If a Tennessee city gives the county school district money for school construction, does the city have to keep funding the schools at that level every year going forward?

Subject

Whether a Tennessee municipality that voluntarily provides funding for capital improvements to a county board of education thereby triggers state maintenance-of-effort obligations to provide that level of funding in subsequent years.

Plain-English summary

Senator Brent Taylor asked whether a city's voluntary contribution to a county school district's capital project locks the city into matching funding in future years. The AG's answer is "likely not," for two reasons.

First, scope. Tennessee's maintenance-of-effort laws apply to local education agencies (LEAs) and the specific local governments obligated to fund them. For a county school district, the funding body is generally the county legislative body (the county commission), not a separate municipal council. A municipality that is not obligated to fund the county LEA does not pick up maintenance-of-effort obligations by making a voluntary contribution. State ex rel. Bd. of Educ. of Memphis City Sch. v. City of Memphis (Tenn. Ct. App. 2010) confirms that the obligation flows from the funding obligation, not from any contribution.

Second, capital outlay exception. Even if a municipality were a funding body, the maintenance-of-effort statutes (§§ 49-2-203(a)(9)(A)(ii) and 49-3-314(c)(2)) explicitly exclude "capital outlay" from the supplant prohibition. The dictionary meaning of capital outlay (capital expenditure for building or machinery) covers school capital improvements. So capital improvement contributions don't trigger the supplant rule even when the contributor is a funding body.

A footnote also flags a separate exemption in § 49-3-314(c)(4)(A): one-time non-recurring expenditures by a local body, with an agreement with the LEA and Department of Education confirmation, do not trigger maintenance-of-effort obligations.

The opinion also notes that Tennessee replaced the BEP (Basic Education Program) school-finance formula with TISA (Tennessee Investment in Student Achievement) starting with the 2023-24 school year, but this does not change the maintenance-of-effort analysis.

What this means for you

If you are a Tennessee municipal council considering a contribution to your county school district

You can make a one-time capital improvement contribution without triggering an annual obligation. The maintenance-of-effort doctrine doesn't reach you because you are not the funding body. Document the contribution as capital outlay, get clear language in any inter-government agreement, and consider invoking § 49-3-314(c)(4)(A) for non-recurring formal documentation if you want belt-and-suspenders protection.

If you are a county board of education

A municipal contribution for capital improvements does not commit the city to ongoing funding. Plan accordingly: don't budget recurring expenses against a one-time municipal contribution. Coordinate with the county legislative body, which remains your funding body for maintenance-of-effort purposes.

If you are a county commission

The maintenance-of-effort obligation is yours, not the city's, even if the city makes voluntary capital contributions. The supplant rule means you cannot use state funds to reduce your own contribution, but a city's separate capital contribution does not change your baseline.

If you are a school district business officer or CFO

Distinguish carefully between operating funding (subject to maintenance of effort) and capital outlay (excluded). Track the source of funds in your accounting; this matters for compliance and audit. Document the non-recurring nature of one-time contributions.

If you are a school finance attorney

The Memphis City Schools case (Tenn. Ct. App. 2010) is the leading state case on the scope of maintenance-of-effort obligations beyond the funding body. The AG opinion lines up with that case and with consistent earlier AG opinions (93-47, 05-21, 08-194, 09-70, 11-68, 13-69, 13-107).

If you are a state legislator

If you wanted municipal contributions to trigger ongoing obligations, the legislature would need to amend §§ 49-2-203(a)(9)(A)(ii) or 49-3-314(c)(2). The statutes as they stand do not reach municipalities that are not funding bodies, and they exclude capital outlay.

Common questions

Q: What is "maintenance of effort" in school finance?
A: A federal and state requirement that local governments not reduce education funding when they receive state aid. The state-funds-shall-not-supplant-local-funds principle.

Q: Who is the "funding body" for a county school district?
A: Generally, the county legislative body (the county commission). State ex rel. Weaver v. Ayers (Tenn. 1988) and consistent AG practice. A municipality is not the funding body for a county school district unless a specific statute or local arrangement makes it one.

Q: What counts as "capital outlay"?
A: Capital expenditures for buildings, equipment, and other capital assets. The Tennessee Supreme Court has not given a comprehensive definition; the AG looks to standard dictionary meaning.

Q: What about TISA?
A: TISA replaced the BEP formula effective with the 2023-2024 school year. The maintenance-of-effort statutes themselves were not changed by TISA, so the analysis remains the same.

Q: What's the § 49-3-314(c)(4)(A) exemption?
A: An express path for one-time non-recurring expenditures: a local legislative body can make a one-time expenditure without obligating itself to repeat the expenditure if it enters into an agreement with the LEA and the Department of Education confirms the non-recurring nature.

Q: Could a city voluntarily commit to ongoing funding?
A: Yes, by contract or local ordinance. The point of the AG opinion is that nothing in state law forces ongoing funding from a one-time contribution; ongoing funding is a choice the municipality can make.

Background and statutory framework

Tennessee public schools are funded by a combination of state and local money. Until 2023-2024, the state's contribution was determined by the Basic Education Program (BEP) formula; TISA (2022 Tenn. Pub. Acts, ch. 966) replaced BEP starting with the 2023-2024 school year.

Maintenance-of-effort statutes prevent LEAs from using state aid to displace local funding. Tenn. Code Ann. § 49-3-314(c)(2): "No LEA shall use state funds to supplant total local current operating funds, excluding capital outlay and debt service." Tenn. Code Ann. § 49-2-203(a)(9)(A)(ii): "No LEA shall submit a budget to the local legislative body that directly or indirectly supplants or proposes to use state funds to supplant any local current operation funds, excluding capital outlay and debt service."

Both provisions explicitly exclude capital outlay and debt service. The capital outlay exception means that capital improvement funding does not count toward the local-current-operating-funds floor.

Section 49-3-314(c)(4)(A) gives a separate path for one-time non-recurring expenditures: a local legislative body can avoid an ongoing obligation if it enters into an agreement with the LEA and the Department of Education confirms the non-recurring nature.

The funding body for a county school district is generally the county commission. State ex rel. Weaver v. Ayers (Tenn. 1988); Tennessee Comptroller of the Treasury, Understanding Tennessee's Maintenance of Effort in Education Laws (Sept. 2015). A municipal legislative body that provides funding to a county school district is not, by virtue of that contribution, a funding body for maintenance-of-effort purposes. State ex rel. Bd. of Educ. of Memphis City Sch. v. City of Memphis (Tenn. Ct. App. 2010).

Citations

Statutes:
- Tenn. Code Ann. § 49-2-203(a)(9)(A)(ii); § 49-3-109(f); § 49-3-314(c)(2), (c)(4)(A)
- 2022 Tenn. Pub. Acts, ch. 966 (TISA)

Cases:
- State ex rel. Bd. of Educ. of Memphis City Sch. v. City of Memphis, 329 S.W.3d 465 (Tenn. Ct. App. 2010)
- State ex rel. Weaver v. Ayers, 756 S.W.2d 217 (Tenn. 1988)

Prior AG opinions:
- Tenn. Att'y Gen. Op. 93-47 (June 17, 1993); 05-21 (Mar. 10, 2005); 08-194 (Dec. 29, 2008); 09-70 (May 4, 2009); 11-68 (Sept. 15, 2011); 13-69 (Aug. 23, 2013); 13-107 (Dec. 20, 2013)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2024/op24-009.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
June 18, 2024
Opinion No. 24-009

Maintenance-of-Effort Requirements for Education—Capital Improvements

Question

If a county board of education receives funding for capital improvements from a municipality situated within the county, will the municipal legislative body be required to comply with state maintenance-of-effort obligations in its budget for subsequent years for the county board of education?

Opinion

Likely not. Tennessee's maintenance-of-effort obligations only apply to local education agencies (LEAs) and the specific governmental entities required to fund the LEAs. Furthermore, maintenance-of-effort obligations likely do not apply to capital improvements.

ANALYSIS

In Tennessee, public schools receive funding from state and local governments. State law imposes certain funding obligations on LEAs and, in turn, the local governments required to support them. State ex rel. Bd. of Educ. of Memphis City Sch. v. City of Memphis, 329 S.W.3d 465, 466 (Tenn. Ct. App. 2010); Tenn. Att'y Gen. Op. 05-21 (Mar. 10, 2005); Tenn. Att'y Gen. Op. 93-47 (June 17, 1993). Tennessee Code Annotated § 49-3-314(c)(2) provides: "No LEA shall use state funds to supplant total local current operating funds, excluding capital outlay and debt service." Similarly, Tennessee Code Annotated § 49-2-203(a)(9)(A)(ii) provides: "No LEA shall submit a budget to the local legislative body that directly or indirectly supplants or proposes to use state funds to supplant any local current operation funds, excluding capital outlay and debt service." As this Office has previously explained, these provisions require LEAs to maintain certain levels of funding and prohibit LEAs from using state funds to reduce the level of local funding. Tenn. Att'y Gen. Op. 13-107 (Dec. 20, 2013); Tenn. Att'y Gen. Op. 11-68 (Sept. 15, 2011); Tenn. Att'y Gen. Op. 09-70 (May 4, 2009); Tenn. Att'y Gen. Op. 08-194 (Dec. 29, 2008); Tenn. Att'y Gen. Op. 05-21 (Mar. 10, 2005); Tenn. Att'y Gen. Op. 93-47 (June 17, 1993).

The maintenance-of-effort obligations do not extend beyond the LEA, Tenn. Code Ann. §§ 49-2-203(a)(9)(A)(ii), 49-3-314(c)(2), and the local government that is obligated to fund the LEA, Tenn. Code Ann. §§ 49-3-109(f); Tenn. Att'y Gen. Op. 09-70 (May 4, 2009); see also City of Memphis, 329 S.W.3d at 471-72, 474. Relevant here, the funding body for a county school district is generally the county legislative body. See State ex rel. Weaver v. Ayers, 756 S.W.2d 217, 221-22 (Tenn. 1988); Tenn. Att'y Gen. Op. 13-107 (Dec. 20, 2013); see also Tennessee Comptroller of the Treasury, Understanding Tennessee's Maintenance of Effort in Education Laws 2 (Sept. 2015) ("Funding bodies for county school districts are county commissions."). Thus, a municipal legislative body that provides funding to a county board of education will usually fall outside the maintenance-of-effort requirements unless a specific affirmative obligation has been placed on the municipality to provide funding. See City of Memphis, 329 S.W.3d at 469, 471-72, 474.

And even if a municipality situated within a county had obligations to fund the county LEA, capital improvement funding appears to fall outside the maintenance-of-effort requirements. On their face, § 49-2-203(a)(9)(A)(ii) and § 49-3-314(c)(2) "exclud[e] capital outlay" from the maintenance-of-effort obligations. While no Tennessee court has provided a comprehensive definition of "capital outlay," dictionaries suggest that the phrase refers to a "capital expenditure"—an "outlay of money to acquire or improve capital assets such as buildings or machinery." John Downs and Jordan Elliott Goodman, eds., Barron's Dictionary of Finance and Investment Terms 93, 96 (6th ed. 2003). Thus, capital improvement funding appears to fall within the "capital outlay" exemption for maintenance-of-effort obligations.

In sum, Tennessee's maintenance-of-effort laws do not place future funding requirements on a municipality that is not obligated to fund an LEA. And even if a municipality had general maintenance-of-effort obligations, funding for capital improvements is exempt.

JONATHAN SKRMETTI
Attorney General and Reporter

J. MATTHEW RICE
Solicitor General

LAURA T. KIDWELL
Assistant Solicitor General

Requested by:
The Honorable Brent Taylor
State Senator
425 Rep. John Lewis Way N.
Suite 714 Cordell Hull Building
Nashville, Tennessee 37243