Lake View Requires Districts to Reorganize Debt

by Gwen Moritz  on Monday, May. 12, 2003 12:00 am  

In addition to finding that the state's system of public education is inadequate and inequitable, the Arkansas Supreme Court's ruling in the Lake View case dropped a bombshell concerning school district millage rates.

Amendment 74 to the Arkansas Constitution requires school districts to levy at least 25 mills for maintenance and operation (M&O). However, state law allowed districts that had more than enough mills dedicated to debt service to use excess mills to satisfy the M&O requirement, and most of the state's districts had taken advantage of that law.

The Lake View decision found that law to be unconstitutional. As a result, 246 of the state's 310 school districts have until Jan. 1 to bring their M&O millages to at least 25 or face a mandatory increase by the county quorum court.

As property values tend to increase, the dollars raised by each mill of a tax levy also tend to grow. As a result, the mills dedicated to a fixed debt typically generate significantly more than necessary to make the debt payments. Districts have used the excess generated by debt service mills to satisfy the M&O requirement, so the total number of mills being levied in any district is generally enough to pay for the existing facilities and educational program.

But turning a debt service mill into an M&O mill is not a simple matter of labeling. Each mill has been adopted by the voters of a district for either debt service or M&O, and only another election can change them. What's more, the debt service mills have been pledged as collateral on specific bond issues, and that collateral cannot be officially dedicated to another purpose as long as the bonds are outstanding.

The best way for a district to comply with Amendment 74 depends on its current tax structure. If a district already levies almost 25 M&O mills, the simplest — and cheapest — solution is to ask voters for a small tax increase for maintenance and operations. Some districts may even opt to let the quorum court impose the additional levy.

But some districts levy far fewer than 25 M&O mills, and persuading voters to approve such a large tax increase is unlikely. Those school boards, then, may ask their voters to reduce the number of debt service mills being levied while increasing the number of M&O mills to 25.

Or a school board may ask voters for a combination of the two: reducing the number of mills dedicated to debt service while increasing the number of M&O mills by an even greater number.



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