City of Athens Board Of Education v. McMinn County, Tennessee

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

August 27, 2014 Session

CITY OF ATHENS BOARD OF EDUCATION ET AL. v. McMINN

COUNTY, TENNESSEE ET AL.

Appeal from the Circuit Court for McMinn County

No. 2011-CV-331 Lawrence H. Puckett, Judge

No. 2013-02758-COA-R3-CV-FILED-DECEMBER 29, 2014

This litigation is a dispute between the boards of education of the cities of Athens and

Etowah (“the City School Boards”) on the one hand and McMinn County (“the County”)

over the distribution of tax revenues among the various school systems within the county.

Tenn. Code Ann. § 49-3-315(a) (2013) mandates that “[a]ll school funds for current

operation and maintenance purposes collected by any county . . . shall be apportioned by the

county trustee” among the local education agencies in the county based upon average daily

school attendance. Over the years spanning from 1996 to 2011, the County apportioned

funds in the account designated “general purpose school fund” to the City School Boards,

but did not apportion funds from the County’s “educational capital projects fund.” The

County argues that funds appropriated for and spent on school capital projects are not

“school funds for current operation and maintenance purposes” under the language of the

statute. The trial court agreed and granted the County summary judgment. It dismissed the

complaint of the City School Boards. We affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Affirmed; Case Remanded

C HARLES D. S USANO, JR., C.J., delivered the opinion of the Court, in which D. M ICHAEL

S WINEY and J OHN W. M CC LARTY, JJ., joined.

H. Chris Trew, Athens, Tennessee, for the appellant, City of Athens Board of Education.

William M. Dender, Etowah, Tennessee, for the appellant, City of Etowah Board of

Education.

John E. Owings, Knoxville, Tennessee, and Vance L. Baker, Jr., Athens, Tennessee, for the

appellees, McMinn County, Tennessee and Phil Tuggle, County Trustee for McMinn County.

OPINION

I.

The resolution of this case turns on the interpretation and application of Tenn. Code

Ann. § 49-3-315(a), part of the Tennessee Education Finance Act of 1977. Section 49-3-

315(a) provides, in pertinent part, as follows:

For each [local education agency]1 there shall be levied for

current operation and maintenance not more than one (1) school

tax for all grades included in the LEA. Each LEA shall place in

one (1) separate school fund all school revenues for current

school operation purposes received from the state, county and

other political subdivisions, if any. . . . All school funds for

current operation and maintenance purposes collected by any

county, except the funds raised by any local special student

transportation tax levy as authorized in this subsection (a), shall

be apportioned by the county trustee among the LEAs in the

county on the basis of the [weighted full-time equivalent

average daily attendance2 ] maintained by each, during the

current school year.

(Emphasis added.) In construing the similarly-worded predecessor to this statute, the

Supreme Court noted:

The provisions of T.C.A. § 49-605 [now 49-3-315] are

mandatory. They require that all school funds for current

operations and maintenance purposes collected by a county,

except those used for pupil transportation, “shall be apportioned

by the county trustee among the county, city, and special school

districts therein on the basis of the average daily attendance

maintained by each, during the current school year.”

City of Harriman v. Roane Cnty., 553 S.W.2d 904, 908 (Tenn. 1977) (emphasis added).

1

“ ‘Local education agency’ or ‘LEA’ means any county, city, or special school district, unified

school district, school district of any metropolitan form of government or any other school system established

by law.” Tenn. Code Ann. § 49-3-302(11).

2

The “WFTEADA.”

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All of the material facts are undisputed. The budget passed by the McMinn County

Commission for fiscal year July 1, 2010 through June 30, 2011, included a proposed revenue

item of $7,051,942 designated for and allocated to the general purpose school fund. The

County states that this “represents or constitutes the only . . . funds proposed to be collected

by the County which . . . constitutes the County Board of Education’s apportioned share of

school funds from current property taxes pursuant to T.C.A. Section 49-3-315(a).” The

budget also included estimated funds in an account designated “other capital projects fund”

in the amount of $3,482,190. These funds were not apportioned among the County LEA and

the LEAs of the Cities of Athens and Etowah. The County undertook a similar budgeting

approach in earlier years, as described by the following undisputed statements taken from the

County’s Rule 56.03 statement of undisputed material facts in support of its motion for

summary judgment:

The County Commission approves an expenditure budget for

each Fund listed in its annual budget. One of those Funds listed

is Other Capital Projects Fund #189 which began receiving

property tax revenue in FY 96-97.

The State of Tennessee conducted an audit of McMinn County’s

General Purpose Schools Fund #141’s Fund Balance (along with

other school systems across the State) and determined that

$1,921,581 was derived from the State’s Basic Education

Program (BEP) funds. Further, the State required that these

funds be used for Capital Projects. These funds, along with

other funds from the General Purpose School Fund #141 began

to be transferred to an Educational Capital projects Fund #177

in FY 99-00.

In FY 00-01, the County Commission began budgeting

appropriations for County School Capital Projects for the

purpose of renovations and additions to the County Schools.

While these budgeted funds have not been completely expended,

the following list is the budget year and the amount the County

Commission has budgeted:

FY 00-01 $ 600,000

FY 01-02 900,000

FY 02-03 1,200,000

FY 03-04 1,200,000

FY 04-05 1,200,000

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FY 05-06 1,200,000

FY 06-07 1,200,000

FY 07-08 1,200,000

FY 08-09 1,200,000

FY 09-10 1,200,000

$11,100,000

__________

As Capital Project needs arose and it became necessary to use

these funds, McMinn County chose to utilize the Education

Capital Projects Fund #177 and transferred funds from Fund

#189 in order to make payments for specific capital projects.

Revenue from all property tax fixed in each annual budget of

McMinn County has conformed to the levies set forth in each

respective budget. The following funds are listed in the annual

tax levy resolution and receive a portion of the revenue

generated by the property tax rate: General Fund #101; Road &

Bridge Fund #131; General Purpose School Fund #141; Athens

City School Fund #355; Etowah City School Fund #356; and

Other Capital Projects Fund #189.

(Paragraph numbering in original omitted.)

According to undisputed proof submitted by Jason Luallen, the County’s Director of

Finance, the County spent a total of $11,607,925 from its Education Capital Projects Fund

from FY 1999-2000 through FY 2009-2010.

On August 12, 2011, the City School Boards brought this action alleging that the

County has “failed, and continue[s] to fail, to apportion and share funds from county[-]wide

general property tax collections, which are used . . . for McMinn County Board of Education

capital projects, with the Athens City Schools and Etowah City Schools as required by

T.C.A. § 49-3-315.” After discovery, both sides moved for summary judgment. The trial

court granted the County summary judgment:

Plaintiffs represent two LEAs that, under the Education Finance

Act, share in the tax revenue raised by defendant county for

operation and maintenance of all the LEAs in McMinn County.

Plaintiffs’ complaint alleges that McMinn County has

unlawfully diverted a portion of the county taxes for education

into a special county budget category named “Other Capital

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Projects Fund” which the county does not prorate among all

LEAs of the county. Plaintiffs’ motion for summary judgment

asks the court to rule that the actions of McMinn County

government violate the Education Finance Act. Plaintiffs ask

the court to order the county to apportion the funds due to them

and to award them pre-judgment interest on all amounts

wrongfully withheld from them by the county.

Defendants, McMinn County and the County Trustee, do not

dispute Plaintiffs’ factual allegations. However, Defendants

submit that the tax revenue that McMinn County allocates to this

special fund is not a tax “for current [school] operation and

maintenance purposes” and, therefore, the Education Finance

Act does not require the county to distribute the fund in the

manner directed by Tenn. Code Ann. § 49-3-315(a), i.e., on a

prorated basis to all LEAs in the county based upon average

daily attendance.

* * *

The court agrees with the [County]. When a county makes a tax

assessment for future capital outlay projects, such an assessment

is not subject to proration among all LEAs in the county. The

Education Finance Act merely requires proration among all

LEAs of “[a]ll school funds for current operation and

maintenance purposes collected by any county.” Tenn. Code

Ann. § 49-3-315(a). Funds collected for future capital projects

are not for “current operation and maintenance.” A county’s

voluntary “capital contribution to assist in defraying the cost of

constructing a public school,” likewise is not subject to

proration under Tenn. Code. Ann. § 49-3-1003. See Op. Tenn.

Atty. Gen. 95-015 (March 13, 1995) [1995 WL 115844] and Op.

Tenn. Atty. Gen. 03-008 ([Jan.] 23, 2003) [2003 WL 174008].

The City School Boards timely filed a notice of appeal.

II.

The issue presented, as quoted from the City School Boards’ brief, is:

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[Whether] the trial court erred in granting McMinn County’s

motion for summary judgment holding that funds collected by

McMinn County from county-wide property taxes and provided

solely to the county school system do not have to be apportioned

pursuant to TCA section 49-3-315(a) if the funds paid to the

county school system are for capital projects.

The City School Boards do not allege that funds allocated for capital projects were not

actually spent on capital projects. Nor do the City School Boards argue that the County’s

budgeting and spending process runs afoul of the well-established rule that “it is beyond the

power of count[ies] of this State to take moneys raised for school purposes and appropriate

them for other different purposes, or to take moneys raised for purposes other than school

purposes and use them for school purposes.” City of Harriman, 553 S.W.2d at 906 (quoting

State ex rel. Davidson Cnty. Bd. of Educ. v. Pollard, 136 S.W. 427, 429 (Tenn. 1911)). The

City School Boards’ argument is that Tenn. Code Ann. § 49-3-315 requires a county to

apportion among local education agencies in the county all school funds collected by the

county, regardless of whether a portion of those funds are appropriated and allocated for

educational capital projects. The County responds by asserting that the plain and express

language of Tenn. Code Ann. § 49-3-315(a) requires it to share only “all school funds for

current operation and maintenance purposes collected” by the County, and that funds

properly designated for capital projects are not “for current operation and maintenance

purposes.” (Emphasis added.)

III.

As previously noted, both sides moved for summary judgment. The parties agree that

the pertinent facts are undisputed and this case presents a question of law that is suitable for

summary judgment.

IV.

The issue presented requires us to construe Tenn. Code Ann. § 49-3-315. The primary

rule governing statutory construction requires us to ascertain and give effect to the

legislature’s intent as expressed in the statute. Myers v. AMISUB (SFH), Inc., 382 S.W.3d

300, 308 (Tenn. 2012); In re Adoption of A.M.H., 215 S.W.3d 793, 808 (Tenn. 2007). To

determine legislative intent, we first examine the language of the statute itself, Curtis v. G.E.

Capital Modular Space, 155 S.W.3d 877, 881 (Tenn. 2005), presuming that “every word in

a statute has meaning and purpose” and should “be given effect if the obvious intention of

the General Assembly is not violated by so doing.” Lanier v. Rains, 229 S.W.3d 656, 661

(Tenn. 2007). In construing a statute, a court must “determine legislative intent from the

natural and ordinary meaning of the statutory language within the context of the entire statute

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without any forced or subtle construction that would extend or limit the statute’s meaning.”

State v. Flemming, 19 S.W.3d 195, 197 (Tenn. 2000). If the language of the statute is clear

and unambiguous, “we apply its plain meaning in its normal and accepted use.” Lanier, 229

S.W.3d at 661; see also In re Adoption of A.M.H., 215 S.W.3d at 808 (“Where the statutory

language is not ambiguous . . . the plain and ordinary meaning of the statute must be given

effect.”).

The statute, Tenn. Code Ann. § 49-3-315(a), requires that “[a]ll school funds for

current operation and maintenance purposes collected by any county, except the funds raised

by any local special student transportation tax levy as authorized in this subsection (a), shall

be apportioned by the county trustee among the LEAs in the county on the basis of the

WFTEADA maintained by each, during the current school year.” The question is whether

funds allocated for school capital projects are included in “school funds for current operation

and maintenance.” Although Tennessee courts have not decided this exact issue under the

current Education Finance Act, the Supreme Court has addressed this issue under earlier, and

similar, statutory language pertaining to school funding. In each of its opinions, the High

Court has noted a clear distinction between funds for current operation and maintenance and

funds for capital projects.

In Southern v. Beeler, 195 S.W.2d 857, 865 (Tenn. 1946), the Court addressed the

issue of whether the trial court erred in holding that a tax levy by Knox County “for the

building, repair, and equipment of rural schools created a fund subject to division with the

City of Knoxville on the basis of average daily attendance in schools.” The Southern Court

stated:

The repair of school buildings and their equipment is an

important item of expense in any educational program. School

buildings must be kept in a reasonable state of repair and cannot

be made dependent upon average daily attendance of students.

Now in the instant case the quarterly court levied a special tax

for this purpose, that is, to repair and equip rural schools. We

think the learned chancellor was in error in holding that the fund

raised from this special tax should be regarded as a part of

elementary school funds and subject to division with the City of

Knoxville based upon the average daily attendance.

An elementary school fund that is subject to division between

the county and city is raised from the special tax of 69 cents, as

provided for in the foregoing itemized budget. It is subject to

distribution as provided by Code section 2348(5) . . .

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The quarterly county court cannot lawfully levy a special tax for

the repair and maintenance, or the erection, of rural schools and

use it for some other purpose and thereby avoid the division

with the city as provided by the foregoing section of the Code.

It must be kept separate and apart from all other school funds.

We hold therefore the foregoing section of the Code does not

apply to a fund raised from a special tax for the repair and

upkeep of rural school buildings in the county.

Id.

Nine years later, the Supreme Court again decided a dispute between county and city

school systems over sharing funds allocated for school building and repair in State ex rel.

Cope v. Davidson Cnty., 277 S.W.2d 396 (Tenn. 1955), stating the following:

Section 13, Code 2417.188, reads as follows:

Section 13. Be it further enacted, That each and

every non-equalizing county in this State shall

levy not more than one tax for current school

operating purposes for all grades, one through

twelve (or such of these grades as may be

included in the local school program), and the

County Trustee shall place in one fund, separate

and apart from all other funds coming into his

hands, all current school revenues received from

County and State sources for school purposes, and

all local school funds raised or collected by any

county participating in State school funds shall be

apportioned by the County Trustee to the county,

cities, and special school districts therein, on the

basis of the average daily attendance maintained

by each in grades one through twelve during the

preceding school year.

* * *

The tax resolution of the County Court among other things

contained:

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Public School Fund * * * 1.23 (7¢ of the levy for

Public School Fund of $1.23 shall be allocated

and placed to the credit of Rural School Building

and Repair Fund and used exclusively for that

purpose.)

This appropriation of the 7¢ for rural school building and repair

fund was attacked in the [complaint] of the City. If the 7¢ levy

is taken from the $1.23 there would only be left $1.16 in which

the complainant would share because these cities in the

non-equalizing counties do not share in special appropriations

for school buildings and repair. The Chancellor held against the

[complaint] on this question and with the County that this 7¢

levy as shown in the quotation above “was to be used for current

school operating purposes, and that the said 7¢ was treated and

considered as a separate levy for ‘rural school buildings and

repair fund’ * * * It follows that the Court has reached the

conclusion that the City is not entitled to any pro rata of the said

7¢ levy.”

* * *

This Court in considering the question in Southern v. Beeler,

supra, concluded that the expense of repairing school buildings

should not be made to depend upon the average daily attendance

of students, and was not intended to be considered a part of the

“operating expenses of the school,” which were and are by

legislative enactment . . . required to be divided . . . between the

county and the city located therein.

Id. at 397-99 (italics in Section 13, Code 2417.188 quote taken from original; emphasis in

last paragraph added by us).

As can be seen, the two above-cited decisions stand for the proposition that a county

may levy a special tax designated for a capital projects fund such as “for the building, repair,

and equipment of rural schools,” Southern, 195 S.W.2d at 865, or a “Rural School Building

and Repair Fund,” State ex rel. Cope, 277 S.W.2d at 398, without being required to allocate

part of the funds to city school systems within the county. The Supreme Court reaffirmed

this view in City of Harriman the same year the Tennessee Finance Act of 1977 was passed,

stating as follows in pertinent part:

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Respondents rely upon the provisions of T.C.A. § 49-201(2) and

(7), dealing with powers of the Quarterly County Court under

the education statutes, as follows:

(2) To consider, on the recommendation of the

county board of education, school budgets for the

county elementary and county high schools, and

to provide necessary funds to enable said county

board to meet all obligations under the adopted

budgets.

* * *

(7) To levy such taxes for county elementary and

county high schools as may be necessary to meet

the budget submitted by the county board of

education and adopted by the quarterly county

court.

These statutes have been held to permit the governing body of

a county to make a special tax levy for the building, repair and

equipment of county schools, without division under T.C.A. §

49-605. See Southern v. Beeler, 183 Tenn. 272, 282-290, 195

S.W.2d 857 (1946); State ex rel. Cope v. Davidson County, 198

Tenn. 24, 29-31, 277 S.W.2d 396 (1955).

Where, however, the county does not make such a special

purpose levy, but lawfully appropriates funds to current school

operations, as had been done here with the portion of sales taxes

at issue, then those funds become subject to the apportionment

provisions of the general school statutes. In the Southern case,

supra, the county allotted tax proceeds to the school budget

under the guise of a special levy for repair and maintenance. It

was held that these funds had to be divided with a city school

system. See 183 Tenn. at 290-291, 195 S.W.2d 857.

553 S.W.2d at 909. The Office of the Attorney General has reached a similar conclusion,

opining as follows:

[P]roceeds from the sale of a county gas system which the

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county received from a utility district would fall within the

category of “revenues . . . received from the state, county and

other political subdivisions” under [Tenn. Code Ann. § 49-3-

315(a)]. Therefore, if the county uses these proceeds to fund

current operation and maintenance of its school system, it must

place them in the school fund and divide them with other

systems operating in the county in accordance with T.C.A. §

49-3-315(a). However, . . . you indicate that the county wishes

to use the funds to help build a high school. So long as the

funds are used for this purpose, rather than for “current

operation and maintenance purposes” we do not think the funds

need to be placed in the special school fund and divided with

other school systems within the county under the statute.

Tenn. Op. Atty. Gen. No. 95-015, 1995 WL 115844 at *3.

In the present case, McMinn County has in essence done what the Supreme Court

validated and allowed in Southern and State ex rel. Cope: set aside money in its budget,

effectively as a “savings account,” for future capital projects as needed. The monies in the

County’s Educational Capital Projects Fund, and its earlier Other Capital Projects Fund, were

not used for “current operation and maintenance purposes.” The Education Finance Act, by

its language, does not require apportionment of funds that are not designated for current

operation and maintenance purposes. For us to accept the City School Boards’ position that

the statute requires apportionment of all school funds collected by the County, we would

have to effectively rewrite Tenn. Code Ann. § 49-3-315(a) so as to elide the words “for

current operation and maintenance purposes.” Obviously, this is something that we are not

at liberty to do.

The City School Boards point out that under the Education Finance Act, if the County

had raised money for capital projects by issuing and selling school bonds, it would have been

required to apportion the funds raised from selling the bonds. Tenn. Code Ann. § 49-3-1002

authorizes a county to issue and sell “general obligation school bonds.” Tenn. Code Ann.

§ 49-3-1003(b)(1) requires counties to share the funds raised from selling the bonds with city

school systems as follows:

In counties having a city or cities operating schools independent

of the county, the trustee of the county shall pay over to the

treasurer of the city that amount of the funds that bear the same

ratio to the entire amount arising from this part as the average

daily attendance of the year ending June 30 next preceding the

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sale of the bonds of the city or cities bears to the entire average

daily attendance of the year ending June 30 next preceding the

sale of the bonds of the county; provided, that the funds paid

over to the city treasurer shall be kept separate from all other

funds in the manner and for the purposes provided in this part

for the county funds to be used.

Tenn. Code Ann. § 49-3-1004(a) provides that the funds from general obligation school

bonds shall be spent as follows:

The proceeds from the sale of school bonds issued under §

49-3-1002 constitute a special fund to be known as the special

school fund, except funds for aiding this state in the construction

of state education facilities or institutions as provided for in

subsection (b), which shall be kept by the trustees of such

county and the treasurer of the city schools separate and apart

from all other funds and shall be applied exclusively to purchase

property for school purposes, to purchase sites for school

buildings, to erect or repair school buildings, to furnish and

equip school buildings and to refund, call or make principal and

interest payments on bonds or other obligations previously

issued for the same purposes, and to be used for no other

purposes by the county board of education of the county, the city

board of education or the governing board of the city.

The City School Boards acknowledge that Tenn. Code Ann. §§ 49-3-1002 through -1004 do

not apply in this case, but argue that “[i]t is inconceivable or an absurdity to believe that the

General Assembly, when enacting the Tennessee Education Finance Act of 1977, intended

that a city school system share based upon average daily attendance in funds derived from

a bond issue for capital improvements, but not receive its fair share of school funds derived

from City Schools property taxes if the funds from City Schools property taxes are designated

for capital improvements within the county school system.” However compelling this

argument may be, it is properly directed to others, e.g., the General Assembly, not to this

Court. The statutory scheme as currently written is clear and unambiguous, and it does not

require apportionment under the circumstances presented. Since we must apply Tenn. Code

Ann. § 49-3-315 as written, we reject the City School Boards’ invitation to take a different

approach.

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V.

The trial court’s summary judgment in favor of McMinn County is affirmed. Costs

on appeal are assessed to the appellants, City of Athens Board of Education and City of

Etowah Board of Education. The case is remanded to the trial court for collection of costs

below, pursuant to applicable law.

_____________________________________

CHARLES D. SUSANO, JR., CHIEF JUDGE

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