Opinion ID: 433833
Heading Depth: 1
Heading Rank: 5

Heading: financing desegregation in st. louis city schools.

Text: 181 In November, 1982, Missouri voters approved a referendum (Proposition C) which directed local school officials to reduce their operating levies by an amount equal to fifty percent of the revenues local school districts would receive under a one-cent increase in the state sales tax. Mo.Rev.Stat. Sec. 164.013 (Supp.1983). In its July 5, 1983, order, the district court enjoined this rollback of local real estate taxes, Liddell v. Bd. of Educ., supra, 567 F.Supp. at 1056, and directed the Board of Education to use this money to fund the quality education programs necessary to restore the St. Louis schools to their AAA status. In our en banc order of September, 1983, we sustained the district court's injunction of the rollback on equitable grounds, for the injunction was already in place, and reversal at that time would have seriously disrupted St. Louis's system of school finance. Liddell VI, supra, 717 F.2d at 1182-1184. We sustain the injunction against the rollback for the balance of this school year for the same reason. The equitable nature of that decision obliges us now to examine the propriety and the merits of the district court's injunction of the rollback with respect to years beyond 1983-84. We also consider the district court's authority to order a further increase in property taxes to fund operating expenses or capital improvements. 182 We hold that the district court's broad equitable powers to remedy the evils of segregation include a narrowly defined power to order increases in local tax levies on real estate. Limitations on this power require that it be exercised only after exploration of every other fiscal alternative. 183 The district court's use of broad equitable powers concerning school desegregation costs has been approved by previous opinions of the Supreme Court. Thus, it has declared that, when predicated on a right and a violation, the scope of a district court's equitable powers to remedy past wrongs is broad, for breadth and flexibility are inherent in equitable remedies. Swann v. Charlotte-Mecklenburg Bd. of Educ., supra, 402 U.S. at 15, 91 S.Ct. at 1276. These powers subsume a broad range of ideas and tactics: equity assures that all reasonable methods be available to formulate an effective remedy. North Carolina State Bd. of Educ. v. Swann, 402 U.S. 43, 46, 91 S.Ct. 1284, 1286, 28 L.Ed.2d 586 (1971). These powers may also be applied broadly to achieve the greatest possible degree of [relief] taking into account the practicalities of the situation. Davis v. Bd. of School Comm'rs of Mobile County, 402 U.S. 33, 37, 91 S.Ct. 1289, 1292, 28 L.Ed.2d 577 (1971). 184 In Griffin v. School Bd. of Prince Edward County, 377 U.S. 218, 84 S.Ct. 1226, 12 L.Ed.2d 256 (1964), the Supreme Court acknowledged that the district court may order an increase in taxes to fund schools where the State has defaulted on its obligation to provide an equal educational opportunity to all students. The Court did not limit the scope of its holding by ordering a return to the previous tax levy or procedures. It indicated only that the tax must be necessary to prevent further racial discrimination and that it must raise funds adequate to reopen, operate, and maintain without racial discrimination a public school system. Id. at 233, 84 S.Ct. at 1234. 185 In United States v. Missouri, 515 F.2d 1365 (8th Cir.), cert. denied, 423 U.S. 951, 96 S.Ct. 374, 46 L.Ed.2d 288 (1975), this Court also acknowledged the district court's remedial power to require a tax levy in excess of that authorized by the voters. When the district court ordered the consolidation of three St. Louis suburban school districts with disparate tax rates ($3.80, $4.97 and $5.38), it concluded that a uniform tax rate higher than any of the three ($6.03) would be necessary to effectively operate the desegregated district, id. at 1371, and that [t]his rate, inclusive of the amount necessary to service the total debt of the enlarged district, shall be deemed to have been approved by the voters for the purposes of Article 10, section 11(c), Missouri Constitution. Id. at 1372. In setting that rate, the district court also noted that there was no reasonable possibility that such a tax levy would be approved by the required two-thirds vote in the aftermath of the desegregation order. Id. at 1371-1372. 186 On appeal, this Court sitting en banc unanimously approved a rate of $5.38, the highest rate of the three districts. Judge Stephenson, writing for the full Court, stated:It is anomalous to suggest that the district court has the power to disestablish a dual school system but does not have the power to fashion an appropriate remedy. In North Carolina State Board of Education v. Swann, 402 U.S. 43, 45 [91 S.Ct. 1284, 1286, 28 L.Ed.2d 586]   , the court stated: 187 [I]f a state-imposed limitation on a school authority's discretion operates to inhibit or obstruct the operation of a unitary school system or impede the disestablishing of a dual school system, it must fall; state policy must give way when it operates to hinder vindication of federal constitutional guarantees. 188 We have likewise held in ordering implementation of a school integration plan that the remedial power of the federal courts under the Fourteenth Amendment is not limited by state law. Haney v. County Board of Education of Sevier County, supra, 429 F.2d at 368 [ (8th Cir.1970) ]   . 189 We are satisfied that the district court had the authority to implement its desegregation order by directing that provision be made for the levying of taxes essential to the operation of the new school district. It is our view, however, that deference should be given to the plan submitted in good faith by the state and county officials and which was largely accepted by the court. It was the view of the state that with the receipt of anticipated funds through action of the legislature the present Ferguson rate would be adequate. Maximum consideration should be given the views of the state and local officials concerned so long as they appear compatible with the goals to be achieved. The maximum rate in the new district should be reduced to $5.38 per hundred. 190 Id. at 1372-1373 (citations and footnote omitted). 191 The City cites Evans v. Buchanan, 582 F.2d 750 (3d Cir.1978) (en banc), for the proposition that the district court is without authority to order a tax increase to fund a court-imposed desegregation plan. The decision cannot be so construed. Indeed, the court en banc, relying on Griffin, made clear that the district court had that authority: had the State allocated no funds, or substantially insufficient funds, to operate the remainder of the school system, such action by the State would clearly be unacceptable as interfering with the operations of the desegregation decree. Id. at 780. In addition, in Evans, the district court had acted before the obvious inherent political safeguards    [were] permitted to run their course. Id. Our instructions on remand are entirely consistent with Evans because the district court must defer to the political funding process before it may consider ordering a tax increase. We read Evans for the proposition we stated at the outset of this discussion: a district court may require an increased tax levy, but only where necessary to remedy a violation of the Constitution, and only after exhausting all other alternatives. 192 The City and State also cite San Antonio Independent School District v. Rodriguez, 411 U.S. 1, 93 S.Ct. 1278, 36 L.Ed.2d 16 (1973), in arguing that the courts should defer to the legislative expertise of state and local governments. That case is also distinguishable. It involved an equal protection challenge of Texas's use of the property tax for funding education. The appellants claimed that this system of taxes per se was discriminatory because it raised disparate revenues in different school districts according to disparities in the assessed valuation of property within the districts. The Supreme Court found no suspect class affected and no fundamental rights at stake. Instead, it relied on the rational basis test and deferred to legislative expertise in fiscal matters. On the other hand, in this case, the City Board and State have both been adjudged constitutional violators in matters involving a suspect classification. Moreover, in this case, no one challenges the mechanics of the tax system, which was the central issue in the passage from Rodriguez that the State cited. 20 193 Our conviction that the district court's equitable power includes the remedial power to order tax increases or the issuance of bonds finds support in the case law surrounding the contracts clause of the United States Constitution. U.S. Const. art. 1, Sec. 10, cl. 1. The Supreme Court has recognized that a municipality's contractual obligations cannot be impaired solely because state law restricts its powers to tax in order to meet those obligations. When the City of New Orleans raised such an argument in an attempt to avoid its debts owed to the receiver of a metropolitan police board, the Court had no trouble holding that the courts could require the city to pay over the taxes for which the judgment was rendered, or to levy and collect a tax therefor for the benefit of the relator as receiver. Louisiana ex rel. Hubert v. Mayor and Council of New Orleans, 215 U.S. 170, 181, 30 S.Ct. 40, 45, 54 L.Ed. 144 (1909). See also Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 103 S.Ct. 697, 705 n. 14, 74 L.Ed.2d 569 (1983) (When a State itself enters into a contract, it cannot simply walk away from its financial obligations.); United States Trust Co. v. New Jersey, 431 U.S. 1, 24, 97 S.Ct. 1505, 1519, 52 L.Ed.2d 92 (1977) ([T]he taxing power may have to be exercised if debts are to be repaid. Notwithstanding these effects, the Court has regularly held that the States are bound by their debt contracts. [Footnote omitted.]. 194 Similarly, courts have recognized that municipalities may not avoid their liability in tort by pleading constitutional or statutory debt limitations. Wichita Finance and Thrift Co. v. Lawton, 131 F.Supp. 788, 790 (W.D.Okla.1955); State ex rel. Martin v. Harris, 45 N.M. 335, 115 P.2d 80, 83 (1941); Raynor v. King County, 2 Wash.2d 199, 97 P.2d 696, 708 (1940); City of Catlettsburg v. Davis' Administration, 262 Ky. 726, 91 S.W.2d 56, 59-60 (1936); Town of Flagstaff v. Gomez, 29 Ariz. 481, 242 P. 1003, 1004 (1926); City of Long Beach v. Lisenby, 180 Cal. 52, 179 P. 198, 200 (1919) (taxes in such cases can be raised beyond their legal limits by the courts without a vote of the people of said city.). 195 We turn to an evaluation of the district court's July 5, 1983, order in light of the foregoing discussion. We initially note that the district court declined to order an increase in real estate levies for operating purposes until the need for such revenues had been clearly demonstrated. It also declined to order a tax increase to fund capital improvements until such time as a bond issue of an amount determined by the City Board as sufficient to meet the most pressing capital improvement needs of the Board's constitutional obligation to desegregate had been submitted to the voters. It acted properly in both respects. 196 It went on, however, to authorize and direct the City Board to not reduce its operating levy as required by Mo.Rev.Stat. Sec. 164.013 (Proposition C), and to direct the State to refrain from withholding from the City Board funds that it would otherwise withhold pursuant to the same statute. It required that the revenue realized be utilized to fund the desegregation plan. It stated that any revenue thus retained but not necessary to fund the City Board's constitutional obligation should be applied to reduce its operating levy on July 1, 1984. 197 In our view, this order was deficient in that it was not accompanied by a factual finding by the district court that all other fiscal alternatives were unavailable or insufficient. We are unwilling to read such a finding into the record even though the record reveals that the City Board has little or no budget surplus, federal aid for desegregation has been cut, real estate values in the district have risen only slightly in recent years and referenda to secure additional funds have been largely unsuccessful. 21 On remand, the district court must allow the rollback under Proposition C to take effect for the 1984-85 school year unless it finds that no other alternatives are available or sufficient to finance its desegregation order. In addition, it shall not require any additional levy unless it makes similar findings. 198 Specifically, the district court should, first, promptly determine the amount of money that will be required in 1984-85 to fund the desegregation order and it should subsequently determine the funds necessary for each of the succeeding years. Second, the district court should determine whether the City Board is able, with its own resources, to fund its share of the costs. In making this determination, the district court shall consider the reduced budgetary pressures that will result from the transfer of nearly 6,000 students from city to county schools in 1984-85, and from the transfer of an additional 9,000 students in the following three years. In addition, the district court shall consider the effects of students transferring to magnet schools and of the City Board's receipt of transfer payments under the settlement agreement for sending students to county schools. Third, if the district court determines that the City Board lacks resources sufficient to fund its share of the desegregation order, it shall consider alternative sources of revenue. These alternatives include, but are not limited to: submission of a referendum to the voters for an increased operating levy; or authorization of the City Board by the State legislature to impose non-real estate taxes within the city. Fourth, if the voters refuse to approve a higher tax levy, or if the legislature fails to authorize the City Board to raise taxes from non-property tax sources, or if the City Board and the State, as joint tortfeasors, are unable to agree on an alternate method of raising the City Board's share of the cost, the district court shall conduct an evidentiary hearing and thereafter enter a judgment sufficient to cure the constitutional violations which we have found in a manner consistent with this and prior opinions. 199