Summary
The Oklahoma State Department of Education (“OSDE”) has misconstrued the statutory provision for the calculation of State Aid at Title 70, Section 200.1(D)(1)(b) resulting in an improper reduction of Foundation Aid for 215 school districts statewide that totals $1,606,108 in the current 2020 fiscal year and, if repeated, will reduce their Foundation Aid in the 2021 fiscal year by an additional $19,273,292, for a total loss of $20,879,400 from the state aid they are entitled to receive by law.
Background
Motor vehicle collections are the third largest source of revenue for the general funds of Oklahoma school districts, and the greatest of the dedicated revenues that are included as Foundation Program income in the calculation of state aid. The Oklahoma Tax Commission (“OTC”) wrongly construed a 2015 amendment to Title 47 so that motor vehicle collections were underpaid to 271 school districts and overpaid to 146 from August, 2015 through August, 2017.
After formal requests for the OTC to correct its error were refused, eight underpaid school districts commenced legal action in March and June, 2016 resulting in a December, 2016 order by the District Court of Oklahoma County granting relief to the Plaintiffs only and ordering the correct application of the statute going forward. The OTC appealed and the Oklahoma Court of Civil Appeals in February, 2018 expanded the order to include all school districts requiring the OTC to recalculate and determine the correct payments that should have been made for collections from July, 2016 through August, 2017 and to “base the apportionment of motor vehicle collections on the recalculated amounts for the July 1, 2016 to August 25, 2017, time period.” This order was sustained by the Oklahoma Supreme Court in June, 2018 and the OTC completed the recalculations in August, 2018.
Citing the 2017 legislative amendment to the Title 47 apportionment law, effective with August, 2017 collections, the OTC declined to take any further action in response to the order. Therefore, the Plaintiffs asked the District Court for further relief, over the objection of the OTC, resulting in the November, 2018 order for correcting payments that is now being implemented. The amounts of overpayments for the 146 districts and underpayments for the 271 districts, totaling $22,797,480.81, are to be corrected over thirteen monthly payments, the first having been made in February, 2018. An unsuccessful challenge to this order in the Oklahoma Supreme Court by nine overpaid districts delayed the remaining twelve payments which are being made in each month of the current fiscal year, July, 2019 through June, 2020.
Here is a copy of the District Court’s order and citations to each of the legal proceedings.
What OSDE Should Do
The OSDE has incorrectly calculated FY 2020 state aid for each of the underpaid school districts because it has used the incorrect amount of FY 2019 motor vehicle collections in the calculation. By way of illustration the current 2/10/2020 State Aid Allocation 2019-2020 for Midwest City-Del City school district uses $5,532,047 for Motor Vehicle in calculating the Total Chargeables, thereby resulting in Net Foundation Aid of $22,372,380. While $5,532,047 is the amount paid to Mid-Del during FY 2019 by OTC, it is not the correct amount to be used as a chargeable because it includes the full amount of the February, 2019 payment of $626,585.09. That payment was the sum of two calculated amounts: Mid-Del’s ADA or “per capita” share of the $21,788,638.93 collected by the OTC for apportionment that month pursuant to the provisions of Title 47, being $467,640.70, and its one-thirteenth monthly correcting payment of $158,944.39 as ordered by the District Court to make up for underpayments in FYs 2017 and 2018. The correct amount that should be used is the $467,640.70, which, thereby, would increase Mid-Del’s state aid by $158,944.39. OSDE’s incorrect calculation is based on the apparent belief that Mid-Del should not keep the correcting payments ordered by the District Court and upon its mistaken construction of the state aid statute.
Similar losses in calculated state aid, each in the amount of one-thirteenth of its Court ordered correcting payment, have been suffered by the other 214 underpaid districts receiving net foundation aid and possibly by some of the 56 underpaid school districts receiving no Net Foundation Aid this year. If OSDE persists with its incorrect calculations and application of the state aid statute, underpaid districts will each lose twelve times as much in FY 2021. Instead, OSDE should use in the calculation of state aid for all school districts in FY 2020 and FY 2021 the amounts calculated by the OTC pursuant to the current provision for the apportionment of motor vehicle collections in Title 47 in each of the preceding fiscal years before the adjustment is made to each payment as ordered by the District Court to compensate for the underpayments made in FY 2017 and FY 2018.
Here are FYs 2018, 2019 and 2020 Calculation sheets for Mid-Del and data for seven underpaid districts showing OSDE’s error.
OSDE Misunderstands the Purpose and Effect of the Chargeable Amounts
The seven original Plaintiff districts notified OSDE of the correct way to calculate their state aid for FY 2020 by advisory letter to its General Counsel on April 23, 2019 and by formal request to the State Superintendent of Public Instruction on April 29, 2019. The General Counsel replied on behalf of OSDE to these underpaid districts on June 6, 2019, stating “…the OSDE respectfully declines your request.”
Also disappointing to read in his letter was this phrase concerning the state aid statute, “… or how monies received (regardless of the mechanism) offset other sources of funding through the formula…” to which the underpaid districts’ attorney commented in his reply on June 12, 2019, “I infer, I hope incorrectly, that you are reflecting your agency’s belief that the 271 underpaid school districts were, subsequent to being shorted almost $23 million by the Oklahoma Tax Commission, ‘made whole’ through the state aid formula. If that is your understanding of the facts, then it makes sense you would construe the statutory scheme to avoid providing a windfall to the 271 underpaid districts at the expense of the 146 that were overpaid. Is my inference correct that Superintendent Hofmeister believes the losses in motor vehicle collections to my clients caused by the Tax Commission’s wrongful apportionments have been offset by subsequent increases in state aid?” The underpaid districts have received no written response to that question.
The answer to that question is essential in determining how state aid should be calculated in FY2020 and FY2021. If it is true, as was alleged by the OTC in opposing the District Court order and by the nine overpaid districts in their unsuccessful Petition to the Oklahoma Supreme Court, and as OSDE may well believe, that the $22.8 million underpaid to 271 and overpaid to 146 districts was fully offset by subsequent year increases and decreases, respectively, in state aid, then it absolutely makes no sense that the underpaid districts should keep the Court ordered correcting payments now being made. However, thinking this is so, that a subsequent year increase in state aid replaces the shortfall in prior year motor vehicle collections, requires believing that the same money (the subsequent year state aid increase) can be spent twice, first to make up for the prior year shortfall and also to offset the expected subsequent year’s reduced motor vehicle collections. It is as simple as this, an underpayment cannot be corrected until an overpayment is made. It cannot be shown in any year since August, 2015 that any of the underpaid districts have been overpaid, except for the court-ordered correcting payments made in February, 2019 and in the current year. Here is a more detailed example using Tulsa Public Schools’ data. Substitute the data for any underpaid school and the result is the same–no compensating overpayments have been received except those ordered by the court.
The belief that underpaid districts were fully compensated as “…monies received (regardless of the mechanism) offset other sources of funding through the formula…” is false, and was unsupported by either court that considered the argument. Therefore, it makes sense and is equitable that the all underpaid districts should keep the benefit of the Court ordered correcting payments.
There are three arguments that have been made by those who do not understand the purpose or effect of the five chargeable amounts that are based on preceding year amounts in the calculation of state aid. Each is presented, analyzed and refuted in this Appendix with these Attachments.
OSDE Misapplies the State Aid Statute
The amount of motor vehicle collections, which is “division (3)”, to be included in Foundation Program Income (or Chargeables as OSDE refers these revenue sources) is set forth at Title 70, Section 200.1(D)(1)(b) which states, “The items listed in divisions (3), (4), (5), and (6) of this subparagraph shall consist of the amounts actually collected from such sources during the preceding fiscal year calculated on a per capita basis on the unit provided for by law for the distribution of each such revenue.” As shown above, OSDE in its calculation of FY 2020 state aid for Mid-Del used the total payments to the district for the preceding (2019) fiscal year of $5,532,047, which included the February, 2019 payment amount that is the sum of two calculated numbers.
One is $467,640.70 which is the amount actually collected from motor vehicle revenues for Mid-Del that month so that it receives an amount based upon the proportion that its average daily attendance bears to the total average daily attendance of those districts entitled to receive the funds, being “a per capita basis”, as provided for the distribution of motor vehicle collections in Section 1104 of Title 47. The other is the Court ordered correcting payment, one-thirteenth of Mid-Del’s calculated losses from FY 2017 and FY 2018, being $158,944.39. The first is exactly what the statute describes; the second is not mentioned or described by the statute and should not be included. The correct entry for the Motor Vehicle Collections amount in the calculation of state aid for Mid-Del in FY 2020 is $5,373,103. As a further example the correct entries for each of the seven underpaid districts that were Plaintiffs in the successful litigation against the OTC are shown here as already referenced above. The correct Motor Vehicle amounts to be used in calculating FY 2021 state aid for all underpaid districts are the total amounts paid to each by the OTC in FY 2020 less the Court ordered correcting payments added to each of the twelve monthly distributions.
If OSDE persists in treating the Court ordered correcting payments in FY 2019 and FY 2020 as revenues “…calculated on a per capita basis on the unit provided for by law for the distribution of each such revenue…”, then the result is that by the end of FY 2021 the districts that were wrongly underpaid, then correctly overpaid to offset their losses, will finally be underpaid again. That is a result that will be contrary to the legislative intent to provide the same revenues per weighted average daily membership through the state aid formula. It will also create an absurd result, negating the correction ordered by the District Court and that has been reviewed by the Oklahoma Supreme Court. Expanded legal argument with case law references is provided in the underpaid districts’ letters also cited earlier.
Gary L. Watts
9187431410 or 9183130558
gary-watts@sbcglobal.net