The Portland Charter Commission is proposing an amendment to the city’s charter that would give the school board the power to determine the total amount of its budget. That decision is currently vested in the City Council, which must balance the needs of the schools against other municipal priorities and weigh the impact of budgetary increases on the tax rate. Under the commission’s proposal, the school board would be able to determine over half of the city’s aggregate budget without wrestling with those competing values.

That’s a problem. The city is now facing a fiscal crisis. Allowing the school board to set its own budget in a vacuum risks crowding out other priority expenditures and undercutting the council’s ability to control property tax increases.

But let’s put that policy issue to one side and focus on legal uncertainty and risk, and their very real consequences. The proposal for so-called “school budget autonomy” clearly poses novel issues: The commission’s counsel, Perkins Thompson, advised that the “better argument” is that it violates Maine law. They warned that a ruling striking it down could affect the validity of expenditures made in reliance on the illegal budget.

The school board’s counsel, Drummond Woodsum, recognized there are arguments favoring different legal views and the proposal is not without legal risk but said that state law leaves room for it when coupled with a referendum. They did not address what would happen if the courts reject their analysis.

Boiling it down:

• The legality of the proposal is uncertain and will have to be decided by the courts.

• It will take many months for the Maine Supreme Judicial Court to make that determination.

• There is a significant risk that the proposal will be found to be illegal. No lawyer worth her salt would opine that the risk is not material.

• If the proposal is adopted in November by Portland’s voters, it is likely to be challenged in the courts.

Experts in municipal law must advise the charter commission and the council on the effect the pending litigation could have on operations of the city and the school board, both before and after fiscal 2024 tax rates are set and taxes are assessed based on the new procedure. For example, will city attorneys be able to issue “clean” opinions in bond financing if the legality of tax assessments is in question? If not, what will the effect be on the city’s ability to issue new bonds?

Those same experts should advise on what happens if the courts find the revised budget process illegal. The commission’s counsel said that expenditures under an illegal budget would not be “valid.” Are expenditures made by the school department subject to recapture? What would be the effect on taxes already assessed and paid?

Section 504 of Title 36 of Maine Revised Statutes provides some guidance on the last question. It is captioned “Illegal Assessment; Recovery of Tax” and provides that an illegal assessment is not void, but “any person paying such tax may bring his action against the municipality and shall recover the sum not raised for a legal object, with 25 percent interest and costs.”

So taxpayers could potentially sue the city for any taxes they pay to fund an illegally assessed school budget, plus 25 percent interest. Class action, anyone? Given a $130 million school budget, that is not a pleasant thought, no matter how unlikely.

I am not an expert in municipal law but was for many years the head of Drummond Woodsum’s creditors rights and reorganization practice. I have been around the barn enough times in complex litigation, including disputes involving bonds, to take litigation risk seriously and to appreciate the real-world effects of pending litigation.

The charter commission cannot in good faith go forward with the proposal without a thorough analysis of these issues, and must disclose these risks to Portland voters. The risk of fiscal chaos must be carefully weighed.

Copy the Story Link