Lawsuit to focus on 22 years of botched school funding

Wednesday, December 9, 2015

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NonDoc has learned that several Oklahoma school districts are cooperating to pursue a lawsuit aimed at recouping millions of education dollars that were improperly distributed by the Oklahoma State Department of Education over a 22-year period.

If courts ultimately rule for the plaintiffs, those districts (and others not filing) could potentially be owed more than $100 million in previously misappropriated school funding.

“You could say this happened a long time ago, but you could just go back 11 years ago, and some of those kids are still in my school system,” said David Pennington, superintendent of Ponca City Public Schools. “The vast majority of the kids in this school district go to school in a system where they didn’t receive the funding they should have received by state law.”

Pennington might be the foremost authority on the two-decade-plus accounting error that was finally corrected by the Oklahoma Tax Commission and the Oklahoma State Department of Education about 12 months ago.

The former Blackwell superintendent said he knew something with Ponca City Schools’ funding was not right after taking the job 12 years ago.

“When I came to Ponca City, I knew our personal property (ad valorem tax) value was huge because of the refinery,” Pennington said. “When I looked at [the numbers on the sheet], I couldn’t make sense of why I didn’t have more revenue.”

After years worth of questions from Pennington, bureaucrats eventually realized that counties with assessment ratios topping 11 percent were being credited inappropriately when the Oklahoma Tax Commission provided the State Department of Education with numbers to plug into the state aid formula.

As a result, school districts in Kay County, Garfield County and Oklahoma County were receiving less money — for 22 years — than they were supposed to.

Counties with lower assessment ratios, like Tulsa County, were receiving more. According to NewsOK, Oklahoma City Public Schools’ allocations increased about $2 million after Hofmeister and her predecessor, Janet Barresi, took measure to fix the error.

Now, Pennington said several districts who were “disadvantaged” by the formula error are working together to examine how two decades of improperly distributed school funding could be rectified.

“It’s our belief that the State Department of Education has a responsibility to collect an overpayment of state aid, regardless of why that overpayment occurred,” said Pennington, who has sent out a letter asking districts whether they would like to join as plaintiffs in a lawsuit. “This is a mistake that took a lot of years to happen. It didn’t take a year to create this problem, and we’re not going to fix it in a year. We’re not going to get a lump sum of $13 million, and I don’t think that should happen.”

To the courts

How it might happen remains to be seen, and Pennington stressed that he believes it is a job for the judicial system, not the Oklahoma Legislature.

“This is an important question,” he said. “The state’s never dealt with anything like this before. If I were a State Department (of Education) official, I think I’d want direction from the court on this. This is a big deal, and I think probably the safe thing to do is to let the court resolve this.”

House Speaker Pro Tempore Lee Denney (R-Cushing) agrees that the situation has nothing to do with the Legislature.

“I do think if those injustices have been done, they need to be corrected,” Denney said with an eye to a possible $1 billion budget shortfall facing the state next session. “That being said, those dollars have been spent. It may not even be able to be paid back if we were flush with money, because it’s a lot of money.”

It’s enough money that Pennington’s group retained Oklahoma City law firm Crowe & Dunlevy to review the disadvantaged districts’ potential legal standing. In a letter to affected school districts dated Nov. 11, Pennington said the plaintiffs’ legal costs may not exceed $100,000, noting a mid-January timetable for finalizing the lawsuit.

“Even if the state department decided they have to [repay lost dollars] tomorrow, it’s not going to be easy,” Pennington said. “But we believe the law supports that. We believe past Supreme Court decisions support that.”

In a July 15 letter to Superintendent of Public Instruction Joy Hofmeister, Crowe Dunlevy attorney Joe Edwards explained that belief by citing Title 70, Section 18-117 in Oklahoma statutes. The second sentence reads:

Any State Aid funds illegally disbursed by the Director of Finance shall be returned to the State Treasurer by the school district receiving such funds, or legal action shall be instituted in the name of the state against such school district or on the bond of the Director of Finance.

Pennington said several of the affected districts met with Hofmeister in July to discuss the matter.

“We presented her with our findings — what we believe the law said and what we believe the corrective action would be,” he said. “And the response we received from the state department, we did not feel was satisfactory.”

Phil Bacharach, chief of communications and public affairs for Hofmeister, said the State Department of Education was aware of the potential lawsuit.

“A number of districts that would have received more in state aid over the years are looking at their options, and because of the likelihood of pending litigation, there’s really little else I can say,” Bacharach noted. “I know that we certainly are familiar with the concerns on the part of a number of these districts. As far as where things go from here, that’s where I can’t say.”

Oklahoma County ‘most disadvantaged’

Pennington said Edmond Public Schools and the Putnam City School District had been involved in the original fight to correct the school-funding allocation error, but he said they were not interested in joining the litigation.

He noted Enid Public Schools, Oklahoma City Public Schools, Western Heights School District and Mid-Del Public Schools all as supporters of the suit, among other districts.

“I’ve had phone calls from school districts that I didn’t even send things out to because (the amount of money they lost was not as large),” Pennington said. “This is one of those deals where Oklahoma County in the past was the most disadvantaged county, and probably Tulsa County becomes the most disadvantaged when the shift occurs.”

In total, Pennington provided data showing more than 100 Oklahoma school districts that received increased allocations when the error was corrected mid-funding-year in January. He said there would likely be dozens of plaintiff districts on the suit.

(Editor’s Note: Below are three letters of correspondence between Crowe & Dunlevy attorney Joe Edwards and Oklahoma State Department of Education counsel David Kinney.)