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Gannon v. State

Supreme Court of Kansas

June 25, 2018

Luke Gannon, by His Next Friends and Guardians, et al., Appellees,
v.
State of Kansas, Appellant. Year Prior Year Amount Inflation Percent Inflation Adjustment Amount New Amount

         SYLLABUS

         1. A party asserting compliance with a court decision ordering remedial action bears the burden of establishing such compliance.

         2. To determine compliance with the adequacy requirement in Article 6 of the Kansas Constitution, Kansas courts apply the test from Rose v. Council for Better Educ., Inc., 790 S.W.2d 186 (Ky. 1989), which establishes minimum standards for providing adequate education. More specifically, the adequacy requirement is met when the public education financing system for grades K-12-through structure and implementation-is reasonably calculated to have all Kansas public education students meet or exceed the standards set out in Rose and presently codified in K.S.A. 2017 Supp. 72-3218.

         3.Under the facts of this case, the State has not met the adequacy requirement in Article 6 of the Kansas Constitution.

          4. By timely making financial adjustments in response to the problems identified with the State's chosen remediation plan and its accompanying calculations and then by completing that plan, the State can bring the K-12 public education financing system into compliance with the adequacy requirement in Article 6 of the Kansas Constitution.

         5. To determine compliance with the equity requirement in Article 6 of the Kansas Constitution, school districts must have reasonably equal access to substantially similar educational opportunity through similar tax effort.

         6. The State has shown its proposed remedy, under the present circumstances, complies with Article 6's equity requirement by eliminating the different procedures for certain school districts to raise their maximum Local Option Budget (LOB) that this court held were inequitable in Gannon v. State, 306 Kan. 1170, 402 P.3d 513 (2017) (Gannon V). Because it eliminates the previous disparate treatment, maintaining the protest petition procedure for a school board's adoption of an LOB greater than "the statewide average for the preceding school year as determined by the state board" does not create an equity violation.

         7. The State has shown its proposed remedy, under the present circumstances, does not create an Article 6 equity violation by requiring all districts adopt an LOB that is at least 15% of the district's total foundation aid.

          8. The State has shown its proposed remedy, under the present circumstances, does not create an Article 6 equity violation by requiring districts transfer amounts from their LOB funds to their at-risk and bilingual education funds.

          Appeal from Shawnee District Court; Franklin R. Theis, Robert J. Fleming, and Jack L. Burr, judges.

         The State has failed to show the remedial legislation meets the adequacy requirement in Article 6 of the Kansas Constitution. The State can bring the K-12 public education financing system into compliance by timely making financial adjustments to the problems identified. The State has shown its proposed remedy meets the equity requirement of Article 6.

          Toby J. Crouse, solicitor general, argued the cause, and Jeffrey A. Chanay, chief deputy attorney general, M.J. Willoughby, assistant attorney general, Dwight R. Carswell, assistant solicitor general, Bryan C. Clark, assistant solicitor general, and Derek Schmidt, attorney general, were with him on the briefs for appellant State of Kansas; Arthur S. Chalmers, of Hite, Fanning & Honeyman, LLP, of Wichita, was with him on the briefs for appellant State of Kansas.

          Alan L. Rupe, of Lewis Brisbois Bisgaard & Smith LLP, of Wichita, argued the cause, and Jessica L. Skladzien, of the same firm, and John S. Robb, of Somers, Robb & Robb, of Newton, were with him on the briefs for appellees.

          PER CURIAM

         Article 6, § 6(b) of the Kansas Constitution imposes a duty on the legislature to "make suitable provision for finance of the educational interests of the state." On October 2, 2017, we ruled that the State had not met its burden of showing that its remedial legislation-2017 Senate Bill 19 (S.B. 19)-met Article 6's adequacy and equity requirements. Gannon v. State, 306 Kan. 1170, 1172, 402 P.3d 513 (2017) (Gannon V).

         We stayed the issuance of our mandate until June 30, 2018. We reasoned this gave the State ample time to satisfactorily demonstrate that its additional remedial legislation brought the K-12 public education financing system into constitutional compliance. 306 Kan. at 1182 (State bears burden of establishing constitutional compliance). And the 2018 legislature responded to Gannon V in April by passing 2018 Substitute for Senate Bill 423 (S.B. 423) and 2018 House Substitute for Senate Bill 61 (S.B. 61).

         But the State still has not met the adequacy requirement in Article 6 of the Kansas Constitution. Although it has expressed an intent to comply with the adequacy threshold discussed in Montoy v. State, 282 Kan. 9, 138 P.3d 755 (2006) (Montoy IV), it has failed to consistently implement its self-styled "Montoy safe harbor" plan of compliance described in the April 23, 2018, memo from the Kansas Legislative Research Department (KLRD) to legislative counsel. By timely making financial adjustments regarding problems identified below, however, the State can satisfactorily address the remaining constitutional infirmities in adequacy appearing in its chosen plan and particularly in the implementation. We discern two obvious problems arising from the April 23 memo:

1. The failure to adjust two years of funding for inflation through the approaching 2018-19 school year. Satisfactory adjustments would result in a higher amount of principal, i.e., more than the $522 million the memo calculates as yet owed to the school districts; and
2. The failure to adjust for inflation until the memo's calculated principal sum ($522 million, plus the adjustment referenced above) is paid in full, e.g., approximately five years. Satisfactory adjustments would result in more than that principal figure being paid during that span. But we acknowledge the first year of payment-for school year 2018-19-need not be adjusted because that inflation has already been accounted for in paragraph 1 above.

         We will also discuss other adequacy concerns, e.g., the State's treatment of virtual school state aid.

         As to equity, upon review of this remedial legislation, we conclude that under the present circumstances the State has corrected the Gannon V constitutional infirmities and has created no others, contrary to plaintiffs' current contentions.

         Because of the problems with adequacy we retain jurisdiction and stay the issuance of today's mandate until June 30, 2019, or until further order of the court. The Kansas School Equity and Enhancement Act (KSEEA)-enacted by S.B. 19-will remain in temporary effect. And S.B. 423 and S.B. 61 can go into temporary effect on the dates that legislation has scheduled-until further order of this court. This action acknowledges the State's position: that the 2018 legislature's efforts and the amount of money added to the financing system for the approaching school year should permit such an extension through the 2019 regular legislative session. And it effectively grants the State's repeated request to so extend so it can develop a final remediation plan for our review.

         Factual and Procedural Background

         This lawsuit was filed in November 2010 after the State started making cuts to education funding. Those cuts began with a reduction to the $4, 433 base aid amount for each student for school year (SY) 2008-09 (fiscal year 2009) which had been set by the 2006 Kansas legislature. In 2006, the Montoy IV court had relied upon that statutory scheme, including planned increases to base aid, when it held the State had substantially complied with this court's orders and dismissed the case. 282 Kan. at 24-25.

         In Gannon v. State, 298 Kan. 1107, 319 P.3d 1196 (2014) (Gannon I), we remanded the lawsuit to a three-judge panel for application of a refined test for adequacy. Later, in December 2014, the panel held the legislature unconstitutionally underfunded K-12 public education between fiscal years (FY) 2009 and 2012. The 2015 legislature quickly repealed its primary vehicle for school finance funding: the School District Finance and Quality Performance Act (SDFQPA). The SDFQPA had been enacted in 1992 and established a base aid formula which provided a fixed amount of funding for each student and adjusted that funding by various weightings, e.g., for "at-risk" students.

         The 2015 legislature replaced the SDFQPA with the Classroom Learning Assuring Student Success Act (CLASS). CLASS established "block grants" that froze funding levels for FY 2016 and FY 2017 at the FY 2015 level until CLASS expired on June 30, 2017. The panel held CLASS was also unconstitutional, and the State appealed.

         On March 2, 2017, this court held CLASS was constitutionally inadequate in both structure and implementation. Gannon v. State, 305 Kan. 850, 390 P.3d 461 (2017) (Gannon IV). The State was given until June 30, 2017, to enact remedial legislation. 305 Kan. at 919. And the 2017 legislature ultimately passed S.B. 19.

         S.B. 19 enacted the KSEEA, which returned to the same basic finance formula and revenue streams as the SDFQPA. Gannon V, 306 Kan. at 1179. At the time, S.B. 19 was predicted to add $292.5 million in "new money" over two years-FY 2018 and FY 2019. 306 Kan. at 1181. But as discussed below, it actually added approximately $24.5 million more for a total of $317 million.

         On October 2, 2017, this court generally approved the KSEEA. Gannon V, 306 Kan. 1170. But we held the State failed to meet its burden to satisfactorily demonstrate S.B. 19 was reasonably calculated to address the inadequate funding. 306 Kan. at 1212. We also held S.B. 19 created four equity violations that we discuss in greater detail below. This court stayed the mandate, allowing S.B. 19 to take effect but only until June 30, 2018. 306 Kan. at 1239. So the KSEEA temporarily became law and is now codified at K.S.A. 2017 Supp. 72-5131 et seq.

         In response to Gannon V, the 2018 legislature commissioned a cost study by WestEd. This organization used a cost function approach to estimate the costs associated with reaching certain performance outcomes (graduation rate and test proficiency) established in part by Kansas' Every Student Succeeds Act (ESSA) plan submitted by the State Department of Education to the United States Department of Education. The legislature also hired Jesse Levin of the American Institutes for Research to conduct a "peer review" of three of the State's cost studies. His first report reviewed two of them: the 2000-01 Augenblick and Myers study (A & M) dated May 2002 and the 2006 Legislative Division of Post Audit (LPA) cost study. His second report reviewed WestEd's study.

         The legislature's WestEd cost study contained three funding scenarios for K-12 public education. These are: (1) compensatory support for Scenario A, which has a $6.438 billion cost estimate; (2) compensatory support for Scenario B, with a $6.719 billion cost estimate; and (3) no compensatory support, which has a $5.103 billion cost estimate. Considering the $4.652 billion the State spent in SY 2016-17, Scenario A would require an increase of $1.786 billion, Scenario B an increase of $2.067 billion, and the no compensatory support category an increase of $451 million annually.

         During a presentation to the legislature, WestEd explained that Scenarios A and B included "temporary transitional funding" used to "catch up" the districts that are not close to the performance goals costed out in the study. Once those achievement goals are obtained, the no compensatory support or "maintenance cost" represents the long-run cost required to sustain those higher performance levels.

         In general, compensatory support for Scenario A was designed to achieve two goals by the end of SY 2021-22. These are: a 95% graduation rate in each school district and a proficiency target of 90% of students meeting levels 2, 3, or 4 in English language arts (ELA) and math on the assessments administered under the new Kansas Assessment Program. On the other hand, while compensatory support for Scenario B was also designed to achieve by the end of SY 2021-22 the same 95% graduation rate in each district, it called for a proficiency target of 60% of students to perform at only the highest levels-3 or 4-on the assessments.

         In turn, plaintiffs commissioned a cost study by JL Myers Consulting and Picus Odden & Associates (Myers-Picus Report). It concluded that an additional $1.58 billion was needed to reach constitutional compliance for SY 2017-18. And plaintiffs hired Dr. Bruce Baker, their expert throughout this litigation, to conduct a "peer review" of the Kansas cost studies. Both plaintiffs' reports were submitted to the House Judiciary Committee through testimony by Schools for Fair Funding.

         During the 2018 legislative session, S.B. 423 and S.B. 61 were passed. The governor signed both into law.

         The remedial legislation and its fiscal impact

         As mentioned, during SY 2016-17, the State spent $4.652 billion in federal, local, and state funding on K-12 education. The figures fluctuate, but around 66% came from state aid, 26% was local revenue, and 8% was federal money. These expenditures were spread over 286 school districts, serving more than 489, 000 students. Kansas also employed more than 37, 000 teachers, over 3, 600 other licensed personnel, and had over 26, 600 unclassified employees working in K-12.

         The State focuses on how much "new money" it is adding to the school finance system since this court declared the funding inadequate on March 2, 2017, in Gannon IV, 305 Kan. at 854-55. Per the State's use of the term, "new money" refers only to the first time a new dollar enters the funding system. According to a May 1, 2018, KLRD memo to legislative counsel, through the combination of 2017 S.B. 19, 2018 S.B. 423, and 2018 S.B. 61, the legislature scheduled adding a total of approximately $854 million in new money to the "state aid" portion of school funding. The first part of this scheduled funding increase-now estimated to be $317 million-was enacted through S.B. 19 for the recently ended 2017-18 school year and for the upcoming 2018-19 school year. The remainder was partially added by S.B. 19 but was primarily to be attributed to S.B. 423 and S.B. 61, and it is "phased-in" during the next five years: SY 2018-19 to SY 2022-23.

         The State also cites each school district's increased local option budget (LOB) authority as a generator of new money. Under the LOB mechanism, a local school board can impose an additional mill levy on property in its district to augment the funds that are distributed through the basic funding formula for state aid. See S.B. 61, § 5 (amending K.S.A. 2017 Supp. 72-5143). According to the State, this new authority is estimated to add up to $57 million over these six school years-and increased KPERS contributions are scheduled to add another $96 million over the same time period. The State argues that when these amounts are added to the state aid increases of $854 million, by SY 2022-23 a total of approximately $1 billion in new money-under the State's use of the term-will have been added since Gannon IV, 305 Kan. 850.

         But it is unknown how much of the increased LOB authority will actually lead to additional funding across the state. This uncertainty exists because each of the 286 districts has the discretion to determine how much of its authority it will use-subject to a new 15% LOB mandatory minimum. S.B. 61, § 5.

         Plaintiffs point out that this new funding's value is diminished because of inflation's impact during the five-year phase-in period. The State recognizes inflation is a concern. But at oral argument its counsel repeatedly asserted, without authority or clarification, that inflation is "constitutionally insignificant."

         Most of the new money cited by the State is incorporated in the funding formula: the KSEEA. So it will become a continuing annual obligation-if the State fully funds the formula. This reality is evidenced by the fact that increases to the base aid amount are the single largest contributor to the new money. But some of the new money is a onetime investment. So a closer look at the amendments made in each bill is required.

         2017 S.B. 19

         Through its enactment of the KSEEA, S.B. 19 provides a base aid formula for calculating and distributing K-12 public education funds. It is modeled after the prior formula, the SDFQPA. But the KSEEA does contain some changes.

         For the recently completed SY 2017-18, S.B. 19 set the base aid amount at $4, 006. K.S.A. 2017 Supp. 72-5132(e). In the SDFQPA's last year (SY 2014-15) the statutory base was $3, 852. In the two intervening years-SY 2015-16 and SY 2016-17-no base aid amount exists for comparison because the block grants essentially froze funding at the SY 2014-15 levels regardless of enrollment changes. See Gannon IV, 305 Kan. at 854. For the upcoming SY 2018-19, S.B. 19 increased the statutory base aid from $4, 006 to $4, 128. K.S.A. 2017 Supp. 72-5132(e).

         S.B. 19 also made changes to the base aid formula weightings that create sustained funding increases, i.e., they are scheduled to continue from year to year. It increased the "at-risk student weighting" from .456 to .484, adding $21 million in SY 2017-18 alone. See K.S.A. 2017 Supp. 72-5151(a); see also Gannon V, 306 Kan. at 1195-96 (explaining the weighting system, e.g., multiplying the number of at-risk pupils included in a district's enrollment times the statutory ratio; the resulting product is then added to its full-time enrollment; the sum is in turn multiplied by S.B. 19's base aid, to produce the state financial aid to which it is entitled).

         S.B. 19 also included a new method for calculating the high-density at-risk and bilingual weightings, which added $8.8 million in SY 2017-18. See K.S.A. 2017 Supp. 72-5151(b); K.S.A. 2017 Supp. 72-5150. It increased funding for kindergarten from half- day to full-day, adding $60 million in SY 2017-18. See K.S.A. 2017 Supp. 72-5132(m), (ii). And it also eliminated the declining enrollment weighting, phasing it out by reducing state aid by $1.8 million in SY 2017-18 and SY 2018-19. See K.S.A. 2017 Supp. 72-5160.

         S.B. 19 also increased early childhood funding for preschool at-risk students by $2 million for SY 2017-18 and SY 2018-19 and scheduled addition of the same amount through SY 2021-22. See K.S.A. 2017 Supp. 72-5154.

         It added $1.7 million each for SY 2017-18 and SY 2018-19 to the professional development program under K.S.A. 2017 Supp. 72-2551. L. 2017, ch. 95, §§ 1(a), 2(a). For those same years, S.B. 19 added an $800, 000 appropriation each year to the mentor teacher ...


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