DALLAS -- Bond lawyers say last week's ruling that upheld Texas's new school financing law makes it unlikely that the state's attorney general will stop approving new school bond issues on Sept. 1.
"I think the bottom line is that Sept. 1 no longer has any special significance," said Chuck Kobdish, a bond counsel at McCall, Parkhurst & Horton in Dallas.
While other bond lawyers agreed, Assistant Attorney General Jim Thomassen said Friday he is still studying whether his office will continue to approve new issues after a judge upheld the constitutionality of the controversial school finance law.
"I'm still looking at it," said Mr. Thomassen, chief of the public finance section.
Last week, Travis County District Judge Scott McCown rejected arguments that the so-called Robin Hood plan created a statewide ad valorem, which is forbidden by the Texas Constitution. Bond lawyers said the Texas attorney general would likely have suspended approval of school bonds if the judge had not ruled by Sept. 1 or had struck down the new school funding system.
They note that the judge upheld the law -- S.B. 351 -- that has been in effect since mid-April and under which millions of dollars of school bonds have been issued.
Ray Hutchison, senior bond lawyer at Hutchison, Boyle, Brooks & Fisher in Dallas, said bond counsel will have to consider the implications of the decision and similar lawsuits filed around the state when drafting opinions.
Lawyers for property-wealthy districts expect to file a formal appeal this week with the Texas Supreme Court, which could hear the case in September.
The districts have challenged the law because it would shift an estimated $400 million in tax wealth from rich to poor districts, while forcing their tax rates to increase and overall school funding to decline.
Dallas lawyer Earl Luna, who represents four wealthy districts challenging the law, said the judge was wrong in finding that the legislature can create county-level taxing districts to collect and redistribute wealth because it is not expressly prohibited in the Texas Constitution.
"This judge said the legislature can do anything it wants as long as there's no constitutional prohibition," Mr. Luna said. "We will appeal because the court is in error."
"It's a very expansive application of the Texas Constitution," Mr. Hutchison said. "Historically, we've always believed that if you want to give any new entity the power to tax, you had to amend the Constitution."
For instance, he said the Texas Constitution had to be amended to create airport authorities, hospital districts, and other local taxing jurisdictions. If the ruling is upheld, Mr. Hutchison said it could be broadly applied to allow the legislature to create taxing districts with the power to levy property taxes.
"I think it's a dangerous view," he said.
However, former Deputy Commissioner of Education Lynn Moak, a key architect of the new law, said the ruling should not be too narrowly construed.
"You have to read what Judge McCown wrote in the context of the [school] case," he said. "I don't see it as something that is going to lead to an upswing in state mandates for local taxes."
Approved by lawmakers in April, the plan creates a two-tier funding system by establishing countywide education districts empowered to collect a state-set tax of 72 cents per $100 of assessed valuation next year. That properly tax would rise to $1 per $100 in 1994.
The money collected would be redistributed within the district to schools on an equalized basis. At the same time, the new system allows each of the state's 1,054 districts to levy up to 50 cents per $100 of assessed valuation to pay new debt service, build facilities or finance academic programs.
Investment bankers have criticized the new law, saying it could discourage schools from pursuing bond programs because of taxing restrictions established by the new law.
While it may deter debt programs in wealthy districts, Mr. Moak said scores of property-poor districts would be able to finance long delayed capital programs.
"I think districts right now are so confused about this program that a lot of them are sitting on their hands," said Mr. Moak, now a consultant affiliated with Masterson, Moreland, Sauer, Whisman Inc., a Houston brokerage. "Over all, it's a good thing for project finance."
