STATE OF ALASKA, MICHAEL HANLEY, COMMISSIONER OF ALASKA DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, in his official capacity, Appellants and Cross-Appellees,
KETCHIKAN GATEWAY BOROUGH, AGNES MORAN, an individual, on her own behalf and on behalf of her son, JOHN COSS, a minor, JOHN HARRINGTON, an individual, and DAVID SPOKELY, an individual, Appellees and Cross-Appellants.
Appeal from the Superior Court of the State of Alaska, First Judicial District, Ketchikan, No. 1KE-14-00016 CI William B. Carey, Judge.
Kathryn R. Vogel, Rebecca Hattan, and Margaret Paton-Walsh, Assistant Attorneys General, Anchorage, and Craig W. Richards, Attorney General, Juneau, for Appellants/Cross-Appellees.
Louisiana W. Cutler and Jennifer M. Coughlin, K&L Gates, LLP, Anchorage, for Appellees/Cross-Appellants, and Scott Brandt-Erichsen, Ketchikan Gateway Borough, Ketchikan, for Appellee/Cross-Appellant Ketchikan Gateway Borough. William D. Falsey and John Sedor, Sedor, Wendlandt, Evans & Filippi, LLC and Saul R. Friedman, Jermain, Dunnagan & Owens, P.C., Anchorage, for Amici Curiae Association of Alaska School Boards, Alaska Council of School Administrators and Alaska Superintendents Association. Howard S. Trickey, Matthew Singer and Robert Misulich, Holland & Knight LLP, Anchorage, for Amicus Curiae Citizens for the Educational Advancement of Alaska’s Children. Kim Dunn, Landye Bennett Blumstein LLP, Anchorage, for Amicus Curiae NEA-Alaska. A. Rene Broker, Borough Attorney, Fairbanks, for Amicus Curiae Fairbanks North Star Borough.
Before: Stowers, Chief Justice, Winfree, Maassen, and Bolger, Justices. [Fabe, Justice, not participating.]
The State's local school funding formula requires a local government to make a contribution to fund its local school district. The superior court held that this required local contribution is an unconstitutional dedication of a "state tax or license." But the minutes of the constitutional convention and the historical context of those proceedings suggest that the delegates intended that local communities and the State would share responsibility for their local schools. And those proceedings also indicate that the delegates did not intend for state-local cooperative programs like the school funding formula to be included in the term "state tax or license." These factors distinguish this case from previous cases where we found that state funding mechanisms violated the dedicated funds clause. We therefore hold that the existing funding formula does not violate the constitution, and we reverse the superior court's grant of summary judgment.
II. FACTS AND PROCEEDINGS
A. School Funding Formula
Article VII, section 1 of the Alaska Constitution requires the state legislature to "establish and maintain a system of public schools" open to all children in the state. To fulfill this constitutional mandate, the legislature has defined three types of school districts according to where the district is located: city school districts, borough school districts, and regional education attendance areas. "[E]ach organized borough is a borough school district"; a borough must "establish, maintain, and operate a system of public schools on an areawide basis." Local school boards manage and control these school districts under authority delegated by AS 14.12.020. This statute requires local borough and city governments to raise money "from local sources to maintain and operate" their local schools.
The local school funding formula begins with the concept of "basic need." This concept is intended to equalize districts by providing them with needed resources, taking into account differences among districts. A statutory formula determines a district's basic need based on two variables: the district's adjusted average daily membership and the statewide base student allocation. The district's adjusted average daily membership accounts for several metrics such as enrollment, school size, relative costs in the district, the number of students with special needs, and the number of correspondence students. The base student allocation is a per-student allowance set by a statute that the legislature periodically revisits.
To fulfill this basic need, districts receive "state aid, a required local contribution, and eligible federal impact aid." State aid comes from the "public education fund, " to which the legislature allocates funds annually. The amount of state aid that a district receives is based on three variables: the district's "basic need, " the district's required local contribution (if any), and the district's federal impact aid. If state appropriations fall short of the amount of state aid calculated under AS 14.17.410, then the State must reduce each district's basic need on a pro rata basis.
The required local contribution offsets the amount of state aid provided to satisfy a district's basic need. Satisfying the local contribution requires a local community to contribute an amount that falls within a statutory range that reflects the value of taxable real and personal property located within the district. At minimum the contribution must equal the "equivalent of a 2.65 mill tax levy on the full and true value of the taxable real and personal property in the district as of January 1 of the second preceding fiscal year." The State, however, cannot require an organized borough or city to contribute more than "45 percent of a district's basic need for the preceding fiscal year." A city or borough school district also may make a voluntary contribution, but a statutory cap prevents a local community from contributing more than the greater of the "equivalent of a two mill tax levy on the full and true value of the taxable real and personal property in the district" or "23 percent of the total of the district's basic need for the fiscal year." Thus, under the current framework, organized boroughs and cities work together with the State to support public schools.
B. Prior Proceedings
Ketchikan Gateway Borough is an organized borough that must annually contribute to fund its schools under AS 14.12.020. The required payment, set by the school funding formula,  supports the Ketchikan Gateway Borough School District. In 2013, the district's "basic need" for the upcoming 2014 fiscal year was almost $26 million; the required local contribution was about $4.2 million. Though the Borough contributed this amount "under protest, " it voluntarily contributed an additional $3.8 million. After contributing the funds, the Borough brought suit against the State, asking the superior court, first, to declare the required local contribution unconstitutional; second, to enjoin the State from requiring the Borough to comply with the statute; and, third, to direct the State to refund its protested $4.2 million payment. Both parties moved for summary judgment.
The superior court partially granted the Borough's motion. It agreed with the Borough that the required local contribution violated the dedicated funds clause under article IX, section 7 of the state constitution. The dedicated funds clause provides:
The proceeds of any state tax or license shall not be dedicated to any special purpose, except as provided in section 15 of this article or when required by the federal government for state participation in federal programs. This provision shall not prohibit the continuance of any dedication for special purposes existing upon the date of ratification of this section by the people of Alaska.
The superior court concluded that the required local contribution constituted the proceeds of a state tax or license; that the local contribution statute earmarked those funds for a specific purpose and prevented the legislature from using the funds in any other manner; and that the required local contribution was not exempt from the constitutional prohibition against dedicated funds.
The superior court denied summary judgment on the Borough's other claims. It concluded that the local contribution did not violate the appropriations or governor's veto clauses and that equity did not require the State to refund the local contribution to the Borough for the 2014 fiscal year.
The appropriations clause under article IX, section 13 provides: "No money shall be withdrawn from the treasury except in accordance with appropriations made by law. No obligation for the payment of money shall be incurred except as authorized by law. Unobligated appropriations outstanding at the end of the period of time specified by law shall be void." And the governor's veto clause under article II, section 15 provides: "The governor may veto bills passed by the legislature. He may, by veto, strike or reduce items in appropriation bills. He shall return any vetoed bill, with a statement of his objections, to the house of origin." The court concluded that neither clause was violated because the required local contribution "does not enter the state treasury" and because the required local contribution is not an appropriation. The court further concluded that it was unproblematic that the required local contribution never entered the state treasury. In denying the Borough's request for a refund, the court explained that the State was not unjustly enriched because the required local contribution did not benefit the State.
The State appealed and the Borough cross-appealed, together asking us to consider all four prongs of the superior court's decision: whether the required local contribution is unconstitutional under the dedicated funds, appropriations, or governor's veto clauses and, if so, whether equity requires refunding the Borough's protested payment.
III. STANDARD OF REVIEW
"We review a grant or denial of summary judgment de novo." Questions of constitutional and statutory interpretation, including the constitutionality of a statute, are questions of law to which we apply our independent judgment. We adopt the "rule of law that is most persuasive in light of precedent, reason, and policy." Legislative history and the historical context, including events preceding ratification, help define the constitution . Statutes passed immediately after statehood give insight into what the founders intended. We presume statutes to be constitutional; the party challenging the statute bears the burden of showing otherwise.
A. The School Funding Formula Does Not Violate The Dedicated Funds Clause.
Before Alaska became a state in 1959, the Territory and local areas shared responsibility for funding public education. The legislature derived the current school funding formula from this pre-statehood program, the framework of which has remained largely unchanged.
The Borough contends that the school funding program is a "state tax or license" that is subject to the dedicated funds clause because it is not a "dedication . . . existing upon the date of ratification of [the Alaska Constitution]" and because no other exemption from the dedicated funds clause applies. Accordingly it concludes that the required local contribution violates the dedicated funds clause. First the Borough claims that before statehood, "municipalities exercised independent judgment and discretion as to what they could afford to pay for schools" and notes that "cities were not required to provide any particular amount to the school districts." Second the Borough argues that the refund amount that cities received from the Territory "depended on how much was appropriated by the Legislature for such purpose."
However, as we explain below, the required local contribution is the most recent iteration of a longstanding state-local cooperative program in which local communities and the State share responsibility for funding Alaska's public schools. Accordingly, whether or not it is a dedication that predated statehood, the required local contribution is not a "state tax or license" within the meaning of the dedicated funds clause.
1. Under the Alaska Compiled Laws of 1949, the Territory and local communities shared responsibility for funding local schools.
Boroughs did not exist before Alaska became a state. Under the Alaska Compiled Laws of 1949, each city constituted a single school district and each had an obligation to provide public school services. An incorporated city also could join with adjacent areas to form an independent school district. Local school boards, which oversaw local school activities, had the power to assess, levy, and collect taxes to assist with this obligation to support their schools. Though territorial law did not dictate an exact funding amount, it required cities to provide "suitable school houses . . . and . . . the necessary funds to maintain [local] public schools" or, if part of an independent school district, to set aside funding for their share of local school costs. Like today, local communities enjoyed discretion in determining how to satisfy their funding obligation. They could dedicate a special school tax to the purpose, or they could ...