The 2002 Legislative Session

LB 898 - Temporary Aid Adjustment Factor

The atmosphere surrounding the 2002 Session was certainly one of bleakness and foreboding.  As with all Legislatures before it facing budgetary problems, there were really only three available options.  Lawmakers could (i) raise taxes, (ii) reduce spending, or (iii) a combination of the first two options.  Naturally, raising taxes was then, as it is now, an action of last resort for most politicians.  But the 2002 Session presented such a severe budget crisis that the majority of the Legislature believed a combination of spending reductions and revenue increases was absolutely essential to addressing the situation.  By the end of the session, however, it was believed that their already drastic measures were likely not enough to stem the budget shortfall.

In 2002, the Legislature would ultimately pass three packages of legislation.  The first, to no surprise, was a revised budget proposal containing numerous cuts in state spending and fund transfers to the state's General Fund.  These provisions were largely embodied within LB 1309 and LB 1310.  The second package of bills passed into law related to the never popular tax increases, including LB 905, to increase estate tax revenues, LB 947, to change the taxation of cellular phone service, and LB 1085, to temporarily increase the cigarette tax, income tax and sales tax, and also broaden the sales tax base.  The third package involved the passage of LB 898, which essentially lowered state support for schools and forced local districts to make up the difference from local resources or, in the alternative, make appropriate budget reductions or restructuring.

LB 898 was one of several bills introduced in 2002 to allocate some of the burden of the state's budget problem onto the shoulders of public education.  For organizations representing public schools and employees, it was less a matter of whether than how the Legislature would pass along a portion of the budget crisis onto schools.  So it came as no surprise at the outset of the 2002 Session that measures were introduced to impact state support of schools.  Of particular significance was the introduction of LB 1252 by Senator Ron Raikes, chairman of the Education Committee, and LB 898, introduced by Speaker Doug Kristensen.

LB 1252 represented Senator Raikes' attempt to help relieve the state's budget crisis by requiring an across-the-board reduction in state aid to school districts.  This meant that both equalized and non-equalized school districts alike would experience a reduction in state financial support.  As introduced, LB 1252 would have changed the calculation of state aid for three years beginning in 2002-03, which naturally meant the recertification of state aid since state aid certification notices are dispersed by February 1st each year for aid in the following year.  The bill proposed to reduce each local school system's formula need, transportation and special receipts allowances, allocated income tax funds and net option funding by 5%.¹  It was estimated that the bill would decrease the state commitment to public education by $86 million for 2002-03.² This represented a sizable contribution to the state's overall financial situation.

Senator Raikes testified that the state's principal obligation to state aid to education coupled with appropriations for special education costs amounted to over $800 million per year out of a $2.5 billion state budget.  Raikes classified his proposal as an option for the Legislature to consider if "there's no way to omit state aid to schools" from state budget reductions.³  "In these times I think you simply have to keep options available and certainly, at least, LB 1252 is an effort along those lines," Raikes said.⁴

The education community responded to LB 1252 by not responding, at least publicly.  No one testified at the public hearing for LB 1252 on February 19, 2002 other than the sponsor himself.⁵ Of course, there were plenty of conversations going on behind the scenes, much of which was of a negative stance on the legislative proposal.  For some education-related organizations, the bill proposed a political quandary with no easy answer.  If one outright opposed the bill, introduced by the chair of the Education Committee, one might face the political fallout with the leader of the committee.  If one supported the measure, the fallout would derive from the membership of the organization.  Therefore, the most favored solution was to not act on the bill publicly but rather work with the Senator Raikes and members of his committee privately to obtain the least damaging legislative solution to public schools.

A similar stance, or lack of stance, would be taken by education organizations with regard to LB 898, the public hearing for which was held simultaneously with LB 1252.  Sponsored by Speaker Doug Kristensen, LB 898 was introduced "in order to help address the budget shortfall facing Nebraska for the current biennium."⁶  While Senator Raikes' LB 1252 focused on both the needs and resources "sides" of the state aid formula, LB 898 focused on the resource side alone.  The measure proposed to increase the local effort rate for FY2002-03 and FY2003-04 form 90¢ to 92.5¢.⁷  The simple meaning of this proposal would be to place a greater emphasis on local resources and a corresponding decreased burden on state support.  The local effort rate had been established, since 1999, at 10¢ below the maximum statutory levy.  The overall effect of the bill would have been a $22.3 million savings to the state in 2002-03 and a similar savings in the year after.⁸ Although not provided for in the original bill, LB 898 would have also necessitated a recertification of state aid for the 2002-03 school year.

The impact on schools under Speaker Kristensen's original proposal would have been mixed and, one might surmise, unfair.  Those local systems currently at the maximum prescribed levy limitation would be required to reduce spending, use cash reserves, or seek a levy override to access additional property tax resources.  Those local systems below the maximum levy would have the option to raise their levy to offset the impact of LB 898.  Senator Raikes' proposal, on the other hand, proposed to impact all local systems on a more equitable basis by reducing aid, whether equalization aid or other state aid, by a uniform percentage.

Speaker Kristensen closed the public hearing on his bill by noting the avoidance of school representatives to testify on his proposal.  Most of the education lobby was on hand for the hearing, but chose not to speak openly on either LB 898 or LB 1252.  "Obviously, what's going to occur is that nobody wants to step up to the plate and do it," Kristensen said, "The schools are never going to come up to the plate."⁹  His irritation at the education lobby was certainly noted by those concerned.  No one in his or her right mind would intentionally offend the Speaker.  But how could the education special interests support any proposal to cut state aid in any form?  The lobbyists, of course, were not responsible for finding a solution to the state's budget problem, a fact not lost on the Speaker.  "You can stick your head in the sands and say, we're just going to ride this thing out," Kristensen said.¹⁰  "The trouble is, as members of the Legislature we can't do that," he said, "We've got to do something."¹¹

One of Speaker Kristensen's last admonitions at the public hearing on February 19th had a chilling effect on everyone in the room that day.  "We need a state aid bill on the floor, in some form or fashion, as a tool and as an option," he said.¹² If anyone doubted the sincerity of the legislative proposals prior to the hearing, no one questioned it after Speaker Kristensen's final comments.  It was clear that public education was destined to play a part in the overall solution to the budget crisis.  But how would the Education Committee reconcile the intent and purpose of the two proposals?  How would the committee respond to the Speaker's directive that a state aid reduction proposal had to be on the floor for consideration?

Speaker Kristensen would up the ante on the following session day when he formally prioritized LB 898.¹³  Senator Raikes had already established LB 1172, relating to student fees, as his own personal priority for the 2002 Session.¹⁴ The expectation, of course, was that the Education Committee would follow the lead of the Speaker by utilizing LB 898 as the vehicle for some form of state aid reduction.  But it would be the members of the Education Committee, not the Speaker, who proposed in their collective good judgment the contents of the Speaker's individual priority bill.

As events unfolded, LB 898 would emerge from committee as expected, but not in any resemblance to Kristensen's original proposal.  In the final analysis, what the Speaker's original bill did was to establish a level of anticipated financial impact, the magic number to which a state aid reduction bill, in whatever form, was expected to meet.  While Senator Raikes' LB 1252 proposed to reduce state aid by $86 million, Speaker Kristensen's original bill proposed a reduction in the amount of $23 million.  The Education Committee would ultimately fashion amendments to LB 898 in order to meet the Speaker's financial expectations (i.e., about $23 million).  Senator Raikes also worked closely with the chair of the Appropriations Committee, Senator Roger Wehrbein, to make certain the proper amount of the proposed state aid reduction.

LB 898 was advanced from committee by a 7-1 vote on March 14, 2002.¹⁵  The committee amendments essentially incorporated the contents of LB 1252, Senator Raikes' proposal for state aid reduction.  The amendments proposed to change the calculation of state aid to education for 2002-03, 2003-04, and 2004-05.  The legislation would establish a new phrase within the school finance lexicon:  the temporary aid adjustment factor.  The factor would reduce each local school system's formula need, allocated income tax funds and net option funding by 1.25%.  The amendments also reduced the factors used to compute the stabilization factor and small stabilization adjustment by 1.25%.  Finally, the amendments required the recertification of state aid for 2002-03 prior to May 1, 2002.¹⁶

The legislation would reduce state aid, and thereby assist the state's financial crisis, by $22.3 million in 2002-03 and roughly $23 million in 2003-04.¹⁷  But what would the temporary aid adjustment factor translate into actual loss of state aid to each school district?  It was estimated that the statewide average decrease in state aid for school districts, in comparison to the amount certified in February 2002, would be 3.26%.¹⁸ Some schools would lose more, others less, depending upon the type and amount of aid received by the local system.  Those districts heavily reliant upon equalization aid, for instance, might suffer a heavier reduction.  Those more reliant upon non-equalization aid, such as net option funding, would feel the impact in that regard.  The exact numbers, system-by-system, would not become available to lawmakers until later in the legislative session.

"Talk about a dilemma, this is a dilemma"

First-round debate on LB 898 took place on March 21, 2002, just one week after its advancement from committee.  The first words spoken on the legislation came from the bill's sponsor.  "LB 898 is a priority bill that I assumed and thought I would never, ever introduce in my life," Speaker Kristensen said.¹⁹  "And I would tell you that LB 898 is not the bill that I would be proud of if I was out on the campaign trail," he added.²⁰  But the events and circumstances, he said, had evolved radically for the worse since the Legislature met in special session in October 2001.²¹  It was then that the Legislature met for the first time in the wake of "9/11" to address a growing budget shortfall.  It was then that the Legislature vowed to hold harmless state aid to education from any budget cuts.  Said Kristensen:

[A]s you remember in the Special Session, there were some principles that were laid out and one of them was, we're not going to cut money from aid to individuals and we're not going to take money from TEEOSA, from state aid to schools.  We did not.  If you look at what we did during the Special Session, you will see the line that talks about aid to education, the TEEOSA aid that we've established; there's a goose egg there.  We took nothing from that.  We left Special Session with the hope that things would get better.  They did not.²²

In fact, the budget shortfall had grown to $136 million by the time the Legislature began debate on LB 898 along with the remainder of the budget-fix legislation.  It had become necessary, Kristensen said, for K-12 education to share the burden of the state's financial circumstances.

Senator Raikes, in his opening remarks, agreed with the Speaker relevant to the overall situation faced by the state, and agreed that public education had to absorb a portion of the financial crisis no matter how distasteful it may be.  "This is not something any of us probably would like to do and certainly not those of us on the Education Committee," he said, "We regard this as an obligation in support of the cause, and that is the spirit in which we undertake this effort."²³ But he hastened to remind his colleagues that public education, in general, had not been held harmless during the 2001 special session.  It was true, he said, that the necessary level of state aid to education had not been touched, but other areas of education funding had been affected.

Senator Raikes reminded his colleagues that, during the 2001 special session, public education took several major budget hits, not the least of these being the diversion of almost all lottery proceeds to the General Fund.  LB 3, passed during the special session, rerouted $13 million over a two-year period from the Excellence in Education Fund to the state's coffers.²⁴  In addition, the Legislature took a dramatic step in eliminating almost $3.4 million in appropriations for reorganization incentive aid payments.²⁵  The Legislature effectively eliminated any type of incentive program to encourage school reorganization.  All the work by Senator Coordsen to strengthen this program during the 2001 Session had evaporated.²⁶ Therefore, public education had been under budget knife, but it was true, as alleged by Speaker Kristensen, that K-12 had been deliberately spared, to a great extent, in comparison to other state funding issues.

Senator Raikes utilized the remainder of his initial comments to explain how the temporary aid adjustment factor would work.  He had previously distributed a district-by-district spreadsheet on the impact of the legislation.  He took his colleagues through a mini course on the mechanics of school finance.  First, the factor would be used against the local system's formula needs:  1.25% multiplied by the sum of the local system's transportation allowance plus the special receipts allowance plus the product of the local system's adjusted formula students multiplied by the average formula cost per student in the local system's cost grouping.²⁷

Second, the factor would be used against the local system's formula resources in a two-phase process.  In the first phase, a local system's net option funding would be calculated by subtracting the temporary aid adjustment factor (1.25%) from the sum of the product of the net number of option students in each grade range multiplied by the statewide average cost grouping cost per student multiplied by the weighting factor for the corresponding grade range.  However, a local system's net option funding would not be allowed to fall below zero under the calculation.²⁸  In the second phase, each local system's allocated income tax funds would be calculated by subtracting the difference of the temporary aid adjustment factor minus the reduction in net option funding due to the temporary aid adjustment factor, from the preliminary allocated income tax funds.  Again, as a safeguard, a local system's allocated income tax funds would not be allowed to fall below zero in the calculation.²⁹

Senator Raikes explained that the impact on local systems would obviously vary due to the circumstances of each system.  For instance, some systems might actually experience little or no reduction in aid due to the lop-off provision, stabilization factor, or small school stabilization adjustment under the formula.  The lop-off provision was created under LB 806 (1997) as a method of handling those school systems through the formula when the amount of revenue generated by their property tax levy coupled with the amount of state aid due to them exceeded the amount required to meet their needs.  In essence, the state aid owed to the local system by virtue of the formula would create a windfall profit to the local system when added to the property tax revenue.  The small school stabilization adjustment, created under LB 806, was a mechanism by which funds funneled back into the formula by virtue of the lop-off calculation would be distributed.  And, as the name of the adjustment implies, small schools were the beneficiaries of this particular provision.  The stabilization factor, also created under LB 806, represented the hold harmless provision within the formula to protect local systems from sharp losses in state aid from year to year.

Naturally, for school officials it was bad enough to know that LB 898 would void the 2002-03 state aid certification.  School districts plan their budgets for the following year based upon those certification figures.  It was even more distressing to learn that most local systems would endure a cut in state aid.  Perhaps most stressful for some districts was that LB 898 would not cause a recertification of state aid until May 1, 2002.  This meant a rather tedious wait until the Legislature finally passed LB 898 and then a further wait until the department could process the new state aid figures.  Understandably, there was anxiety among local officials throughout the 2002 Session while the Legislature deliberated about what to do.

"Talk about a dilemma, this is a dilemma," Senator Floyd Vrtiska said of the situation facing public schools along with the Legislature itself.³⁰ For most legislators actively participating in the debate on LB 898, it was a matter of choosing between the lesser of evils:  the loss of teachers and programs due to local spending cuts or potential property tax increases to make up the amount of revenue lost due to the temporary aid adjustment factor.  Some districts having ample reserves might possibly weather the storm without much change in operations or staff.  But other less fortunate districts might have few other options but to reduce staff.  Some districts already at the maximum levy would have no ability to seek additional funding at the local level.  Levy override elections were always a possibility, but there was no guarantee that patrons of the district would go along with such a strategy.

Speaker Kristensen took the brunt of the attack from those of his colleagues who were concerned about shifting a greater property tax burden upon their constituents.  He reminded his colleagues that LB 898 did not represent an automatic property tax increase.  It did, however, represent a sharing of the overall state budget crisis with local schools.  Said Kristensen:

We've got to make decisions at the state level to live with our budget.  And certainly a 1.2 or a percent and a quarter reduction is not the death knell of a school.  It's certainly starts the rhetoric going but it is not impossible, particularly when it's not long term.  It is a short term.³¹

The Speaker characterized the temporary state aid reduction as a fair contribution on the part of public schools since state aid represented the largest block of the state budget.

Several senators rose to express outright opposition to LB 898 no matter how important it was to the cause of correcting the state budget.  "I've stood here this morning and I talked about no new taxes and we have to make cuts and now I'm standing here telling you we can't make this particular cut," said Senator Doug Cunningham, "But ... this is the same as a property tax increase so it is still a tax increase."³²  The Wausa Senator was perhaps mostly concerned about the impact on property tax rates, but he also expressed concerned for the impact and circumstances faced by rural schools within his own legislative district.  He said schools within his area were "down to bare bones now, ever since we passed LB 806," and further cuts to state aid would further place these districts in jeopardy.³³ Of course, Senator Cunningham was not a member of the Legislature in 1997 when LB 806 was passed, but his predecessor, Senator Stan Schellpeper, was among those voting against the comprehensive school finance bill.

Senator Cunningham's view on LB 898 was an example of the extreme opposition, which represented a small minority of the body.  The average viewpoint was more in line with Senator Curt Bromm's statement during first-round debate:

I was on the school board for about ten years right before I came in here, and I had five kids go through the school system, and I stood here last fall in Special Session, and I would not have supported taking away any of the state aid to schools.  But things have changed in terms of the circumstances.  And we have to look everywhere and we have to ask everyone to bear a part of the burden of the situation that we're in.  And that should include as broad a base as possible so that we don't hurt anybody more than we have to.³⁴

Senator Bromm compared public schools to state government to the extent that there were certain essential programs and services that must be provided no matter what.  There were, he argued, some school programs and services that may have to be suspended until better times.  He used extracurricular activities as an example of a non-essential service.

Ultimately, the Legislature adopted the committee amendments to LB 898 by a 31-11 vote.³⁵  Speaker Kristensen spoke to his colleagues prior to the vote on advancement.  "It may not be the most popular but it is the right thing to do," he said.³⁶  "Those who can't at this time vote to advance it, you still have my respect because I understand why you're doing it," Kristensen added.³⁷  Of course, as time would tell, every vote mattered for the successful passage of LB 898.  The 32-12 record vote to advance LB 898 to Select File would be later regarded as too close for comfort if enactment ultimately required a veto override.³⁸ And it would.

Levy Lid Exclusion

Second and final-round consideration would come and go in rapid succession as the Legislature attempted to finalize a budget solution.  Despite the monumental nature of LB 898, the total floor debate time from start to finish was relatively short.  This may owe in part to the complexity of the other legislative packages of the budget-fix that seemed to drain the Legislature's time and attention.  The discussion on LB 1085 relating to the sales tax base, for instance, comprised a major part of the session.  In fact, the debate on LB 1085, in particular, would help to shape the final outcome of LB 898 in an important way.

On Monday, March 25, 2002, just four days after the initial advancement of LB 898, the Legislature took up first-round discussion on the most controversial piece of the budget-fix package.  LB 1085 would be used as the vehicle to house a sales tax increase, an expansion of the sales tax base to include certain services, and a cigarette tax increase, among other revenue-generating mechanisms.³⁹ This legislation ultimately would be the subject of an unsuccessful petition effort to repeal it.

Of particular significance to school officials was a provision contained within the committee amendments to LB 1085 that allowed qualified local systems to exceed the levy limitation in the amount of lost state aid due to the provisions of LB 898.⁴⁰  The levy exclusion would exist for three years (FYs 2002-03, 2003-04, and 2004-05) and required a three-fourths majority vote of the school board to access the levy exclusion.⁴¹

During first-round debate of LB 1085, a request was made and granted to divide the committee amendments into four parts, the second of which became the division related to the levy exclusion.⁴² Eventually, the Legislature adopted the second division, but not before a careful explanation by Senator Wickersham, the chair of the Revenue Committee, on how the exclusion would work.  In fact, the experience and expertise possessed by Senator Wickersham on both school finance and revenue-related subjects would prove indispensable for this discussion.

Naturally, the first blush reaction by some lawmakers to the levy exclusion was that it meant an across-the-board property tax increase for all school districts.  But this was not the intent of the proposal.  Senator Wickersham, who served on both the Revenue and Education Committees, explained that the levy exclusion would only apply to those local systems that were already at the maximum levy (at the time $1.00 per $100 assessed valuation).  This was the first qualification.  The second was that the local system actually possesses the spending authority to utilize the additional levy authority.  And this is where it became somewhat confusing, as demonstrated during the debate on this component of the committee amendments to LB 1085.

Prior to the first-round debate on LB 1085, Senator Wickersham requested and received a printout illustrating those schools that would and would not qualify for the proposed levy exclusion.  The data used to compile the printout assumed a 3.5% growth in local property values and a 2.5% increase in spending.  At the time, the base spending lid was 2.5%.  Using these criteria, Senator Wickersham explained, there would be 14 local systems out of 263 that would actually qualify for the proposed levy exclusion, a relatively small number of schools.⁴³

The reasons for such a small number of affected schools were several.  If the local system was not at the maximum levy, for instance, then the school board always had the option to utilize the remaining levy authority without the use of the levy exclusion.  Another scenario would involve the spending limitation assigned to each local system.  While the base spending lid was set at 2.5% (i.e., 2.5% growth from the previous year), the applicable allowable growth rate for each local system would vary from local system to local system.  The applicable allowable growth rate is computed by the Department of Education each year for the following school fiscal year.

Since the inception of the TEEOSA in 1990, the idea was to establish a spending lid range relative to the spending habits of the individual school district.  Essentially, a district with low spending in year "A" would be allotted a higher spending growth rate in year "B" and, conversely, a district with high spending in year "A" would be allotted a lower growth rate in year "B".  The idea was to provide some stability in the overall spending habits of each district.  In 2002, the base spending lid was 2.5%, but the growth range was up to 4.5%.  A local system could have an applicable allowable growth rate anywhere within that range depending upon the prior year spending.

Under the proposed levy exclusion contained in LB 1085, a local system must have the available spending authority to actually use the additional revenue generated from the levy exclusion.  Otherwise, the additional levy authority would be pointless.  Of course, the other major requirement was that three-fourths of the local board, a supermajority, must vote to access the levy exclusion.  This last hurdle was intended to ensure a unified, or nearly unified, voice on the matter and to offer that extra protection to the taxpayer against frivolous decisions by the school board.

There was more discussion than debate on the second division of the committee amendments to LB 1085.  Several senators, both rural and urban alike, wanted to know how the exclusion would work and what districts would benefit.  Both Senators Wickersham and Raikes had the expertise to explain it to their colleagues.  And both supported the proposal, which offered some assurance to those not in the know about the viability of the concept.  What some may not have fully realized was how few schools would actually qualify to access the additional levy authority.  But Senator Wickersham emphasized to his colleagues that the levy exclusion was not to be considered a relaxing of the levy limitations or even a modification of the school finance formula.  "[W]e're not going to be able to change the state aid formula, we're not going to raise the levy limitations," he said, "I don't want to do either one of those things."⁴⁴

The levy exclusion portion of LB 1085 was adopted by a 28-8 vote.⁴⁵  In hindsight, this would be one of the more congenial discussions relevant to the revenue-generating legislation.  It would take two days to advance the bill from first-round consideration.  LB 1085 would ultimately receive the same fate as LB 898 in terms of the Governor's reaction.  The Legislature in turn would have the final word by overriding the gubernatorial veto by a 30-19 vote, just barely meeting the minimum number of affirmative votes to pass such a motion.⁴⁶ This gave rise to the so called "dirty-30," an expression coined by outside interests who sought unsuccessfully to overturn the tax increase bill through the referendum process.

In the meantime, the willingness of the Legislature to conclude its work on LB 898 was demonstrated during second-round consideration.  Select File debate took place on April 8th, about three weeks after advancement from first-round.  Senator Raikes, who supported the levy exclusion contained in LB 1085, sought to ensure the inclusion of this provision by amending LB 898 with the same language.⁴⁷ This represented a smart political move by Senator Raikes since the real item of controversy was less LB 898 than LB 1085.  If LB 898 became law but LB 1085 did not, then schools would be left with a reduction in state aid with no authority to exclude that amount from the levy limitation.  Senator Raikes believed it was prudent to incorporate the provision in both bills to cover the bases, so to speak.  It would also solidify the Legislature's intent to afford schools this additional levy capacity.

There was no debate on the Raikes amendment to LB 898.  The levy exclusion language was modified to include a provision requiring the Department of Education to annually certify to each district the amount that could be excluded from the levy limitation.  Interestingly, during a short exchange with Senator Beutler, who sought clarification as to why the amendment was necessary, Senator Raikes alluded to the protection it would offer schools.  "I suppose the school districts would be interested in LB 1085 passing if this provision were not in LB 898," Beutler said in response.⁴⁸  The addition of the levy exclusion to LB 1085 had in fact caused the education lobby to take more interest in the tax-related legislation.  The harmonizing amendment to LB 898 was adopted without fanfare on a 32-0 vote.⁴⁹

Local budget decisions

While the Raikes amendment was characterized as an affirmation of an existing legislative objective, the final amendment relevant to LB 898 was of a more controversial nature.  The last amendment to LB 898 derived from Senator Pat Bourne of Omaha, who introduced his amendment with the often-used phrase, "This is a very simple amendment."⁵⁰  And just as often, it is anything but simple.  The Bourne amendment proposed to protect students and presumably classroom teachers as much as possible from local budget cuts due to any reduction in state aid.  The main body of the amendment stated:

It is the intent of the Legislature that reductions in state aid required pursuant to this legislative bill impact the quality of educational opportunities for students to the least extent possible.  In keeping with this principle, the Legislature encourages school boards to make needed budget reductions in budgeted expenditures in functions other than classroom instruction.⁵¹

Senator Bourne acknowledged that the language of the amendment would not bind school districts to comply with the intent.  "But it sends a message that even though this budget cut is necessary it's unfortunate, and we should make those cuts furthest away from the student an possible," he said.⁵²

The concept proposed by Senator Bourne was certainly not new to the Legislature.  A series of amendments were similarly offered during the debate on LB 299 (1996), a bill to radically decrease the spending limitation in conjunction with the levy limitations contained under LB 1114 (1996).  The Legislature ultimately settled on a compromise amendment with language stating that:

It is the intent of the Legislature that any reductions in a school district budget, made to comply with the budget limitation in the Tax Equity and Educational Opportunities Support Act, affect classroom expenses as a last resort.⁵³

This statute remains in effect today.  But what force and effect does it possess except to merely state intent?  How could a district be found to violate the statute and what penalty would befall the district?

Senator Bourne essentially answered some of these questions with regard to his own amendment to LB 898.  The amendment, he said, was meant to layout the State's objective that all things related to students as well as the teachers who instruct them be held harmless to the greatest extent possible when deliberating local budget options.  But even this assertion is problematic given the realities of school operations since it is widely known that the largest portion of the average school budget is labor, specifically the salaries and benefits of teachers.  If one utilizes the logic forwarded by Speaker Kristensen that the largest portion of the state budget (i.e., state aid to education) should naturally take a cut, then it would follow that the same logic would apply at the local level.  Public education is primarily labor driven if one uses the term "labor" loosely.

The remaining portions of the average school budget would include, to a great extent, fixed costs associated with utilities, supplies, maintenance, etc.  Many of these costs are driven by forces outside a school board's control, such as the cost of electricity and gas, which are determined by supply and demand.  The local budget would also provide for administrative costs, including building level administrators, central office administrators, and the school board itself.  The budget would also include facility improvements, renovations, and new construction expenses.

So where would the proponents of Senator Bourne's amendment look first to reduce the average school district budget?  Naturally, administration would be one of the key targets.  Administration, specifically administrators, were and still are the preferred target for those who believe there are available budget cutting options that would not impact the classroom.  However, it is one thing to advocate reducing administrative staff and another to specify exactly how that would be done.  This was illustrated during the debate on the Bourne amendment when an exchange took place between Senator Bourne and Senator Paul Hartnett from Bellevue:

SENATOR HARTNETT: ... are you thinking of ... instructional line, or don't fire the lowest custodian, or ... because an ... if I think of instruction, you know, and professional staff, I think the furthest one away would be the superintendent.  So, (laugh) the school board would have to get rid of the superintendent, is that... (laugh).  Well, maybe that would be good for... (laugh)

SENATOR BOURNE:  You know, you could read it that way, Senator Hartnett.  It just ... it ... and the furthest away from the student was my language.  And basically what it says, the Legislature encourages school boards to make needed budget reductions in budgeted expenditures and functions other than classroom instruction, so maybe forego paving the parking lot, or repaving it, or some other such thing.  The point in, is that, you know, this ... this cut, well, the point in, is that the kids shouldn't suffer any more than they have to.  And so the ... the intent is, is to make sure that the kids still get an education, and that the cuts are made other than in classroom instruction.⁵⁴

Senator Bourne did not appear to dissuade Senator Hartnett's line of thinking.  But what Bourne's answer seemed to say was that local boards would have to use their best judgment in the interest of students.

School board members would likely respond that they always use their best judgment, especially when it comes to students.  Some might even be insulted by suggestions that they have or will fail to use their best judgment to protect the interests of students.  And coming to the direct assistance of school boards was a former school board member himself.  "[T]hese are the decisions that our boards have to make in each individual specific case," said Senator Curt Bromm, "I don't really think that we can set a pattern, or give them advice when they have to take into account their own circumstances."⁵⁵  Senator Raikes said he really did not have any major problem with the language because it would not have any effect except to offer advice.  "I probably will not support it, but I would not regard it as a ... a major problem," Raikes said.⁵⁶  Senator Ernie Chambers encouraged his colleagues to avoid adoption of such amendments.  "And since this language in not binding, it's just a statement that you might call good advice, or it's intended to be good advice," he said, "But some people may feel it's not even good advice."⁵⁷

The most interesting aspect of the Bourne amendment was revealed in the vote on adoption.  Even though no one other than Senator Bourne himself rose to voice outright support for the amendment, the vote was relatively close (21 in favor, 18 opposed).⁵⁸  This likely meant that one or several special interest groups had promoted the merits of the amendment and had received assurances of support from various members of the Legislature.  Support from lawmakers despite the fact that the amendment would have had absolutely no actual impact or consequence to school boards, students, teachers, or the classroom.  Following consideration of the Bourne amendment, the Legislature advanced LB 898 to Final Reading by a voice vote.⁵⁹ And the real drama surrounding LB 898 was about to play out.

"Legislation I cannot support"

In some cases, there are last minute speeches on the floor of the Legislature before a final vote is taken.  A sponsor might, for instance, file a motion to strike the enacting clause of his or her own bill in order to have that last chance to sway lawmakers to vote in favor of the measure.  In the case of LB 898, however, there was no such last minute attempts, no last minute speeches.  In the case of LB 898, it was not necessary and the proponents knew it.  Just two days after advancement from Select File, the Legislature voted to pass LB 898 by a 46-3 vote and passed the accompanying appropriation (A) bill by a 45-3 vote.⁶⁰  LB 898A was designed to amend the biennium budget to reflect the reduced amount of state aid for FY2001-02 and 2002-03.⁶¹

LB 898 was passed on April 10, 2002, the 55th day of the 60-day session.  Governor Johanns wasted no time in expressing his viewpoint about the legislation.  On the same day the Legislature passed the bill, Governor Johanns vetoed LB 898 but signed LB 898A into law.  In a letter to the Legislature communicating his veto, he wrote:

With this letter I am returning LB 898 without my signature and with my objections.  I am returning LB 898A with my signature.

I have supported the provisions in LB 898 that prescribe the manner in which the Tax Equity and Educational Opportunities Support Act ["TEEOSA"] aid formula would be amended to implement the new level of aid to Nebraska school districts as we address our State's budget shortfall.  However, as amended on Select File, the bill now authorizes school districts to exceed the maximum levy allowed by law without a vote of the people.  You have now presented me with legislation I cannot support.  I believe that Nebraskans are asking for greater spending restraint at all levels of government.  Granting authority to a local school board to exceed the maximum levy without first requiring approval from taxpayers is inconsistent with the State's previously established requirement of allowing only the taxpayers themselves to determine such an important local funding issue.

Further, LB 898 is not required for the Legislature to implement the revised level of funding for state aid to schools under the TEEOSA aid appropriation that is contained in LB 898A.  The Attorney General has determined that there are no statutes which would prevent or otherwise limit the Legislature's ability to change the amount of state aid that has previously been appropriated to schools.⁶²

And on the same day Governor Johanns vetoed the legislation, Speaker Kristensen filed a motion to override the veto of LB 898.⁶³ The showdown between the executive and legislative branches was set for the next day.

On April 11, 2002, the Legislature considered the motion to override the gubernatorial veto.  The basic message from the Governor was that LB 898 went too far by authorizing the levy exclusion.  He believed LB 898A alone carried forth the appropriate message by simply cutting state aid.  However, there were many problems with the Governor's veto if one supported public education, and there were some unavoidable problems if you were a lawmaker.  The Governor's signature on LB 898A meant there would be a reduction in state aid.  The Governor's veto of LB 898 meant there would be no guidance on how the reduction would be distributed among the schools.  It meant there would be no recertification of state aid, which gave the schools every legal reason to believe the existing certification would be enforced and funded.  This left the Legislature with few options except to correct the actions of Governor Johanns so that school districts could be treated fairly in the state aid reduction process.

No one rose to support the Governor's veto action on the morning of April 11th, although some would vote to sustain it.  Speaker Kristensen naturally rose to introduce his motion and to urge his colleagues' support.  But it was Senator Raikes who really captured the essence of the situation created by the Governor's actions:

In an effort to express his displeasure with the levy exclusion, he vetoed LB 898 and signed LB 898A.  What this does is unravel the whole proposal.  There is no distribution mechanism, there is no recertification procedure and date, there is no longer a three-year program.  And what would happen if this were left, would at least be a great deal of uncertainty for the public schools.⁶⁴

Speaker Kristensen closed on his motion by congratulating his colleagues on the hard decisions they made and have yet to make in the 2002 Session.  "You have made more hard decisions this year than I think any Legislature has made in a long time," he said.⁶⁵

There were a few lawmakers who remained loyal to the Governor for one reason or another.  Perhaps it was less about loyalty to the Governor and more about concern for potential property tax increases.  The majority, however, voted to override the veto by a 38-5 vote.⁶⁶

Prior to 2001, the issue of charging student fees may have existed in the minds of some parents.  To some parents it was more an annoyance than anything else, to others an embarrassing financial burden.  But the issue had not yet reached the state's public agenda.  There were fees for lockers, lab materials, field trips, etc.  A dollar here, five dollars there, multiplied by the number of your children, one more financial expectation within an otherwise free public education system.  And, in fact, it was the word "free" that would weigh heavy for state policymakers in the months leading up to and throughout the 2002 Session.  After all, the Nebraska Constitution specifically called for the "free instruction in the common schools of this state of all persons between the ages of five and twenty-one years."⁶⁷ But what did "free" really mean?  Did free mean absolutely free or relatively free?

The issue of student fees became a school finance issue in 2001.  The final resolution was painful to some school districts, not a major problem for others, and a clear victory for parents and students.  The resolution came in the form of a legislative proposal, LB 1172 (2002), which did not directly amend or modify the TEEOSA, but would nonetheless have an impact on various components of the formula.  From a constitutional perspective, LB 1172 will likely be regarded as a major development in the history of Nebraska school law.  The legislation took a dramatic step in providing actual meaning and definition to the phrase "free instruction" within the education policy arena.

"An illegal tax"

Events leading up to the student fees legislation began in September 2001 when a parent residing in Omaha filed suit against Omaha Public Schools (OPS) for repayment of the fees.  Roger Roll, having two children enrolled in OPS schools, claimed the fees violated the Nebraska Constitution and said the fees amounted to "an illegal tax."⁶⁸  He had been paying $25 to $30 fees for such things as lockers and lab costs.  Naturally, the lawsuit had the full attention of the OPS Board of Education, which subsequently requested that the Commissioner of Education, Doug Christensen, review existing law relevant to student fees.  In the meantime, a second student fees lawsuit would be filed in October 2001.  Mary Sauter, a Plattsmouth area parent, filed suit against Plattsmouth Public Schools for refund of fees paid.  Sauter had refused to pay registration fees to the district for her son and daughter.  "I was shocked as a parent registering my kids that there was any type of fee," she said.⁶⁹  Dick Widerhold, Plattsmouth Superintendent, said the district charged a $10 registration fee for each K-4 student and $15 for each 5-12 grade student.⁷⁰

"Free is free"

On October 1, 2001, the OPS School Board publicly asked the State Board of Education to establish a uniform state policy governing student fees.  "I want them to make the decision," said John Langan, OPS board president, "They're not reluctant to do it on anything else."⁷¹  The Commissioner of Education was quick to respond that he did not believe there was much of a controversy.  "How much clearer can you be than free?" Christensen asked rhetorically.⁷²  "Free is free," he said.⁷³ The Commissioner believed that any required activity or course should not have any fees attached to it, but voluntary activities outside the school day may be a different story.

To address the matter, Commissioner Christensen issued a memorandum to all school superintendents outlining permissible student fees, at least as he believed them to be.  Locker fees, towel fees, science and some art lab fees and most field trip fees were not acceptable.  The memo sent school officials scrambling to react in accordance with the Department of Education.  Some school districts issued refunds of fees, and many school districts sought immediate legal review of their own student fee policies.  School attorneys, perhaps initially caught off guard, were plenty busy trying to review the law in order to offer advice to their clients.  For some school districts, the potential loss of revenue would be slight, for others it meant a sizable budget matter.  Millard Public Schools, for instance, generated approximately $500,000 per year in student fees.⁷⁴ But the central problem remained that no one seemed to know for sure what fees were acceptable and what fees were unacceptable.  There were, however, plenty of guesses.

As fortune and fate would have it, the next regularly scheduled meeting of the State Board of Education occurred on Friday, October 5, 2001.  All forms of news media were on hand at the State Office Building in Lincoln to find out how the board would address the rapidly escalating public policy issue.  The OPS Superintendent, John Mackiel, appeared at the meeting and publicly asked the board for guidance on the matter.  He acknowledged receipt of the memo from Commissioner Christensen, but said questions and confusion still existed.  "I can state without hesitation that parents, students and school districts throughout Nebraska ... need an immediate, definitive and legally binding decision," Mackiel said.⁷⁵ The absence of any state response, he said, would place more school districts in jeopardy of lawsuits.

The State Board directed Commissioner Christensen to formulate a plan to address the issue in time for the next regularly scheduled meeting in November 2001.  The Commissioner fully understood, however, that it was not merely a matter of formulating a plan, but, more importantly, determining the proper authority to establish a state policy (i.e., the State Board of Education or the Legislature).  What he could do, and did, was to call meetings of school officials to discuss the issue and learn exactly what schools were charging in the way of student fees.

From the Commissioner's review of existing state law, it was discovered that there were only a few instances wherein statutory authority was specifically granted to school districts to charge fees to students as shown in Table 132.

Student Files:  Section 79-2,104(2) permitted each school district to establish a schedule of fees for reproduction for copies of a student's files or records.

Protective Eye Wear:  Prior to 2002, section 79-715(1)(b) permitted school districts to charge fees for protective eye wear necessary for labs and vocational courses.

Before-and-after School Programs:  Section 79-1104 permitted school districts to create before-and-after school programs and to charge fees for participation.

Textbooks:  Under section 79-734, school districts must purchase and provide all textbooks, equipment, and necessary supplies.

Transportation:  Section 79-611 provides that school districts must either provide free transportation or pay an allowance for transportation in lieu of free transportation.

Admission:  Section 79-215(1) provides that resident students "shall be admitted to any such school district upon request without charge."

Over all, it was found that very little statutory authority existed to guide school districts or, for that matter, the Department of Education on acceptable, legal student fees.  This led some to refer back to the State Constitution and its "free instruction" clause as the primary authority.  But as events unfolded, this would be regarded as an overly simplified belief.

On November 2, 2001 the State Board of Education met as scheduled and the student fees issue was once again at the forefront of media attention.  The board emerged from executive session and essentially declared that it would move forward with rules and regulations governing student fees.  While some states dictated in statute how and when schools could charge student fees, Nebraska law was mostly devoid of any such guidance.  The State Board was faced with the unenviable situation of either waiting for the Legislature to address the issue, which may or may not happen, or move forward with rules and regulation based upon existing law.  School officials were asking for and awaiting guidance on the issue.

On November 27, 2001 the Commissioner of Education dispatched to all school superintendents the first draft of the student fees regulation.  Under the proposed rule, most school programs should be considered part of the instructional offerings taught by teachers, and therefore, should be free to students.  The four-page draft rule made it clear that all instructional activities are free.  This would apply to coursework and school-sponsored extra-curricular programs like sports, marching band, debate, speech, drama, choir and vocational student organizations.  And it may have been the provision concerning extra-curricular activities that had some school districts in near panic.  The draft rule seemingly required schools to purchase and provide for items most schools had never provided in the past, including cheerleading attire and athletic shoes.  In the case of field trips, schools could ask parents for donations, but not require payment of a fee.

The reaction to the draft rule was largely negative from school officials.  "Lots of people don't like our draft of the rules, but no one - including school attorneys - has come forward to say we are interpreting the current statutes wrong," Commissioner Christensen said.⁷⁶  The chief education officer said he would support legislation to permit student fees in limited circumstances, such as extracurricular activities, but not if it meant potentially depriving a student of an educational opportunity.  There had to be some way to help those who cannot afford to pay.  "I'm not necessarily opposed to having any kind of fees, but we have to change the statute," Christensen said.⁷⁷

Commissioner Christensen formally presented the draft rule to the State Board of Education on December 7, 2001, about a month before the start of the 2002 Legislative Session.  By this time, of course, the opinions about the draft were as numerous as they were varied.  Members of the State Board were amply supplied with suggestions.  Perhaps supplied so well that more questions arose than were answered.  The Board opted to direct the Commissioner of Education to seek counsel from the Office of the Attorney General while at the same time exploring legislative remedies.  In the meantime, the draft rule would be shelved until the matter could be sorted out.  The Board also directed the Commissioner to form a task force comprised of educators and non-educators alike in order to offer more insight into the issue.

Throughout the period between the filing of the first lawsuit and the actions of the State Board of Education, various members of the Legislature had made inquiries, called for meetings, and pondered their role in the issue.  Senator Deb Suttle, for instance, was very active in representing the interests of the school within her legislative district, Omaha Public Schools.  A member of the Education Committee, Suttle attended meetings and sought answers to the same questions others were asking.  "I haven't got it jelled yet," Suttle said, "I don't think realistically that we can ask schools to pay for everything."⁷⁸  Senator Ron Raikes, chair of the Education Committee, also followed the issue from the very start.  His concerns included the protection of those students who could not afford to pay fees but wished to participate anyway.  Senator Bob Wickersham, another member of the Education Committee, believed the matter would find its way to the courts.  "The final word will be when that statute is reviewed by the Supreme Court," he predicted in reference to any student fees law passed by the Legislature.⁷⁹

Mistaken Assumption

As directed by the State Board, Christensen formally requested an Attorney General opinion with regard to 13 questions related to the student fees issue.  Some of the questions concerned legal definitions of such phrases as "free instruction" and "free education."  Many of the questions concerned the scope of authority for the department to promulgate rules and regulations.  The Attorney General officially responded to the questions on February 1, 2002, about three weeks into the 2002 Legislative Session.

The opinion went a long way to explain some issues surrounding student fees but also created additional questions in the minds of some policymakers and school officials.  Deputy Attorney General Steve Grasz, writing on behalf of Attorney General Don Stenberg, cut through much of the confusion at the outset of the opinion.  Grasz wrote:

The current school fee "crisis," it seems, is not so much a matter of errant school districts as it is a matter of widespread misunderstanding of the Nebraska Constitution.

The key to the issue of student fees under the free instruction clause is the distinction between a self-executing Constitutional provision and a non-self-executing provision.⁸⁰

Grasz wrote that it had become a mistaken assumption by both the public and government officials that the "free instruction" clause spoke directly to citizens.  It did not.  In fact, the "free instruction" clause was, in fact, a non-self-executing provision, which required the Legislature to implement enforceable rights.  "The right to 'free instruction in the common schools' is not a fundamental Constitutional right," Grasz wrote.⁸¹

The AG opinion concluded that the Nebraska Constitution delegates to the Legislature the "task of determining what 'free instruction' will be available to Nebraska school children."⁸²  Grasz wrote:

Generally speaking, it is our opinion that under current law a school district must provide free instruction for all courses which are required by state law or regulation and must provide all things necessary for that instruction, such as lab equipment, textbooks and so forth, without charge or fee to the student.  For other activities which are not required by law or regulation, such as athletics, cheerleading, and chess club, the school district may require students to provide their own equipment and may charge fees, but the district is not required to do so.⁸³

The final sentence within the conclusion of the opinion stated that the "Legislature, if it chooses, may amend the law to either expand or limit the authority of school districts to charge fees."⁸⁴ This seemed to imply that there was no real urgency for the Legislature to act, and, in fact, may choose not to act on the issue.  So where was the crisis?

The crisis, of course, was at the local level.  School officials were concerned that their own district may be next to be sued by angry parents.  For most school officials, it came down to both wanting the state to offer guidance and fearing the state will offer guidance.  From a school finance perspective, most did not believe they would particularly like what the Legislature handed down in the form of a student fee policy.  Some would consider their beliefs validated.  Others would find relief in knowing that the act of abiding by a state formulated policy meant avoiding potential lawsuits.

A range of ideas

At the start of the 2002 Session, it was only a matter of how many student fee bills would be introduced.  There was initial concern among some political insiders that the situation would open a Pandora's box on issues related to school operations, management, and equity of educational opportunities.  How far and deep would this matter go?

In all, seven separate legislative bills were introduced relevant to student fees during the 2002 Session.  The first of the student fee measures introduced, LB 1059, was offered by Speaker Doug Kristensen on January 14, 2002.  The six other measures, introduced by Senator Raikes, included LB 1171, LB 1172, LB 1173, LB 1174, LB 1175, and LB 1254.  Senator Raikes thought the best approach was to offer a range of ideas in order for the Education Committee to consider as many options as possible.  The last of the bills introduced, LB 1254, represented the proposal recommended and favored by the State Board of Education.

The student fee bills were referred to the Education Committee for disposition, and, having authority to set the schedule of hearings, Senator Raikes decided to conduct one public hearing for all seven bills on one day, January 29, 2002.  First Speaker Kristensen and then Senator Raikes opened on their respective measures.  Proponent and opponent testimony followed the senators' remarks.

Speaker Kristensen's proposal, LB 1059, focused on defining what is not subject to student fees rather than list in law what are acceptable fees.  Between the seven bills introduced, Speaker Kristensen's bill arguably rated as the most general in nature.  LB 1059 permitted a school district to charge a fee for extracurricular activities, not to exceed the actual cost of providing the activities.  "Extracurricular activities" were defined as optional activities that were supervised and administered by the school district, but do not include:  (1) activities, programs, or services which are mandatory, which meet requirements for graduation or for grade level promotion, or which provide extra course credit; or (2) for-credit non-instructional activities, programs, or services.⁸⁵  "It is in the Legislature's best interest and I believe the school districts' best interest to try and to lay some guidelines and some framework into what permissible fees are," Kristensen said, "Legislative Bill 1059 does that."⁸⁶

Senator Raikes prefaced his comments by noting that a good discussion on the issue of student fees was long over due.  "We have not really faced this issue, nor has an Education Committee in the Legislature for a great many years, possibly a hundred or so, so this is new, a new area for us," he said.⁸⁷  The overriding factor, in his mind, was determining to what extent "free" means free, as per the constitutional provision at issue.  Accordingly, his six bills ranged from a strict constitutional interpretation on one end of the spectrum to providing for the "maximum facilitation" of school district discretion on the other end of the scale.⁸⁸

LB 1171 represented the "strict interpretation" model and permitted school districts and ESUs to collect fees for a very limited number of purposes:  (1) Reimbursement to the district or ESU for property lost or damaged by the student; (2) purchases at a school store for food, soft drinks, and personal or optional items; (3) before-and-after school or pre-kindergarten services; and (4) breakfast and lunch programs.⁸⁹  "Basically, there would be nothing allowed in the way of fees except for damage, property lost or damaged, a fee could be charged for that," Raikes said.⁹⁰

LB 1172 proposed to create the Public Elementary and Secondary Student Fee Authorization Act.  The bill permitted school districts and ESUs to collect student fees or require students to provide specialized equipment or attire for any of the following specified purposes:  (1) Extracurricular activities; (2) event admission fees; (3) postsecondary education costs; (4) transportation costs (e.g., options students, nonresident students); (5) reproduction costs for copies of student files or records; (6) reimbursement for property lost or damaged by the student; (7) before-and-after school or pre-kindergarten services; (8) summer school; and (9) breakfast and lunch programs.⁹¹  In addition, school entities would be permitted to:

1. require students to furnish personal or consumable items, including, but not limited to, pencils, paper, pens, erasers, and notebooks;
   
   
2. require students to furnish and wear clothing meeting general written guidelines for specified courses and activities during both the regular school day and outside the regular school day if the written guidelines are reasonably related to the course or activity; and
   
   
3. operate a school store in which students may purchase food, soft drinks, and personal or consumable items.⁹²

"This one adds extracurricular activities to include postsecondary education costs and extracurricular activities, in this context, would be defined as those outside of the regular school day which do not count toward graduation or grade advancement and for which participation is not otherwise required," Raikes said.⁹³  By the time of the hearing, Raikes had already designated LB 1172 as his priority bill for the 2002 Session.⁹⁴

LB 1173 provided general authorization for school districts and ESUs to collect fees from students or require students to provide specialized equipment or attire for extracurricular activities and courses not required for graduation.  "Extracurricular activities" was defined as student activities that are not required for graduation.⁹⁵  The legislation also permitted a district or ESU to:  (1) Require students to furnish personal or consumable items, including, but not limited to, pencils, paper, pens, erasers, and notebooks; (2) require students to furnish and wear clothing meeting general written guidelines for specified courses and activities required for graduation if the written guidelines are reasonably related to the course or activity; and (3) operate a school store in which students may purchase food, drinks, and personal or consumable items.⁹⁶  "A feature of both LB 1172 and LB 1173 would be a fee waiver policy would be required," Raikes said.⁹⁷  "And this, basically, would allow or would provide that schools would be required to waive fees for students who qualify for free and reduced lunches, not necessarily those who participate in the free and reduced lunch program," he added.⁹⁸

LB 1174 was unique in that it addressed two other issues arguably intertwined with the issue of student fees:  (i) whether coaches need to be certified; and (ii) the potential for enhanced "need" within the school finance formula.  The legislation provided intent language stating that the requirements of Rule 10 (State Board regulations governing accreditation) "represent the elements of free instruction that Nebraska's public schools are required to offer."⁹⁹  The intent language further stated that the provisions of the bill were "intended to provide the option for schools to charge students for extracurricular expenses beyond such elements of free instruction."¹⁰⁰  LB 1174 permitted a school district or ESU to collect the payment of fees from students for extracurricular expenses, which was defined as any expenses of the school district that were not incurred to meet the accreditation requirements under Rule 10.  A district or ESU may also require students to furnish specialized equipment or attire for courses and activities not required under Rule 10 and may require students to furnish their own personal or consumable items, including, but not limited to, pencils, paper, pens, erasers, and notebooks.¹⁰¹

LB 1174 provided that a person employed to coach or supervise extracurricular activities that occur outside of the regular school day would not be required to hold a valid Nebraska certificate or permit in order to teach.  Every person employed to coach or supervise extracurricular activities who does not hold a valid certificate or permit to teach must, however, file a complete set of his or her legible fingerprints with the Commissioner of Education who must then request a criminal history check from the Nebraska State Patrol.¹⁰²  Lastly, LB 1174 changed elements of the poverty factor used to calculate adjusted formula students for a local system.  The bill uniformly increased the "multipliers" within the poverty factor by one-tenth, which thereby placed a slightly greater emphasis on students of low-income families within the state aid formula.¹⁰³  "Legislative Bill 1174, the focus here is accreditation requirements, basically, fees could be charged for anything that went beyond accreditation requirements," Raikes said.¹⁰⁴

LB 1175 took a different approach to the issue of student fees.  The bill modified the school finance formula to require each school district to establish and maintain a student fee fund consisting of money from the general fund of the district.  The student fee allotment would equal $500 per student for the first year of implementation.  All student fees for courses, activities, and equipment or supplies would be paid out of the student fee fund to the general fund of expenditures as the fee was incurred.  Each student would be allowed to participate in courses and activities and use equipment or supplies subject to the student's allocation.¹⁰⁵

LB 1175 changed the "need" calculation in the school finance formula beginning in school fiscal year 2002-03 to include the local system's "student fee subsidy."  The "student fee subsidy" was defined as an amount equal to 50% of the student fee allotment for the school fiscal year for which aid was being calculated multiplied by the local system's weighted formula students for such school fiscal year.¹⁰⁶  "LB 1175, this one I think is maybe noteworthy in that it potentially serves as somewhat of a model to view several of the proposals" Raikes said, "It is different in that this might be described roughly as a cafeteria plan."¹⁰⁷ The cafeteria plan, of course, referred to each student's decision on how to use the funds set aside for him or her to pay various fees.

LB 1254 represented some of the views and recommendations of the Commissioner's Task Force on Student Fees, which was created at the request of the State Board of Education.  LB 1254 was without a doubt the most detailed and lengthy of the seven student fee bills.  The legislation provided a fairly complete laundry list of acceptable items for which fees may be charged.  The bill prohibited a district from assessing a fee for any course that is offered as part of the instructional curriculum of the district or for any textbooks, supplies, or equipment required for such course, except for such things as musical instruments.  A district may require a student to provide his or her musical instrument for optional courses in instrumental music.  However, if a student chose not to provide his/her own instrument, a reasonable rental fee may be charged by the district, not to exceed the rental costs to the district or the total of the annual depreciation plus the annual maintenance cost for each instrument, whichever is less.¹⁰⁸

Under LB 1254, a school district may charge fees for:  (1) admission to school activities and events, if attendance is optional; (2) optional field trips, not to exceed actual cost, sponsored by a school district which occur outside the hours of required school attendance if the field trip does not provide any course credit or extra credit and does not fulfill any requirement for a course, for grade promotion, or for graduation; and (3) damage to or loss of school property by a student.  Except for those students qualified for a waiver, a district may also assess a fee, not to exceed actual cost, for extracurricular activities, including the cost of supplies and equipment.  A district may require a student to provide his or her own supplies and equipment for participation in extracurricular activities and assess a fee, as an equipment security deposit, for any equipment loaned to a student for use in an extracurricular activity.  Similar to LB 1174, LB 1254 did not require an employee of a school district assigned to supervise extracurricular activities to be certified.  The bill also permitted non-teachers to serve in this capacity.¹⁰⁹

LB 1254 required districts to adopt a written policy regarding the assessment and collection of student fees.  The policy must provide for the waiver of fees when the student or his/her parent or guardian or the person with legal or actual charge or control of the student is financially unable to pay the following:  (i) fees for extracurricular activities; (ii) fees for optional summer or other programs; (iii) fees for optional before- or after-school, behind-the-wheel driver education programs; and (iv) fees for musical instrument rental for optional instrumental music programs.¹¹⁰  "This particular proposal identifies particular courses or categories of courses in which fees could and could not be-charged," Raikes said of LB 1254.¹¹¹  "So it goes a little bit beyond what the others have in terms of identified specifics rather than just principles," he added.¹¹²

The President of the State Board of Education, Steve Scherr, testified on behalf of the Commissioner and the board on which he served.  As expected, he offered support for LB 1254, but did not necessarily discount the merits of the other proposals.  "Our goal was to, we hope, to assist you in fashioning some legislation that meets both the needs of the schools and supports the missions of our public education, and also stands within the scope of the constitution and statutory mandates on providing a free public instruction," Scherr said.¹¹³ He believed school officials wanted to know exactly what activities and programs they may or may not charge a student fee.

John Bonaiuto, Executive Director for the Nebraska Association of School Boards (NASB), testified at the hearing on behalf of his organization and three other groups:  the Nebraska Council of School Administrators (NCSA), the Nebraska Rural Community Schools Association (NRCSA), and the Greater Nebraska Schools Association (GNSA).  The four education groups hooked their wagon to LB 1172, which was a safe bet since Senator Raikes had already prioritized that particular piece of legislation.  The education lobby knew that LB 1172 would be the vehicle likely to move a student fee proposal.  It was just a matter of working with the Education Committee to formulate the contents of that proposal.

Bonaiuto framed the issue from the perspective of school management while at the same time noting the complexity of the subject.  "Although at first blush resolving this issue might seem simple, there are some very complicated policy decisions imbedded in whatever future the Legislature decides when it grants authority for school districts to charge fees for some of its services or equipment," Bonaiuto said.¹¹⁴  He warned there would be a fiscal and operational impact to some school districts depending upon their individual status within the school finance structure.  Some districts may have to simply give up certain programs, services, or even extracurricular activities in order to avoid financial burden.  The best type of state policy, he testified, might be one that permits local control over the matter.  Said Bonaiuto:

The education lobby would like to ask that the Education Committee develop permissive language on this subject that allows local boards to make decisions based on the will of their local constituency.  Prescriptive legislation which ties, which tries to imagine all of the possibilities does not allow local boards to assess the desires of the parents and the taxpayers of their district.¹¹⁵

In fact, most of the education lobby was hedging its bet by pledging to work with the Education Committee, particularly Senator Raikes, and hoping for the best possible, most flexible legislation.

The Nebraska State Education Association (NSEA) took a slightly different route by not lending full support to any particular student fee bill.  Represented by Executive Director Jim Griess, NSEA did support LB 1254 in that it "clearly defines the issues so that school districts would be able to tell which issues ought to be subject to fees and which should not."¹¹⁶  However, Griess believed, even that bill required "some tweaking."¹¹⁷  Griess expressed concern that fees could be charged for summer school, which he believed were mandated programs.  "We're in a state of situation now where we have high stakes testing, we have a great deal of student assessments, and I think every educator understands very quickly that not all students progress at the same pace," he said.¹¹⁸

Omaha Public Schools was one of the few school districts to send a representative to the public hearing.  Elizabeth Eynon-Kokrda, legal counsel for OPS, at first preferred not to go on record for or against any particular fee bill.  Pressed by Senator Wickersham to take some type of position, Eynon-Kokrda said her testimony was "going to be in opposition but talking about some of the positive aspects of some of the bills themselves."¹¹⁹  She said her client's ability to weigh in on the student fee legislation was made possible after the parent who sued OPS over student fees had decided to drop the lawsuit.  In fact, Roger Roll withdrew his lawsuit on January 14, 2002 expressing satisfaction that the OPS Board had addressed the issue.¹²⁰

Eynon-Kokrda expressed concern for many of the terms used in the various proposals that she believed would "result in the situation of terrible inequity amongst the students, especially in OPS."¹²¹  She asked that the committee carefully distinguish "co-curricular activities" that are activities "linked inextricably to the education of the students."¹²²  She asserted that team activities and team sports are co-curricular activities and are "definitely activities that are integral to the education of students."¹²³  She further stated that:

Looking at carving out things like music, co-curricular activities, summer school, I think that's essentially saying that it is the belief of this Legislature, that such activities are not the instruction guaranteed by our constitution, not part of the quality education guaranteed by our statutes and not included in the mission of the state to offer every child, not just those who can afford it an adequate education.¹²⁴

However, there was, she said, a viable solution to the issue of student fees.  Eynon-Kokrda testified that parking fees, lunch fees, evening dances, field trips that are not for course credit, and fees for damage or loss of property would be acceptable to OPS.  "Every child in the state has a right to equal access to an adequate education and equal opportunity to achieve it," she concluded.¹²⁵

Of course, no one disagreed with the notion that public education should provide maximum opportunities for all students.  The question at hand, at least to some, was more in the nature of how to balance access to programs and activities with the realities of limited resources to provide them.  If there were disparities in the wealth of individual districts, then it stood to reason that there would be disparities in the offering of opportunities to students.  Put simply, the revenue generated from student fees was more crucial to some districts than others to offset the cost of providing certain activities and programs or even certain courses that other districts could afford with no fee attached.  The student fee issue exposed, once again, the inequities that still existed among districts, no matter how diligent the Legislature may have been to address them in the past.

"It's the perfect storm"

By the conclusion of the public hearing on January 29th, the eight members of the Education Committee had about as many and varied opinions, suggestions, and concerns as they could collectively handle on one single issue.  There was general consensus that they had to act, other than that it was wide open.  They did have a vehicle to move a proposal forward, since Senator Raikes prioritized LB 1172, but there was no immediate majority opinion on the exact form the bill should take.  The committee met in executive session to discuss the issue beginning on February 6th.  Members emerged from the meeting with no answer and no proposal.

Part of the problem for members of the committee was that they were trying to anticipate how the Nebraska Supreme Court might treat various legislative actions, assuming the legislation reached the high court for review.  "We're trying to guess what a group of people in black might do, if it ever rises to that point," said Senator George Coordsen, a member of the Education Committee.¹²⁶  Also compounding the problem were several other factors.  First, the Commissioner of Education, Doug Christensen, was of the opinion that most student fees violated the "free instruction" clause.  Second, the Attorney General, Don Stenberg, wrote on February 1, 2002 that all things related to instruction must be free, but other activities may be fee-based, including extracurricular activities.¹²⁷  This appeared to contradict the belief by others who argued that even most extracurricular activities, supervised or coached by certified staff, should be fee free.  Thirdly, and perhaps least significant to some policymakers, was a truly divided education community.  The education lobby simply did not have a unified voice on the matter.  "It's the perfect storm," surmised Steve Joel, Superintendent at Grand Island Public Schools.¹²⁸

The only safe bet was that criticism would follow whatever proposal emerged from committee.  On February 26, 2002 the Education Committee voted 8-0 to advance LB 1172 with committee amendments attached.¹²⁹ The amendments would strike the original provisions of LB 1172 and insert entirely new language.

The committee's proposal essentially threw the student fee issue back to the local level and it would also propose amendments to the school finance formula.  The amendments required each district to adopt a student fee policy and review it annually.  A district could charge fees for participation in, or for equipment or supplies for, any school related activity or any activity sponsored by the school district if the requirement would not "impinge on a student's right to free instruction" as per the Nebraska Constitution.¹³⁰ In addition, a district could not charge a fee otherwise prohibited under state law.

Any district charging student fees would deposit the revenue in a "student fee fund."¹³¹  Excluded from this fund would be such revenue as student admission fees for spectator events and fees collected for nutrition programs.  The committee amendments then created a mechanism within the state aid formula to hold school districts accountable for revenue generated from student fees in excess of an established threshold.  The threshold would be equal a percentage of the school district's General Fund operating expenditures.  The percentage would begin at 3% in 2002-03 and gradually reduce to 2.5% for 2004-05 and each year thereafter.¹³²

For some school officials the real troubling part of the committee amendments had to do with a provision concerning litigation.  The amendments provided that, in any action brought to challenge the validity of a student fee policy, the court would be allowed to award costs of litigation to a prevailing party or the substantially prevailing party unless that party was the school district.  The amendments did provide, however, that the district would not be liable if it acted in good faith in establishing its policy.¹³³

There was a fair amount of grumbling among school officials about the proposal forwarded by the Education Committee.  Some believed it was more or less a copout to push the issue back on the same local school boards that had looked to the Legislature to provide guidance in the first place.  It was as if the Education Committee decided the issue was too hot to handle, and preferred instead to allow individual school districts to fight it out within the judicial system.  However, there were other school officials who supported the proposal since it effectively protected parents and students.  It created just enough risk and potential liability to the district as to cause school boards to think twice about charging fees.

"Safe haven"

With LB 1172 advanced to General File, there remained six other student fee bills awaiting disposition.  Interestingly, the Education Committee took action on February 28, 2002 to indefinitely postpone all other remaining student fee bills except one.¹³⁴  LB 1059, Speaker Kristensen's student fee bill, was allowed to remain in committee until March 5th when it too was indefinitely postponed.¹³⁵ One day later, March 6th, the Legislature began first-round debate on LB 1172.  Whether fortuitous or coincidental, the act of killing LB 1059, one day before General File debate on LB 1172, would add to the drama soon to unfold.

In the afternoon of March 6, 2002, the Legislature began debate on LB 1172.  Senator Raikes took his colleagues through the background of the issue and also the technical aspects of the pending amendments, which, if adopted, would become the bill.  This type of amendment is often referred to as a "white copy" amendment since it would completely eliminate the original "green copy" of the bill and replace with new material.  "It is a special issue," Senator Raikes said of the student fees situation.¹³⁶  "[A]nd one that I think I can convince you is a complicated one," he added.¹³⁷ He would be right about convincing his colleagues as to the nature of the issue, but would fail to convince his colleagues about the merits of the proposal forwarded by the committee to address it.

Very soon after Senator Raikes' opening comments, Speaker Kristensen offered an amendment to the committee amendments that would radically change the direction of the legislation.  In fact, the amendment embodied the exact contents of LB 1059, Speaker Kristensen's student fee bill that had been killed in committee the day before.¹³⁸  As described earlier, LB 1059 focused on defining what is not subject to student fees rather than list in law what are acceptable fees.  Between the seven bills introduced, Speaker Kristensen's bill arguably rated as the most general in nature.  LB 1059 permitted a school district to charge a fee for extracurricular activities, not to exceed the actual cost of providing the activities.  "Extracurricular activities" were defined as optional activities that were supervised and administered by the school district, but do not include:  (1) activities, programs, or services which are mandatory, which meet requirements for graduation or for grade level promotion, or which provide extra course credit; or (2) for-credit non-instructional activities, programs, or services.¹³⁹

Speaker Kristensen said, as far as his own agenda, the student fee issue was second in line to the state's budget shortfall in terms of overall importance.  He cast what some might have viewed as a public scolding to the Education Committee for failing to produce a fair proposal to school districts.  Said Kristensen:

The way I would see the committee amendment is you can charge a fee if you think it's constitutional.  Now, yes, we set up this nice elaborate procedure but, quite frankly, to the schools you give no direction, and you give them a land mine.  I don't think that's right and I don't think that's good for your school districts.¹⁴⁰

A full-blown showdown between the Speaker and members of the Education Committee was in progress, and everyone in the chamber and in the lobby could sense the uncomfortable atmosphere.  But Speaker Kristensen was not about to let up for the sake of politeness.  "I'm afraid that the committee amendment is going to lead you down the path of not giving a safe haven for those school districts and not giving them a whole lot of direction," the Speaker said.¹⁴¹ The "safe haven" argument was picked up and resonated several times during the debate by other members of the body.

Perhaps most troubling to proponents of the committee version of the bill was that Kristensen's comments were effective in swaying the opinions of lawmakers, including the Vice-Chair of the Education Committee.  Senator Deb Suttle of Omaha served as second-in-command of the committee and voted to advance the bill as presented on General File.  But she changed her mind during first-round debate.  Said Suttle:

I do believe I probably am going against my colleagues ... on the Education Committee.  But I was troubled, somewhat, with our amendment.  I know that there's a feeling there that we don't want to get into the laundry list of things that can and cannot be charged for.  And that concerned me that I wanted something broad, but I don't know whether we answered the question that we were being asked to answer by the districts out there, and that does concern me.¹⁴²

Senator Suttle would be the only member of the committee to jump ship, but one vocal dissenter was ear catching to the Legislature.  Only one other member of the committee who was present for the debate, Senator Bob Wickersham, actually rose to assist Senator Raikes in defending the committee version.  He had a stake in the matter since he had suggested some of the proposed language.

However, no matter how diligent Senators Raikes and Wickersham were that day to defend the committee's work, the opinion train was moving in the opposite direction.  Toward the end of the debate Senator Raikes resorted to a procedural argument that the Kristensen amendment required at least 30 affirmative votes instead of a simple majority vote (25 affirmative votes).  The reason for this is rooted in the action taken by the committee just one day before first-round debate of LB 1172 when the committee voted in executive session to kill LB 1059.  Since the Kristensen amendment was substantially the same as LB 1059, the amendment would require a special threshold for adoption.¹⁴³

Speaker Kristensen did not dispute the assertion that his amendment required a higher number of votes for adoption.  In fact he took it in stride and used the opportunity for one of the few moments of levity that afternoon.  Said Kristensen:

First observation I would have is that, Senator Raikes, any self-respecting Education Chair shouldn't have ever killed a bill numbered LB 1059.  It's kind of sacred in this body.  (Laughter)  And it's sort of like you violated one of the real tenets that you ... you ought not do.¹⁴⁴

Kristensen's reference to the most famous "LB 1059," the 1990 school finance bill, broke the tension temporarily, but not entirely.  The body proceeded to vote on the Kristensen amendment, which was adopted on a 31-10 vote, one vote more than necessary.¹⁴⁵

After the vote on the Kristensen amendment, Senator Raikes had only one play left and that was to urge his colleagues to vote against the committee amendments as amended by the Kristensen proposal.  By doing this, of course, the proposal remaining on the table would be the green copy of the bill as originally introduced.  "I believe the original bill, LB 1172, is a better approach to the issue than what is offered by the amended committee amendment," he said.¹⁴⁶  But his colleagues were not willing to go along with that approach.  The committee amendments were adopted as amended on a 26-6 vote.¹⁴⁷  "I think it's clear that I would have preferred a different route," Raikes said after the vote, "but I accept your decision on this."¹⁴⁸  LB 1172 was advanced to second-round consideration by a solid 39-0 vote.¹⁴⁹

The Compromise

Senator Raikes may have been down but not out following the General File debate of LB 1172.  Senator Raikes went back to work with his committee to formulate another proposal consistent with the theme advanced by the Legislature through the Kristensen amendment, at least as they believed it to be.  One of the areas the Kristensen proposal did not cover adequately, in the minds of the Education Committee, was a sufficient handling of fee waivers for those unable to pay.  And there were other areas certain to be faced by school districts that were simply not covered by the existing legislation.  Accordingly, on March 27th, Senator Raikes filed another amendment that he hoped would find acceptance among members of the Legislature.

The Raikes amendment proposed to create the Public Elementary and Secondary Student Fee Authorization Act comprised of thirteen separate sections.¹⁵⁰  The thirteenth section, interestingly, was a "severability clause" stating that, if any section were declared unconstitutional, the declaration would not affect the validity of the remaining portions.¹⁵¹ Each provision would essentially stand on its own merit.  The clause itself is not unusual for legislative proposals, but, in the case of LB 1172, it certainly underscored the concern legislators had about the constitutionality of a student fee measure.

The Raikes amendment emphasized fee waivers for students who qualified for free or reduced lunches, the chosen benchmark to identify students who may not have the means to pay fees.  It did not matter whether the students actually utilized the free or reduced lunch program, only whether they qualified for such program.  Each school district and ESU board must establish a policy that waives fees for students who qualify for free/reduced lunches for:  (1) Participation in extracurricular activities; (2) admission fees and transportation charges for spectators attending extracurricular activities; and (3) materials for course projects.¹⁵²

The amendment required each school district to establish a student fee policy and annually review the policy.  Public hearings must be held to review the amount of money collected from fees and the use of waivers for the prior school year.  The student fee policy must include specific details regarding:

• The general written guidelines for any clothing required for specified courses and activities;
• Any personal or consumable items a student will be required to furnish for specified courses and activities;
• Any materials required for course projects;
• Any specialized equipment or attire which a student will be required to provide for any extracurricular activity;
• Any fees required of a student for participation in any extracurricular activity;
• Any fees required for postsecondary education costs;
• Any fees required for transportation costs;
• Any fees required for copies of student files or records;
• Any fees required for participation in before-and-after-school or pre-kindergarten services;
• Any fees required for participation in summer school or night school;
• Any fees for breakfast and lunch programs; and
• The waiver policy as noted above.¹⁵³

Each school board also must establish a student fee fund into which all money collected from students would be deposited and from which money must be expended for the purposes for which it was collected from students.¹⁵⁴

The Raikes amendment provided a laundry list of fees that may be charged unless a student qualified for a fee waiver.  The amendment provided that a governing body may require and collect fees or other funds from students or require students to provide specialized equipment or specialized attire for any of the following purposes:

1. Participation in extracurricular activities;
   
   
2. Admission fees and transportation charges for spectators attending extracurricular activities;
   
   
3. Postsecondary education costs;
   
   
4. Certain transportation costs;
   
   
5. Copies of student files or records;
   
   
6. Reimbursement to the school district or ESU for property lost or damaged by the student;
   
   
7. Before-and-after-school or pre-kindergarten services;
   
   
8. Summer school or night school; and
   
   
9. Breakfast and lunch programs.¹⁵⁵

A school board or ESU board may require students to furnish minor personal or consumable items for specified courses and activities, including pencils, paper, pens, erasers, and notebooks.¹⁵⁶  A board may require students to furnish and wear "nonspecialized attire" meeting general written guidelines for specified courses and activities so long as the written guidelines are reasonably related to the course or activity.¹⁵⁷  A school district may operate a school store in which students may purchase food, beverages, and personal or consumable items.¹⁵⁸

Two of the more thornier issues related to project materials and musical instruments.  The Raikes amendment provided that, except for students who qualify for free or reduced lunches, a district or ESU may require students to furnish materials for course projects meeting written guidelines if upon completion, the project becomes the property of the student and the written guidelines are reasonably related to the course.¹⁵⁹ An example might be a woodshop course where students created projects in order to take home with them upon completion.

A district or ESU may require students to furnish musical instruments for participation in optional music courses that are not extracurricular activities so long as the board provides for the use of a musical instrument without charge for any student who qualifies for free or reduced lunches.  The amendment specified that a district or ESU would not be required to provide for the use of a particular type of musical instrument for any student.  In other words, a student may not have his or her first choice in instruments.  And, for music courses that are extracurricular activities, a board may require fees or require students to provide specialized equipment, such as musical instruments, or specialized attire.¹⁶⁰ Both the project materials and musical instrument provisions would ultimately require some legal interpretation in order to implement.

Within a few days after Senator Raikes filed his amendment, LB 1172 appeared on the Legislature's agenda for Select File consideration.  The debate that occurred on April 2, 2002 was far less dramatic than first-round consideration some three weeks earlier.  Senator Raikes introduced his amendment with due respect to the course of direction chosen by his colleagues.  Raikes said:

[T]he amendment is consistent with your decision on General File.  That is, it focuses on extracurricular activities and it is a list approach rather than the approach taken in the committee amendment, which is an approach that deals more or aims more along the lines of additional local discretion.¹⁶¹

Senator Raikes was careful to note the differences in policy between the existing contents of LB 1172, as per the Kristensen proposal, and his own.

Speaker Kristensen rose to offer his support for the Raikes amendment although he questioned whether any legislative proposal would be absolutely safe from judicial scrutiny.  The Speaker said:

Realize none of these fees are constitutionally safe.  We are guessing where the court is going to be.  I think this bill errs on the side of being more restrictive than being broader and allowing more things and, to that extent, it probably tries to outline what the present day realities are of what should be fees and what should not be fees.¹⁶²

His comments illustrated the extent to which some members of the body were concerned about legal challenges.  Although no one knew at the time, these fears would later prove to be unwarranted due largely to a careful application of the law by school officials who did not wish to be party to any test cases in court.

The duration of the discussion on the Raikes amendment was less than an hour.  The body approved the amendment by a unanimous 29-0 vote and then advanced the bill to the third and final stage of consideration by voice vote.¹⁶³  LB 1172, as amended, was passed by the Legislature on April 11, 2002 by another unanimous vote (40-0).¹⁶⁴ As passed by the Legislature, LB 1172 did not directly amend the school finance statutes but would nevertheless have an impact on school finance.

Reaction and Implementation

While the Legislature had taken official action on the student fees issue, the real work lay ahead.  The implementation phase of the legislation was anything but smooth since questions about legislative intent remained long after the 2002 Session had ended.  Education groups, including the Nebraska Council of School Administrators (NCSA), conducted workshops for its members specifically designed to wade through the details and potential legal entanglements within the legislation.  The Department of Education also was very involved in attempting to help school officials.

On May 31, 2002, Commissioner Christensen issued a memorandum to school superintendents concerning the implementation of LB 1172.¹⁶⁵  He reminded district chiefs that the effective date of LB 1172 was July 20, 2002, but that much work had to be completed in time to meet some of the deadlines contained in the bill.  Local public hearings on district student fee policies had to be held by August 1, 2002.¹⁶⁶  "Regardless of the issues and difficulties involved in implementing LB 1172, I know you will work hard to continue to assure that all students in Nebraska receive a quality education," Christensen wrote.¹⁶⁷  He added that:

The language and requirements of LB 1172 have raised many questions.  And, with the short timeline for implementation, there will be a number of questions and concerns left unanswered.  While it was clear that the legislature is giving school districts clear authority for the charging of certain fees, it is also clear that the number and kinds of fees are limited.  I would suggest that you consider limiting the required fees to those you feel are absolutely necessary.¹⁶⁸

The Commissioner reminded superintendents that it was still reasonable for schools to ask (not require) students to provide certain items or fees on a voluntary basis.  He also reminded them that LB 1172 did not prohibit schools from fund raising or having organizations within the community provide funds to support school activities.

Individual school districts reacted to the new law in different ways.  For some, the policy directives represented welcome guidance to help avoid lawsuits.  For others, the new law was deemed to be intrusive on local control over such matters.  The Omaha Public School District Board of Education, for instance, issued a protest of sorts against the new law.  On May 20, 2002, the OPS Board voted to consider abolishing district sponsored student activities, including athletic programs.  "This was something put on the Omaha Public Schools," OPS Board President John Langan said, "I don't believe our fees were out of line."¹⁶⁹ Although OPS was one of the first school districts to ask for state intervention on the issue in 2001, the end result was not entirely to their liking, nor was it to other school officials across the state.

However, there was a positive side of the situation faced by school districts.  LB 1172 forced all districts to re-evaluate their policies with an emphasis on the consumers of the services that districts provide.  "I've been encouraged by hearing superintendents ask, 'What is the advantage to kids, what is the disadvantage?'" Commissioner Christensen said.¹⁷⁰  LB 1172 and the surrounding issues caused everyone associated with public education to take a closer look at the free instruction clause of the State Constitution and to ask what it meant to them.  The issue brought many individuals and groups to the public forum to offer their viewpoints, precisely as a democratic society should expect from itself.  And if, in the end, students of all economic circumstances are assured equal opportunities at their publicly funded school, then all other relevant issues and arguments become subordinate, if not trivial.

One of the least discussed provisions of the school finance formula relates to the allowable reserves a school district may set aside.  The issue involves what is typically considered sound business practices.  Just as it is generally accepted that businesses have reserve funds, so it goes for government entities, including school districts.  The reserve provision under the school finance formula was relatively unchanged from 1990, when it was implemented, until 2002 when LB 460 was passed into law.

The Nebraska Tax Equity and Educational Opportunities Support act, as enacted under LB 1059 (1990), established a system by which school districts would be allowed to hold in reserve a percentage of its total general fund budget of expenditures.¹⁷¹  The system was based upon a sub-formula involving the average daily membership of the district correlated to a specified percentage as shown in Table 134.

Generally, the larger the district in terms of student population the smaller the allowable reserve and vice versa.  This same table, with the same membership-to-reserve-percentage ratio, has existed, unchanged, since 1990.

The original law also imposed a requirement that a district could not increase its reserve fund by more than 2% of its total general fund budget of expenditures each year.¹⁷² The growth provision, of course, applies only to those districts that had not yet reached its maximum reserve percentage.  If a district had reached its maximum reserve, it could not utilize the growth provision.  Part of the underlying idea was that restrictions should be placed on school districts in order to prevent them from dramatically raising property taxes merely to bolster the reserve fund.  The original policy decision incorporated a balance between acknowledging the merit of a reserve fund and the protection of the taxpayer.

The underlying policy issue behind LB 460 was that the existing reserve provision did not permit some school districts to set aside sufficient reserves for whatever emergency or circumstance that may arise.  Larger school districts, with higher student populations, also had more teachers whose salaries might, in an emergency or revenue shortage, become dependent upon the district's reserve fund.  It was believed by some that the reserve provision in effect penalized some school districts while benefiting, or potentially benefiting, others.  Accordingly, Senator Chris Beutler of Lincoln introduced LB 460 during the 2001 Session on behalf of Lincoln Public Schools.  School officials from other districts, mostly larger school districts, would also demonstrate their support for the measure at the public hearing on March 12, 2001.¹⁷³

LB 460 represented one of those measures that required a careful review in order to understand the intent.  On the face of the bill, it appeared as though the sole objective was to change provisions relating to the Hardship Fund.  The Hardship Fund was created under LB 314 (1999), a bill sponsored by Senator Ardyce Bohlke.  LB 314 was designed to help districts that encounter unexpected special education costs by applying to the Commissioner of Education for money if one or more unexpected occurrences cause the district financial distress.  The occurrences include:  (1) one or more new special education student or one or more new disabling conditions; (2) the opening of a group home causing expenditures to increase by at least 10%; (3) clerical errors by public officials; or (4) the final calculation of state aid caused a negative adjustment reducing the aid originally calculated for the district by 50% or more.¹⁷⁴

In order to be eligible for the funds, a district must have budgeted reserves equal to at least 98% of the applicable allowable reserves authorized for that district for the most recent budget prior to the district becoming aware of the unexpected occurrence.¹⁷⁵  Essentially, the district had to be nearly at the maximum amount of available reserves.  And it was this provision that LB 460 sought to eliminate, which, again on the face of it, appeared to carry the objective of making hardship funds more accessible to school districts.¹⁷⁶

However, the real heart of LB 460 lay in the section of the bill that outright repealed the reserve fund provision of the state aid formula.¹⁷⁷  The "repealer" section of a bill is often overlooked or taken for granted.  In the case of LB 460, the repealer section was the main thrust of the bill.  The proposed change to the Hardship Fund was merely to harmonize existing law with the intent to repeal the reserve fund section of the state aid formula.  While the collateral impact of LB 460 was to make it easier for some districts to apply for and receive Hardship Funds, the simple fact remained that no district had ever applied for the funds since its creation in 1999.  In fact, the Hardship Fund would be repealed during the 2001 Session under LB 313.¹⁷⁸

Senator Beutler did not intend to create a smoke and mirrors illusion within his bill.  He was fully aware that the bill looked like one thing and did another.  "When you open the bill itself, it looks a little bit like it deals with the hardship fund, but it really doesn't," Beutler said during the public hearing.¹⁷⁹  "As you all are aware, the hardship fund is being repealed this session by another bill that sits on final reading," he added.¹⁸⁰ But the question remained, if the Legislature repeals the reserve fund provision within the state aid formula, how would reserve funds be regulated?

Here the legislation was somewhat illusive, but not deliberately deceptive.  Senator Beutler intended that school districts would fall within the same reserve limitation by which all other political subdivisions abide.  The Nebraska Budget Act provides that the cash reserve for political subdivisions may not exceed 50% of the total budget adopted exclusive of capital outlay items.¹⁸¹ The reserve provision within the school finance formula was based on the provision within the Budget Act, but it also imposed greater restrictions on those school districts that had higher student populations.  Senator Beutler believed the same reserve limitation should apply to all political subdivisions.  The effect would be to provide the same level of flexibility to school districts as other types of local government already have.  Therefore, while LB 460 did not specifically state it, the repeal of the reserve fund provision in the state aid formula would, by default, allow the provisions of the Nebraska Budget Act to govern the reserve limits for school districts.

Naturally, there was a potential downside to the idea, and members of the Education Committee saw it immediately.  Part of the reason for special reserve limitations on school districts is related to the fact that schools are the single largest consumer of property tax revenue.  This was true in 1990 when LB 1059 was passed and it remains true today.  In fact, the initial fiscal impact statement prepared by Sandy Sostad of the Legislative Fiscal Office stated:  "The repeal of the allowable percentage limitation on school district cash reserves and the limitation on the annual percentage increase in reserves may have a fiscal impact on the amount of property taxes levied and collected by some school districts."¹⁸² The committee was aware of the potential impact on property taxes and this became one of the discussion points at the public hearing.

In addition to Lincoln Public Schools, other supporters of the bill included the member districts of the Greater Nebraska Schools Association (GNSA), Omaha Westside Community Schools, and the Nebraska Association of School Boards (NASB).¹⁸³  As no surprise, many of the districts that supported the legislation were also among those currently at the maximum reserve limitation.  In fact, the Department of Education reported there were 37 K-12 or high school-only school districts out of 263 that were at the maximum reserve percentage in 2000.¹⁸⁴  The only outward opposition came not from any testifier, but from one member of the committee.  Senator George Coordsen of Hebron stated his concerns during the hearing:

I don't follow this necessity to have a whole lot, because you don't have revenue.  You have the ability to levy taxes on the people that live in your district for the portion of the school cost that are not covered by non-property, and it just seems to me that there's a false premise involved in creating the idea that a school is a business rather than a citizen supported service.¹⁸⁵

Senator Coordsen thought communities would be better served to "leave that money in the economy generating business" rather than raising property taxes to grow reserve funds.¹⁸⁶

For a historically conservative Legislature, the original version of LB 460 probably represented a far reach.  But one of the political maxims underlying any legislative proposal is to shoot high and expect something in the middle.  The art of compromise would serve its purpose here as well.  By a 6-1 vote, the Education Committee advanced the bill on April 20, 2001 with amendments that eliminated the original provisions and inserted new language.¹⁸⁷ Senator Coordsen cast the lone dissenting vote.  The new language would eliminate the restriction that schools could only grow their reserve by an annual rate of 2%.  However, schools must still adhere to the applicable reserve caps based upon average daily membership.  On the whole, the compromise represented much less than the proponents wanted, but it was at least a small victory in their minds.

The more immediate problem for proponents of the bill was time, specifically the lack of time, to seek passage of the bill in the waning months of the 2001 Session.  The bill was officially on General File, but it had no priority status and no real prospect of advancement.  LB 460 would carryover to the 2002 Session and the proponents were prepared to take appropriate steps to ensure its passage.  Senator Marian Price of Lincoln designated the bill as her priority measure, and the bill had the additional advantage of already being on General File.¹⁸⁸ Having the measure queued on the agenda was particularly helpful in light of the heavy budget issues facing the Legislature in 2002.

On March 12, 2002, exactly one year after its public hearing, LB 460 was considered on the first stage of debate.  Interestingly, the proponents of the bill had lobbied the measure so well that only a brief discussion was necessary to move it forward.  Senator Beutler successfully offered an amendment to the committee amendments in order to remove contingency funds from the reserve fund limitation.¹⁸⁹  Prior to LB 460, the reserve cap applied to the total amount of four types of funds, including contingency funds, depreciation funds, employee benefit fund cash reserves, and general fund cash reserves.  The Beutler amendment proposed to remove contingency funds from the computation of the allowable reserve cap.  Contingency funds were established by a school district to use for defense against and payment of losses.  Contingency funds cannot exceed 5% of the total budgeted general fund expenditures of a district.  The removal of contingency funds from the computation could only help not hurt school districts.  It was particularly helpful to about 11 school districts, including Lincoln, which used contingency funds to set aside self-insured insurance money.  The Beutler amendment was adopted by a unanimous 31-0 vote.¹⁹⁰

Following the vote on the Beutler amendment, LB 460 would take a different twist with the adoption of an amendment related to Class I (elementary only) school districts.  Offered by Senator Gene Tyson of Norfolk, the amendment contained the language found in LB 1212 (2002), which had been advanced to General File by the Education Committee.¹⁹¹  The Tyson amendment proposed to change the law regarding mergers, dissolutions or reorganizations of Class I districts that are affiliated with Class II or Class III districts (K-12 districts).  Prior to 2002, a vote of the school boards of the impacted school districts was required when a Class I district with 50% or more of the district's valuation that was affiliated with a single Class II or Class III districts opts to merge, dissolve or reorganize.  The Tyson proposal required the approval of all the affiliated Class II or Class III school boards when a Class I district with 8% or more of its valuation affiliated with another school district opts to merge, dissolve or reorganize.¹⁹²  Senator Tyson said he introduced the measure on behalf a Class I district in Madison County.  The amendment was adopted without debate on a 29-0 vote followed by a unanimous vote to adopt the committee amendments, as amended, on a 34-0 vote.¹⁹³

LB 460 was advanced as amended to second-round consideration on a 34-0 vote.¹⁹⁴  During Select File consideration, the Tyson amendment would come under fire from Senator Jennie Robak who admitted being present during the General File debate but said nothing.  Senator Robak believed the amendment might negatively affect school districts within her legislative district.  But it was too little too late for the Columbus legislator.  The Legislature advanced LB 460 by a 33-2 record vote.¹⁹⁵  Interestingly, Senator Robak must have re-evaluated her position on Final Reading when she joined proponents in a 40-1 vote to pass the bill.¹⁹⁶

LB 994 represented the Revenue Committee's omnibus technical cleanup bill in 2002 concerning property tax administration and assessment.  By the time the bill passed, it would have also become the omnibus "Christmas tree" bill containing "ornaments" from no less than ten other revenue-related measures.  The bill amended provisions related to the Tax Equalization and Review Commission and the greenbelt laws, among other provisions.  The legislation also permitted political subdivisions to accept credit cards and debit cards as methods of payment for taxes, levies, fines, licenses, and fees.¹⁹⁷

The school finance formula was amended in relation to adjusted valuation used in the calculation of state aid.  Since 1994 the formula utilized adjusted rather than assessed valuation in order to enhance the equalization objective of the Tax Equity and Educational Opportunities Support Act.  The system in place prior to 2002 required county assessors to certify to the Property Tax Administrator (PTA) the total taxable value by school district in the county for the current assessment year.  The PTA must then compute and certify to the Department of Education the adjusted valuation for the current assessment year for each class of property in each school district and each local system.  The adjusted valuation of property for each school district and each local system must reflect the appropriate state aid value, which for residential property equals 100% of market value, 80% for agricultural land, and net book value for personal property.  The existing law required the establishment of adjusted valuation based upon assessment practices established by rule and regulation adopted and promulgated by the PAT.¹⁹⁸

LB 994 changed the adjusted valuation provision to state that the establishment of adjusted valuation would be based on the determination of the level of value for each school district from an analysis of the comprehensive assessment ratio study or other studies developed by the PAT.  As provided in the former law, the PAT was required to adopt and promulgate rules and regulations setting forth standards for the determination of level of value for purposes of school aid calculations.¹⁹⁹  Legal Counsel for the Revenue Committee, George Kilpatrick, testified at the public hearing for LB 994 that several members of the committee had requested the change.  Said Kilpatrick:

[W]e developed some language that has to do with providing maybe a little bit of guidance and structure to the process of determining adjusted value for school aid purposes.  I don't know that we've had a general discussion on that but it's an aspect of this and it provides a bit of guidance, essentially that it be done based on statistics and professionally accepted mass appraisal techniques and that sort of thing that we quite often see in these types of statutes.²⁰⁰

The Property Tax Administrator, Catherine Lang, also testified in support of the proposed changes.²⁰¹

LB 994 was passed on April 19, 2002 by a 47-0 vote.²⁰²