‘Muskogee County (Haskell); Independent School District #29 of ‘Muskogee County (Hilldale); Independent School District #25 of Pittsburg County (Indianola); Independent School District #14 of Pittsburg County (Kiowa); Elementary School District #9 of Pittsburg County (Krebs); Independent School District #18 of Garfield County (Kremlin-Hillsdale); Independent School District #37 of Oklahoma County (Millwood); Independent School District #3 of Kiowa County (Mountain View-Gotebo); Independen: School District #20 of Muskogee County (Muskogee); Elementary School District #10 of Pottawatomie County (North Rock Creek); Independent School District #125 of Kay County (Newkirk); Independent School District #26 of Okfuskee County (Okemah); Independent School District #14 of Okfuskee County (Paden); Independent School District #56 of Garfield County (Pioneer-Pleasant Vale); Independent School District #63 of Pittsburg County (Pittsburg); Independent School District #30 of Pittsburg County (Savanna); Independent School District #1 of Bryan County (Silo); Elementary School District #56 of Pittsburg County (Tannehill); Independent Case No. BRIEF IN SUPPORT OF ASSUME ORIGINAL JURISDICTION AND, PETITION FOR WRIT OF MANDAMUSPage(s) INDEX 70 OS. § 18-109.1(1) 2 70 OS. § 18-117. ya) 70 O.S. § 18-118(C). 2 1. _ THIS COURT SHOULD ASSUME ORIGINAL JURISDICTION. State ex rel. Dept. of Transp. v. Post, 2005 OK 69, 125 P.3d 1183. State ex rel. Indep. School Dist. No. I v. Barnes, 1988 OK 70, 762 P.2d 921.. State ex rel. Tulsa Classroom Teacher's Ass'n, Inc. v. Board of Equalization, Tulsa County, 1979 OK 129, 600 P.2d 861... Okla. Const. Art. 7, § 4 70 OS. § 18-109.1(1) . 10 O.8. § 18-117 ea 70 OS. § 18-118(C). I. THE OKLAHOMA PUBLIC SCHOOL FINANCING SYSTEM... 5 Fair Schoo! Finance Council of Oklahoma, Ine. v. State, 1987 OK 114, 746 P.2d 1135.sescsecnenne 5 Okla. Const. Art. 1, § 5... Okla. Const. Art. 13, § 1... A, Locally-Generated Revenue... Fair School Finance Council of Oklahoma, Inc. v. State, 1987 OK 114, 746 P.2d 1135..... Okla. Const. Art. 10, § 9.. Okla. Const, Art. 10, § 9(b)1m. Vv. Page(s) B. _State-Generated Revenue... eatentenn® Fair School Finance Council of Oklahoma, Inc. v. State, 1987 OK 114, 746 P.2d 1135... 6,8 70 OS. § 18-200.1 6 70 OS. § 18-200.1(C). 7 70 OS. § 18-200.1(D)(1)-(2) Be Haar: 70 OS. § 18-200.1(D)(3). Se ‘THE IMPACT OF CHARGEABLE CAPP REVENUE ON THE CALCULATION OF STATE AID aoe ae 8 State ex rel. Indep. School Dist, No. 1 v. Barnes, 1988 OK 70, 762 P.2d 921... 8 Okla, Const. Art. 10, § 8... Okla. Const. Art. 10, § 8(A)(1).--cve. The computation of chargeable CAPP revenue under the State Aid formula prior to the 1991/1992 school year... usted ee 70 O.S. (1982) § 18-109.1 .... The computation of chargeable CAPP revenue bezinning with the 1991/1992 school year. é 2 pee : 70 OLS. § 18-1091 sersesne 70 OS. § 18-109.1(1) .. THE DOE FAILED TO IMPLEMENT THE LIMIT ON CHARGEABLE CAPP_ REVENUE FOR 22 YEARS, TO THE DETRIMENT OF THE DISADVANTAGED DISTRICTS. A 10 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.......11 WW 70 OS. § 18-109.1(1) . The failure to apply the 11% limit on the assessment of CAPP has caused the DOE to overpay State Aid to the Advantaged DistrictsVL 30092673 Page(s) THE DOE HAS AN AFFIRMATIVE DUTY TO ADJUST APPORTIONMENTS AND COLLECT OVERPAYMENTS OF STATE AID. Independent School District No. I-20 of Muskogee County v. Oklahoma State Department of Education, 2003 OK 18, 65 P.3d 612... 70 Okla. Stat. § 18-117.. 70 Okla, § 18-118(C) THIS COURT SHOULD REQUIRE THE STATE TREASURER TO HOLD RECOVERED OVERPAYMENTS OF STATE AID IN TRUST FOR THE DISADVANTAGED DISTRICTS. eee : Independent School District No. 1-20 of Muskogee County v. Oklahoma State Department of Education, 2003 OK 18, 65 P.3d 612. 70 Okla. Stat. § 18-117... iii 14, 4School District #61 of Texas County (Texhoma); Independent School District #8 of Tillman County (Tipton); Independent School District #87 of Kay County (Tonkawa); Independent School District #1 of Garfield County (Waukomis); Independent School District #6 of Muskogee County (Webbers Falls); and Independent School District #31 of Okfuskee County (Weleetka), Petitioners, v. Joy Hofimeister, Superintendent of Oklahoma State Department of Education; Oklahoma Tax Commission; and Ken Miller, 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 CROWE & DUNLEVY A Professional Corporation Braniff Building 324.N. Robinson Ave., Suite 100 Oklahoma City, Oklahoma 73102 (405) 235-7700 (405) 239-6651 (Facsimile) joe.edwards@crowedunlevy.com clydemuchmore@crowedunlevy.com molly.tolbert@crowedunlevy.com March 28, 2016 ATTORNEYS FOR PETITIONERSThis Court should assume original jurisdiction to correct an acknowledged error of ‘monumental proportions in the allocation and disbursement of State Aid to public school districts throughout the State of Oklahoma. The Oklahoma Legislature has designed a system of public school financing which relies on a combination of state-generated and locally-generated revenues. At its most basic, this system calls for the Oklahoma State Department of Education (“DOE”) to determine the amount of the “General Fund,” which is the total funding from all sources ~ state, local, and federal -- which is to be allocated among the State’s school districts on a per-pupil basis. This per-pupil funding level represents a guaranteed minimum level of support for each district. For each individual school district, the DOE calculates the applicable locally- generated revenue ~- referred to as “chargeable” revenue — and then apportions to the district sufficient State Aid to bring it to the guaranteed minimum funding level, The primary source of locally-generated revenue is the districts’ ad valorem levies on real property and on ‘commercial and agricultural personal property (“CAPP”) within their boundaries. Revenue from a school district's ad valorem levy on CAPP is calculated by multiplying the fair market value of the CAPP by the assessment rate set by the county, then multiplying that product by the district’s millage rate. Crucially, however, not all of the revenue from ad valorem taxes goes into the General Fund, or is considered “chargeable” revenue when calculating a district's State Aid allocation. Counties may choose to assess CAPP at any rate between 10% and 15%, Beginning with the 1991/1992 school year, the Oklahoma Legislature declared that for districts in counties assessing CAPP at rates over 11%, the revenue yielded by that portion of the assessment over 11% would not be considered “chargeable” revenue under the State Aidstatutes. 70 Okla, Stat, § 18-109.1(1).! This means that such portions of the ad valorem taxes would neither be made part of the General Fund, nor be charged to the individual school districts in determining their award of State Aid. This amendment allowed county taxpayers to choose to tax themselves at higher rates with the promise that the additional revenues would remain with the local school districts, and not be distributed throughout the State. Each Petitioner is located in a county that assesses CAPP at a rate over 11%, ‘The DOE acknowledges that it did not implement the 11% limit on chargeable CAPP revenue until February 2015. Thus, for 22 years, the DOE miscalculated State Aid by both (@) including too much CAPP revenue in its calculation of the base per-pupil funding guaranteed to all districts, and (b) charging too much CAPP revenue to the school districts located in counties assessing CAPP at a rate over 11% when calculating their State allocation. Put otherwise, the DOE overpaid State Aid to school districts in counties assessing CAP at or below 11% (“the Advantaged Districts”), and underpaid State Aid to school districts in counties assessing CAPP above 11% (“the Disadvantaged Districts” ‘The DOE has a mandatory duty to correct miscalculations of State Aid and to recover any overpayznents found to have occurred. 70 Okla, Stat. §§ 18-117, 18-118(C). The DOE, therefore, must re-calculate State Aid for every school year from 1991/1992 through 2014/2015 according to the correct State Aid formula, and must recover all overpayments found to have occurred. The DOE has declined to perform that duty. This Court should therefore issue a writ of mandamus to compel the DOE to do so. " Section 18-109.1(1) contains a similar cap on the assessment of real property, which has ‘been applied properly by the DOE since it was enacted. The cap on the assessment of real property is not at issue in this litigation.This Court should also issue a writ of mandamus to compel the Oklahoma Tax Commission (“OTC”) to perform its statutory duty to supply the DOE with the information necessary to calculate properly the State Aid allocations for the 1991/1992 through 2014/2015 school years. 70 Okla. Stat. § 18-109.1(1). Because any overpayments of State Aid must be returned to the State Treasurer by the Advantaged Districts, 70 Okla. Stat. § 18- 117, this Court should also issue a writ of mandamus to compel the State Treasurer to hold all funds recovered from the Advantaged Distriets in trust, to be distributed to Petitioners and other Disadvantaged Districts. I. _ THIS COURT SHOULD ASSUME ORIGINAL JURISDICTION This Court should exercise its original jurisdiction under Okla. Const. art. 7, § 4 ‘This Court has held that a writ of mandamus “issues to compel the performance of an act by a respondent when a petitioner: has a clear legal right to have the act performed; the act arises from a duty of the respondent arising from an office, trust, or station; the act does not involve the exercise of discretion; the respondent has refused to perform the act; and the writ will provide adequate relief and no other adequate remedy at law exists.” Stare ex rel. Dept. of Transp. v. Post, 2005 OK 69, §2 n.1, 125 P.3d 1183; State ex rel Indep. School Dist. No. 1 v Barnes, 1988 OK 70, 18, 762 P.2d 921. Mandamus has been utilized in prior proceedings before this Court where a school district alleged that failure to follow statutory rules regarding ad valorem taxation resulted in adverse consequences for petitioners. Indep. School Dist. No. 1, 1988 OK 70, { 18, 762 P.2d 921 (citing State ex rel. Tulsa Classroom Teacher's Ass'n, Inc. v. Board of Equalization, Tulsa County, 1979 OK. 129, 600 P.2d 861). In Independent School District No. 1, several school districts in OKlahoma County asked this Court to assume original jurisdiction and issue a writ of mandamus to compel the County Treasurer to release non-disputed tax funds to the districts. Petitioners demonstrated 3that, during the previous year, several hundred Oklahoma County taxpayers had protested the ease in the revaluation of their properties. Although the protestants challenged only the valuation of their properties ~- and, therefore, the majority of their tax bills were not disputed ~- the County Treasurer refused to release even the non-disputed portion of the tax revenues to the districts. Nevertheless, the DOE continued to subtract the full amount of the tax revenues from the State Aid allocations of the school districts within Oklahoma County. Indep. Schoo! Dist. No. 1, 1988 OK. 70, 17, 762 P.2d 921 (noting that “the higher a district's valuation, the lower its State Aid becomes”). Both the County's failure to release the funds and the DOE’s failure to adjust the State Aid allocations operated “to the detriment of the local schools.” Id, ‘The Court held that “there is a clear legal duty placed upon the County Treasurer to distribute unprotested portions of the county’s tax collected.” Id. at § 25. This Court therefore assumed original jurisdiction for the purpose of issuing a writ of mandamus to compel the County Treasurer to release the non-disputed funds. Jd. at {28 (“commanding the County ‘Treasurer to comply” with its statutory duty “by apportioning the unprotested portions of tax receipts to the entities entitled thereto”). Similarly, in the instant case, the DOE acknowledges that it failed to allocate and disburse State Aid in accordance with the State Aid formula for 22 years, to the detriment of the Disadvantaged Districts. As shown below, the Oklahoma statutes place a clear legal duty on the DOE to adjust erroneous apportionments of State Aid and collect overpayments found to have occurred. 70 Okla, Stat, §§ 18-117, 18-118(C). The Oklahoma statutes also place a clear legal duty on the OTC to supply the DOE with the data necessary for the proper calculation of State Aid. 70 Okla. Stat. § 18-109.1(1). Both of these agencies have failed tofulfill these duties with regard to the calculation of State Aid for the 1991/1992 school year through the 2014/2015 school year. Accordingly, as shown below, this Court should issue a writ of mandamus and command these agencies to comply with their statutory duties. i. THE OKLAHOMA PUBLIC SCHOOL FINANCING SYSTEM Article 1, § 5 of the Oklahoma Constitution provides for the establishment and maintenance of a system of public schools within the State. Article 13, § 1 of the Constitution places the obligation of doing so upon the Legislature. In its efforts to carry out this duty, the Legislature bas designed a system of financing public elementary and secondary education which relies primarily on two sources of revenue: local and state sources. Fair School Finance Council of Oklahoma, Inc, v. State, 1987 OK. 114, $5, 746 P.2d 1135; App. 2, Oklahoma State Dept. of Education, Oklahoma School Finance Technical Assisiance Document (rev'd Jan. 2014) {hereinafter “Tech Assistance Doc.” at 1? A third, minor source of funding is the federal government. Fair School Finance Council, 1987 OK 114, 15, 746 P.24 1135; Exh. 1, Tech, Assistance Doc. at 1. A. Locally-Generated Revenue The greatest local sources of revenue for financing public education are various ad valorem taxes levied on the real and personal property within the school districts. Each county must levy a tax of 4 mills on the assessed valuation of all taxable property in the county for school purposes, to be apportioned among the county school districts on the basis of attendance, See Okla. Const. Art. 10, §9(b); App. 2, Tech. Assistance Doc. at 1 Additionally, school districts are permitted to levy taxes themselves. Under state law, a ? Citations to the Exhibits to Petitioners’ Appendix are designated as “App. _. aschool district may levy up to 35 mills on the assessed value of real property and CAPP within the district. Okla. Const. Art. 10, § 9; App. 2, Tech, Assistance Doc, at 1,3. Because local sources of revenue are derived primarily from ad valorem taxes, the amount of that revenue varies greatly among the school districts. This variation is caused by several factors, including differences in assessment ratios and in property wealth. These differences greatly affect the amount of revenue per pupil which each district can raise for the support of its schools. Fair Schoo! Finance Council, 1987 OK 114, 10, 746 P.2d 1135. Accordingly, the State does not rely on a system of public school funding based solely on local revenues. B. State-Generated Revenue The cther primary source of revenue for public schools is the State. Dedicated state sources of revenue include gross production taxes, motor vehicle collections, REA taxes, and school land earnings. Fair Schoo! Finance Council, 1987 OK 114, 4 13, 746 P.2d 1135; App. 2, Tech, Assistance Doc. at 1, 7-8. These dedicated revenues remain in the county or school district where the revenue is generated, and thus are not distributed evenly across the State. The largest source of state-generated revenue to public schools is State Aid, supported by a legislative appropriation. Id, State Aid is intended to equalize the total fund:ng available to each school district in the State by supplementing the district's local and dedicated funding up to a guaranteed minimum level. State Aid is allocated to the various school districts of the State through a statutory formula. See 70 Okla, Stat. § 18-200.1. > Smaller local sources of revenue for financing public schools include certain dedicated taxes and fees, tuition and transfer fees, and proceeds from the sale or rental of property. See Fair School Finance Council, 1987 OK 114, § 9, 746 P.2d 1135; App. 2, Tech. Assistance Doe. at 1, 4.The State Aid program consists of two parts, Foundation Program Aid and Salary Incentive Aid. Although the actual calculation of an individual school district's allocation of State Aid Formula is extremely complicated, for purposes of the Petition, it is sufficient to understand, generally, that the calculation involves four basic steps. Step 1: The funding from all sources, both State and local, is pooled to determine the General Fund. This amount is divided by the weighted Average Daily Membership (“wADM")' of all of the school districts to yield a base amount_of guaranteed per-pupil_funding that has two components, the Foundation Aid Factor (approximately 4/7 of the per-pupil base amount) and the Salary Incentive Factor (approximately 3/7 of the per-pupil base amount). ‘Step 2: For each school district, the wADM of the district is multiplied by the Foundation Aid Factor. From the resulting product, the DOE deducts local revenue sources, including the revenue from 15 mills of the ad valorem tax levy on CAPP located within the district’s boundaries. This is the Net Foundation Aid. See 70 Okla. Stat. § 18-200.1(D)(1)-(2)? Step 3: For each school district, the wADM of the district is multiplied by the Salary Incentive Aid Factor. From the resulting product, the DOE decuets the revenue from 20 mills of the ad valorem tax levy on real property and CAPP located within the district's boundaries. This is the Net Salary Incentive Ai See 7) 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 certain 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 apportions less funding to those school districts with higher local revenues. In this way, the State Aid formula attempts * “Weighted” ADM is essentially average daily attendance adjusted to recognize that certain ages and conditions of students require more intensive supervision. Thus, for example, 1 student with autism is counted as 2.4 students for purposes of calculating wADM. See App. 2, Technical Assistance Document at 18. ® After the calculations described in Step 2, a transportation supplement is added to a district’s allocation of Foundation Aid. Because the calculation of the transportation supplement is not at issue in this litigation, and does not impact the other calculations, not addressed hereinto equalize educational opportunities for students throughout the State of Oklzhoma. See Fair School Finance Council, 1987 OK 114, 4 13, 746 P.2d 1135. Ul. 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 factor. First, the chargeable CAPP revenue attributable to all school districts is part of the General Fund that is divided to yield the state-wide base Foundation Aid Factor and the Salary Incentive Factor. A reduction in an individual school district’s chargeable CAPP revenue would thus mean that the base per-pupil funding guaranteed to every school district_would be lower. Second, a school district's own chargeable CAPP revenue is deducted from its base level of Foundation Aid and Salary Incentive Aid. A reduction in an individual school district’s chargeable CAPP revenue would thus mean that the State Aid allocation of that district would be higher. See Independent School Dist. No. 1, 1988 OK 70, { 17, 762 P2d 921 (“the higher the district's assessed valuation, the lower the state aid becomes”) (emphasis added). ‘A school district’s chargeable CAPP revenue is calculated by multiplying the fair market value of the CAPP within the school district’s boundaries by the county assessment rate, This product is then multiplied by the school district’s millage rate. Pursuant to Article 10, Section § 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(A)(I). 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 Fractional 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 school district's chargeable CAPP revenue was used in calculating the Foundation Aid Factor and Salary Incentive Fector applicable to all school 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 (omitting any reference to limiting chargeable valuations attributable to CAPP). As an example, prior to the 1991/1992 school year, when calculating chargeable CAPP 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 City Public School District from the Kay County assessor; (b) multiply that number by 14% (the assessment ratio for Kay County); and (c) multiply that product by 35 mills. If the fair market value of all CAPP within the boundaries of the Ponea City Public Sckool District had been $100,090,000, then the chargeable CAPP revenue considered by the DOE in its State Aid calculations would have been $490,000 (calculated as $10,000,000 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 that “greater equalization” of State Aid to school districts would be attained by limiting the amount of chargeable CAPP revenue that would be considered in calculating State Aid. 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 of 11%, the revenue yielded by that portion of the assessment over 11% would not be considered “chargeable” revenue; i.e. would not be included in the calculation 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(1). To use the prior example, if the fair market value of all CAPP within the boundaries of the Ponca City Public School District was $100,000,000, then under § 18-109.1(1), the revenue froma the district’s 35-mill levy considered by the DOE in apportioning State Aid ‘would only be $385,000 (calculated as $10,000,000 x 0.11 x 0.035). Thus, the statutory amendment would cause the Ponca City Public School District's 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 11 percent cap on commercial and agricultural personal property.” See App. 1, Barresi E-mail. She further acknowledged that “[tJhe Department historically has not applied the statutory cap on commercial and agricultural personal property.” /d. (emphasis added). Instead, the DOE continued to consider the full amount of a school district’s chargeable CAPP revenue, both in calculating the Foundation Aid Factor and Salary Incentive Factor applicable to all schools, and in determining the chargeable valuations attributable to the individual school district. The DOE did not correet this error umtil February 2013. Thus, between the 1991/1992 school year and the 2014/2015 school year, every disbursement of State Aid to every school district was based on erroneous calculations that were contrary to the State Aid statutes and formula. 10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 determine the full extent of the underpayments to the Disadvantaged Districts. Nevertheless, the fact that there has been significant financial harm to the Disadvantaged 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 State Aid calculations for the 2014/2015 school year. These calculations used the newly-available 2014 end-of-year tax revenue data from all school distriets 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 first time, did implement the 11% limit on chargeable CAPP revenues. The June 8, 2015, State Aid calculation worksheets thus essentially isolate the effect of the 11% limitation on State Aid allocations for the 2014/2015 school year. The following examples illustrate the impact of the application of § 18-109.1(1) on the calculation of State Aid to the Disadvantaged Districts: Ponea City Publie School District: The “ad valorem chargeable revenue” deducted from Foundation Aid declined by $424,873.87 (from $4,122,009.80 to $3,697,135.93); the “adjusted district valuation” deducted from Salary Incentive Aid declined by $539,112.28 (from $5.222,166.32 to $4,683,054.04):° and Total Net State Aid increased by $977.303.00 (from © All calculations under the Salary Inventive Aid portion of the Suste Aid Allocation ‘worksheet are expressed in mills, 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 Incentive Aid for the Ponca City Public School District declined by 26,955.6140 (from 261.108.3160 to 234,152.7020). Compare App. 5 (Ponca City 1/29/15 Midyear Adjustment) fo App. 6 (Ponca City 6/8/15 Final Calculation), itt$11,808,551.00 to $12,785,854.00). Compare App. 5 (Ponca City 1/29/15 Midyear Adjustment) fo App. 6 (Ponca City 6/8/15 Final Calculation), Oklahoma City Public School District: The “ad valorem chargeable reverue” deducted from Foundation Aid declined by $1,011,146.96 (from $30,902,215.23 to $29,891,068.27): the “adjusted district valuation” deducted from Salary Incentive Aid declined by $1,267,101.46 (from $38,724,580.48 to $37,457,479.02):" and Total Net State Aid increased by $2.386,719.00 (from. $106,315,402.00 to $108,702,121.00). Compare App. 7 (OKC 1/29/15 Midyear Adjustment) to App. 8 (OKC 6/8/15 Final Calculation). Enid Public School District: The “ad valorem chargeable” revenue deducted from Foundation Aid declined by $203,078.85 (from $3,971,029.81 to $3,767,950.96); the “adjusted district valuation” deducted from Salary Incentive Aid declined by $240,900.18 (from $4,710,592.90 to $4,4€9,692.72);$ and Total Net State Aid increased by $464.597.00 (from $25,073,913.00 to $25,538,510.00). Compare App. 9 (Enid 1/29/15 Midyear Adjustment) fo App. 10 (Enid 6/8/15 Final Calculation), Mid-Del Public School District: The “ad valorem chargeable” revenue deducted from Foundation Aid declined by $268,749.99 (from $7,838,177.58 to $7,569,427.59); the “adjusted district valuation” deducted from Salary Incentive Aid declined by $333,025.82 (from $9,714, to $9,381,306.70).” and Total Net State Aid increased by $638,501.00 (from $40,871,880.00 to $41,510,381.00). Compare App. 11 (Mid-Del 1/29/15 Midyear Adjustment) to App. 12 (Mid-Del 6/8/15 Final Calculation). ‘See also App. 13. This demonstrates the difference 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 recalculation of State Aid for all affected As expressed in mills on the State Aid Allocation worksheet, the “adjusted district valuation” deducted from Salary Incentive Aid for the Oklahoma City Public School District declined by 63,355.0730 (from 1,936,229.0240 to 1,872,873.9510). Compare App. 7 (OKC 1/29/15 Midyear Adjustment) ro App. 8 (OKC 6/8/15 Final Calculation). ® As expressed in mills on the State Aid Allocation worksheet, the “adjusted district valuation” deducted from Salary Incentive Aid for the Enid Public School District declined by 12,045.0090 (from 235,529.6450 to 223,484.6360). Compare App. 9 (Enid 1/29/15 Midyear Adjustment) fo App. 10 (Enid 6/8/15 Final Calculation). ° As expressed in mills on the State Aid Allocation worksheet, the “adjusted district valuation” deducted from Salary Incentive Aid for the Mid-Del Public School District declined by 16,651.2910 (from 485,716.6260 to 469,065.3350). Compare App. 11 (Mid-Del 1/29/15 Midyear Adjustment) to App. 12 (Mid-Del 6/8/15 Final Calculation). 12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 to apply the 11% limit on the assessment of CAPP has caused the DOE to overpay State Aid to the Advantaged Districts. ‘As previously shown, the first step in apportioning State Aid is to calculate the General Fund, ie., the total revenue available from all sources (both state and local) to be 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% limit on the calculation of chargeable CAPP revenue, the DOE included too much chargeable CAPP revenue in the General Fund, The result of this error 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 districts from a single fund of money, State Aid is a “zero sum game.” Petitioners have already shown that the DOE’s failure to implement the statutory limit on chargeable CAPP revenues resulted in underpayments of State Aid to school districts located in counties assessing CAPP at rates over 11%, Because there were underpayment of State Aid to certain school districts (i.e., those districts located in counties assessing CAPP above 11%), there were necessarily overpayments to others (i¢., those districts located in counties assessing CAPP at or below 11%). Again, it is impossible to determine the amount of such overpayments until the DOE recalculates State Aid for every year since the 1991/1992 school year. Nevertheless, the fact of overpayment is certain. 13Y. THE DOE HAS A DUTY TO ADJUST APPORTIONMENTS AND COLLECT OVERPAYMENTS OF STATE AID. If state funds have been “illegally apportioned” to a school district, those funds must be retuned, 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 erroneous calculations under the State Aid formula is “illegally apportioned.” Indep. School Dist. No. 1-20 of Muskogee County v. Oklahoma State Department of Education, 2003 OK 18, 65 P.3d 612. In Indep. School Dist. No. I-20, the Muskogee Public School District (“the School District”) had, through an error that was not the result of bad faith or wroag-doing, over- reported its wADM to the DOE. Based upon the inflated attendance figures, the School District received excessive State Aid in the 1996/1997 and 1997/1998 school years, totaling $3.5 million. The School District argued that, in the absence of bad faith, dishonesty, wrongdoing, fraud, or malice on the part of the district’s officers or employees, the State Aid ‘was not “illegally 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 aid statutes and formulas. In our view, the Legislature intended by the use o° the words, “illegally apportioned or disbursed,” to mean contrary to the state aid statutes and formulas, Indep. Schoo! Dist. No. I-20, 2003 OK 18, 17, 65 P.3d 612 (emphasis added). This Court also held that, where State Aid allocations are illegally apportioned, the DOE “is under a duty to adjust apportionments and collect overpayments in slate aid.” Indep. School Dist. No. I-20, 2003 OK 18, 31, 65 P.3d 612 (emphasis added); 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. School Dist. No. I-20, 2003 OK 18, { 22, 65 P.3d 612. The Court stated, “recovery of the funds does not in any way amount to the taking away of anything ever legally belonging to the school district - the district was never actually entitled to receive the funds.” Jd, (emphasis added). This Court’s holdings in Independent School District No. I-20 control the instant dispute and lead to two inescapable conclusions. First, the DOE “illegally epportioned and disbursed” 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 adjust the apportionments and collect from the Advantaged Districts any overpayments in State Aid found to have occurred. This Court should compel the DOE to fulfill that 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 Stare Treasurer. 70 Okla. Stat. § 18-117. Nevertheless, the recovered funds do not properly belong to the State, just as they cid not legally belong to the Advantaged Districts. Indep, Schoo! Dist. No. I-20, 2003 OK 18, § 22, 65 P.3d 612. Rather, the money recovered actually belonged to the Disadvantaged Districts, including Petitioners. This Court should therefore issue a writ of mandamus compelling the State Treasurer fo hold all funds recovered from the Advantaged Districts in trust for the Disadvantaged Districts, including Petitioners, I@he- El 1S, OBA #2640 CLYDE A. MUCHMORE, OBA #6482 MARY H. TOLBERT, OBA #17353 ve CROWE & DUNLEVY A Professional Corporation Braniff Building 15324. Robinson Ave., Suite 160 Oklahoma City, Oklahoma 73102 (405) 235-7700 (405) 239-651 (Facsimile) joe.edwards@crowedunlevy.com clyde.muchmore@erowedunlevy.com molly.tolhert@crowedunlevy.com ATTORNEYS FOR PETITIONERS CERTIFICATE OF SERVIC! Thereby certify that on this 28th day above and foregoing was served by U.S. mail, Receipt Requested, on the following: Joy Hofineister, State Superintendent (Oklahoma State Department of Education Oliver Hodge Building 2500.N. Lincoln Blvd. Oklahoma City, Oklahoma 73105 Ken Miller, Oklahoma State Treasurer Oklahoma State Treasurer's Office 2300 N. Lincoln Blvd., Room 217 Oklahoma City, Oklahoma 73105 of March, 2016, a true and correct copy of the postage prepaid, and by Certified Mail, Retum Oklahoma Tax Commission Office of General Counsel 100 N. Broadway Ave., Ste. 1500 Oklahoma City, Oklahoma 73102 313 NE. 21st Street Oklahoma, 16 sor7eri2ere ree gee yee eer cel escent ee eee aes eee