DALLAS — A ruling that Colorado’s school funding formula violates the state constitution is drawing scrutiny in several states that face similar legal challenges.

The Dec. 9 ruling by Denver District Court Judge Sheila Rappaport was the culmination of six years of litigation. Her 189-page ruling also declared the system of bond funding inadequate.

“There is not one school district that is sufficiently funded,” Rappaport ruled in the case of Lobato v. State. “This is an obvious hallmark of an irrational system.”

While Rappaport’s ruling is based on the Colorado Constitution, the issue of equality of funding in relation to new student-performance mandates is at the core of lawsuits pending in other states, including one filed last week in Texas.

Funding adequacy suits have also been filed in California, New Jersey, Alaska and Montana, among other states.

Kathy Gebhardt, lead attorney for the plaintiffs, said she expects the case to be appealed directly to the Colorado Supreme Court and is optimistic that a ruling on Rappaport’s findings will be issued within a year.

The district court ruling is “very significant because we have such a detailed ruling of how the state is violating children’s rights,” Gebhardt said.

Rappaport’s ruling comes on the heels of deep cuts to education in states that faced some of their worst revenue crises since the Great Depression.

Cindy Stevenson, superintendent of the Jefferson County School District, the largest in Colorado, testified in the trial. She said her district saw about $58 million of reductions in state aid as Jeffco Public Schools were trying to implement state and federal reforms.

In a message to the public, Stevenson said that if Rappaport’s ruling stands, solutions would have to come from voters or a future legislature.

“What I would say to our community is to stay tuned, and we’ll see what the result is,” Stevenson said.

Gebhardt said the Colorado General Assembly does not have to wait for a high court ruling to correct the funding formula.

“We have a particularly old school-funding formula and we’ve gone through at least two significant sets of reform,” she said.

Elsewhere, the California Department of Finance is cutting up to $1.8 billion from the state’s school districts, including $248 million for home-to-school transportation, because of a revenue shortfall. The Los Angeles Unified School District has threatened to challenge the automatic cuts in court.

A case similar to Colorado’s, known as Robles-Wong v. California, is in the early stages of appeal after a state district judge in Alameda County ruled against plaintiffs on key issues.

Rappaport’s findings included evidence from other states that funding and student performance were linked.

“Studies performed throughout the United States, in states ranging from Massachusetts to South Carolina to California, demonstrate a strong relationship between resources and achievement,” the Colorado ruling stated. “While expenditures in general make a difference, they make an even bigger difference if you spend them in areas close to instruction, such as on the quality of teachers and teaching.”

In Texas, three lawsuits have been filed so far seeking to overturn the state funding formula. As in Colorado, the multiple suits are expected to be combined into one at some point.

The latest plaintiff in Texas, the Mexican American Legal Defense and Educational Fund, contends that the state funding mechanism allows property-rich districts to levy a lower tax rate than poorer districts, which tend to have more lower-income students and students that require bilingual instruction.

Attorney David Hinojosa said that the lead plaintiff in the Texas case, the Edgewood Independent School District, collects $5,472 per student with its legal maximum property tax rate of $1.17 per $100 of assessed value, while the neighboring Alamo Heights Independent School District generates $6,242 per student with a tax rate of $1.04 per $100 valuation.

Most state and local funding for public education in Colorado is provided through the Public School Finance Act of 1994.

In school year 2010-11, PSFA funding was about $5.4 billion, of which school district property tax and other local sources contributed $2 billion or 37%, compared to $3.4 billion or 63% from the state. Amid worsening financial straits, the total was reduced by nearly 13%.

The legislature is not expected to take up the funding formula in the session that begins in January because the case will be on appeal at the state Supreme Court.

With an election year as a backdrop, politics are likely to play a part in how the case plays out.

A Democratic justice who was part of the 4-3 majority that kept the suit alive in 2009 by remanding it to the lower court has stepped down and been replaced by a Republican.

Republicans in Colorado generally support the state’s firm restrictions on debt ratios as represented by the Taxpayer Bill of Rights, which requires elections for school districts and other forms of government to retain higher revenues from increased property value. TABOR also requires potential rebates of tax revenue that rises above an inflation and population-based formula.

In addition, voter-approved initiative Amendment 23 creates a mandated level of school spending that rises with inflation.

Proposition 103, a voter initiative that would have raised income and sales tax rates and dedicated the additional revenue solely to school spending, failed at the polls Nov. 1.

The tension over debt and the need for additional funding has come into play in 45 lawsuits filed in states since 1970, according to federal education officials. Plaintiffs have won two-thirds of the 33 cases resolved so far.

Of particular interest to the public finance is Rappaport’s ruling on the inadequacy of bond programs for school construction.

“Colorado’s system for funding capital construction is broken,” the judge’s ruling stated.

In Colorado, capital construction is left almost entirely to local school districts with little or no state assistance.

“Approximately half of all Colorado school districts lack the bonding capacity to build even a single new school,” Rappaport wrote.

In 2003, a report by the Colorado state auditor estimated there were about $4.7 billion in unmet school facility needs.

“Despite the report, no state action was taken,” Rappaport’s ruling noted.

To help solve the school facilities problem, Colorado in 2008 created a state grant program called Building Excellent Schools Today. 

The grants can provide revenue to supplement local bond programs.  Lease-purchase grants under BEST can provide 20-year certificates of participation.

“Although every school district that applies for a BEST grant has 'legitimate needs,’ a majority of BEST applications are not granted,” the court’s ruling stated. “The BEST program has not solved Colorado’s capital construction needs, nor is it adequate to address those needs.”

If the ruling survives the Supreme Court appeal, lawmakers will face the politically difficult choices of calling for tax hikes or applying virtually all of the state’s general revenue to education, leaving other programs empty-handed, according to legal observers.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.