Memphis City Council counter sues district over debt-service bonds
Last month the Memphis City Schools (MCS) filed a lawsuit against the city of Memphis because the city council voted to cut $66.2 million from the district's operating budget. The Memphis Commercial Appeal reports that Memphis has filed a countersuit against MCS seeking $152 million. The countersuit alleges the school district has paid only $68 million of the $217 million in debt-service bonds city government has taken out on its behalf. The city is asking for the right to withhold any tax revenue it would normally pay city schools to recoup the money or have MCS pay $152 million, plus interest. Council Attorney Allan Wade, who filed the lawsuit, noted the money includes bond issues for $100 million for several schools and $25 million for air conditioning. He said the schools' failure to pay back the money violates the school district's charter. "What their charter says is they can borrow money for capital purposes from the city, but they must repay those loans and if they don't, the city has the authority to withhold it from any tax levy that we levied on their behalf," Mr. Wade said. Memphis Board of Education president Tomeka Hart, who claimed the district had not been notified about the lawsuit, said, "If we owe it we will certainly pay it." She added, "I don't think a countersuit is necessary to get the money we may owe. There was no conversation." The countersuit claims the city is limited by a statute to levy taxes at a rate of 85 cents per $100 of assessed property value for use by city schools. But the city exceeded that limit in fiscal years 1998, 2001, 2002, and 2005. The countersuit also seeks to recover an amount equal to that funding. Superintendent Kriner Cash told the council members that the school district could not afford to wait months or years for courts to resolve the dispute over the $66.2 million that the council had withheld because school starts in less than a month. He asked council members to agree to a meeting as soon as possible to work out a resolution while the case winds its way through court. The Tennessee Department of Education said the council's decision to withhold funding is illegal according to its reading of an attorney general's opinion on the issue. If tax funding is not restored to MCS by Oct. 1, the state says it will begin withholding its $423 million allocation to the district. The state believes the council's action violates the state's "maintenance of effort" law, which says local governments must give school districts at least as much money as the previous year unless enrollment drops. City officials, however, say any money they've given MCS has been voluntary, and any obligation for school funding belongs to the Shelby County Commission.
Source: Memphis Commercial Appeal, 7/15/08, By Dakarai I. Aarons
[Editor’s Note: For additional background on MCS’s lawsuit against the city of Memphis filed in response to the Memphis City Council’s 10-3 vote to cut city funding by about $70 million, see below.]
NSBA School Law pages on Memphis school funding suit