Supreme Court Watch: Judiciary Decisions Often Impact State and Local Government Finances
Berger, Barrie Tabin, Gaffney, Susan, Government Finance Review
In each term, the United States Supreme Court is petitioned to consider a number of cases that have a significant impact on the policy, management, and finances of state and local governments. The Supreme Court accepts very few cases for review. However, when the Court agrees to hear cases that impact state and local governments, the State and Local Legal Center in Washington, D.C., which is supported by the Big-Seven associations (1) and the GFOA, often submits amicus or "friend-of- the-court" briefs on behalf of these national associations.
Below is an overview of several cases, pending and decided before the Supreme Court, in which the State and Local Legal Center weighed in on behalf of the interests of state and local governments.
Not since South Carolina v. Baker in 1988 has the Court agreed to hear a case that could significantly impact the tax-exempt bond market. In May, the U.S. Supreme Court decided to hear the case of Davis v. Department of Revenue of the Finance and Administration Cabinet of the Commonwealth of Kentucky. This case is centered around whether it is a violation of the Commerce Clause to have differing tax treatment for out-of-state and in-state bonds. Mr. and Mrs. Davis, residents of Kentucky, filed suit against the state's tax department declaring it unconstitution al for their out-of-state bonds to be taxed, while in-state bonds are tax-exempt. Many states have this same type of differing tax policy on municipal bonds.
The State of Kentucky Court of Appeals agreed with the Davis' that the different tax treatment of municipal bonds violates the Commerce Clause. The Kentucky Department of Revenue then petitioned Kentucky's Supreme Court to hear the case, but it declined review. The Kentucky Department of Revenue then petitioned the U.S. Supreme Court.
The Ohio Court of Appeals heard a similar case in 2004. The Ohio Court decided that differing tax treatments on bonds was not unconstitutional, and that Ohio could maintain its policy of taxing out-of state-bonds while in-state bonds remain tax-exempt. There was never an appeal for the case to be heard by the U.S. Supreme Court.
The Commerce Clause forbids states from creating barriers or interfering with interstate commerce. If the Court decides to agree with Davis, then Kentucky and other states would have to institute tax policy that either makes all bonds taxable or tax-exempt, regardless of where they are issued. The Court is expected to decide the case in 2008.
Another case before the Court, the Board of Education of New York City v. Tom F, concerns the interpretation of provisions of the Individuals with Disabilities Education Act (IDEA), which govern the circumstances in which a parent of a disabled child can receive tuition reimbursement for enrolling their child in a private school without prior authorization by the child's public school. In this case, Tom F seeks reimbursement from the Board of Education of New York City for the continuing enrollment of his son at a private school after declining the board's recommended special education placement in a public school. The Board of Education contested this claim and the following litigation ensued.
The federal district court ruled in favor of the Board of Education. The district court reached its decision by relying on an earlier decided case, in which the court analyzed the language of the IDEA and denied reimbursement to parents who unilaterally placed their disabled child in a private school. However, the U.S. Court of Appeals for the Second Circuit reversed the decision of the district court finding that the provisions of the IDEA relied on by the Board of Education and the district court were ambiguous. The Board of Education has asked the Supreme Court to reverse the decision of the court of appeals, and find instead that in order for parents to qualify for private school reimbursement, the child must have previously received special education and related services from the public schools pursuant to the IDEA. …