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IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE Heard in Knoxville May 1, 2002 Session

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IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE Heard in Knoxville May 1, 2002 Session TENNESSEE SMALL SCHOOL SYSTEMS, ET AL. v. NED RAY McWHERTER, ET AL. Appeal pursuant to Tenn. Code Ann from
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IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE Heard in Knoxville May 1, 2002 Session TENNESSEE SMALL SCHOOL SYSTEMS, ET AL. v. NED RAY McWHERTER, ET AL. Appeal pursuant to Tenn. Code Ann from the Chancery Court for Davidson County No II Carol L. McCoy, Chancellor No. M SC-R3-CV - Filed October 8, 2002 This is the third appeal to this Court of the plaintiffs suit challenging the constitutionality of the manner in which the State funds public education. In the first appeal, we held that the State was required by the Tennessee Constitution to maintain and support a system of public schools that affords substantially equal educational opportunities to all students, and we found that the State s school funding scheme unconstitutionally denied equal educational opportunities to all students. Tennessee Small School Sys. v. McWherter, 851 S.W.2d 139 (Tenn. 1993) ( Small Schools I ). In the second appeal, we conditionally upheld a new funding plan allocating funds to school systems according to a formula based on the cost of forty-three components necessary for a basic education, known as the Basic Education Program ( BEP ), Tenn. Code Ann to Tennessee Small School Sys. v. McWherter, 894 S.W.2d 734 (Tenn. 1995) ( Small Schools II ). We found, however, that the omission of a requirement for equalizing teachers salaries was a significant defect in the Basic Education Program ( BEP ), which put the entire plan at risk both functionally and legally, and we concluded that the plan must include equalization of teachers salaries according to the BEP formula in order for the plan to be constitutional. Id. at 738. In this third appeal, the question is whether the State s current method of funding salaries for teachers the salary equity plan found in Tennessee Code Annotated equalizes teachers salaries according to the BEP formula or whether it fails to do so and violates equal protection by denying students substantially equal educational opportunities. The trial court dismissed the case after finding that the State had met its constitutional obligation to equalize teachers salaries under Small Schools II. The plaintiffs then filed a motion asking this Court to assume jurisdiction of the appeal, see Tenn. Code Ann (Supp. 2001), 1 asserting that the 1 The reach-down statute, Tenn. Code Ann (d)(1), provides that the supreme court may, upon the motion of any party, assume jurisdiction over an undecided case in which a notice of appeal... is filed before any intermediate state appellate court.... The statute applies only to cases of unusual public importance in which there is a special need for expedited decision and which involve: (A) State taxes; (B) The right to hold or retain public office; or (C) Issues of constitutional law. Tenn. Code Ann (d)(2)(Supp. 2001). State failed to comply with this Court s directive in Small Schools II to equalize teachers salaries according to the BEP formula for funding public education. We granted the motion. After careful consideration of the record and applicable authorities, we find that the salary equity plan embodied in Tennessee Code Annotated does not equalize teachers salaries according to the BEP formula and contains no mechanism for cost determination or annual cost review of teachers salaries, unlike the BEP conditionally approved in Small Schools II. We further find that no rational basis exists for structuring a basic education program consisting entirely of costdriven components while omitting the cost of hiring teachers, the most important component of any education plan and a major part of every education budget. Therefore, the lack of teacher salary equalization in accordance with the BEP formula continues to be a significant constitutional defect in the current funding scheme. Accordingly, we hold that the salary equity plan fails to comply with the State s constitutional obligation to formulate and maintain a system of public education that affords a substantially equal educational opportunity to all students. The trial court s judgment dismissing the case is reversed and the case is remanded. Appeal Pursuant to Tenn. Code Ann ; Judgment of the Trial Court Reversed and Remanded. E. RILEY ANDERSON J., delivered the opinion of the court, in which FRANK F. DROWOTA, III, C.J., ADOLPHO A. BIRCH, JR., JANICE M. HOLDER, and WILLIAM M. BARKER, JJ., joined. Lewis R. Donelson, Christopher G. Boling, Jonathan J. Cole, Angie C. Davis and Marianne Bell Matthews, Memphis, Tennessee, for the plaintiffs-appellants, Tennessee Small School Systems, et al. Paul G. Summers, Attorney General and Reporter; Michael E. Moore, Solicitor General; Kate Eyler, Deputy Attorney General; and Kimberly J. Dean, Deputy Attorney General, Nashville, Tennessee, for the defendants-appellees, Ned Ray McWherter, et al. Karl F. Dean and James L. Charles, Nashville, Tennessee, for the intervenors-appellees, Metropolitan Nashville-Davidson County Public School System. Mary Neil Southerland, Chattanooga, Tennessee, for the intervenors-appellees, Chattanooga- Hamilton County Public School System. Jack Mitchell, Clarksville, Tennessee, for the intervenors-appellees, Clarksville-Montgomery County Public School System. Jerry D. Kizer, Jackson, Tennessee, for the intervenors-appellees, Jackson-Madison County Public School System. Michael Moyers, Knoxville, Tennessee, for the intervenors-appellees, Knox County Public School System. -2- Ernest G. Kelly, Memphis, Tennessee, for the intervenors-appellees, Memphis City Public School System. Thomas A. Varlan, Knoxville, Tennessee, for the intervenors-appellees, Sevier County Public School System. Thomas R. Russell, Memphis, Tennessee, for the intervenors-appellees, Shelby County Public School System. E. Patrick Hull, Kingsport, Tennessee, for the intervenors-appellees, Sullivan County Public School System. OPINION BACKGROUND In 1988, a group of rural school districts, 2 superintendents, board of education members, students, and parents filed suit claiming that Tennessee s education funding system violated article XI, section 12 of the Tennessee Constitution 3 because the funding system denied public school students the right to an equal education due to a disparity in resources between rural and urban counties. To place the issues in the present dispute in the appropriate context, we begin by reviewing the extensive procedural history. Small Schools I Tennessee Foundation Program 2 The following county school systems are identified in the notice of appeal as plaintiffs-appellants: Crockett, Grundy, Hancock, Hickman, Overton, Pickett, Trousdale, and Wayne. 3 The State of Tennessee recognizes the inherent value of education and encourages its support. The General Assembly shall provide for the maintenance, support and eligibility standards of a system of free public schools. Tenn. Const. art. XI, In their initial lawsuit in 1988, the plaintiffs sought a declaratory judgment that the State s educational funding statutes were unconstitutional, that the defendants be enjoined from acting pursuant to those statutes, and that the State be required to formulate and establish a funding system that met constitutional standards. The State, along with several school systems located in urban and suburban counties across the state who were allowed to intervene, opposed the plaintiffs suit on the ground that the funding scheme enacted by the legislature was not reviewable by the courts. 4 In sum, the defendants argued that article XI, section 12, of the state constitution provided no qualitative standards for measuring the quality of education or the sufficiency of funding and that such matters were left to the exclusive province of the legislative and executive branches. Small Schools I, 851 S.W.2d at 141. After a six-week trial, the trial court agreed with the plaintiffs and declared the State s funding system unconstitutional. On appeal, this Court agreed with the trial court s findings that there were impermissible disparities in the educational opportunities available to public school students, as evidenced by significant differences in teacher qualifications, student performance, and basic educational programs and facilities. We noted, for example, that many schools in the rural districts had decaying physical plants, inadequate heating, showers that did not work, buckling floors, leaking roofs, inadequate science laboratories, and outdated textbooks and libraries. Small Schools I, 851 S.W.2d at 145. Furthermore, the evidence showed that some of the school districts were unable to offer advanced placement courses, more than one foreign language, or the state- mandated art and music classes, drama instruction, and athletic programs. Id. at We also agreed with the trial court that the gross disparities in educational opportunities available to public school students were caused by the State s then-existing funding scheme, the Tennessee Foundation Program ( TFP ), which included only a token amount of state funds for the equalization of school systems and, significantly, was unrelated to the costs of providing programs and services by the local schools. Small Schools II, 894 S.W.2d at 736. Indeed, state funding under the TFP was based primarily on average daily attendance of students, while local funding depended heavily on local sales tax collections and discretionary funding by local governments. Small Schools I, 851 S.W.2d at 143. We therefore concluded that the state funding scheme violated equal protection principles: The constitutional mandate that the General Assembly shall provide for a system of free public schools guarantees to all children of school age in the state the opportunity to obtain an education. The provisions of the constitution guaranteeing equal protection of the law to all citizens, require that the educational opportunities provided by the system of free public schools be substantially equal. The 4 The suit was filed against various State officials, including the Governor and other executive branch officials, leaders of the General Assembly, and members of the State Board of Education. The intervenors consisted of nine school districts: Davidson County, Chattanooga-Hamilton County, Knox County, Jackson-Madison County, Memphis City, Clarksville- Montgomery County, Sevier County, Shelby County, and Sullivan County. -4- Id. at constitution, therefore, imposes upon the General Assembly the obligation to maintain and support a system of free public schools that affords substantially equal educational opportunities to all students. Although we held that the TFP was unconstitutional, we elected not to fashion a specific remedy for the deficiencies of the plan, but rather, gave the legislature the opportunity to establish a public school system that affords substantially equal educational opportunities to all students. Small Schools I, 851 S.W.2d at In doing so, we recognized that the means whereby the State could achieve its constitutional obligation is a legislative prerogative and that the legislature s power in this regard is extensive. Id. at 141, 156. We observed that an acceptable funding plan could include the imposition of funding and management responsibilities on local governments, but that the Constitution would not permit the indifference or inability of those [local governments] to defeat the constitutional mandate of substantial equality of opportunity. Id. at 141. Small Schools II The Basic Education Plan In Small Schools II, the plaintiffs contended that the State s new plan, which omitted teachers salaries as a component of the Basic Education Plan ( BEP ) and failed to equalize salaries, amounted to an unconstitutional denial of a substantially equal education opportunity to all students. The BEP, which was enacted by the legislature while Small Schools I was pending in this Court, provided for the allocation of funds to local school systems on a fair and equitable basis by recognizing the differences in the ability of local jurisdictions to raise local revenues. Tenn. Code Ann The BEP required both state and local funding, but with the proportionate local share determined by each county s relative ability to pay, or its fiscal capacity. 5 Small Schools II, 894 S.W.2d at 737. Each local government was required to appropriate the funds determined to be its share under the plan, see Tenn. Code Ann , but the amount of separate state funding no longer depended upon the amount of revenue collected or appropriated by the local government. Small Schools II, 894 S.W.2d at 737. The BEP formula was based on the cost of forty-three components that the legislature deemed necessary for [Tennessee] schools to succeed, Tenn. Code Ann (3) (Supp. 2001). The components included items such as the cost of vocational education, guidance 5 A county s fiscal capacity is calculated using a formula developed by the Tennessee Advisory Commission on Intergovernmental Relations. Each county s fiscal capacity is expressed as a percentage of the total capacity of all counties in the State and is based on its sales tax base, property tax base, and income. Small Schools II, 894 S.W.2d at counseling, textbooks, physical education, computer technology, transportation, library services, special education, art, music, classroom supplies, alternative schools, travel, and capital expenditures for facilities. The components also included the costs of hiring secretaries, nurses, librarians, social workers, principals and their assistants, assessment personnel, coordinators, supervisors, custodians, psychologists, and superintendents but, significantly, omitted the cost of hiring teachers, the most important component of any education plan and a major part of every education budget. Small Schools II, 894 S.W.2d at 736, 738. In addition, the BEP formula included provisions for an annual review of the actual cost of each component and for reviewing the formula each year to make any adjustments for improving the system. Id. at 736. In Small Schools II, the plaintiffs challenged the BEP formula based on the fact that costs associated with increasing or equalizing teachers salaries was not one of the components deemed necessary for schools to succeed, resulting in a disparity in teachers salaries across the state. The BEP in its original form as proposed by the State Board of Education included teachers salaries as one of the components of the formula necessary for schools to succeed, but the plan as enacted into law by the legislature did not. 6 The defendants nonetheless argued that teachers salaries did not affect the quality of instruction or educational opportunity and that, therefore, the BEP formula did not need to provide for the equalization of teachers salaries as one of its components. On appeal, this Court emphasized that [t]eachers, obviously, are the most important component of any education plan and that their compensation the major item in every education budget is a significant factor in determining where teachers choose to work. Id. at 738. Moreover, we concluded that the rationale supporting the inclusion of the other components of the BEP applied with equal, if not greater, force to the inclusion of teachers salaries. Id. Accordingly, we held that the omission of a requirement for equalizing teachers salaries is a significant defect in the BEP and that the failure to provide for the equalization of teachers salaries according to the BEP formula, puts the entire plan at risk functionally and, therefore, legally. Id. We emphasized that the plan must include equalization of teachers salaries according to the BEP formula in order for the plan to be constitutional. Id. Small Schools III Salary Equity Plan 6 In Small Schools I, we discussed the plan developed by the State Board of Education at the direction of the General Assembly, which included factors to consider differences in competitive salaries earned in different counties. Indeed, we noted that the defendant asked the Court to take judicial notice of the plan, which had not yet been enacted, in support of its position that the education system was adequate. 851 S.W.2d at As noted, however, the plan as eventually enacted by the legislature did not include teachers salaries. The result has been years of litigation and untold expense for all concerned. -6- In 1995, following Small Schools II, the legislature enacted the salary equity plan in Tennessee Code Annotated , which on a one-time basis attempted to equalize teachers salaries in those school districts where the average salary was below $28,094 as of 1993, 7 but did not include teachers salaries as a component of the BEP. The plan provided for state and local funds in support of teachers salary equity to increase teacher compensation in school districts averaging less than $28,094 per year per instructional position. Tenn. Code Ann (a)(3). Although the plan required the State to pay the same percentage of salary equity funds for each school district as it pays toward the cost of classroom components of the BEP for each district and also required local governments to appropriate funds sufficient to pay their proportionate share, 8 it did not include provisions for annual review or cost determination of teachers salaries under the BEP. The plaintiffs filed this action arguing that the salary equity plan establishes an arbitrary floor for teachers salaries unrelated to the BEP in violation of Small Schools II, and that the plan does not submit teachers salaries to the annual review and cost determination process applicable to all of the other cost components under the BEP. Accordingly, the plaintiffs sought to enforce the directive in Small Schools II that teachers salaries be included as a component of the BEP. After a two-day hearing, the trial court found that the State had met its constitutional obligation to equalize teachers salaries under Small Schools II and dismissed the action. In sum, the trial court reasoned that even though Small Schools II mandated that salary equalization be in accordance with the BEP formula, it did not demand that the legislature adhere strictly to the mechanisms of that plan. 9 Thereafter, the plaintiffs filed a motion pursuant to Tennessee Code Annotated (d) (Supp. 2001) asking this Court to assume jurisdiction of the appeal, as it had in Small Schools II, on the grounds that the case is one of unusual public importance in which a special need for an expedited decision exists and which involves issues of constitutional law. The plaintiffs argued in 7 The figure of $28,094 was determined by using the actual average instructional compensation package for each school system as of December 1, The salary figures used in the calculation included both state and local contributions. In order to exclude the extremes from the calculation, the top and bottom five percent of school systems were dropped from the calculation. 8 In fact, a school district is prohibited from commencing school in the fall until its share of such allocation for teachers salary equity... has been included in the budget approved by the local legislative body. Tenn. Code Ann (a)(3). In addition, school districts receiving salary equity funds cannot use them for any purpose other than raising teachers salaries. Tenn. Code Ann (b). Further, salary equity funds, both state and local, must be reduced proportionally in all school districts in the event state funds appropriated for teachers salary equity are insufficient to meet the local public school systems entitlements under the statute. Tenn. Code Ann (c). The legislature has appropriated approximately $12 million dollars annually under Tenn. Code Ann to increase and equalize teacher compensation. 9 The trial court concluded that [i]n truth, the plaintiffs are complaining about the adequacy of teachers salaries statewide when the effect of the General Assembly s action has been to equalize teachers salaries statewide in accordance with
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