The Thinker has been pretty occupied this month first with a successful outcome in the motor vehicle litigation begun June 15, 2016 on behalf of eight school districts that were losers in the wrongful application of the motor vehicle collections statute amended in 2015 by House Bill 2244, and then with family matters both happy and not. As I have written before when the dust settled more than $20 million was incorrectly apportioned by the Oklahoma Tax Commission among over four hundred school districts creating winners and losers during FY 2016 and FY 2017 when they were already reeling from state aid reductions and other financial uncertainty. For most districts the impact was relatively minor, but for some their losses were far more than the reductions in state aid suffered by most, and for others their gains more than offset those state aid losses.
In the litigation the plaintiffs won first in district court just for themselves, a ruling that recognized the Tax Commission’s error in construing the amended law and the absence of the over 400 districts that were not part of the litigation but still affected. On appeal by the OTC the Court of Civil Appeals ruled ( COA decision 20180209 ) the Tax Commission was wrongly applying the statute to the detriment of more than 270 school districts and benefit of more than 140 others. In addition, the Court dismissed the Commission’s argument that all 400+ districts should be made part of the litigation simply to construe what a statute means. Had the Commission’s argument prevailed on this issue it would have made challenging the actions of any state agency that affect all school districts impractical to pursue, meaning school districts would have to live with even clearly wrongful decisions in the future.
A week ago Judge Parrish signed this order District Court Order 20181113 , which could be the final judicial action in the matter. The list that is part of the order sets forth the results of the OTC’s recalculations from July 1, 2016 through August 25, 2017, essentially calculating the difference between what school districts should have been paid had the OTC correctly applied the statute and what they were in fact paid. These are the amounts by which, going forward, Judge Parrish has ordered the Commission to adjust future payments. The amounts are fairly calculated and, when implemented, will cause the winners from FY 2016 and FY 2017 to become losers by the same amounts and vice versa for the plaintiffs and other losers who will gain back what was lost.
In effect it has been legally determined, all the way to the Oklahoma Supreme Court which declined to review the Civil Court of Appeals decision, that the OTC, by wrongly apportioning motor vehicle collections AFTER the plaintiffs filed the lawsuit seeking correction, moved $22,797,480.81 from the fund balances of 271 school districts to the fund balances of 146 school districts. It’s like your bank wrongly deposits funds to your account that should have gone to someone else’s, or vice versa. I doubt anyone reading this would squawk upon being shown the bank’s error when the funds were correctly restored. An underpayment (or overpayment) cannot be corrected without a subsequent overpayment (or underpayment).
Nevertheless, it seems that some believe the plaintiffs and other losers are going to be unjustly enriched because they have already “been made whole by the formula.” That is simply not correct. Unlike ad valorem taxes that are based current year assessments, all other “chargeables” in the state aid formula are based on prior year collections, being simply the formula’s best estimate of what a district will receive from a particular chargeable like motor vehicle collections this year is what it received the prior year. While it is true that if a district receives less than that estimate in the current year its state aid will be increased the following year, that does nothing to make the district whole in the current year. Here is the example I have used to show how this works and why the loss, without subsequent overpayment, is a Permanent Loss.20181110.
Despite having shared this example widely among my peers since 2016, not one has stepped forward with a numbers description of how the loser district is “made whole by the formula.” And I’m still waiting. I greatly regret the disruption that may occur as a result of the plaintiffs’ efforts, but that disruption is not their fault. The erroneous application of the statute was obvious to see for anyone who took the time to read the law and understand how motor vehicle collections as the second largest chargeable interplay with the state aid formula. It could have been corrected during FY 2016, or it could have been corrected shortly after the plaintiffs’ lawsuit was filed, minimizing disruption. The plaintiffs did all they could to accomplish a speedy correction while for reasons of their own many who knew, or should have known, better did nothing to bring about a correction.
I’ll close with another way to describe the permanency of the losses/gains—unless corrected as now seems likely to happen:
Adam’s two sons, Cal and Aron, are about to enter university in faraway towns, Nimrud and Samaria, respectively. Adam has carefully calculated their yearly expenses, tuition, books, room and board, to be $1000 each. His brother Ishmael, a very successful goatherd without children of his own, has offered to provide the income from selling the milk of twelve goats, six to winter in Nimrud and six in Samaria, estimated at $100 per goat, toward the expenses of Cal and Aron. He also provides servant goatherds, Joelah and Tola, in each town to feed and milk the goats. Adam does the math and sends his sons off to college with $400 each.
After their first year they return home to work in their father’s fields and each reports good grades and that, in fact, the goats produced the $600 income each expected so they met their expenses without any debt. The goats were taken by Joelah and Tola to spend the summer with Ishmael’s larger herd before returning to Nimrud and Samaria for Cal and Aron’s second year of college.
At the end of the summer Adam again gives each of his sons $400 expecting each will receive $600 this second year from the sale of milk from Ishmael’s goats, to meet their $1000 yearly expenses. When Cal arrives in Nimrod he finds Ishmael’s servant Joelah with seven, instead of six, goats. Aron arrives at Samaria to find Tola with only five, instead of six, goats. They learn that Joelah and Tola began their return together with all twelve goats, but separated at the mountain pass in an early fall snowstorm mistakenly dividing the herd into seven and five, instead of six and six. As a result, Cal enjoyed an unexpected income of $700 from the goat milk giving him more than needed for his expenses. Aron, on the other hand, received only $500 from the sale of goat milk leaving him $100 short which he had to cover with a loan from the university.
After this second year they again return home to work in their father’s fields and each reports good grades and that their income from the goat milk had been $700 and $500, instead of $600 each. During the summer Adam receives a letter from Ishmael stating that due to the poor condition of the grazing fields in his area he has instructed Joelah and Tola to remain with the goats they have in Nimrud and Samaria for the summer and the following year.
Adam calls his two sons from the fields to share this news and that, since he expects Cal will receive again $700 in milk income and Aron again only $500, he plans to give Cal $300 and Aron $500 so each will have $1000 for expenses their third year. Cal understands, though is still miffed that his father is giving Aron more than he will receive. Aron respectfully thanks his father for making the adjustment to assure he has the $1000 he needs for the third year, but also asks how he is to pay the $100 back to the university for his unexpected deficiency the second year. He goes on to suggest that perhaps Cal could make do with only $200 from their father since he must have saved his unexpected $100 gain. Cal, upset with this suggestion, especially since he had spent his windfall already, pushes back telling his father that his generosity to Aron, by increasing his income $100, fully makes him whole for his loss, and that to reduce his (Cal’s) income any more is just not right.
Adam, now somewhat confused by his sons’ arguments, advises that he will consider further what to do. Cal and Aron return to their father’s fields—and we know what happens next.
As always lunch is on me for the first to ID the photo location.