Opinion ID: 2124044
Heading Depth: 1
Heading Rank: 5

Heading: Referendum Levy

Text: The first form of unequalized revenue is the referendum levy. Such levies are specifically authorized by the Minnesota statutes under a section which defines and outlines the use of these levies by local districts. See Minn.Stat. § 124A.03 (1992). These levies permit local school districts to increase funding over that of the basic formula if voters approve a certain percentage increase in their property taxes. [6] Until 1991, none of the revenue generated by this levy was equalized, thereby providing high property tax base districts with more revenue than low property tax base districts for an equivalent rate increase. The crux of the plaintiffs' claim is that these additional revenue sources which are above and apart from the wholly equalized basic formula result in wealth-based funding disparities among Minnesota school districts. The largest component of this additional funding is the referendum levy, which comprises 6.3% of overall education financing. Plaintiffs' expert, Dr. Augenblick, testified that levy use has quadrupled between 1983-84 and 1991-92, that frequency and extent of levy use increases with the size of the tax base, and that high-wealth districts can obtain more revenue from unequalized levies at lower tax rates than low-wealth districts. In total, 184 of Minnesota's 435 districts had a referendum levy in 1983, raising an average of $205 ppu. By 1990-91, 278 districts were availing themselves of the referendum levy, and the average funding level had increased to $432 ppu. Dr. Mueller also testified for plaintiffs about a study he conducted of 14 districts in which he paired seven intervenor districts with seven plaintiff districts. Mueller's study focused on only 14 of the 430 school districts in the state, but these paired districts were selected based on certain similar characteristics, such as location and school size. Of particular importance throughout the trial was the comparison between Edina and Elk River. The study revealed that Edina receives $1,334 ppu in levies, while Elk River generates only $113 ppu, despite the fact that both districts had approximately 6000 students. Even adjusting for other factors, Mueller's study estimated that Edina had an $837 ppu funding advantage over Elk River. Although Mueller's study did not fully adjust for cost factors or enrollment fluctuations, the court accepted his study as evidence of the large disparities which exist between districts. Although these studies point to potential disparities, the intervenors challenged these findings and asserted that the results of the plaintiffs' experts are not necessarily dispositive. For example, Mueller's study failed to adjust fully for cost differences or the effects of enrollment changes. These factors become important, especially for the intervenor districts, which have suffered a relative population decline in comparison to the plaintiff districts. Recently, the intervenor districts have experienced declining enrollment, an aging population base, and experienced teachers who command a high salary. Meanwhile, plaintiff districts have been growing, with population expanding and many young teachers being hired. State law requires that teachers with the least seniority be laid off first and, as enrollment stabilizes, that those with the most seniority be hired back first. Minn.Stat. § 125.17, subd. 11 (1992). This requirement, combined with the fact that administrative overhead costs are relatively fixed and are slow to adapt to declining enrollment, often causes cost reductions to lag substantially behind enrollment declines. In addition, declining enrollment can, in and of itself, create additional fiscal pressure on those districts. As the California Supreme Court noted, The immediate effect of declining enrollments, of course, is a lowered ADA [average daily attendance] and a corresponding reduction in state-provided foundation program money to the affected district. The cost of education due to declining enrollment does not decline in the same proportion. Serrano v. Priest, 18 Cal.3d 728, 135 Cal.Rptr. 345, 361 n. 34, 557 P.2d 929, 945 n. 34, cert. denied, 432 U.S. 907, 97 S.Ct. 2951, 53 L.Ed.2d 1079 (1977). Thus, declining enrollment, rather than inherent wealth advantages, may partially explain the disparities in referendum levy funding between districts. Furthermore, various changes enacted by the 1991 legislature addressed the differences in referendum levy funding and have ensured that these disparities will not increase in future years. As part of these reforms, the referendum levy was capped and no new referenda may be sought for the 1992-93 school year. New levies may only be authorized for a five-year period, and they must be on a per pupil unit basis, which will effectively alter the amount raised as enrollment changes. Minn.Stat. § 124A.03 (1992). In addition, in the future, only market value, rather than the artificial measure of net tax capacity, will be used. Thus, future referenda will not be tied into the tax base. Finally, the new statute provides for partial equalization, which will help low tax base districts. One expert estimated that this equalization will direct between $40 and $100 million in state aid to low tax base districts by July 1995. While this new statute does not equalize all referendum revenue and does not affect existing permanent referenda, it will lead to increased equality. Upon weighing the above evidence, the trial court agreed, in large part, with the conclusions of plaintiffs' experts. The court noted that while the levies themselves do not create classifications, they are based on property wealth-related characteristics which create disparities in educational opportunity among school districts. In addition to the increased use of such levies, the trial court found that there was a strong relationship between school district property wealth and both the use of the referendum levy and the amount of revenue derived therefrom. For example, 83% of the plaintiffs had no referendum levies or raised $200 or less ppu, while almost 80% of the intervenors had referendum levies in excess of $600. The trial court concluded that the increasing use of this funding source resulted in growing wealth-based revenue disparities in the Minnesota school finance system and was therefore unconstitutional.