State argues case to keep school cash

LITTLE ROCK — The state is not disobeying a judge’s order by holding more than $500,000 that two school districts say is theirs, the state attorney general’s office said Wednesday.

Earlier this month the Fountain Lake and Eureka Springs school districts filed a request to hold the state in contempt for continuing to withhold the money, saying that it was “blatantly” violating a judge’s order.

At issue is property tax revenue collected under “the uniform rate of tax,” which is a 25-mill tax on property mandated by the state constitution in every school district for the maintenance and operation of schools.

Eureka Springs and Fountain Lake were two of a handful of districts that collected more from that tax than they needed to reach the per-student funding level set by the Legislature.

The state Department of Education has tried to get that extra money, arguing that it is unconstitutional for the per-pupil funding to be unequal from one district to another.

Pulaski County Circuit Judge Tim Fox ruled in September that the department does not have the statutory authority to take more than $2.2 million in property tax funds from the Fountain Lake and Eureka Springs districts. He barred it from “levying, assessing, withholding, or setting off from or against any state or federal monies belonging to the plaintiff school districts for repayment of the 25-mill [Uniform Rate of Taxation] revenue” unless the Legislature changes the law.

The state argued in a response filed Wednesday that the money it is withholding is not meant to be a repayment for the property tax revenue, and that the judge’s order did not apply retroactively to money that had already been withheld.

“This Court simply never required the Defendants to ‘release and immediately’ send to the Plaintiff school districts any amounts of state funds that have been with held or set off by the Defendants for the 2010-11 school year,” Assistant Attorney General Scott Richardson wrote in the state’s response.

The state argued that the districts were attempting to “expand the scope” of the judgment by applying it retroactively to money that the state says it is withholding legally.

The state said it is holding more than $225,400 in escrow for the two districts because they submitted deficient budgets for the 2010-11 school year. Arkansas Code Annotated 6-20-2202 requires the state to suspend distribution of all grants and aid from the state to districts that file deficient budgets.

In letters sent to the districts in February and included as exhibits in the state’s response, the department said the districts’ budgets would be considered deficient if they did not cut out expenditures from tax revenue in excess of the per-pupil funding amount.

The state also filed a motion to stay the judgment “to the extent that this Court’s judgment requires any retroactive actions by the Defendants,” pending appeal to the state Supreme Court.

Eugene Sayre, an attorney for the school districts, said he plans to file an objection to the motion to stay the judgment and will ask for a clarification “to make it absolutely clear that Judge Fox’s order meant not to set off this money.”