                IN THE COURT OF APPEALS OF TENNESSEE
                           AT KNOXVILLE
                                August 27, 2014 Session

      CITY OF ATHENS BOARD OF EDUCATION ET AL. v. McMINN
                  COUNTY, TENNESSEE ET AL.

                 Appeal from the Circuit Court for McMinn County
                  No. 2011-CV-331     Lawrence H. Puckett, Judge


             No. 2013-02758-COA-R3-CV-FILED-DECEMBER 29, 2014


This litigation is a dispute between the boards of education of the cities of Athens and
Etowah (“the City School Boards”) on the one hand and McMinn County (“the County”)
over the distribution of tax revenues among the various school systems within the county.
Tenn. Code Ann. § 49-3-315(a) (2013) mandates that “[a]ll school funds for current
operation and maintenance purposes collected by any county . . . shall be apportioned by the
county trustee” among the local education agencies in the county based upon average daily
school attendance. Over the years spanning from 1996 to 2011, the County apportioned
funds in the account designated “general purpose school fund” to the City School Boards,
but did not apportion funds from the County’s “educational capital projects fund.” The
County argues that funds appropriated for and spent on school capital projects are not
“school funds for current operation and maintenance purposes” under the language of the
statute. The trial court agreed and granted the County summary judgment. It dismissed the
complaint of the City School Boards. We affirm.

        Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
                            Affirmed; Case Remanded

C HARLES D. S USANO, JR., C.J., delivered the opinion of the Court, in which D. M ICHAEL
S WINEY and J OHN W. M CC LARTY, JJ., joined.

H. Chris Trew, Athens, Tennessee, for the appellant, City of Athens Board of Education.

William M. Dender, Etowah, Tennessee, for the appellant, City of Etowah Board of
Education.

John E. Owings, Knoxville, Tennessee, and Vance L. Baker, Jr., Athens, Tennessee, for the
appellees, McMinn County, Tennessee and Phil Tuggle, County Trustee for McMinn County.
                                                OPINION

                                                      I.

       The resolution of this case turns on the interpretation and application of Tenn. Code
Ann. § 49-3-315(a), part of the Tennessee Education Finance Act of 1977. Section 49-3-
315(a) provides, in pertinent part, as follows:

                For each [local education agency]1 there shall be levied for
                current operation and maintenance not more than one (1) school
                tax for all grades included in the LEA. Each LEA shall place in
                one (1) separate school fund all school revenues for current
                school operation purposes received from the state, county and
                other political subdivisions, if any. . . . All school funds for
                current operation and maintenance purposes collected by any
                county, except the funds raised by any local special student
                transportation tax levy as authorized in this subsection (a), shall
                be apportioned by the county trustee among the LEAs in the
                county on the basis of the [weighted full-time equivalent
                average daily attendance2 ] maintained by each, during the
                current school year.

(Emphasis added.) In construing the similarly-worded predecessor to this statute, the
Supreme Court noted:

                The provisions of T.C.A. § 49-605 [now 49-3-315] are
                mandatory. They require that all school funds for current
                operations and maintenance purposes collected by a county,
                except those used for pupil transportation, “shall be apportioned
                by the county trustee among the county, city, and special school
                districts therein on the basis of the average daily attendance
                maintained by each, during the current school year.”

City of Harriman v. Roane Cnty., 553 S.W.2d 904, 908 (Tenn. 1977) (emphasis added).


        1
          “ ‘Local education agency’ or ‘LEA’ means any county, city, or special school district, unified
school district, school district of any metropolitan form of government or any other school system established
by law.” Tenn. Code Ann. § 49-3-302(11).
        2
            The “WFTEADA.”

                                                     -2-
        All of the material facts are undisputed. The budget passed by the McMinn County
Commission for fiscal year July 1, 2010 through June 30, 2011, included a proposed revenue
item of $7,051,942 designated for and allocated to the general purpose school fund. The
County states that this “represents or constitutes the only . . . funds proposed to be collected
by the County which . . . constitutes the County Board of Education’s apportioned share of
school funds from current property taxes pursuant to T.C.A. Section 49-3-315(a).” The
budget also included estimated funds in an account designated “other capital projects fund”
in the amount of $3,482,190. These funds were not apportioned among the County LEA and
the LEAs of the Cities of Athens and Etowah. The County undertook a similar budgeting
approach in earlier years, as described by the following undisputed statements taken from the
County’s Rule 56.03 statement of undisputed material facts in support of its motion for
summary judgment:

              The County Commission approves an expenditure budget for
              each Fund listed in its annual budget. One of those Funds listed
              is Other Capital Projects Fund #189 which began receiving
              property tax revenue in FY 96-97.

              The State of Tennessee conducted an audit of McMinn County’s
              General Purpose Schools Fund #141’s Fund Balance (along with
              other school systems across the State) and determined that
              $1,921,581 was derived from the State’s Basic Education
              Program (BEP) funds. Further, the State required that these
              funds be used for Capital Projects. These funds, along with
              other funds from the General Purpose School Fund #141 began
              to be transferred to an Educational Capital projects Fund #177
              in FY 99-00.

              In FY 00-01, the County Commission began budgeting
              appropriations for County School Capital Projects for the
              purpose of renovations and additions to the County Schools.
              While these budgeted funds have not been completely expended,
              the following list is the budget year and the amount the County
              Commission has budgeted:

                             FY   00-01     $ 600,000
                             FY   01-02        900,000
                             FY   02-03      1,200,000
                             FY   03-04      1,200,000
                             FY   04-05      1,200,000

                                              -3-
                            FY   05-06     1,200,000
                            FY   06-07     1,200,000
                            FY   07-08     1,200,000
                            FY   08-09     1,200,000
                            FY   09-10     1,200,000
                                         $11,100,000
                                         __________

              As Capital Project needs arose and it became necessary to use
              these funds, McMinn County chose to utilize the Education
              Capital Projects Fund #177 and transferred funds from Fund
              #189 in order to make payments for specific capital projects.

              Revenue from all property tax fixed in each annual budget of
              McMinn County has conformed to the levies set forth in each
              respective budget. The following funds are listed in the annual
              tax levy resolution and receive a portion of the revenue
              generated by the property tax rate: General Fund #101; Road &
              Bridge Fund #131; General Purpose School Fund #141; Athens
              City School Fund #355; Etowah City School Fund #356; and
              Other Capital Projects Fund #189.

(Paragraph numbering in original omitted.)

      According to undisputed proof submitted by Jason Luallen, the County’s Director of
Finance, the County spent a total of $11,607,925 from its Education Capital Projects Fund
from FY 1999-2000 through FY 2009-2010.

       On August 12, 2011, the City School Boards brought this action alleging that the
County has “failed, and continue[s] to fail, to apportion and share funds from county[-]wide
general property tax collections, which are used . . . for McMinn County Board of Education
capital projects, with the Athens City Schools and Etowah City Schools as required by
T.C.A. § 49-3-315.” After discovery, both sides moved for summary judgment. The trial
court granted the County summary judgment:

              Plaintiffs represent two LEAs that, under the Education Finance
              Act, share in the tax revenue raised by defendant county for
              operation and maintenance of all the LEAs in McMinn County.
              Plaintiffs’ complaint alleges that McMinn County has
              unlawfully diverted a portion of the county taxes for education
              into a special county budget category named “Other Capital

                                             -4-
             Projects Fund” which the county does not prorate among all
             LEAs of the county. Plaintiffs’ motion for summary judgment
             asks the court to rule that the actions of McMinn County
             government violate the Education Finance Act. Plaintiffs ask
             the court to order the county to apportion the funds due to them
             and to award them pre-judgment interest on all amounts
             wrongfully withheld from them by the county.

             Defendants, McMinn County and the County Trustee, do not
             dispute Plaintiffs’ factual allegations. However, Defendants
             submit that the tax revenue that McMinn County allocates to this
             special fund is not a tax “for current [school] operation and
             maintenance purposes” and, therefore, the Education Finance
             Act does not require the county to distribute the fund in the
             manner directed by Tenn. Code Ann. § 49-3-315(a), i.e., on a
             prorated basis to all LEAs in the county based upon average
             daily attendance.

                                   *      *         *

             The court agrees with the [County]. When a county makes a tax
             assessment for future capital outlay projects, such an assessment
             is not subject to proration among all LEAs in the county. The
             Education Finance Act merely requires proration among all
             LEAs of “[a]ll school funds for current operation and
             maintenance purposes collected by any county.” Tenn. Code
             Ann. § 49-3-315(a). Funds collected for future capital projects
             are not for “current operation and maintenance.” A county’s
             voluntary “capital contribution to assist in defraying the cost of
             constructing a public school,” likewise is not subject to
             proration under Tenn. Code. Ann. § 49-3-1003. See Op. Tenn.
             Atty. Gen. 95-015 (March 13, 1995) [1995 WL 115844] and Op.
             Tenn. Atty. Gen. 03-008 ([Jan.] 23, 2003) [2003 WL 174008].

The City School Boards timely filed a notice of appeal.

                                              II.

      The issue presented, as quoted from the City School Boards’ brief, is:



                                              -5-
              [Whether] the trial court erred in granting McMinn County’s
              motion for summary judgment holding that funds collected by
              McMinn County from county-wide property taxes and provided
              solely to the county school system do not have to be apportioned
              pursuant to TCA section 49-3-315(a) if the funds paid to the
              county school system are for capital projects.

The City School Boards do not allege that funds allocated for capital projects were not
actually spent on capital projects. Nor do the City School Boards argue that the County’s
budgeting and spending process runs afoul of the well-established rule that “it is beyond the
power of count[ies] of this State to take moneys raised for school purposes and appropriate
them for other different purposes, or to take moneys raised for purposes other than school
purposes and use them for school purposes.” City of Harriman, 553 S.W.2d at 906 (quoting
State ex rel. Davidson Cnty. Bd. of Educ. v. Pollard, 136 S.W. 427, 429 (Tenn. 1911)). The
City School Boards’ argument is that Tenn. Code Ann. § 49-3-315 requires a county to
apportion among local education agencies in the county all school funds collected by the
county, regardless of whether a portion of those funds are appropriated and allocated for
educational capital projects. The County responds by asserting that the plain and express
language of Tenn. Code Ann. § 49-3-315(a) requires it to share only “all school funds for
current operation and maintenance purposes collected” by the County, and that funds
properly designated for capital projects are not “for current operation and maintenance
purposes.” (Emphasis added.)

                                              III.

       As previously noted, both sides moved for summary judgment. The parties agree that
the pertinent facts are undisputed and this case presents a question of law that is suitable for
summary judgment.
                                              IV.

        The issue presented requires us to construe Tenn. Code Ann. § 49-3-315. The primary
rule governing statutory construction requires us to ascertain and give effect to the
legislature’s intent as expressed in the statute. Myers v. AMISUB (SFH), Inc., 382 S.W.3d
300, 308 (Tenn. 2012); In re Adoption of A.M.H., 215 S.W.3d 793, 808 (Tenn. 2007). To
determine legislative intent, we first examine the language of the statute itself, Curtis v. G.E.
Capital Modular Space, 155 S.W.3d 877, 881 (Tenn. 2005), presuming that “every word in
a statute has meaning and purpose” and should “be given effect if the obvious intention of
the General Assembly is not violated by so doing.” Lanier v. Rains, 229 S.W.3d 656, 661
(Tenn. 2007). In construing a statute, a court must “determine legislative intent from the
natural and ordinary meaning of the statutory language within the context of the entire statute

                                               -6-
without any forced or subtle construction that would extend or limit the statute’s meaning.”
State v. Flemming, 19 S.W.3d 195, 197 (Tenn. 2000). If the language of the statute is clear
and unambiguous, “we apply its plain meaning in its normal and accepted use.” Lanier, 229
S.W.3d at 661; see also In re Adoption of A.M.H., 215 S.W.3d at 808 (“Where the statutory
language is not ambiguous . . . the plain and ordinary meaning of the statute must be given
effect.”).

       The statute, Tenn. Code Ann. § 49-3-315(a), requires that “[a]ll school funds for
current operation and maintenance purposes collected by any county, except the funds raised
by any local special student transportation tax levy as authorized in this subsection (a), shall
be apportioned by the county trustee among the LEAs in the county on the basis of the
WFTEADA maintained by each, during the current school year.” The question is whether
funds allocated for school capital projects are included in “school funds for current operation
and maintenance.” Although Tennessee courts have not decided this exact issue under the
current Education Finance Act, the Supreme Court has addressed this issue under earlier, and
similar, statutory language pertaining to school funding. In each of its opinions, the High
Court has noted a clear distinction between funds for current operation and maintenance and
funds for capital projects.

        In Southern v. Beeler, 195 S.W.2d 857, 865 (Tenn. 1946), the Court addressed the
issue of whether the trial court erred in holding that a tax levy by Knox County “for the
building, repair, and equipment of rural schools created a fund subject to division with the
City of Knoxville on the basis of average daily attendance in schools.” The Southern Court
stated:

              The repair of school buildings and their equipment is an
              important item of expense in any educational program. School
              buildings must be kept in a reasonable state of repair and cannot
              be made dependent upon average daily attendance of students.
              Now in the instant case the quarterly court levied a special tax
              for this purpose, that is, to repair and equip rural schools. We
              think the learned chancellor was in error in holding that the fund
              raised from this special tax should be regarded as a part of
              elementary school funds and subject to division with the City of
              Knoxville based upon the average daily attendance.

              An elementary school fund that is subject to division between
              the county and city is raised from the special tax of 69 cents, as
              provided for in the foregoing itemized budget. It is subject to
              distribution as provided by Code section 2348(5) . . .

                                              -7-
              The quarterly county court cannot lawfully levy a special tax for
              the repair and maintenance, or the erection, of rural schools and
              use it for some other purpose and thereby avoid the division
              with the city as provided by the foregoing section of the Code.
              It must be kept separate and apart from all other school funds.
              We hold therefore the foregoing section of the Code does not
              apply to a fund raised from a special tax for the repair and
              upkeep of rural school buildings in the county.

Id.

       Nine years later, the Supreme Court again decided a dispute between county and city
school systems over sharing funds allocated for school building and repair in State ex rel.
Cope v. Davidson Cnty., 277 S.W.2d 396 (Tenn. 1955), stating the following:

              Section 13, Code 2417.188, reads as follows:

                     Section 13. Be it further enacted, That each and
                     every non-equalizing county in this State shall
                     levy not more than one tax for current school
                     operating purposes for all grades, one through
                     twelve (or such of these grades as may be
                     included in the local school program), and the
                     County Trustee shall place in one fund, separate
                     and apart from all other funds coming into his
                     hands, all current school revenues received from
                     County and State sources for school purposes, and
                     all local school funds raised or collected by any
                     county participating in State school funds shall be
                     apportioned by the County Trustee to the county,
                     cities, and special school districts therein, on the
                     basis of the average daily attendance maintained
                     by each in grades one through twelve during the
                     preceding school year.

                                   *       *         *

              The tax resolution of the County Court among other things
              contained:



                                               -8-
                      Public School Fund * * * 1.23 (7¢ of the levy for
                      Public School Fund of $1.23 shall be allocated
                      and placed to the credit of Rural School Building
                      and Repair Fund and used exclusively for that
                      purpose.)

              This appropriation of the 7¢ for rural school building and repair
              fund was attacked in the [complaint] of the City. If the 7¢ levy
              is taken from the $1.23 there would only be left $1.16 in which
              the complainant would share because these cities in the
              non-equalizing counties do not share in special appropriations
              for school buildings and repair. The Chancellor held against the
              [complaint] on this question and with the County that this 7¢
              levy as shown in the quotation above “was to be used for current
              school operating purposes, and that the said 7¢ was treated and
              considered as a separate levy for ‘rural school buildings and
              repair fund’ * * * It follows that the Court has reached the
              conclusion that the City is not entitled to any pro rata of the said
              7¢ levy.”

                                    *       *         *

              This Court in considering the question in Southern v. Beeler,
              supra, concluded that the expense of repairing school buildings
              should not be made to depend upon the average daily attendance
              of students, and was not intended to be considered a part of the
              “operating expenses of the school,” which were and are by
              legislative enactment . . . required to be divided . . . between the
              county and the city located therein.

Id. at 397-99 (italics in Section 13, Code 2417.188 quote taken from original; emphasis in
last paragraph added by us).

        As can be seen, the two above-cited decisions stand for the proposition that a county
may levy a special tax designated for a capital projects fund such as “for the building, repair,
and equipment of rural schools,” Southern, 195 S.W.2d at 865, or a “Rural School Building
and Repair Fund,” State ex rel. Cope, 277 S.W.2d at 398, without being required to allocate
part of the funds to city school systems within the county. The Supreme Court reaffirmed
this view in City of Harriman the same year the Tennessee Finance Act of 1977 was passed,
stating as follows in pertinent part:

                                                -9-
             Respondents rely upon the provisions of T.C.A. § 49-201(2) and
             (7), dealing with powers of the Quarterly County Court under
             the education statutes, as follows:

                    (2) To consider, on the recommendation of the
                    county board of education, school budgets for the
                    county elementary and county high schools, and
                    to provide necessary funds to enable said county
                    board to meet all obligations under the adopted
                    budgets.

                                  *      *          *

                    (7) To levy such taxes for county elementary and
                    county high schools as may be necessary to meet
                    the budget submitted by the county board of
                    education and adopted by the quarterly county
                    court.

             These statutes have been held to permit the governing body of
             a county to make a special tax levy for the building, repair and
             equipment of county schools, without division under T.C.A. §
             49-605. See Southern v. Beeler, 183 Tenn. 272, 282-290, 195
             S.W.2d 857 (1946); State ex rel. Cope v. Davidson County, 198
             Tenn. 24, 29-31, 277 S.W.2d 396 (1955).

             Where, however, the county does not make such a special
             purpose levy, but lawfully appropriates funds to current school
             operations, as had been done here with the portion of sales taxes
             at issue, then those funds become subject to the apportionment
             provisions of the general school statutes. In the Southern case,
             supra, the county allotted tax proceeds to the school budget
             under the guise of a special levy for repair and maintenance. It
             was held that these funds had to be divided with a city school
             system. See 183 Tenn. at 290-291, 195 S.W.2d 857.

553 S.W.2d at 909. The Office of the Attorney General has reached a similar conclusion,
opining as follows:

             [P]roceeds from the sale of a county gas system which the

                                             -10-
              county received from a utility district would fall within the
              category of “revenues . . . received from the state, county and
              other political subdivisions” under [Tenn. Code Ann. § 49-3-
              315(a)]. Therefore, if the county uses these proceeds to fund
              current operation and maintenance of its school system, it must
              place them in the school fund and divide them with other
              systems operating in the county in accordance with T.C.A. §
              49-3-315(a). However, . . . you indicate that the county wishes
              to use the funds to help build a high school. So long as the
              funds are used for this purpose, rather than for “current
              operation and maintenance purposes” we do not think the funds
              need to be placed in the special school fund and divided with
              other school systems within the county under the statute.

Tenn. Op. Atty. Gen. No. 95-015, 1995 WL 115844 at *3.

        In the present case, McMinn County has in essence done what the Supreme Court
validated and allowed in Southern and State ex rel. Cope: set aside money in its budget,
effectively as a “savings account,” for future capital projects as needed. The monies in the
County’s Educational Capital Projects Fund, and its earlier Other Capital Projects Fund, were
not used for “current operation and maintenance purposes.” The Education Finance Act, by
its language, does not require apportionment of funds that are not designated for current
operation and maintenance purposes. For us to accept the City School Boards’ position that
the statute requires apportionment of all school funds collected by the County, we would
have to effectively rewrite Tenn. Code Ann. § 49-3-315(a) so as to elide the words “for
current operation and maintenance purposes.” Obviously, this is something that we are not
at liberty to do.

       The City School Boards point out that under the Education Finance Act, if the County
had raised money for capital projects by issuing and selling school bonds, it would have been
required to apportion the funds raised from selling the bonds. Tenn. Code Ann. § 49-3-1002
authorizes a county to issue and sell “general obligation school bonds.” Tenn. Code Ann.
§ 49-3-1003(b)(1) requires counties to share the funds raised from selling the bonds with city
school systems as follows:

              In counties having a city or cities operating schools independent
              of the county, the trustee of the county shall pay over to the
              treasurer of the city that amount of the funds that bear the same
              ratio to the entire amount arising from this part as the average
              daily attendance of the year ending June 30 next preceding the

                                             -11-
              sale of the bonds of the city or cities bears to the entire average
              daily attendance of the year ending June 30 next preceding the
              sale of the bonds of the county; provided, that the funds paid
              over to the city treasurer shall be kept separate from all other
              funds in the manner and for the purposes provided in this part
              for the county funds to be used.

Tenn. Code Ann. § 49-3-1004(a) provides that the funds from general obligation school
bonds shall be spent as follows:

              The proceeds from the sale of school bonds issued under §
              49-3-1002 constitute a special fund to be known as the special
              school fund, except funds for aiding this state in the construction
              of state education facilities or institutions as provided for in
              subsection (b), which shall be kept by the trustees of such
              county and the treasurer of the city schools separate and apart
              from all other funds and shall be applied exclusively to purchase
              property for school purposes, to purchase sites for school
              buildings, to erect or repair school buildings, to furnish and
              equip school buildings and to refund, call or make principal and
              interest payments on bonds or other obligations previously
              issued for the same purposes, and to be used for no other
              purposes by the county board of education of the county, the city
              board of education or the governing board of the city.

The City School Boards acknowledge that Tenn. Code Ann. §§ 49-3-1002 through -1004 do
not apply in this case, but argue that “[i]t is inconceivable or an absurdity to believe that the
General Assembly, when enacting the Tennessee Education Finance Act of 1977, intended
that a city school system share based upon average daily attendance in funds derived from
a bond issue for capital improvements, but not receive its fair share of school funds derived
from City Schools property taxes if the funds from City Schools property taxes are designated
for capital improvements within the county school system.” However compelling this
argument may be, it is properly directed to others, e.g., the General Assembly, not to this
Court. The statutory scheme as currently written is clear and unambiguous, and it does not
require apportionment under the circumstances presented. Since we must apply Tenn. Code
Ann. § 49-3-315 as written, we reject the City School Boards’ invitation to take a different
approach.




                                              -12-
                                           V.

      The trial court’s summary judgment in favor of McMinn County is affirmed. Costs
on appeal are assessed to the appellants, City of Athens Board of Education and City of
Etowah Board of Education. The case is remanded to the trial court for collection of costs
below, pursuant to applicable law.




                                         _____________________________________
                                         CHARLES D. SUSANO, JR., CHIEF JUDGE




                                           -13-
