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 that funded a county school district capital project

The opinion concludes that maintenance-of-effort obligations likely do not reach you. Those obligations apply to the LEA and the local government required to fund it, and for a county school district that funding body is generally the county legislative body, not a municipality, absent a specific affirmative obligation placed on the municipality. The opinion also reads capital improvement funding as falling within the statutory "capital outlay" exemption.

If you are a county board of education

The opinion addresses whether a municipality's capital contribution carries forward as a recurring obligation; it concludes the municipality is generally not bound. The opinion does not opine on the county board's own budgeting practices.

If you are a county commission

The opinion describes the county legislative body as generally the funding body for a county school district. It does not analyze the county commission's own maintenance-of-effort posture; its conclusion is limited to whether a municipality's capital contribution creates obligations for that municipality.

If you are a school district business officer or CFO

The opinion notes that §§ 49-2-203(a)(9)(A)(ii) and 49-3-314(c)(2) exclude "capital outlay" from the supplant prohibition, and reads capital improvement funding as falling within that exemption. It does not address accounting or audit practices.

If you are a school finance attorney

The opinion relies on State ex rel. Bd. of Educ. of Memphis City Sch. v. City of Memphis (Tenn. Ct. App. 2010) for the proposition that maintenance-of-effort obligations extend only to the LEA and the local government obligated to fund it, and on State ex rel. Weaver v. Ayers (Tenn. 1988) for the county legislative body as the funding body. It cites consistent prior AG opinions (93-47, 05-21, 08-194, 09-70, 11-68, 13-107).

If you are a state legislator

The opinion reads the current statutes as not reaching municipalities that are not funding bodies and as excluding capital outlay. It does not recommend or analyze any legislative change.

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: Does a municipality's capital contribution to a county school district create future funding obligations?
A: Likely not, under this opinion. Maintenance-of-effort obligations apply to the LEA and the local government required to fund it, generally the county legislative body for a county school district, and capital improvement funding appears to fall within the "capital outlay" exemption.

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); 13-107 (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