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.