Month: May 2019

I truly am not crying “wolf”, but many “believers” think I am. Three years ago eight school districts sued the Oklahoma Tax Commission and have conclusively proved that almost $23 million in motor vehicle taxes was wrongly paid to 146 school districts by shorting 271 school districts the same amount. Many overpaid and underpaid districts (“Believers”) wrongly believe the subsequent year adjustment in state aid corrected for this egregious error in payments. This post and others referenced will demonstrate to anyone interested that no correction occurred and that the court ordered correction being implemented will be short lived unless this obvious misunderstanding about the purpose and effect of the state aid formula is understood by the affected school districts and the State Department of Education. Please enjoy reading these simple lessons in thinking about the formula.

Understanding how this works is essential for the Tulsa Public Schools that lost $3.4 million due to the wrongful apportionment of motor vehicle collections (our tax dollars) by the Oklahoma Tax Commission and 270 other underpaid districts to fully recover their loss.   That the Commission caused this loss is now a matter of settled law; you can read the Court of Civil Appeals decision here. 

From March, 2016 through November, 2018, as a result of the legal proceedings initiated by eight school districts, including Mid-Del that lost over $2 million and Sand Springs, Muskogee and Ponca City that each lost over $460,000, ended with a successful conclusion, they and all other underpaid districts, including Bartlesville at $555,000, Okmulgee $333,000, Sapulpa $133,000, Pawhuska $216,000, Hominy $141,000, Catoosa $122,000 and Putnam City, Oklahoma City and Lawton that each lost over $1 million, will be paid back over the next year.

The $22.8 million lost by the 271 underpaid districts was wrongfully paid to 146 districts statewide including Jenks $813,000, Bixby $899,000, Union $1,450,000, Moore $1,695,000, Norman $1,155,000, and Mustang $1,540,000, each of whom asked the Oklahoma Supreme Court to stop the payments arguing, incredibly, that the 271 districts had already been made whole through the state aid formula.  However, that districts not wanting to lose back money wrongfully paid to them might convince themselves no harm has occurred is not as incredible as many of the underpaid districts, believing that their losses were fully gained back through the formula. Using facts about the $3.4 million lost by Tulsa Public Schools, you tell me when they were made whole.

The court-ordered correction for TPS is $3,466,251; they received the first payment of $266,635 in February.   The remaining twelve payments to be made will be made entirely in fiscal year 2020 from July, 2019 through June, 2020. Here is the Order for resuming payments.

The belief that the subsequent year adjustment in state aid offsets the prior year loss in a state dedicated revenue is simply wrong and is a misunderstanding that will prevent TPS and other districts from keeping the over $22 million in correcting payments being made to offset the wrongful apportionments by the Oklahoma Tax Commission.  More importantly it is a misunderstanding that, as it has already, can lead to legislation that will wrongly harm school districts in the future.  While some of the actual calculations involved are complicated, the underlying principles are not and involve no more than multiplying, adding, subtracting and basic first year Algebra, as you will see if you read to the end of this post. 

The Full Story:

Here are TPS motor vehicle collections each year since FY 2014, and beginning with the OTC’s wrongful apportionments in FY2016 each is less than the year before meaning loss after loss after loss.  It is true that those lower payments resulted in state aid adjustments the following year, but those are to give TPS the right revenue the following year for that year’s expenses at the same per weighted student rate as every other district.  The state aid adjustments are not overpayments to compensate for the $3.5 million loss caused by the OTC.

FY2014                      $20,260,574

FY2015                      $20,256,034

FY2016          $17,258,996

FY2017          $15,382,504

FY2018                      $15,245,255

Here are statements of relevant facts and questions about the TPS loss.

Motor vehicle collections are a “chargeable” in the Foundation part of the school aid formula.

The first calculation in the Foundation part of the formula is to multiply a district’s weighted student population times the foundation dollar amount (factor) that is the same for all districts.  This is the way the formula equalizes funding among districts, by providing that all districts receive the same amount per weighted student.

For TPS in FY 2016 that amount was $107,172,708. 

State foundation aid for TPS that year was determined by subtracting $69,500,543 in total estimated “chargeables” from the $107,172,708 Foundation amount, yielding the Foundation Aid amount TPS received of $37,672,165. 

The $69,500,543 in estimated chargeables that year included $20,256,034 in motor vehicle collections which was the actual amount received by TPS in FY 2015 and, under the state aid formula law, is the amount to be used in calculating state aid for the following year.

Motor vehicle collections, therefore, affect the amount of Foundation Program income school districts receive in two ways.  As one of the “state dedicated” revenues included as a chargeable in the equalization formula it is one of the revenue sources the legislature expects will help school districts receive the same amount overall per weighted student as other districts receive in each current year.  Also, in calculating the amount of state aid, actual motor vehicle collections from the previous year are used to estimate how much a district will receive from that source.  An estimate is needed simply because the state aid amount is calculated early in the fiscal year and before all chargeable revenues have been received.

Very simply stated, for TPS in FY 2016 to receive the $107,172,708 Foundation amount it likely budgeted to expend that year, $37,672,165 was to come from state aid, $20,256,034 from motor vehicle collections and $49,244,509 from its other chargeables.  The state aid was received and the other chargeables performed a little better than expected, but motor vehicle collections were $17,258,996—almost $3 million less than expected.  That loss had to be made up somewhere and essentially was a hit to the TPS general fund balance at the end of the year, meaning its ending balance was $3 million lower than it would have been if the $20,256,034 estimate had been realized.

Believers may argue at this point that the chargeables are not guaranteed and sometimes you just have to live with what is received.  That is true and, based on the OTC’s recalculations ordered by the district court, $742,035 of the $3 million loss was due to the decline overall of motor vehicle collections and a change in state law, but $2,255,003 of it was fully the result of the OTC wrongly sending TPS money to other districts.

Now is when Believers ought to explain and show when that $2.255 million was restored to the general fund balance.  Likely this will be their response.  The next year, FY2017, TPS now has a new and lower chargeable amount for motor vehicle collections that results, dollar for dollar, in increased state aid which in turn offsets that FY2016 loss.  That is just wrong and faulty reasoning and here’s why.

We’ll repeat the steps above only now for FY 2017, so the recalculated Foundation amount is $105,489,719.  State foundation aid for TPS that year is determined by subtracting $68,408,583 in total estimated “chargeables” from the $105,489,719 Foundation amount, yielding the Foundation Aid amount TPS received of $ 37,081,136. 

The $68,408,583 in estimated chargeables that year included the $17,258,996 in motor vehicle collections which was the actual amount received by TPS in FY2016 as you learned above and again, under the state aid formula law, is the amount to be used in calculating state aid for the following year.  So absolutely more state aid is calculated if only $17 million is subtracted rather than $20 million, but this formula calculation is still only designed to give TPS the same amount per weighted student (the $105,489,719 which is TPS weighted student count multiplied by the Foundation factor) as is to be given to all districts in FY2017, including those that were overpaid motor vehicle collections in FY2016 by the OTC. 

Very simply stated again, TPS in FY2017 likely budgeted to expend the $105,489,719 that year of which $37, 081,136 was to come from state aid, $17,258,996 from motor vehicle collections and $51,149,587 from its other chargeables.  The state aid was received and the other chargeables performed slightly better than expected, but motor vehicle collections were $15,382,504—almost $1.9 million less than expected.  Again TPS did not collect, through state aid and chargeables, the Foundation program amount predicted by the state aid formula.  Not only was there no extra funding through state aid or any other formula source to correct the $3 million hit its general fund balance took in FY2016, it has lost almost $2 million more.  It is a silly distortion of both the purpose and the mathematical effect of using the prior year actual amount to calculate state aid to believe that the subsequent year’s adjustment corrects for the prior year’s loss.  I would love to rent a building from a Believer because if I underpaid my rent in March, paying only $400 when the rent is $500, my Believer landlord would believe I’ve made up for that $100 underpayment by just paying him the correct monthly amount $500 for April.  If you underpay me, I’m not made whole until you overpay me—it’s just that simple. 

FY 2016 and 2017 were the only full fiscal years impacted by the OTC’s wrongful apportionments.  Using the recalculations ordered by the court it is a fact that TPS motor vehicle collections fell short of the amounts charged in the formula by $4,873,530 meaning its Foundation program income was much lower than that intended by the state aid formula.  $3,212,189 of that was due to the OTC’s wrongful apportionments and was redirected to the 146 overpaid districts statewide.  The difference was a result of statewide under collections and the amended law.  The court-ordered correction for TPS is $3,466,251 because the wrongful apportionments continued into FY2018 for two months before the law was changed again.  TPS received no overpayment recovery in FY2018 either; its revenue from motor vehicle collections was down again and therefore likely received less in Foundation Program revenues per weighted student than did the several Tulsa County districts that had been overpaid by the Tax Commission. 

Nearly $3.5 million in a little over two years; those who deny this happened have succumbed to the silly and prevalent belief that the subsequent year adjustment in state aid mathematically offsets the prior year shortfall in a dedicated revenue source. They confuse a simple and obvious estimation or prediction process in the state aid formula that tries to get the current year’s total revenues equalized among districts with it being a remedial or corrective process. It is mathematically true that the next year’s adjustment in state aid will balance out the expected lower dedicated revenue and prevent further losses, but it does nothing retroactively to correct or offset the prior year loss. The only way that happens is for the district in the next year to over collect or be overpaid more than is estimated. And for TPS the facts show that has not happened (except for the February, 2019 court ordered payment).

I’ve been around educators enough and taught enough myself to recognize that people have different learning styles.  So over the course of these three years I’ve penned other ways to understand what is happening.  I’ve set up each of them as a separate post on this blog and will now provide the links.  Here’s a version of how I first worked through the state aid dynamics to assure myself that the funds wrongfully withheld from Sand Springs where I was CFO were not coming back unless we took action—which our board and seven others had the courage to do. Tables Rock

Here is an actual mathematical proof of what I’ve been trying to describe.  Eventually I’ll strive for more elegance, but the algebra teachers who may read this—and who should be consulted by Believers—will appreciate. Okie Masterminds

Here is my attempt at a parable, probably will come off pretty lame, but a colleague with a strong accounting background really likes it so enjoy.  My Obsession

Paradise Lost shows the arguments made by several litigious overpaid districts (LODs) that believe the “formula makes you whole” fairy tale, with my critique of course.

Lastly I offer the Nuclear Option which ponders whether Believers would also have TPS ignore a loss of almost $30 million.

Each of these examples tell the same story as the actual numbers for TPS and the other 270 underpaid districts:  that the subsequent year’s increase in state aid only works to get it right the second year and does nothing to correct the earlier year’s shortfall.  Whether “real numbers” or hypothetical, the mechanics are the same.  And they are the reverse for the 146 over paid districts—their windfalls, through no fault of their own, have funded increases in their fund balances and/or greater expenditures the last three years.

If you reach out to someone in leadership at an underpaid district and they assure you that their district has been made whole through the formula process, have them show why any of the examples are wrong, or better yet, have them show you in what year since FY 2016 their district has collected more motor vehicle or state aid revenue than was its fair share under the formula for that year. Using prior year actual collections in the formula calculation is simply the way the legislature has chosen to estimate what will be received that year. If actual collections deviate from the prior year, up or down, then those are one-time gains or losses that are not corrected by the formula the following year. Mathematically the only correction for a gain comes if there is a subsequent loss to the same revenue source, and the only correction for a loss is if there is a subsequent gain to the same revenue source. If you under pay me, I cannot be made whole until you over pay me.  

TPS has not been made whole for the $3.466 million lost and neither have the other 270 underpaid districts. But it’s not too late for the “believers” to learn, to do better and to make a difference.

The misinformed failure of other underpaid districts to support in any way the efforts of the eight school districts that have won this almost $23 million recovery for the other 263 districts made their work even more difficult. It also contributed to the 2017 legislation that now stands in the way of complete recovery. But it is not too late. There is both an administrative and a legislative opportunity for underpaid districts to retain their $22.8 million recovery.

All districts that care about fairness can advocate that the State Department of Education not include the court-ordered correcting payments in the chargeable amount for the calculation of the next year’s state aid. Likewise they can aggressively support passage of House Bill 1991 in the 2020 legislative session. These actions do not involve litigation. They simply require that school leaders understand how the state aid formula works and how these actions will complete the correction of the almost $22.8 million in wrongful motor vehicle collections apportionments made by the Tax Commission.

As a taxpayer and citizen I cannot passively watch as school leaders wittingly or unwittingly ignore a financial distortion of this magnitude. Reach out to your board representative and tell them to care about the $22.8 million.

As always lunch is on me for the first to ID the photo location. �

One of my father’s favorite expressions was “Do I have to draw you a picture?”  Or something to that effect, and since it’s been well more than fifty years since I heard him say that I’m not sure if it was always a sarcastic final warning to correct my misbehavior or failure to complete some chore, or if there was sometimes an element of true instruction involved.  Regardless using graphic representation of data and calculations can be an effective way to demonstrate numerical and computational relationships, so here is a demonstration of why the state aid formula has not made underpaid districts whole, to date, in the motor vehicle collections fiasco.

Here’s what happens when the wrongful apportionment occurs.  There are two districts and each have the same target foundation program revenue of 15,000; you see that at the top of each district’s “Calculation” column.  For detail on the formula for determining state foundation aid you can look at my earlier posts Okie Masterminds and Paradise Lost ; for these examples state foundation aid is shown in blue, the motor vehicle collections shown in yellow and the remaining revenues that are chargeable are in red.  So in the “calculate” columns the calculation for state aid is blue = 15,000 – yellow – red.  So for each district that’s 15,000 – 4,000 – 6,000 = 5,000.  Translated, each district is targeted to receive 15,000 total with 4,000 to come from motor vehicle collections (estimated based on prior year collections) and 6,000 from the other revenue sources, so the remaining 5,000 comes from state aid to fill in what the district needs to reach the 15,000 target.

Now look at what actually happens that year.  State aid, blue, always comes in at least as finally projected; the other revenue sources, red, we assume do as well because they have no impact on motor vehicle collections which is what we’re trying to understand.  Then the Tax Commission does its thing and wrongly apportions 1,000 to the overpaid district that should have gone to the underpaid district.  As a result, underpaid district receives only 3,000 which causes it to fall short of the target total by 1,000 also.  The overpaid district benefits from the wrongful apportionment collecting 16,000 total instead of the 15,000 target.  There’s never been disagreement about this first year effect.  The disagreement comes with what happens next.

As I’ve said before, incredibly the litigious overpaid districts represented to the Oklahoma Supreme Court that the adjustment in state aid the following year fully compensates the underpaid district for its loss.  Here’s what that looks like.  We keep the target 15,000 the same for both districts and the red other revenues is kept the same as well; this keeps out the noise.  What does change for each is exactly what the litigious overpaid districts acknowledge changes.  Because the calculation of state aid uses prior year actual motor vehicle collections, underpaid district’s state aid will go up and overpaid district’s will go down.  This is what it looks like.  Underpaid gets to 15,000 with 6,000 in red, 3,000 in yellow (same as prior year actual) and 6,000 in state aid.  Overpaid gets to 15,000 with 6,000 in red, 5,000 in yellow (same as prior year actual) and 4,000 in state aid. 

The litigious overpaid districts complained that my examples don’t use “real numbers”, but this example demonstrates exactly the subsequent year increase in state aid they rely upon to assure the court that the underpaid districts have been made whole.  As their attorney said at the hearing, in a different and erroneous context, they are so focused on the shiny object that is the state aid adjustment to offset the expected change in motor vehicle collections they miss the real story, namely that the greater state aid (blue) in the second year merely offsets the lower motor vehicle collections (yellow) expected that year and gets the underpaid district to 15,000 which is the target.  The increased state aid does nothing to offset the prior year loss.  As I’ve shown in earlier posts using Tulsa’s and Sand Springs’ actual numbers, there has been no year since this fiasco began in FY2016 that the underpaid districts have been overpaid in foundation program revenue; by contrast each of the litigious overpaid districts were greatly overpaid in FY2016 and FY2017 and since they have not been underpaid (except for the court-ordered correction in February).  If you underpay me I can’t be made whole till you overpay me.

As always, lunch is on me for the first to ID the photo location.

Upon beginning this quest three years ago the way I first understood the dynamics of how the wrongful apportionments of motor vehicle revenues affected school district revenues through the state aid formula was with tables.  Here’s one dated March 7, 2016 in my computer that is the earliest version I have of how I proved to myself that the following year’s state aid adjustment does NOT compensate a school district when shorted motor vehicle collections revenue by the Tax Commission.   Winners and Losers were the categories I used then for the overpaid and underpaid districts as I now prefer to call them.  In later versions I dropped reference to the MVC factor to keep examples simpler.

Here’s another version I used in early 2018.

Here’s the most recent version we used in our response to the litigious overpaid districts that tried to mislead the Oklahoma Supreme Court with their fairy tale belief that “the formula has made underpaid districts whole”:

“Incredibly Overpaid Districts argue that the use of the lowered MVR amount in the calculation of state aid for the subsequent year, yielding an increase, offsets the prior year loss. It does not. This example demonstrates why. 

Actual MVR affects school district revenue in only two ways, as the amount received in the current year and as a chargeable in the subsequent year Foundation Aid calculation.  The state aid formula first calculates the Foundation Program amount for each district, which, if actually received, meets the statutory goal to “provide for as large a measure of equalization as possible among districts” (70 18-101).  The Underpaid District falls $2,000 short of the Program amount because actual MVR is that much less than its MVR the previous year, the amount used to calculate the 50,000 received in Foundation Aid.  The Overpaid District exceeds its Foundation Program amount by $2,000, benefiting from the OPM it has wrongly been paid.  The Second Year calculations of Foundation Aid for each district use the First Year’s actual MVR amounts.  Since the wrongful apportionments of MVR persist, the resulting changes in Foundation Aid, more for the Underpaid District and less for the Overpaid District, do not correct, pay back or remedy the loss suffered by the Underpaid District in the First Year.  The Second Year Foundation Aid amounts simply are adjusted to the amounts of MVR each district is expected to receive in the Second Year.  The result when that expectation is realized, unlike the First Year, is that each district in fact receives the Foundation Program income the legislature intends for it to receive.  It is as simple as this:  if a district is underpaid one year, that loss from the Foundation Program income set by the formula is not offset until it is overpaid in a later year.  The subsequent year increase in Foundation Aid is not an overpayment; it is the correct payment.  In the same way Overpaid Districts’ gains from the OTC’s wrongful distortion of Motor Vehicle Revenues in the months at issue were not offset by lowered Foundation Aid in later years.” 

Lastly, here are a series of tables I use to demonstrate different outcomes, first how the losses and gains are permanent with no court ordered remedy:

Next, here’s how it was supposed to work if the legislature hadn’t converted to the ADA method (without changing the chargeable calculation) in 2017.  The court orders districts’ MVR to go back to the old method and then losses are wiped out by gains and gains by losses.

But the 2017 amendment converted to ADA without changing the chargeable amount so here’s where we are now.  We get the court ordered adjustment/correcting payments in the third year of our example, but if those adjustments are treated as chargeables in the fourth year the corrections are undone.

What follows is what needs to happen.  The correcting payments ordered by the court, shown in the third year are NOT included in the fourth year’s chargeables.  Then the correction holds and all districts are made whole. As the state’s largest “loser”, TPS should be all over this.

As always, lunch is on me for the first to ID the photo location.

Over the last three posts I’ve shared three different ways of understanding why the state aid formula does not correct in the subsequent year for the underpayment of a state dedicated revenue source in the prior year.  Simply stated the subsequent year adjustment in state aid is the formula’s attempt to prevent another loss or underpayment that year because it predicts or estimates that the dedicated revenue will be down again.  If that comes to pass at least the district doesn’t lose again, but it is not made whole for the prior year loss.  If you underpay me the only way I can be made whole is for you to overpay me.  The formula works in the opposite way when a state dedicated revenue source is over paid or more is received than predicted or charged in the formula.  The subsequent year’s aid is reduced to offset the anticipated greater revenue from the dedicated source.

This fairly straight forward result, that a subsequent year adjustment does not correct a prior year loss or gain, has apparently baffled school administrators I call “Believers”, some even with districts that were grossly underpaid by the Tax Commission. Several apparently can’t tell they were hurt and have bought in to the “formula will make you whole” delusion.  Using Tulsa Public Schools’ numbers as an example–they lost $3.2 million–I’ll show a way to perhaps wake up the Believers that can be done with any underpaid district’s data. So here’s food for thought, a nuclear option.

Take a look at the TPS foundation aid calculation for this year.

The target foundation revenue for the district is $112,792,793.  Local TPS property taxes are expected to generate $40,882,097 and the five state dedicated chargeables, including motor vehicle collections, another $28,138,886 for a total of $69,020,983.  That amount is subtracted from the foundation aid target leaving the difference of $43,771,810 to be received in foundation aid.  If all works out then the district will have the $112,792,793 it has budgeted for teachers, utilities, etc. to have school this year.  What if instead of just a $3.2 million revenue failure over two fiscal years, for some reason TPS collects nothing from those five state dedicated revenue sources, a shocking loss of $28,138,886.  That would hurt, right?

According to the “formula will make you whole” true believers the loss will be a huge disruption in the current year, but not to worry because all that money will come back the next year in greater state aid.  So think about that, planned expenditures of $112 million but only about $84.6 million in new revenue—somehow that $28 million gap has to be filled.  It looks like TPS carries about a $30 million fund balance so they can just use it and count on it being replenished the following year with that nice $28 million bump in state aid.  Let’s think through how that’s going to work out.

We’ll assume the next year is not too different from the current year so the foundation aid calculation will look like this:

Foundation Program Target                                                        $112,792,793

Less Chargeables:

Ad Valorem Chargeable                                       $40,882,097

County 4 mill                                                           $0

School Land                                                 $0

Gross Production                                       $0

Motor Vehicle                                                         $0

REA                                                                 $0

Total Chargeables:                                                             $40,882,097

Net Foundation Aid                                                                       $71,910,696

See the magic.  State aid is up the full $28 million needed to replenish the general fund balance.  So the true believers are right, and I am wrong—not.  It’s great that aid has increased to offset the loss, but it’s not offsetting last year’s loss; that hole still remains.  What it does is offset the ongoing absence of any revenue from the state dedicated sources and, together with the $40 million from local property taxes, provides the $112 million needed to have school the current year.  And after having school there is nothing left over to put back into the fund balance.  I’m sure the TPS administration would notice losing $28 million, as they surely noticed the actual $3.2 million loss.  Either sum is a lot of money and worth speaking up for. The mathematics, which the true believers apparently don’t understand, is the same whether it is one dollar, $3 million, or $28 million. The first year is a loss till the state dedicated revenue returns to the prior level.

The true believers are simply wrong.  The only way TPS would get back the $28 million is if the state dedicated sources start flowing to it again and are $28 million more than the chargeable amount used for that year’s foundation aid calculation.  If you under pay me, I can’t be made whole until you over pay me.

As always lunch is on me if you are the first to ID the location of the photo. 

When I first became aware in February, 2016 that the Tax Commission was wrongfully apportioning motor vehicle collections to some districts at the expense of others, many in school world made the argument that we shouldn’t be too concerned because whatever harm was done that year would be corrected the following year by the formula.  I was skeptical, but not sure, of that until I worked through examples like I show in my post Tables Rock and like this one we used in our recent argument to the Supreme Court referee. 

In the First Year the Formula column is each district’s foundation aid calculation which shows the districts each received $10,000 motor vehicle collections the year before because that is the amount used for the First Year formula/aid calculation.  Also each district is targeted to receive $100,000 which is based on multiplying the same foundation factor dollar amount times the number of weighted students. Foundation aid is calculated by subtracting Motor Vehicle and Other Chargeables from the Foundation Program amount, $100,000, so each district is to be given $50,000 in foundation aid.  The First Year Actual column for each shows what actually happens, namely the other chargeables and foundation aid are received but the OTC underpays the Underpaid district by $2,000 which instead is paid to the Overpaid district.  The result is simply that the Underpaid district falls the $2,000 short of the $100,000 target ($98,000) while the Overpaid district exceeds its target by the same $2,000 ($102,000).  How does this get fixed or corrected?  Seems very clear that now the Underpaid district needs to be overpaid by $2,000 and the Overpaid district needs to be underpaid by $2,000, i.e. what went wrongly from one pocket to the other, now needs to go back.  Look what happens in the Second year.  Because Underpaid district received $8,000 MVC the prior year that amount is used for the Second Year aid calculation, and the $12,000 is used for the Overpaid district.  As the real life overpaid districts correctly told the Supreme Court that in fact means Underpaid’s aid will increase by $2,000 and Overpaid’s will decrease by $2,000 for the second year.  But the result is that each simply gets what they are supposed to receive, $100,000.  Neither is wrongly paid, overpaid or underpaid in the second year.  The fact that Underpaid gets $2,000 more in aid is offset by getting $2,000 less in MVC, and vice versa for Overpaid.  This simple dynamic is exactly what happened over the three fiscal years impacted by the OTC’s wrongful apportionments. 

Here is what the litigious overpaid districts told the Supreme Court (my client underpaid school districts are referred to as “RPI”, real parties in interest):

Notice in these two state aid calculation sheets for FY 2018, one for Sand Springs an underpaid district and the other for Norman an overpaid district, that each uses the same Foundation Aid Factor of $1,573 in the multiplication times their respective number of weighted students to determine their target foundation revenue.  That’s how the equalization process works and when it works well districts receive that amount, or close to it.  We know that each received the Net Foundation Aid amount that is shown because this is their final allocation for the year done in the final month.  In earlier posts I’ve pointed out that the other chargeables are irrelevant because they are not affected by, nor do they affect motor vehicle collections.  So all that remains to learn if Sand Springs collected the $1,966,827 (the actual FY 2017 amount that is used to calculate FY 2018 foundation aid) in motor vehicle collections in FY 2018; it did not, rather it fell short by $31,680 upon collecting $1,935,147.  Norman on the other hand exceeded its formula amount from FY 2017 of $5,671,979 by $312,059 upon collecting $5,984,038. 

So on what planet or in what universe, my litigious overpaid friends, does that result make Sand Springs whole?  Sand Springs’ net foundation aid and motor vehicle collections cause it to fall short of the target $1,573 per weighted student, while Norman enjoys a hefty $312,000 cushion.  FY 2016 and FY 2017, being the years the OTC reeked most of its havoc, resulted in Sand Springs’ shortfalls of $395,850 and $248,832, respectively, while Norman gained $570,896 and $51,935, respectively, despite statewide collections being well below the prior years.

As you can see, and as we showed the Referee, whether you use our example numbers or use actual numbers, the result is the same.  The subsequent year adjustment in state aid does not make up for the prior year shortfall in motor vehicle collections when those collections remain down.  It is only if they increase above the prior year amount that the losses can be replaced—if you underpay me I can’t be made whole till you overpay me.

The litigious overpaid districts couldn’t handle the truth, though I fear they still don’t understand the truth, so they conjured up an example spanning four fiscal years they claimed refutes what we had shown.  Remember they had told the Supreme Court that the very next year the underpaid districts were made whole by the magic of the formula; they didn’t explain why now it would take four years.

This is where Paradise Lost comes in, well Paradise, California anyhow.  I don’t mean to make light of that awful disaster, but it inspired the analogy that follows to show the silliness of the overpaid districts’ argument.  Assume your neighbor carelessly ignores an outdoor burn ban and sets fire to his house and yours, both being destroyed.  Fortunately, the local fire department contains the blaze to only your two houses.  Then one week later a nighttime lightning strike starts a wildfire that rapidly engulfs your entire neighborhood, destroying every house.  It is evident that yours and your neighbor’s houses would not have escaped this second fire either.

When the smoke clears you sue your neighbor for the loss of your house.  Your neighbor responds by arguing the damage he caused is not compensable because your house would have been destroyed anyhow by the large fire; so you are no worse off now than you would have been had he not burned your house down a week earlier.  Under our jurisprudence your neighbor would still be fully liable for the damage done; his argument would carry no weight.  Your other neighbors though would be deemed victims of an “act of god” and thereby excluded from any legal remedy to compensate for their damages.

In 2015 the Oklahoma Legislature changed the motor vehicle apportionment law to cap the overall amount going to school districts.  For the next 25 apportionment months the OTC wrongly applied the law in a way that de facto paid school districts according to their prior year average daily attendance (ADA).  That is the period of time that is at issue in the litigation initiated by the eight underpaid school districts, not before and not since.  The period of harm caused by the OTC ended with August, 2017 because that month the Legislature again amended the law to apportion motor vehicle collections by ADA, making de jure what the OTC had mostly made de facto.  The OTC is like the careless neighbor in my Paradise story—they aren’t entitled to cause losses and gains among school districts by wrongly applying a statute.  The legislature on the other hand, wittingly or unwittingly, is empowered to do so, which it did, primarily by cutting off the easiest remedy for the underpaid districts.

The 2017 amendment didn’t have to cause this harm; had the legislature been properly advised and changed the way the motor vehicle collections state aid formula chargeable amount is calculated to conform to the apportionment by ADA, i.e. to make the prediction more accurate, the resulting gains and losses would be relatively minor.  More about that in a later post.  Here’s the exhibit produced by the litigious overpaid districts:

They didn’t use the OTC’s accurate recalculations of how much Sand Springs would have received had the OTC correctly applied the law in FY16, FY17 and early FY18, but their estimates are close.  They think the significance of this data is to show Sand Springs was made whole by the formula because its actual motor vehicle collections plus state aid (total, not just foundation) over the four fiscal years equals what it would have received had the law been correctly applied over those four years.  That is actually a true result that proves nothing because it combines the careless harm caused by the OTC together with the unwitting harm caused by the legislature. 

Here’s what their data actually shows for the three complete years shown (FY19 is not finished so the actual collections shown for that year is an assumption).  Subtract the Motor Vehicle Chargeable amount each year from the Motor Vehicle Collections recorded for the same year.   The losses resulting for Sand Springs are the FY16 ($395,850), FY17 ($248,832) and FY18 ($31,680) I showed earlier; the careless neighbor burns your house in FY16 and FY17.  Do the same subtractions on the right or “what if” side of their data and the losses are FY16 ($107,842), FY17 ($77,328) and FY18 ($491,190); the first two years’ losses are primarily due to statewide collections being down, and the third is god (legislature) burning down your house.  The three year totals are the same loss of ($676,362) either way.  Doing the same math for Norman, one of the litigious overpaid districts, will yield their three year gain of $934,890 over their formula projections.  As an aside the Sand Springs loss ($676,362) exceeds its court ordered correcting payment of $465,832 since over $200,000 of its losses were because statewide collections fell by about $10 million the first two years before rising by about $5 million.  Norman’s court ordered correcting payment reduction ($1,155,863) is greater than its gross overpayments of $934,890 for the same reason with the opposite effect, because it collected more each year than the year before when, due to statewide under collections, it should have collected less. 

Sand Springs’ and the other 270 underpaid districts’ losses are real and have not been corrected.  Norman’s and the other 145 overpaid districts’ gains are real and should be sitting in their fund balances.  If what I was supposed to receive was given to you instead, I’m not made whole till I get it back.  And you don’t get to keep it just because my house would have burned anyway.

As always, lunch is on me for the first to ID the photo location.