Nevada Supreme Court rules that state’s private school scholarship program passes muster under the state constitutional provisions regarding the establishment of common schools and the use of public funds for sectarian purposes, but violates the state constitutional provisions regarding diverting public funds earmarked for public education to the program

Schwartz v. Lopez/Duncan v. State of Nevada, Nos. 69611/70648 (Nev. Sept. 29, 2016)

Abstract: The Nevada Supreme Court has ruled that the Nevada Education Savings Accounts (ESA) program, also known as SB 302, does not violate Article 11, Section 2 of the Nevada Constitution, which requires the state legislature to provide for “a uniform system of common schools.” It also concluded that SB 302 does not run afoul of Article 11, Section 10, which prohibits the use of public funds for sectarian purposes. However, the state supreme court found that the use of funds appropriated in SB 515, for K-12 public education, to instead fund the ESA program violated the requirements of Article 11, Sections 2 and 6.

The Nevada Supreme Court, therefore, affirmed in part and reversed in part the lower court’s order in Duncan v. State of Nevada, dismissing the suit and remanding the case to the state district court to enter a declaratory judgment and permanent injunction prohibiting enforcement of section 16 of SB 302 in the absence of  an appropriation consistent with the supreme court’s opinion. The supreme court also affirmed in part and reversed in part the district court’s order in Schwartz v. Lopez granting a preliminary injunction, and remanding the case to the district court to enter a declaratory judgment and permanent injunction prohibiting enforcement of section 16 of SB 302 consistent with the Nevada Supreme Court’s opinion.

Facts/Issues: The ESA program is contained in SB 302, passed by the Nevada Legislature in 2015. It allows grants of public funds to be transferred into private education savings accounts for Nevada school aged children to pay for their private schooling, tutoring, and other nonpublic educational services and expenses. The ESA program provides financial resources for children to pay for an alternative to education in the public school system. The ESA program requires participating students to receive instruction from one or more “participating entities,” which include private schools, including sectarian schools, a university, a program of distance education, tutors, and parents.

After passing SB 302, the Nevada Legislature passed SB 515, an appropriations bill to fund K-12 public education for the 2015-17 biennium. SB 515 was approved by the governor on June 11, 2015. When an education savings account is created, the amount of money deposited by the Treasurer into an account for a child within a particular school district is deducted from that school district’s apportionment of legislatively appropriated funds in the DSA. Specifically, Section 16 of SB 302 amended NRS 387.124(1) to provide that the apportionment of funds from the DSA to the school districts, computed on a yearly basis, equals the difference between the basic support guarantee and the local funds available, minus “all the funds deposited in education savings accounts established on behalf of children who reside in the county pursuant to NRS 353B.700 to NRS 353B.930.”

The plaintiffs in Schwartz v. Lopez (see Legal Clips for background on suit) alleged that SB 302 violates the requirement for a uniform school system under Article 11, Section 2; and diverts public school funds contrary to Article 11, Section 2 and Section 6. The plaintiffs moved for a preliminary injunction, arguing that they were likely to prevail on the merits because SB 302 was clearly unconstitutional and that Nevada’s public school children will suffer irreparable harm because the education savings accounts will divert substantial funds from public schools. The district court granted a preliminary injunction, concluding that SB 302 violated Section 6. However, the district court rejected the constitutional challenge under Section 2.

The plaintiffs in Duncan v. State of Nevada (see Legal Clips for background on suit) asserted a constitutional challenge to SB 302, alleging that it diverts public funds to private schools, many of which are religious, in violation of Article 11, Section 10 (which prohibits public funds from being used for sectarian purpose). They also alleged SB 302 violates Article 11, Section 2 (which requires the Legislature to provide for a “uniform system of common schools”). The court granted defendants’ motion to dismiss, finding that while the plaintiffs had standing to bring facial challenges to the ESA program their facial challenges under Sections 2 and 10 were without merit.

Ruling/Rationale: The Nevada Supreme Court, therefore, affirmed in part and reversed in part the lower court’s order in Duncan v. State of Nevada, dismissing the suit and remanding the case to the state district court to enter a declaratory judgment and permanent injunction prohibiting enforcement of section 16 of SB 302 in the absence of  an appropriation consistent with the supreme court’s opinion. The supreme court also affirmed in part and reversed in part the district court’s order in Schwartz v. Lopez granting a preliminary injunction, and remanding the case to the district court to enter a declaratory judgment and permanent injunction prohibiting enforcement of section 16 of SB 302 consistent with the Nevada Supreme Court’s opinion.

After concluding that the plaintiffs in both suits had standing to pursue their claims, the state supreme court began with a discussion of whether the ESA program violates Article 11, Section 2, which requires the state legislature to provide for “a uniform system of common schools.” It found SB 302 does not alter the existence or structure of the public school system. It also pointed out that SB 302 does not transform private schools or its other participating entities into public schools. As a result, the supreme court concluded “SB 302 is not contrary to Section 2’s mandate to provide for a uniform system of common schools.”

In addition, the supreme court determined that Section 1 of Article 11 bolstered that conclusion. Specifically, it said, “Use of the phrase ‘by all suitable means’ reflects the framers’ intent to confer broad discretion on the Legislature in fulfilling its duty to promote intellectual, literary, scientific, and other such improvements, and to encourage other methods in addition to the public school system.” It found that its holding was consistent with the Indiana Supreme Court’s decision in Meredith v. Pence, 984 N.E.2d 1213, 1221 (Ind. 2013), which upheld an education choice program against a challenge brought under the Indiana constitution’s school uniformity clause, which is similar to Nevada’s.

The supreme court rejected the plaintiffs’ reliance on the Florida Supreme Court’s decision in Bush v. Holmes, 19 So. 2d 392, 407 (Fla. 2006). It said, “[t]he Meredith court distinguished the Bush decision because the Indiana Constitution contained no ‘adequate provision’ clause and no restriction on the mandate to provide a free public school system, and instead contained two distinct duties—‘to encourage. . . moral, intellectual, scientific, and agricultural improvement,’ and ‘to provide . . . for a general and uniform system of Common Schools.’”

The Nevada Supreme Court, therefore, held:

We conclude that as long as the Legislature maintains a uniform public school system, open and available to all students, the constitutional mandate of Section 2 is satisfied, and the Legislature may encourage other suitable educational measures under Section 1. … For these reasons, we conclude that the plaintiffs have not established that the creation of an ESA program violates Section 2.”

The supreme court next turned to the Duncan plaintiffs’ claim that the ESA program Section 10 of Article 11 in the Nevada Constitution by allowing public funds to be used for tuition at religious schools. It rejected the plaintiffs’ argument that the fact that the ESA program permits parents to use the funds at religious schools constitutes a use of public funds for a sectarian purpose, in violation of Section 10.

Instead, the court determined that “[o]nce the public funds are deposited into an education savings account, the funds are no longer ‘public funds’ but are instead the private funds of the individual parent who established the account.”’ It found that even though “the funds may revert back to the State under certain circumstances, we nonetheless conclude that, during the time the funds are in the education savings accounts, they belong to the parents and are not ‘public funds’ subject to Article 11, Section 10.”

The state supreme court also rejected the plaintiffs’ contention that the Nevada Supreme Court had previously held, in State v. Hallock, 16 Nev. 373 (1882), that “ection 10—prohibits any public funds from ending up in the coffers of a religious institution or school.” It concluded that the plaintiffs’ had misread Hallock because the Hallock decision concerned an appropriation of public funds from the State treasury directly to a sectarian institution, while the ESA program “provides for public funds to be deposited directly into an account belonging to a private individual, not to a sectarian institution.”

Finally, the supreme court took up both groups of plaintiffs’ argument that SB 302 violates Sections 2 and 6 of Article 11, “which requires the Legislature to appropriate money in an amount the Legislature deems sufficient to pay for the operation of the public schools before the Legislature enacts any other appropriation for the biennium.” First, the court determined that “SB 302 contains no limit on the number of education savings accounts that can be created or the maximum sum of money that can be utilized to fund the accounts for the biennium.” Second, it found “the Legislature passed SB 302 on May 29, 2015, but it did not enact SB 515, appropriating the money to fund the public schools, until June 1, 2015.” Based on these two facts, the state supreme court concluded “that SB 302 does not contain an appropriation to fund its operation.” It pointed out that the text of SB 515 does not address the ESA program or appropriate any money to fund it. It also noted the legislative history of SB 515 contains no discussion of the education savings accounts or their fiscal impact on the amount appropriated for public schools.  As a result, the court concluded “the record is devoid of any evidence that the Legislature included an appropriation to fund the education savings accounts in the amount the Legislature itself deemed sufficient to fund K-12 public education in SB 515.”

The Nevada Supreme Court, therefore, rejected the state’s argument that SB 515 appropriates funds for the education savings accounts created under SB 302. It held that “the use of any money appropriated in SB 515 for K-12 public education to instead fund the education savings accounts contravenes the requirements in Article 11, Section 2 and Section 6 and must be permanently enjoined.”

Two Nevada Supreme Court justices departed from the court’s majority on the issue of whether SB 302 violates Article 11, Section 10 of the Nevada Constitution. Their concurring in part and dissenting in part opinion argued: (1) the court should not have reached the issue because: “n reaching the merits of the Section 10 challenge, the court ignores the fact that the Duncan complaint (which raised the Section 10 challenge) was dismissed by the district court for failure to state a claim under NRCP 12(b)(5);” and (2) the issue is one of first impression, which the justices, in dissent, said is “not as well-defined and easily resolved as my colleagues suggest, … the proper action here, had a majority of this court not determined that SB 302’s funding is unconstitutional, would be to remand this matter to the district court for further proceedings and factual development as to this claim.”

Schwartz v. Lopez/Duncan v. State of Nevada, Nos. 69611/70648 (Nev. Sept. 29, 2016)

[Editor’s Note: In August 2016, Legal Clips summarized an article in  Courthouse News Service, reporting that the Nevada Supreme Court peppered the parties with several questions during oral argument in two separate suits challenging the state’s Education Savings Account (ESA) program. In particular, questions focused on how the state legislature’s public school spending bill coincided with state funds for private school tuition. The justices appeared to focus most of their attention on the first case they heard, one dealing with whether the law is unconstitutional because it siphons off state funds that can only be used for the operation of public schools. In that case, a state court judge in Carson City sided with a group of parents and issued a preliminary injunction halting implementation of the law. Much of the argument and questions from the justices centered on whether the legislature had met its constitutional mandate to pass an appropriations bill to sufficiently fund public schools while also enacting the school-choice measure.]

Tags: constitutionality of education savings accounts, Nevada, the use of public funds for private education, vouchers