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School finance policy: a legal perspective.


The State of South Dakota has long recognized the importance of an educated citizenry. The South Dakota constitution states:

The stability of a republican form of government depending

on the morality and intelligence of the people, it shall

be the duty of the Legislature of establish and maintain a

general and uniform system of public schools wherein tuition

shall be without charge, and equally open to all; and to adopt

all suitable means to secure to the people the advantages and

opportunities of education. (Art. VIII Sec. 1, South Dakota


While the constitution clearly mandates the state's duty to provide education for its people, the South Dakota Supreme Court has indicated that there are limits to this responsibility. It said in the case State v. Dailey, "But we think it is elementary that the people through their Legislature and the Constitution have a right to control and prescribe the limits to which they will go in supporting education to the children and youth of the state at public expense. (State v. Dailey, 234 N.W. 47 (1931)) South Dakota, like many other states, is challenged to meet its constitutional mandate to provide education and still operate within the limits of fiscal responsibility.

Education financing reform movements in other states are attempting to extend these limits are force states to spend more money to finance their educational systems. The public school financing reform movement has moved through three phases during the past 30 years. This paper will briefly look at the various attempts at school finance reform from a legal perspective.

Education efforts in the states, with the exception of Hawaii, are funded by a combination of local property taxes, state funds, and a small amount of federal aid. Hawaii takes the education portion of its state and local revenue and distributes it to the local schools. (See "To Render Them Safe: The Analysis of State Constitutional Provisions in Public School Finance Reform Litigation," 75 Virginia Law Review 1639-1679 (1989)) State and local governments provide 93% of the revenues supporting public elementary and secondary schools. Since 1920 state funding of schools has increased from 16% to 50% while local funding has declined from 83% to 44%. Digest of Education Statistics, 1990 at 47 (1990). Despite the states' attempts to equalize per pupil expenditures large disparities in property values among school districts lead to wide differences in dollars spent per pupil within a state. Attempts to reform educational financing through the courts have been brought at both the federal and state levels. The first issues discussed are those based on the federal constitution.

Attempts to Reform Education Funding at the Federal Level

Proponents of funding equalization argued that the equal protection clause of the federal Constitution required equal funding for school districts within a state. Funding reform advocates contended that there should be a correlation between the level of district spending and the district's property wealth. Instead, education funding should be "fiscally neutral," i.e. determined by something other than the wealth of the local neighborhood. The reformists proposed that fiscal neutrality was required to satisfy the federal constitution's equal protection mandate.

The U.S. Supreme court has adopted a three tier scheme to analyze equal protection claims. If the law involves a "suspect" class, i.e., a distinction based on race, ancestry or citizenship status, or the law infringes on a "fundamental right" then the court applies a strict scrutiny test. The law will be declared unconstitutional unless the challenged classifications serve a compelling state interest. This is a very high standard and usually leads to the law being declared unconstitutional. The Court treats distinctions based on gender as a quasi-suspect classification and requires that the government prove that the classification bears a "substantial relationship to an important government interest." This is a slightly less difficult challenge than the strict scrutiny test. The most lax standard of review is applied to social and economic legislation. Here the government must show that the distinctions bear a "rational relationship to a legitimate government interest." This is a relatively easy hurdle for the government to overcome. Legislation challenged at this level of review usually is declared constitutional.

The case, San Antonio Independent School District v. Rodriguez (411 U.S. 1 (1973)) is the United States Supreme Court decision that interpreted the federal equal protection claims with respect to education. This case was brought on behalf of Texas school children who argued that the large disparities in per pupil expenditures across the state violated their rights under the federal equal protection clause of the Fourteenth Amendment. The court contrasted the wealthiest district within the San Antonio area to the poorest. The level of per pupil expenditures between these two districts varied from a low of $356 to a high of $594. (San Antonio School District v. Rodriguez 411 U.S. 1 (1973)). The Supreme Court found no federal equal protection violation because the Court was not willing to include wealth as a suspect classification or to say that education was a fundamental interest. Applying the rational relationship test, the court declared the Texas scheme of education funding constitutional despite the disparities in per pupil expenditures.

The court was unwilling to declare wealth a suspect classification because wealth discrimination in the public school finance cases

is quite unlike any of the forms of wealth

discriminationheretofore reviewed by this Court. Rather than

focusing on the unique features of the alleged discrimination,

the courts in these cases have virtually assumed their findings

of a suspect classification through a simplistic process of

analysis; since, under the traditional systems of financing

public schools, some poorer people receive less expensive

educations than other more affluent people, these systems

discriminate on the basis of wealth. This approach largely

ignores the hard threshold questions, including whether it

makes a difference for purposes of consideration under the

Constitution that the class of disadvantaged "poor" cannot be

identified or defined in customary equal protection terms, and

whether the relative--rather than absolute--nature of the asserted

deprivation is of significant consequence. (411 U.S. at

18-19, "Public School Finance Reform," 75 Virginia Law

Review 1652)

The court also was unwilling to classify education as a fundamental right. The majority opinion warned that, "it is not the province of this Court to create substantive constitutional rights in the name of guaranteeing equal protection of the laws." (411 U.S. at 33-34) Finding that education was not a fundamental right either explicitly or implicitly protected by the Constitution, the Court applied rational relationship scrutiny. The Court concluded that it could not say that "such funding disparities are the product of a system that is so irrational as to be invidiously discriminatory." (75 Virginia Law Review 1652-1653)

The attempts to use the equal protection clause of the U.S. Constitution to force school finance reform failed with the Rodriguez decision. This decision effectively barred the use of the Federal Constitution to force financing reform, so the reform movement turned its attention to the states and their respective constitutions.

Reform at the State Level - First Attempts

The state constitutions provide a different vehicle to challenge disparities in education funding.

Because the state constitutions are fundamentally different

from their federal counterpart, the state courts act properly

when they develop an independent body of constitutional law

and declare that their respective state constitutions confer

greater rights than the federal constitution. Indeed, an independent

interpretation and application of state constitutions is

not just legitimate, historically, mandated and logically essential.

It is also...a duty that all state courts owe to the people

of theirstates. In recent years, state courts have not hesitatedto

perform this duty and since 1970 there have been over 250

published opinions holding that the federal constitutional

minimums...are insufficient to satisfy the state constitutions.

(Thro, "The Third Wave: The Impact of the Montana,

Kentucky, and Texas Decisions on the Future of Public

School Finance Reform Litigation" 19 Journal of Law and

Education 226-227 (1990))

Unlike the federal constitution, which does not explicitly guarantee education as a fundamental right, state constitutions do provide specific guarantees for education. "Virtually all state constitutions have education provisions." (The Supreme Court, 1972 Term, 87 Harvard Law Review 55,111 n.44, 1973) The financing reform advocates used a combination of both state equal protection clauses and state education clauses to pursue financing reform mandates from the state courts.

Each state's commitment to education is defined in the state's education clause. The level of commitment to education varies from state to state. Education clauses can be divided into four groups. The minimum commitment a state will make to education is usually indicated by general language similar to that of Connecticut's constitution. "There shall always be free public elementary and secondary schools in the state. (Connecticut Constitution Article VIII Sec. 1) While the clause clearly requires that the state establish and maintain a system of public schools, there is no description of the extent of the state's commitment in this area. Eleven states' education clauses fit into this first category. (New York, Connecticut, Alaska, Kansas, Oklahoma, Alabama, Hawaii, Vermont, North Carolina, South Carolina, Utah) Although the state's education commitment is somewhat vaguely stated, the courts have interpreted this as a substantive obligation the states are required to fulfill.

The second level of commitment is characterized by states which require a "thorough and efficient system" of education, or other language indicating some commitment to the quality of education provided by the state. Nineteen states fall into this second category. (Arkansas, Colorado, Delaware, Florida, Idaho, Kentucky, Maryland, Minnesota, Montana, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Virginia, West Virginia, Wisconsin) The language of the constitutions coming within this second group indicates a somewhat stronger commitment to education than that of the first group.

Eight states fall into the third category, which is characterized by language requiring a "stronger and more specific educational mandate." (Ratner, "A New Legal Duty for Urban Public Schools: Effective Education in Basic Skills", 63 Texas Law Review 815 note 130.) (California, Indiana, Iowa, Massachusetts, Nevada, Rhode Island, South Dakota, Wyoming) South Dakota's constitutional requirement that the legislature "will adopt all suitable means to secure to the people the advantage and opportunities of education," (SD Constitution Art. VIII Sec. 1) puts South Dakota into this third group.

The fourth group has the strongest institutional commitment to education, characterized by such language as, "It is the paramount duty of the state to make ample provision for the education of all children residing within its borders. . . ." (Wash. Const. Art IX Sec 1) Other states coming within this group have language indicating that education is the state's "primary duty." (Michigan and Illinois) Seven states fall into this final group. (Georgia, Illinois, Maine, Michigan, Missouri, New Hampshire, Washington) (For a complete analysis of the state education clauses see Thro, "The Third Wave: The Impact of the Montana, Kentucky, and Texas Decisions on the Future of Public School Finance Reform Litigation", 19 Journal of Law & Education 219 and Ratner, "A New Legal Duty for Urban Public Schools: Effective Education in Basic Skills", 63 Texas Law Review 777)

The California Supreme Court was the first state court to adopt the fiscal neutrality theory in the case Serrano v. Priest, (487 P.2d. 1241 (1971)). Here the state court held that the disparities in funding violated both the federal equal protection clause and the California state equal protection clause. The state court held that there was a violation of equal protection rights at both the state and federal levels because the court was willing to find that wealth was a "suspect" classification and that education was a "fundamental interest." Although the Rodriguez decision overruled the California Supreme Court's interpretation of the federal equal protection claims, the California Supreme Court's interpretation of the California constitution provided a model for challenges in other states.

Using the state constitutions to challenge funding systems produced mixed results. Many states litigated school funding cases brought under the state's education clause or the state's equal protection clause during the years 1973-1989. This body of litigation produced six victories for school finance reform and fifteen defeats. (Thro, p. 232) Analysis of these cases produced little direction for other states contemplating financing reform. "Regardless of when the case was brought, the state constitutional provision relied upon, or the wording of the state constitutional provision, the outcomes were totally unpredictable. . . ." (Thro, 231-232)

Reform at the State Level - Second Attempts

Four recently decided cases from the states of Texas, Kentucky, Montana and New Jersey are providing new direction and guidance for advocates of school financing reform. The Supreme Courts of Texas, Kentucky and Montana declared that their education funding schemes were unconstitutional. Each state's Supreme Court told its state legislature that it must develop a new mechanism to fund education. The New Jersey court was not willing to declare the entire state system unconstitutional. Instead it found that certain poorer urban districts do not provide a thorough and efficient education to their students and held that the funding to these identified districts was unconstitutional.

These new decisions differ from previous decisions because the courts were willing to examine the level of local effort made to finance education rather than relying on a per pupil expenditure measure. The Texas court in Edgewood v. Kirby (777 S.W.2d at 397, 1989) held that, "There must be a direct and close correlation between a district's tax effort and the educational resources available to it; in other words, districts must have substantially equal access to similar revenues per pupil at similar levels of tax effort."

The court focused on the huge differences in property value, "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." (777 S.W. 2d 392) Even with state funds distributed under their Foundation School Program which funnels more funds into property-poor districts than property-rich districts, wide disparities in per-pupil expenditures exist, varying from $2,112 to $19,333.

The court observed that,

The lower expenditures in the property-poor districts are

not the result of lack of tax effort. Generally, the property-rich

districts can tax low and spend high while the property-poor

districts must tax high merely to spend low. In 1985-1986,

local tax rates ranged from $.09 to $1.55 per $100 valuation.

The 100 poorest districts had an average tax rate of 74.5 cents

and spent an average of $2,978 per students. The 100

wealthiest districts had an average tax rate of 47 cents and

spent an average of $7,233 per student." (777 S.W. 2d 393)

The court found the Texas system for financing education unconstitutional concluding that, mandating |efficiency' the constitutional framers

and ratifiers did not intend a system with such vast disparities

as now exist. Instead, they stated clearly that the purpose of

an efficient system was to provide for a |general diffusion of

knowledge.' The present system, by contrast, provides not for

a diffusion that is general, but for one that is limited and

unbalanced. The resultant inequalities are thus directly contrary

to the constitutional vision of efficiency." (777 S.W. 2d


Similar analysis and findings were made by the Kentucky and Montana Supreme courts.

The Supreme Court of Kentucky held in Rose v. The Council for Better Education

If one were to summarize the history of school funding

in Kentucky, one might well say that every forward step taken

to provide funds to local districts and to equalize money spent

for the poor districts has been countered by one backward step.

(Rose 790 S.W. 2d at 196) . . . In spite of the Minimum

Foundation Program and the Power Equalization Program,

there are wide variations in financial resources and dispositions

thereof which result in unequal educational opportunities

throughout Kentucky. The local districts have large

variances in taxable property per student.. . . Additionally,

because the assessable and taxable real and personal property

in the 177 districts is so varied, and because of a lack of

uniformity in tax rates, the local school boards' tax effort is not

only lacking in uniformity but is also lacking in adequate

effort. (Rose at 197)

The second major difference between these cases and the earlier state cases is that the courts were willing to base their findings on the state's education clause, rather than relying on an equal protection argument. During the earlier wave of state activity the education clause arguments were coupled with equal protection arguments, the latter thought to be the stronger of the two. With the demise of the federal equal protection attack through Rodriguez, and the random nature of the state equal protection decisions, the state education clauses emerged as the decisive factor in the second group of finance reform decisions.

Focus on the education clause shifts the nature of the legal issues that are addressed.

If the emphasis is on the education clause, as it apparently

will be in the future, pro-finance reform outcomes will

be easier for the court because a decision under the education

clause does not carry the same implications for other areas of

the law as a decision under the equality guaranty provision. A

decision which turns on the education clause involves only

questions of the legislature's duty and whether that duty has

been fulfilled. (19 Journal of Law & Education 241)

Thus the court is guided primarily by the state Constitutional mandate and its previous interpretations of the education clause. By limiting the focus of the decision to the education clause the finance reform advocates avoid the entire argument of whether wealth is a suspect class or education is a fundamental right.

Focus on the education clause also changes the nature of the argument made by finance reform advocates. Previous cases relied on the disparities of per pupil expenditures and did not focus on the overall level of the quality of education provided by the state. The Rose decision invalidated the entire system of common schools in Kentucky. The court made this sweeping decision based, in part, on its finding that even the more affluent districts provide an inferior education.

Moreover, most of the witnesses before the trial court

testified that not only were the state's educational opportunities

unequal and lacking in uniformity, but that all were

inadequate. Testimony indicated that not only do the so-called

poorer districts provide inadequate education to fulfill

the needs of the students but the more affluent districts' efforts

are inadequate as well, as judged by accepted national standards."

(Rose v. Council for Better Education 790 S.W. 2d


The court was willing to examine issues that suggest a need for overall changes in the education system.

Reliance on the education clause may provide the vehicle to promote broader educational reform. (For a complete discussion of these issues see, "The Third Wave: The Impact of the Montana, Kentucky, and Texas decisions on the Future of Public School Finance Reform Litigation," Thro, 19 Journal of Law & Education 219-250 (Spring, 1990)) States falling into the third and fourth categories of education clauses are the more likely candidates for further-reaching reform activity.

Reform in South Dakota

An education finance reform case has not been litigated to conclusion in South Dakota since the Serrano v. Priest decision. Wehde v. Erickson, Civ. No. 77-652 (2nd Circuit) was dismissed by stipulation of the parties on June 2, 1978. Oster V. Kneip (4th Circuit) Civ. No. 77-200 was dismissed by the court on February 20, 1981.

The lack of reform litigation does not imply the absence of funding disparity within the state. Per pupil expenditures vary widely among school districts in South Dakota. The cost per average daily membership varies from a high of $7,426 in Eagle Butt to a low of $2,379 in Watertown. The average cost per average daily membership is $3,272. (1989-1990 Educational Statistics Digest South Dakota Department of Education and Cultural Affairs)

In the cases discussed above the U.S. Supreme Court and the state supreme courts were willing to use per pupil expenditures or per pupil costs as an approximate measure for quality. The courts acknowledge that this is not a perfect measure for quality. Per pupil expenditures can vary for a variety of reasons. The amount of taxable property wealth, the tax rates, the number of students attending within a district, students with special needs, and other factors contribute to the per pupil expenditure disparities among districts.

The amount of taxable property wealth throughout this state varies widely from a high of $791,456 per average daily membership in Agar to a low of $15,872 per average daily membership in Douglas. Both the measure of cost and taxable value per average daily membership varies with the amount of children enrolled in a district. Sparsely populated districts like Agar which has an average daily membership of 88.4 students will produce higher cost per pupil expenditure than those districts which are able to spread fixed costs over a larger number of students. While many factors contribute to these disparities, nevertheless they do represent the type of large discrepancy that finance reform states have successfully challenged.

It is the legislature's duty to correct financing problems. The legislature's control over education is unlimited and free from judicial interference except as tempered by the State and Federal Constitutions. (Anderson v. S.D. High School Activities Ass'n. 247 N.W. 2d 481 (1976) Although it is the legislature's duty to finance education, it is the court's duty to ensure that the educational provisions of the Constitution are fulfilled. To ensure Constitutional compliance the courts are willing to mandate that schools meet minimum levels or standards. In the case Jenkins v. Missouri the Court ordered an increase in property taxes to pay for school improvements and desegregation. (Jenkins v. Missouri, 838 F. 2d 260 (1988))

Although South Dakota has not litigated a recent finance reform case, the state education funding formula has been criticized for failing to correct funding misallocations due to the hold harmless provisions of the funding formula. (See "South Dakota State Aid To Education" published in the March 1991 issue of the South Dakota Business Review for a discussion of school financing formulas in South Dakota.) Even if the hold harmless provision is deleted, the state still faces the kinds of spending disparities that have provided fruitful litigation in other states. Whether these disparities alone are sufficient to base a successful finance reform challenge in South Dakota is doubtful. South Dakota's current school funding formula corrects the tax burden disparity argued in the Texas case, Edqewood v. Kirby. Evidence of a radically inferior education provided by isolated districts within the state, as was argued in the New Jersey case, has not surfaced within South Dakota. South Dakota's educational success as measured by ACT and SAT test scores suggests a state that is delivering a quality education, unlike the experience of Kentucky.

While the activities of the states discussed above do not provide compelling evidence that reform is imminent in South Dakota. South Dakota's constitutional mandate for education is stronger than the education provisions in the constitutions of Kentucky, Texas, New Jersey or Montana. (Each of these states has a level 2 education clause. South Dakota has a level 3 commitment to education.) The stringent commitment to education mandated by the South Dakota constitution may be challenged to require that the state expand the limits to which it will go to, "secure to the people the advantages and opportunities of education." (Art. VIII Sec. 1, South Dakota Constitution) Whether this interpretation materializes depends upon the zeal and vigor of education funding reformists in pursuing this type of litigation within South Dakota.
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Author:Hoadley, Diane
Publication:South Dakota Business Review
Date:Jun 1, 1991
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