If a Mississippi school district receives back-payments of federal Weeks Act forest funds, does it have to escrow them and reduce next year's tax levy?

Plain-English summary

The Tippah County Board of Supervisors had failed for years to pay the North Tippah School District its share of federal Weeks Act funds (the 25% of national forest revenue paid to states and shared with counties for roads and schools under 16 U.S.C. § 500). When the error was caught, the county was prepared to make a back-payment of about $122,000 covering 2010 to the present.

The school superintendent asked: must the district escrow this money under § 37-57-107 (which requires schools to escrow "excess ad valorem receipts" and apply them to reduce the next year's levy), or can the district spend it in the current budget year?

The AG concluded the funds did not have to be escrowed. The reason: federal Weeks Act payments are not "in lieu" of state property taxes. They are a federal grant in recognition of the national interest in education and roads in counties hosting national forests. Because they are not local ad valorem taxes or in-lieu payments, § 37-57-107 (which applies to excess ad valorem receipts) did not capture them.

So the North Tippah district could budget the back-payment as additional revenue and spend it during the current fiscal year, rather than holding it for next year's levy reduction.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion said for each audience, at the time

For Mississippi school districts receiving federal forest funds

In 2020, the rule was that Weeks Act payments under 16 U.S.C. § 500 / § 49-19-23 came in as additional revenue and could be budgeted in the year received. They did not feed into the § 37-57-107 excess-receipts escrow calculation. Districts in Tippah, Jefferson, Sharkey, Issaquena, and other counties bordering or containing national forests had clearer guidance for how to handle these unpredictable federal flows.

For Mississippi boards of supervisors making forest-fund distributions

A separate AG opinion from earlier in 2020 (Akins, June 26, 2020) had already established that boards have discretion in apportioning Weeks Act funds among school districts in their county, because § 49-19-23 does not provide a specific formula. This Smith opinion built on that: once distributed to a school district, the funds are spendable, not subject to escrow.

For school district finance officers in 2020

The opinion let districts incorporate one-time forest-fund back-payments into their current budgets without triggering tax-levy reductions. That was particularly valuable when the back-payment covered multiple prior years and arrived in a lump sum: a strict escrow rule would have effectively zeroed out the district's local ad valorem tax for years.

For citizens and taxpayers

The federal forest-fund payment was not a windfall for taxpayers. It went to the schools and roads in counties hosting national forests, as Congress intended, and did not reduce local property taxes. Mississippi taxpayers in those counties continued to pay their local ad valorem taxes on the same schedule.

Common questions

Q: What is the federal Weeks Act and what does 16 U.S.C. § 500 do?
A: The Weeks Act (1911) authorized federal acquisition and management of national forests, including in the eastern U.S. To compensate counties hosting national forests for the loss of property tax base, 16 U.S.C. § 500 directs that 25% of all national forest revenues (timber sales, grazing fees, etc.) be paid to the state, with the funds used for "the schools and public roads of the county" where the national forest is located.

Q: Why did the AG say these aren't "in lieu of" property taxes?
A: Because the federal courts and other state courts have consistently said so. The opinion cited cases from the 9th Circuit, Idaho, California, and Texas all holding that 16 U.S.C. § 500 payments are not designed to compensate for tax losses but rather are an "assistance grant" or "subvention." The federal program was rooted in the national interest in education and roads, not in replacing state taxes.

Q: What does Miss. Code Ann. § 37-57-107 require?
A: That section caps how much a school district's annual ad valorem tax receipts can grow over the prior three years (no more than 7% above the highest of those years). If the actual receipts exceed that cap, the excess goes into a special escrow fund and is applied to reduce the next year's levy. The point is to limit local property tax growth.

Q: Why did the question even arise?
A: Because the Mississippi Lowery opinion (Aug. 13, 2004) had treated delinquent ad valorem taxes received years late as still subject to the escrow rule. The school district was trying to figure out whether the same logic applied to back-payments of federal forest funds. The 2020 AG distinguished the two: delinquent ad valorem taxes are still ad valorem taxes; federal forest funds never were.

Q: Could the school district spend the entire back-payment in one year?
A: Yes, per the opinion. It became part of the district's available revenue for the current fiscal year. The opinion suggested the district contact the State Auditor for any specific accounting questions about how to record the receipts, but the underlying rule was that escrow did not apply.

Q: Did this affect the county's distribution discretion?
A: No. The Akins opinion (June 26, 2020) had already addressed the county's discretion to apportion among school districts. This opinion answered the next question: how the recipient school district had to handle the funds once received.

Background and statutory framework

The Weeks Act funds program is one of the oldest federal-state revenue-sharing arrangements. Congress has periodically updated the program (most notably with the Secure Rural Schools and Community Self-Determination Act of 2000), but 16 U.S.C. § 500 remains the foundational provision.

Mississippi Code § 49-19-23 implements the Mississippi side of the program: federal funds paid to the state under the Weeks Act are apportioned to counties containing national forest lands. Because the statute does not specify a formula for distribution among school districts within those counties, county boards of supervisors have discretion (per the Akins 2020 opinion) to set the allocation.

The 2020 Smith opinion completed the picture: once a school district receives the funds, they are spendable in the current year. The escrow trigger in § 37-57-107 (designed to control growth of local property tax receipts) does not capture federal grants that are not tax substitutes.

The case law cited in the opinion forms a consistent line: courts in California, Idaho, Texas, and the 9th Circuit have all held that 16 U.S.C. § 500 payments are not in-lieu-of-tax payments. So Mississippi's classification of these funds is consistent with how other states with national forests treat them.

Citations and references

Federal statutes:
- 16 U.S.C. § 500, 25% of national forest revenue to states for schools and roads of counties hosting national forests

Mississippi statutes:
- Miss. Code Ann. § 49-19-23, apportionment of federal Weeks Act funds to counties containing national forest lands
- Miss. Code Ann. § 37-57-107, school district excess ad valorem receipts escrow and levy-reduction requirement
- Miss. Code Ann. § 37-57-1, school district ad valorem tax authority
- Miss. Code Ann. § 37-57-105, related school finance provisions

Cases cited:
- Int'l Paper Co. v. Siskiyou Cty., 515 F.2d 285, 289 n.4 (9th Cir. 1974), Section 500 payments not in lieu of state taxes
- Tree Farmers, Inc. v. Goeckner, 385 P.2d 649, 651 (Idaho 1963), payment is in nature of assistance grant
- Anderson Union High Sch. Dist. v. Schreder, 56 Cal.App.3d 453, 458 (Ct. App. 1976), federal subvention is not in-lieu-of-local-tax
- Trinity Indep. Sch. Dist. v. Walker Cty., 287 S.W.2d 717, 722 (Tex. Civ. App. 1956), trusts for benefit of host counties

Prior AG opinions cited:
- MS AG Op., Akins (June 26, 2020), board discretion in distributing Weeks Act funds
- MS AG Op., Lowery (Aug. 13, 2004), delinquent ad valorem taxes still subject to escrow rule (distinguished)

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2020/12/S.Smith_December-8-2020-Funds-Received-Pursuant-to-Miss.-Code-Ann.-Section-49-19-23.pdf

Original opinion text

December 8, 2020

Superintendent S. Johnson Smith
North Tippah School District
Post Office Box 65
Tiplersville, Mississippi 38674

Re: Funds Received Pursuant to Miss. Code Ann. Section 49-19-23

Dear Superintendent Smith:

The Office of the Attorney General has received your request for an official opinion.

Background Facts

In your request, you provide:

I am writing in my capacity as the Superintendent of the North Tippah School District. Last year, the North Tippah School District learned of an error in distributing funds received from the United States under the provisions of an Act of Congress known as the Weeks Law. These are funds paid by the Federal Government to replace ad valorem taxes from national forest lands. For several years, the Tippah County Board of Supervisors mistakenly failed to distribute these funds. You recently confirmed that the Tippah County Board of Supervisors was within its discretion to allocate these funds (Opinion #2020-00083 to Akins). The Board of Supervisors is now prepared to pay the North Tippah School District approximately $122,000.00 representing the past years unpaid allocation from 2010 to the present.

The North Tippah School District Board of Trustees asked me to request an opinion as to how those funds should be budgeted. In its opinion request, the Board of Supervisors suggested that these funds be escrowed and applied towards the ad valorem tax levy next year. The Board of Supervisors relied on Opinion #2004-0311 to Lowery. However, the Board of Trustees believes that since these funds are not part of the local ad valorem tax request then the district is not required to escrow these funds against its local ad valorem request.

Please advise as to whether the North Tippah School Board should escrow the funds or if those funds should be considered additional funds that the district may spend during the current budget year.

Issues Presented

According to your request, the Tippah County Board of Supervisors is prepared to pay the North Tippah School District (the "District") for past years of unpaid allocations under the federal Weeks Law. You ask whether the District must escrow the funds and apply them towards the ad valorem tax levy next year or whether the funds may be considered additional funds that the District may spend during the current budget year.

Brief Response

Section 37-57-107's requirement that excess ad valorem receipts must be escrowed for the succeeding fiscal year does not apply to federal funds received by the school district pursuant to the Weeks Act.

Applicable Law and Discussion

Section 500 of Title 16 of the United States Code provides that twenty five percent of all moneys received from each national forest shall be paid to the state in which the national forest is located. The states then use these funds for the schools and public roads of the county or counties in which the national forests are located. 16 U.S.C. § 500. Mississippi Code Annotated Section 49-19-23 provides for these federal funds paid to the State of Mississippi under the federal Weeks Act to be apportioned to the certain counties containing national forest lands. Our office recently opined:

Section 49-19-23 does not set forth a specific formula by which the County must apportion the funds it has received to the school districts in which national forest lands are located. In the absence of such a statutory requirement, it is within the discretion of the Board of Supervisors to determine the distribution of the funds received pursuant to Section 49-19-23.

MS AG Op., Akins at *2 (June 26, 2020).

With respect to excess ad valorem receipts, Section 37-57-107 provides, in part:

[T]he aggregate receipts from taxes levied for school district purposes pursuant to Sections 37-57-105 and 37-57-1 shall not exceed the aggregate receipts from those sources during any one (1) of the immediately preceding three (3) fiscal years, as determined by the school board, plus an increase not to exceed seven percent (7%).
...
(3) Except as otherwise provided for excess revenues generated pursuant to an election, if revenues collected as the result of the taxes levied for the fiscal year pursuant to this section and Section 37-57-1 exceed the increase limitation, then it shall be the mandatory duty of the school board of the school district to deposit such excess receipts over and above the increase limitation into a special account and credit it to the fund for which the levy was made. It will be the further duty of such board to hold said funds and invest the same as authorized by law. Such excess funds shall be calculated in the budgets for the school districts for the purpose for which such levies were made, for the succeeding fiscal year. Taxes imposed for the succeeding year shall be reduced by the amount of excess funds available. Under no circumstances shall such excess funds be expended during the fiscal year in which such excess funds are collected.

In your request, you ask whether, based on MS AG Op., Lowery (August 13, 2004), the District must escrow these funds and count them toward ad valorem tax collections for the next year. The Lowery opinion dealt with a situation in which delinquent ad valorem taxes were received by the school district three years after they were originally owed.

"Most state courts which have considered Section 500 have held that payments under it are not in lieu of state taxes."[1] Rather, such payments have "a friendly purpose to create trusts for the benefit of counties in which national forests are located in recognition of the national interest in education and road building."[2] Accordingly, federal funds received by the school district pursuant to the Weeks Act should not be treated as local ad valorem taxes or in-lieu payments. Thus, the requirement under Section 37-57-107 that excess ad valorem receipts must be escrowed for the succeeding fiscal year does not apply to federal funds received by the school district pursuant to the Weeks Act. If you have any further questions regarding the proper accounting and expenditure requirements for the funds you are receiving pursuant to the Weeks Act, we suggest that you contact the Office of the State Auditor.

If this office may be of any further assistance to you, please do not hesitate to contact us.

Sincerely,

LYNN FITCH, ATTORNEY GENERAL

By: /s/ Beebe Garrard
Beebe Garrard
Special Assistant Attorney General

[1] Int'l Paper Co. v. Siskiyou Cty., 515 F.2d 285, 289 n.4 (9th Cir. 1974); see also Tree Farmers, Inc. v. Goeckner, 385 P.2d 649, 651 (Idaho 1963) (finding payment under 16 U.S.C. Section 500 is in the nature of an assistance grant, not in lieu taxes); Anderson Union High Sch. Dist. v. Schreder, 56 Cal.App.3d 453, 458 (Ct. App. 1976) ("In terms of statutory purpose, it might be assumed that the subvention is designed to compensate school districts for tax losses caused by the federal forest reserves. The assumption is erroneous. The federal law is not designed to provide money in lieu of local taxes.").

[2] Trinity Indep. Sch. Dist. v. Walker Cty., 287 S.W.2d 717, 722 (Tex. Civ. App. 1956).