Opinion ID: 1198839
Heading Depth: 4
Heading Rank: 2

Heading: Financing system and substantial disparities

Text: ¶ 13 The second prong of the Hull test requires that the legislature fund public schools through a financing system that does not itself cause substantial disparities between districts. 190 Ariz. at 524, 950 P.2d at 1145. By failing to fulfill this requirement, the Act fails to provide for the establishment and maintenance of a general and uniform public school system. ¶ 14 At the outset, we emphasize that nothing in the constitution prohibits a school financing system that allows districts to go above and beyond state-mandated adequate facilities by individually accessing local financing sources. See Roosevelt, 179 Ariz. at 242, 877 P.2d at 815; Hull, 190 Ariz. at 524, 950 P.2d at 1145. Indeed, we have noted that local control is a historically important value that may contribute to the overall effectiveness of the public school system, see Roosevelt, 179 Ariz. at 242, 877 P.2d at 815, and that the ability to go above and beyond the state system is the key to local control. Hull, 190 Ariz. at 523, 950 P.2d at 1144. Financial disparities caused by local control do not run afoul of the state constitution because [f]actors such as parental influence, family involvement, a free market economy, and housing patterns are beyond the reach of the `uniformity' required by art. XI, § 1. Roosevelt, 179 Ariz. at 242, 877 P.2d at 815. But the general and uniform requirement will not tolerate a state funding mechanism that itself causes disparities between districts. ¶ 15 The Act establishes two local financing options for school districts. Which option is available depends upon whether a district (1) participates in the state funding plan (participating districts), or (2) opts out of state funding and pays for its capital needs solely through local financing (opt-out districts). Students FIRST § 7 (adding A.R.S. § 15-341(A)(31)). Districts may opt out only if they certify their compliance with the state minimum adequacy standards and gain approval of the option from their electors. Id. Opt-out districts must report annually to the SFB to ensure that they remain in compliance; districts that fall below the standards will be forced back into the state funding plan. Id. ¶ 16 Under the existing school finance system, districts can seek funding based on local property taxation through two methods: capital override elections and general obligation bonding. Override elections allow individual districts, with voter approval, to fund budget increases by raising local property taxes. See A.R.S. § 15-481. General obligation bonds, on the other hand, allow a district to leverage its tax base by incurring debt to be repaid through future property taxes. See A.R.S. § 15-491; A.R.S. tit. 15, art. 7. ¶ 17 Under the Act, the mechanisms available to school districts for seeking funding through local property taxation vary dramatically between opt-out and participating districts. An opt-out district may use both capital override elections and general obligation bonding. Students FIRST §§ 10 & 35 (amending A.R.S. §§ 15-481 & -1021(B)). Participating districts, unlike opt-out districts, may not issue general obligation bonds. Students FIRST § 35 (amending A.R.S. § 15-1021(A)). Those districts therefore are no longer able to employ the historically most important method of securing local funds for school system financing. Moreover, the assessment ratios applicable to property in participating districts differ from those applicable in opt-out districts. [3] In participating districts, equivalent, or compressed, assessment ratios apply to all types of property. Id. § 67 (adding A.R.S. § 42-15012). Because commercial property within opt-out districts is subject to a higher assessment ratio than is residential property, see A.R.S. §§ 42-227 & -162, capital overrides in a participating district will place a proportionally higher tax burden on residential property owners than will overrides of the same amount in an opt-out district. This disparity may significantly weaken participating districts' opportunity to raise funds through overrides. ¶ 18 As part of the option to permit districts to first comply with the Students FIRST requirements and then to provide additional funds through bonding and override elections, the opt-out provision in isolation is not a facial violation of the general and uniform clause. The Act's option allowing districts to choose local financing in lieu of state funding is not itself unconstitutional. Once the state has assured compliance with state standards, allowing districts to rely on their local property bases to secure local funding to surpass those state standards is not unconstitutional. ¶ 19 But when the restriction on bonding and the compression of school district assessment ratios are considered in conjunction with the opt-out provision, the system as a whole creates significant distinctions in the local funding mechanisms between opt-out and participating districts. Differentially enabling two classes of districts to access their respective property bases results in systemic, structural differences in the ability of districts to exceed state minimums through local funding. Because of these structural differences, the Act as a whole continues to formalize and perpetuate a structure that fails the general and uniform test. ¶ 20 Once the Students FIRST plan assures compliance with adequate standards, differences between districts that result from disparate property wealth or voter willingness to fund capital improvements are not unconstitutional. Roosevelt, 179 Ariz. at 242, 877 P.2d at 815; Hull, 190 Ariz. at 524, 950 P.2d at 1145. Differences perpetuated by the financing system itself are unconstitutional. Roosevelt, 179 Ariz. at 242, 877 P.2d at 815; Hull, 190 Ariz. at 523, 950 P.2d at 1144. Like the systems we rejected as constitutionally infirm in Roosevelt and Hull, Students FIRST will necessarily cause substantial disparities between public school districts. Those disparities will result not from factors such as parental influence, family involvement, voter willingness to incur debt for public schools, a free market economy, or housing patterns. Rather, the disparities will result from the funding mechanism chosen by the state. The Arizona Constitution forbids that result.