Legislature(2015 - 2016)CAPITOL 106
03/13/2015 08:00 AM House EDUCATION
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| Briefing on the Ketchikan School Lawsuit | |
| Adjourn | |
| Briefing on the Ketchikan School Lawsuit |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
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ALASKA STATE LEGISLATURE
HOUSE EDUCATION STANDING COMMITTEE
March 13, 2015
8:05 a.m.
MEMBERS PRESENT
Representative Wes Keller, Chair
Representative Paul Seaton
Representative Harriet Drummond
Representative Jonathan Kreiss-Tomkins
MEMBERS ABSENT
Representative Lora Reinbold, Vice Chair
Representative Jim Colver
Representative Liz Vazquez
OTHER LEGISLATORS PRESENT
Representative Daniel Ortiz
Representative Sam Kito III
COMMITTEE CALENDAR
BRIEFING ON THE KETCHIKAN GATEWAY BOROUGH LAWSUIT
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
REBECCA HATTON, Assistant Attorney General
Labor and State Affairs Section
Department of Law
Juneau, Alaska
POSITION STATEMENT: Presented a briefing regarding the
Ketchikan Gateway Borough v. State of Alaska lawsuit.
KATE VOGEL, Assistant Attorney General
Appellate Section
Department of Law
Anchorage, Alaska
POSITION STATEMENT: During the presentation offered comments
and responded to questions.
ACTION NARRATIVE
8:05:51 AM
CHAIR WES KELLER called the House Education Standing Committee
meeting to order at 8:05 a.m. Representatives Drummond, Kreiss-
Tomkins, Seaton, and Keller were present at the call to order.
Also present were Representatives Kito and Ortiz.
^Briefing on the Ketchikan School Lawsuit
Briefing on the Ketchikan School Lawsuit
8:06:06 AM
CHAIR KELLER announced that the only order of business would be
a briefing from the Department of Law regarding the Ketchikan
Gateway Borough Lawsuit.
8:07:23 AM
REBECCA HATTON, Assistant Attorney General, Labor and State
Affairs Section, Department of Law, advised the Ketchikan
Gateway Borough filed suit against the State of Alaska in
January 2014, regarding the Required Local Contribution (RLC),
which is an element of Alaska's public school funding formula
under the Alaska State Constitution. In February and March
2014, both parties to the case asked Superior Court Judge
William Carey to grant summary judgment in their favor. She
explained that summary judgment is granted when there are no
issues of material fact to be resolved. While there was
disagreement regarding the law, there were no contested facts as
it was purely a question of law. The lawsuit was resolved in
January 2014 as Judge Carey ruled on the cross-motions for
summary judgment and issued final judgment on the matter in
January 2015. She stated that Judge Carey's decision found in
favor of the Ketchikan Gateway Borough as to one their
constitutional claims, and in favor of the state as to several
other constitutional claims, but ultimately the effect of the
claim was to hold the RLC in violation of the Alaska State
Constitution. She explained that in January the state requested
Judge Carey to stay his ruling as the state had filed an appeal
with the Alaska Supreme Court. In late February 2015, Judge
Carey denied the state's request for a stay and when the state
informed the Alaska Supreme Court regarding that development and
requested the Alaska Supreme Court stay Judge Carey's ruling
until the court had an opportunity to hear and decide the case,
the Alaska Supreme Court granted that motion [March] 11, 2015.
8:10:49 AM
MS. HATTON continued and began to describe described the
constitutional claims within the lawsuit. Again, she remarked,
the challenge was to the RLC which requires municipalities to
contribute toward the operation of its local school district at
the equivalent of a 2.65 mill rate and statewide municipalities
pay on average approximately 16 percent of the basic need costs
of education in their local school districts. She explained
that in FY2014 the Ketchikan Gateway Borough's RLC payment was
approximately $4.2 million, out of a total $22.5 million in
basic need for Ketchikan. The lawsuit claimed that the required
contribution violated three separate constitutional provisions:
Article XI, Section 7 the dedicated funds prohibition; Article
IX, Section 13 the appropriation clause; and, Article II,
Section 15 the governor's veto clause. She quoted Article XI,
Section 7, as follows:
The proceeds of any state tax or license shall not be
dedicated to any special purpose, except as provided
in section 15 of this article or when required by the
federal government for state participation in federal
programs. This provision shall not prohibit the
continuance of any dedication for special purposes
existing upon the date of ratification of this section
by the people of Alaska.
8:12:37 AM
MS. HATTON continued that the purpose underlying the state's
funds prohibition was to prevent ear marking as the intention
was to prevent a situation where a new tax is created and the
proceeds of that tax is dedicated or promised to a specific
purpose or outcome. She conveyed that the intent of the framers
was to maximize the legislature's ability to spend money where
in its estimation it was needed at any given point in time. In
order to determine whether or not the dedicated funds
prohibition has been violated the Alaska court use a two-part
test: whether the funds at issue are the proceeds of a state
tax or license; and, whether there was a dedication to a special
purpose. She related that the state made many arguments on this
constitutional claim as the state's position was that the RLC is
not a specific tax and is not state revenue. Judge Carey did
not decide in favor of this claim and held the RLC does violate
the dedicated funds prohibition. The other two constitutional
claims, she said, the appropriations clause and governor's veto
clause are interrelated as the appropriations clause concerns
the legislature's authority to appropriate funds whereas the
governor's veto clause has to do with the governor's authority
to either strike or reduce line items from an appropriation
bill. Again, she explained, the state's claim, also relevant to
the dedicated funds issue that the RLC is not state revenue, the
state believed was fatal to the other two constitutional claims.
The state argued that the legislative authority to appropriate
funds is limited to funds that come within the state treasury,
and that the governor's authority to strike or reduce
appropriations is limited to appropriations that have been
authorized by the legislature. She pointed out that the state's
briefing argued that the RLC, which is collected by, deposited
by, and appropriated by the borough's treasury as opposed to the
state, therefore, the required local contributions did not
violate either the governor's line item veto or the
appropriations clause. As to these two points, Judge Carey
sided with the state dismissing both of the constitutional
claims.
8:15:13 AM
MS. HATTON continued that the Ketchikan Gateway Borough made a
claim in assumpsit, which is a common law action for the
recovery of damages with the intentionality to basically correct
situations where a party has been unjustly enriched.
Essentially, she remarked, Ketchikan Gateway Borough was asking
for a refund. She stated that prior to the litigation and
during the pendency of the litigation the Ketchikan Gateway
Borough made its RLC in FY13 and FY14, but did so with letters
advising they were doing so but under protest and would like its
money back should their claim be granted. Judge Carey denied
this claim and said that the state had not been unjustly
enriched largely because the RLC never becomes state revenue and
never comes within the power of the state treasury. Basically,
she advised, Judge Carey's order found that the RLC was
unconstitutional as violating the dedicated funds prohibition,
and not in violation of either the appropriation's clause or the
governor's veto clause and finally, Ketchikan Gateway Borough's
request for repayment of prior RLC payments was denied. As a
result of the stay issued by the Supreme Court, the state at
this point can continue to enforce the public school funding
formula as it was written in statute. She thanked the committee
for their time as it is important for the legislature to
understand the issues raised. She related that the state is
very confident in its legal arguments but it is certainly
possible the Alaska Supreme Court could come to Judge Carey's
conclusion and were that situation to come to pass, it would be
an issue requiring considerable attention from the legislature
in the future.
8:17:36 AM
REPRESENTATIVE SEATON pointed out that the January 11 date
should have been March 11.
MS. HATTON agreed.
8:17:52 AM
CHAIR KELLER asked for information, at a later date, as to the
real impact to the general fund should the state lose the issue.
8:18:22 AM
REPRESENTATIVE SEATON questioned that if the judge decided that
it was a tax, and it was dedicated to a special purpose,
therefore, it didn't violate the appropriations or veto clause
He asked whether the state is arguing it wasn't a tax required
by the state, or it wasn't a state tax.
MS. HATTON responded that essentially the state argued it was
dispositive, that the money didn't come within the power of the
state treasury. Although, Judge Carey thought differently and
through the distinction he drew was able to come to his
conclusions.
8:19:24 AM
KATE VOGEL, Assistant Attorney General, Appellate Section,
Department of Law, added that Judge Carey's decision did not
find it to be significant that the money was locally raised
money and locally allocated. She explained that was a
distinction the state drew and anticipates will continue to draw
on appeal from previous dedicated funds cases. Judge Carey did
not agree and distinguished between the application of the
dedicated funds clause and not the application of the
appropriation or the governor's veto clause.
8:20:33 AM
REPRESENTATIVE KITO referred to the decision by Judge Carey that
appears to identify the tax or a license can be local, and asked
whether there is a requirement that the funding the local
government's pay come from a tax or license. Theoretically, he
questioned, whether there could be a municipality that has an
endowment and uses those earnings to pay this local contribution
and it wouldn't be a tax on the citizens of the local
government.
8:21:19 AM
MS. VOGEL answered yes, the state made that argument as the
statute gives an amount that the RLC is and states that amount
as being the equivalent of a mill rate. Nothing in the statutes
dictate how a local community should raise that money and it
doesn't have to be a tax. Judge Carey did not accept that
argument but it was certainly a part of the state's position,
she maintained.
REPRESENTATIVE KITO commented that with regard to the impact to
the general fund and opined the amount of local contribution
currently is approximately $220 million which represents the
total amount all municipalities contribute to education.
8:22:43 AM
REPRESENTATIVE KREISS-TOMKINS surmised that if the Supreme Court
granted a stay presumably it will take up the case and rule.
MS. HATTON agreed, and advised that both sides have launched
appeals and in fact has a scheduling conference this afternoon
to determine due dates with the Supreme Court. She expects the
Supreme Court, based on the short order it issued in granting
the stay, intends to deal with the case in an expedited fashion.
REPRESENTATIVE KREISS-TOMKINS asked her opinion as to the
timeline for the Supreme Court.
MS. HATTON replied that she would not speculate and will keep
the committee apprised, but the Supreme Court is within its
authority to take any length of time it deems sufficient.
8:24:14 AM
CHAIR KELLER questioned that should the Supreme Court agree,
will the local school district be short that money. Or, is
there a clear implication that it goes back to the general fund.
MS. HATTON responded that she will not speculate what the
Supreme Court might rule, but would draw the committee's
attention to the fact that although the Ketchikan Gateway
Borough did not clearly challenge the RLC under the education
clause, they did include arguments that the state had somehow
abdicated its responsibility to fully fund education. Judge
Carey clearly decided that the state does not have an obligation
to fully fund education, she explained.
CHAIR KELLER asked her comments as to the implications regarding
impact aid.
MS. HATTON offered that is an area of concern as Alaska is
deemed to have an equalized funding formula for purposes of
federal impact aid. As such, she put forward, it is allowed to
take into account 90 percent of the impact aid payments made to
districts, which amounts to an approximate offset of state
education funding of $69-70 million annually. She said it would
be speculation to say if any revised formula would be passed by
the legislature in the future, as it is an open question whether
or not it would be considered equalized by the Federal Division
of Impact Aid.
CHAIR KELLER pointed out that those questions highlight what the
legislature is up against.
8:26:32 AM
REPRESENTATIVE KITO asked whether a decision in this case impact
other payments the legislature might require from a
municipality, such as a first contribution or a match for a
capital project.
MS. VOGEL answered yes, a dedicated funds decision from the
Supreme Court in this arena, particularly if it adopted an
analysis similar to that of Superior Court, could have further
reaching implications for other matching grant programs or other
times when the state mandates a local entity put in some money
in exchange for access to state funds. That is something the
state would argue would be an extension of the way the dedicated
funds clause has been interpreted in the past. She opined that
how much of an impact the decision has would depend on what the
Supreme Court decides and words its decision. Certainly, she
pointed out, the dedicated fund provision has implications
beyond the education arena so the state's position has been one
of trying to highlight to the court all of the implications of
ruling that this is a dedicated fund.
8:28:26 AM
REPRESENTATIVE SEATON questioned whether the discussion is
regarding the 70/30 reimbursement rate for debt incurred be
implicated in this.
MS. HATTON responded that it was an area of concern, not
specifically 70/30 grants, but other joint municipal state
participation type programs currently in statute which was a
significant part of the state's argument in the lower court.
She said that it was an area of concern for the state and that
that sort of joint participation program could be endangered by
an expansive interpretation of the dedicated funds provision
encompassing the RLC, and it remains to be seen how the Supreme
Court will decide or word a ruling.
REPRESENTATIVE SEATON inquired whether the PERS participation is
one of the issues the state is arguing would be an expansion.
MS. HATTON replied that it was not a particular area highlighted
in the state's briefing to the lower court, and as to the
briefing to the Supreme Court they "haven't done it yet."
8:45:10 AM
REPRESENTATIVE ORTIZ requested a summary of the three parts of
the constitution that the Ketchikan Gateway Borough based its
lawsuit upon and how they relate to the case.
MS. HATTON responded that the first constitutional claim was the
dedicated funds provision and constraint against ear marking of
identifying a particular source of income to the state and tying
it to a particular outgoing source or project. Its connection
to this case was that the Ketchikan Gateway Borough argued that
the reprisal for contribution violates that constitution
provision. The appropriations clause and the governor's veto
power had to do with the legislature's ability to approve
appropriations, and the governor's ability to use his line item
veto power. She explained that the Ketchikan Gateway Borough
contends this was a dedicated fund thereby implicating the other
two clauses because if the conclusion was that it was a state
tax, the fact that the money moved directly from municipalities
to local school district. She remarked that the Ketchikan
Gateway Borough's argument was that it somehow violated both of
those constitutional provisions by unconstitutionally skirting
the respective power of the legislature and governor.
REPRESENTATIVE ORTIZ surmised that Judge Carey ruled against
Ketchikan Gateway Borough on those last two point.
MS. HATTAN answered correct.
8:32:03 AM
REPRESENTATIVE SEATON referred to the appeal and asked whether
all three issues are being appealed or just the dedicated funds
portion.
MS. HATTON responded that it is everything. Initially the state
appealed the point on which they lost, the dedicated funds
prohibition and then Ketchikan Gateway Borough cross-appealed
the other two constitutional claims as well as its assumpsit
claim.
8:32:41 AM
REPRESENTATIVE DRUMMOND asked whether the state considered what
other states do in terms of education funding. For example,
Alaska's school districts are dependent school district as they
rely upon local governments and the state to provide funding.
She pointed out that many states have independent school
districts that require a local tax contribution from its
citizens and go to the citizens for its tax portion and capitol
funds. She opined that she can see this turning Alaska into a
different sort of structure in terms of how its school district
function. In the event the state loses, she offered, and school
districts have to find another source of revenue, it could turn
them into independent school districts looking to their local
governments for taxes directly and going to the local ballot.
CHAIR KELLER said he would like to know whether that was part of
the court's consideration.
8:34:43 AM
MS. HATTAN advised that the state's focus was quite limited in
the sense that its goal was defending the legality of Alaska's
system as it currently exists.
The legislature has, within the confines of what the education
clause requires, essentially plenary power to decide what
education is going to look like in the State of Alaska. She
explained that the Department of Law considered it task because
there were and continue to be good legal defenses of Alaska's
current system. Their goal was to legally defend the current
system which puts the legislature in a better position to come
at this issue from a policy perspective and decide what is best
for the state.
8:35:37 AM
MS. VOGEL added that one other consideration on that issue is
before statehood school districts had independent taxing
authority and they initially paid for their schooling and
requested refunds from the territory, but currently the
constitution does not give school districts taxing authority.
She said the state and municipalities have taxing authority, for
example, the school districts in unorganized Alaska do not have
taxing authority. In terms of how it works now, the tools
Alaska has at its disposal for funding schools is state aide,
aide raised from municipalities through RLC and how it chose to
access that money, and federal aid are the main sources. She
offered that the Department of Law is aware of how much state
aid Alaska schools receives and presented evidence to the court
regarding how Alaska follows with respect to other states. She
agrees with Ms. Hatton that the focus in the litigation is the
legality of the RLC in light of the dedicated funds provision.
8:37:22 AM
REPRESENTATIVE DRUMMOND surmised that "let's figure this out
first before we worry about what is going on down the road."
She noted it sounds like it would take a constitutional
amendment to change the funding source for schools.
MS. VOGEL responded that it is not specifically being litigated
yet so no need to go there, and did not want to speculate for
need for a constitutional amendment to change things one way or
another.
8:38:06 AM
REPRESENTATIVE SEATON said that the state requires all
municipality boroughs to use 100 percent fair market assessed
valuations. In the event there is a dedicated funds problem
couldn't the state impose a 3.65 mill tax on all assessed
valuations in the state and give it to the general fund. Then,
he remarked, as the legislature appropriates money it can fund
education as it sees fit, and oil and gas properties are
separately assessed so it is in a different category. He
questioned whether that is the logical response if it is a
dedicated funds problem.
MS. HATTAN answered that it would certainly be a solution
available to the legislature, but she wouldn't speculate on the
parameters of what the Supreme Court might rule in the future.
In the state's briefing to the lower court emphasized the
benefit to local school districts in the sense that the money
isn't deposited into the general fund and is allocated directly
from municipalities to its local school districts and all of the
money goes directly to that purpose. Therefore, they felt there
was significant benefits to individual school district to have
the RLC implemented the way it is written now, she stated.
REPRESENTATIVE SEATON clarified he was asking whether there is
anything prohibiting the state from having a property tax at
whatever millage rate it decides based upon 100 percent fair
market valuation which is what is required of all assessments.
MS. HATTON replied that nothing she is aware of and deferred to
Ms. Vogel.
8:40:11 AM
MS. VOGEL agreed that it would be a possible solution and she is
not aware of any constitutional problems. Certainly, she
pointed out, the manner it was described the idea of a state
imposed tax being deposited in the general fund and not pledged
to schools would seem to be permissible under the dedicated
funds clause no matter what the court decides about the status
quo and the current way the state does it.
CHAIR KELLER said it is a discussion the committee may or may
not get into in the future.
8:41:01 AM
REPRESENTATIVE ORTIZ inquired as to whether Ketchikan Gateway
Borough argued it was unequitable treatment and integrate that
into different Articles in the Alaska State Constitution between
how students in borough areas are funded by the state versus
students in non-borough areas.
MS. HATTAN answered it did not.
8:42:25 AM
REPRESENTATIVE SEATON commented that the current system is
better as the prior system caused a problem between equities and
different parts of the state. He opined Alaska does not have a
problem other than the will to determine there will be a
property tax at whatever mill rate across the state. He said
that it is basically what the state does by requiring a local
contribution at the 3.65 level, and it does not appear the
legislature is in a box. He explained it would mean a change in
the system as it would go to the general fund and the
appropriation and veto clauses would be available. Although, he
remarked, he is worried about the lawsuit and redoing the
system, it appears there are mechanisms without totally turning
over the way in which districts are organized and taxed. He
pointed out that a fairly simple solution is that the state
could either keep it the same level or go back to the previous
formula if there are funding problems for local school
districts.
CHAIR KELLER pointed out that it may be an anticipated
discussion in the future.
8:45:03 AM
ADJOURNMENT
There being no further business before the committee, the House
Education Standing Committee meeting was adjourned at 8:45 a.m.
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