Texas school plan is unconstitutional, against tradition, district lawyers say.

AUSTIN, Tex. -- Lawyers for property-rich school districts yesterday argued that Texas legislators circumvented the constitution, as well as tradition, when they created a school finance law that forces local taxpayers to pay most of the cost of education.

During two hours of arguments before the Texas Supreme Court, lawyers challenging Senate Bill 351 said legislators could use revenues from almost any source except property taxes to fund the new system.

Unless the court declares the new law unconstitutional, they said, this could be the start of state mandated property tax increases to fund needs such as roads and prisons.

Jim George Jr., a lawyer for South Texas taxpayers, told justices the constitution allows lawmakers to impose or raise taxes on intangibles, such as stocks and bonds, income, and occupations, but forbids a state ad valorem tax.

"The legislature must choose from one of the taxes available to them," he said, adding that the financing system now imposed is "like a phantom tax that appeared from nowhere."

Dallas lawyer Earl Luna agreed, saying lawmakers could have imposed an income tax or raised one of the other sources specifically outlined in the Texas Constitution to pay for the school finance law. Instead, he said they chose the one source expressly forbidden, adding, "The money ought to come from one of the constitutional sources."

Both agreed an alternative would be for the legislature to ask voters to amend the state constitution to authorize the use of property taxes by the state to fund education. Before adopting S.B. 351 last summer, lawmakers considered that option but decided against it.

Toni Hunter, assistant Texas attorney general, said the school finance law is not a statewide property tax and rejected arguments that the state should pay for all or a majority of the cost of education. She estimated such a requirement would cost Texas $9 billion a year.

In fact, Ms. Hunter argued that the new finance law imposes a legal local tax that is raised and redistributed within the state's 188 county education districts. She said the tax would be a state property tax only if funds were collected into the state treasury and then spent.

Justice Nathan Hecht disagreed. "If all you have to do to keep from having a state ad valorem tax is to not put the money in the treasury," he said, "then why not create regional authorities for say, prisons?"

Other justices agreed, asking similar question of the six lawyers who presented arguments yesterday. They seemed troubled that the new county education districts have one job: to collect and redistribute a tax levy that is set by the legislature. "If the state levies it, it is a state tax," said Justice Bob Gammage.

In closing remarks, Deborah Hankinson, a lawyer for suburban Dallas schools opposing the law, said that justices should focus on one issue, adding, "Who imposed the tax is the key question."

Beyond arguing that the law creates an illegal state property tax, lawyers opposing the new system say it is also not constitutional because the levy was not authorized by local voters.

The nine-man court is expected to issue a ruling on the legality of the new school finance structure by January, before the first tax bills under the structure become due.

Lawyers for property-rich districts have asked the court to overturn the August ruling by Travis County District Judge Scott McCown that S.B. 351 was constitutional.

While yesterday marked the third time since October 1989, that the high court heard arguments on the case, it was the first time it was not asked to decide whether the law achieves the court-ordered directive to give all of the state's 1,054 districts equal access to funding.

Judge McCown expects to hold hearings later to determine if the new law achieves equity. Whatever his decision, it is likely to be appealed to the Texas Supreme Court.

Under the new law, wealthy districts have been forced to share an estimated $400 million this year with property districts under a new system that creates county-level taxing districts to redistribute tax dollars within a local area of several schools.

"What offends the constitution is not a property tax, but a funding system that mirrors inequality," Ms. Hunter said. "This court said in its opinion that it shouldn't matter where you live."

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