Provision in Senate budget would prevent school boards from suing counties over capital outlay

In North Carolina, county commissioners hold the purse strings of the state’s 115 school districts.

A provision hidden in the N.C. Senate budget document would further expand commissioner’s authority over districts by stripping them of the right to sue counties over insufficient appropriations for building construction, repair and renovation needs.

The Senate released its two-year spending plan on Tuesday. It is expected to approve a budget by week’s end.

Here’s what the provision says:

“If agreement is not reached in mediation on the amount of money appropriated to the 19 capital outlay fund, the decision of the county commissioners is final. The local board of 20 education shall not file any legal action challenging the sufficiency of the funds appropriated by 21 the board of county commissioners to the capital outlay fund.”

School boards across the state are being asked by the North Carolina School Board Association (NCSBA) to contact state senators to let them know they oppose the provision.

“While the court process has been used infrequently, it removes the pressure and incentive for county commissioners to work with school boards at every stage of the process to address school capital needs,” the NCSBA explained in an email message to school leaders.

The NCSBA is the professional organization that represents local boards of education in North Carolina.

It warned that if the provision is approved as part of the state budget, school districts could pay a severe penalty.

“While you may not see an immediate looming issue for your district, over time this could create a severe school building deficit in you school district due to the age, condition, or capacity of your schools,” the NCSBA said.

The NCSBA noted that a year ago, the General Assembly directed the Local Government Commission and the School of Government at UNC-Chapel Hill to convene a working group to develop and recommend statutory parameters for fund balances maintained by local school boards and for disputes related to the capital outlay fund.

“The School of Government (SOG) working group did not recommend this approach. They suggested statutory changes that would improve the working relationship and understanding between the two elected bodies. This goes in the opposite direction. The SOG was created by legislation last year and now the General Assembly is ignoring the group’s recommendations,” the NCSBA wrote.

Here are the findings and recommendations the SOG working group shared with the Joint Legislative Education Oversight Committee:

Capital outlay disputes rarely end up in court, in part because both bench and jury trials contain risks for prospective litigants, which incentivizes settlements prior to litigation.

  • Joint capital planning between counties and school systems is typically more straightforward than joint operations planning because the former does not depend as much on other funding sources – capital funds come largely from local sources, and state funding for capital has been both nominal and infrequent.
  • While the threat of litigation can affect decision-making, capital disputes rarely end up in court, as litigation does not tend to produce outcomes that systematically favor either counties or school systems.
  • Bench trials may be fairly accelerated if the presiding judge knows the issues well. Juries, who are less likely to have specific subject matter expertise, are hard to predict and may render unexpected verdicts. In both types of trials, the outcome of litigation is uncertain to prospective litigants.
  • Still, under the current structure, one possible approach to a capital dispute could be to proceed through the formal mediation phase without engaging in good faith, in order to begin litigation as quickly as possible.

Any alternative to litigation would need to recognize differences between counties, respect counties’ discretion to set prudent tax rates and fiscal policies, and preserve school systems’ ability to dispute egregious instances of insufficient funding.

  • As with fund balances, a numerical formula is unlikely to adequately determine resources for capital outlay across North Carolina’s diverse counties and school systems. Some school systems are growing rapidly and need new facilities in the short term, with more to come in the foreseeable future. Other systems are shrinking and must use their limited resources to maintain the facilities they have, or to consolidate multiple aging, inefficient schools with declining enrollments into a single new facility.
  • Commissioners must balance a school system’s capital needs with all other mandated responsibilities and county funding requirements. In addition, Commissioners must assess the county’s ability to pay, increasing taxpayer burden, as well as debt capacity and impact on the county’s bond rating. Capital funding initiatives should be consistent with the county’s established debt and fiscal policies to prevent impairment of the bond rating.
  • School systems depend upon the “backstop of last resort” that litigation provides if counties provide demonstrably insufficient funds for facility improvements and new construction. While such instances are outliers, school systems have used litigation as a recourse to resolve them on rare occasions.

Regular communication and joint planning are likely to make disputes over capital funding less frequent and entrenched.

  • As with fund balances, regular communication between counties and school systems tends to reduce the frequency and severity of capital funding disputes.

  • School system administrators should encourage county commissioners to tour the facilities in their systems. This has proven to be a valuable practice in some counties that has led to better working relationships and greater understanding of school capital needs between boards of education and boards of county commissioners.

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