APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT HUGHES COUNTY, SOUTH DAKOTA HONORABLE LORI S. WILBUR Judge.
The opinion of the court was delivered by: Meierhenry, Justice
ARGUED ON JANUARY 14, 2009
[¶1.] The issue in this appeal is whether school districts have standing to seek a declaratory judgment against Auditor General Marty Guindon, Governor M. Michael Rounds, and Attorney General Lawrence Long (state officials) on the question of the constitutionality of K-12 public school funding in South Dakota. The circuit court determined that school districts did not have standing and granted summary judgment in favor of Guindon, Rounds, and Long. We reverse and remand.
[¶2.] School district board members from Aberdeen, Andes Central, and Faulkton Area school districts*fn1 (school districts) filed the initial complaint for declaratory relief. The South Dakota Coalition of Schools (Coalition) joined the action as an intervenor. Formed in 1988 as the South Dakota Coalition of Small Schools, the Coalition is currently governed by a nine member board of school superintendents who work to advance the interests of member school districts. The Coalition is funded by dues paid by member school districts. In 2003, the Coalition was incorporated as a non-profit corporation. The Coalition employs attorneys to lobby the legislature and also employs expert-consultants and attorneys to represent the member school districts. The Coalition is a member of an organization that commissioned an adequacy study to determine the level of funding necessary to support South Dakota's required education and learning standards.*fn2 The results of the study showed that education was seriously underfunded in South Dakota. On June 11, 2007, the school districts filed the original complaint for declaratory relief against the state officials in Hughes County. The complaint challenged the constitutionality of the funding of the K-12 education system in South Dakota. The Coalition joined the suit as an intervenor on June 25, 2007. The Coalition received funding from 96 of the 168 school districts in South Dakota, either in the form of dues or in direct support of the constitutional challenge.
[¶3.] In May 2007, Governor Rounds ordered Auditor General Guindon to determine the legality of the payments made by the school districts in support of the pending litigation. Attorney General Long concluded that the payment of funds by the school districts to the Coalition was illegal and requested the Auditor General to conduct an audit. The school districts and the Coalition challenged the Attorney General's conclusion that the payment was illegal and brought an action for declaratory relief. The parties agreed to suspend the audit. Based upon an agreed stipulation of facts, the parties filed cross-motions for partial summary judgment pursuant to SDCL 15-6-56(b). The state officials claimed that the school districts did not have standing to sue the state officials. The school districts claimed that they did have standing to seek a declaratory judgment action; or alternatively, if they did not have standing, they had authority to expend school district monies to finance the litigation through the Coalition.
[¶4.] The circuit court ruled in favor of the state officials and entered a judgment declaring that the school districts lacked standing and did not have authority to finance the litigation. The school districts and the Coalition appeal the issue of whether the school districts have standing to seek a judgment declaring the system of funding K-12 public education unconstitutional; or alternatively, whether the school districts can finance the lawsuit in the absence of standing. We hold that the school districts have standing. Standing is recognized here in the limited context of a declaratory judgment action and stems from provisions in the South Dakota Constitution.
[¶5.] The trial court denied standing based, in part, on prior cases decided by this Court. Edgemont Sch. Dist. 23-1 v. South Dakota Dep't of Revenue, 1999 SD 48, 593 NW2d 36; Agar Sch. Dist. No. 58-1 v. McGee, 527 NW2d 282 (SD 1995). In those cases, we held that the school districts did not have standing to challenge tax levies and distributions. In both cases, we determined that the districts were not the real parties in interest. In Agar School District, the district challenged the legality of an increased tax levy and its distribution to other school districts. 527 NW2d at 284. The case did not involve a constitutional challenge of any sort only a dispute over statutes. We determined that the district did not have standing because it could show no actual or threatened injury. Id. at 285. The district had received its requested funds for the school year, and the operation of the district had not been affected. Id. In Edgemont School District, the district challenged the constitutionality of a state law that set forth the methods of assessment and distribution of a statewide railroad tax. 1999 SD 48, ¶12, 593 NW2d at 39. We determined that the school districts lacked standing to challenge the constitutionality of state legislation. Id. ¶15. The rationale centered on the concept that school districts, like counties and municipalities, "are the creatures of the legislature." Id. Generally, "'[t]he creature is not greater than its creator, and may not question that power which brought it into existence and set the bounds of its capacities.'" Id. (quoting Bd. of Supervisors of Linn County, 263 NW2d 227, 232 (Iowa 1978)). We determined that "[n]one of the exceptions to this general rule regarding standing apply because the taxpayers within the district and county are the real parties in interest and can satisfy the traditional standing requirements." Id. ¶16 (citing Agar Sch. Dist., 527 NW2d at 284).
[¶6.] The school districts and the Coalition assert that South Dakota's K-12 public school funding system unconstitutionally underfunds education. The state officials claim that as creatures of the legislature, the school districts do not have standing to challenge the constitutionality of the funding system and that the real parties in interest are the parents and students. To establish standing, the school districts rely on provisions in the South Dakota Constitution that directly and expressly accord school districts rights to certain funds.
Standing under the South Dakota Constitution
[¶7.] Pursuant to the constitutional mandate "to establish and maintain a general and uniform system of public schools," the South Dakota Legislature delegates to local school districts the authority to organize for the purpose of operating schools. See SD Const art VIII, §1 (enabling legislation set forth in SDCL 13-5-1).In addition, the legislature gives local school boards "general charge, direction and management of the schools of the district and control and care of all property belonging to it." SDCL 13-8-39.
[¶8.] The South Dakota Constitution creates and defines the system of public schools.SD Const art VIII, §1 mandates the establishment of a "general and uniform system of public schools" as follows:
The stability of a republican form of government depending on the morality and intelligence of the people, it shall be the duty of the Legislature to establish and maintain a general and uniform system of public schools wherein tuition shall be without charge, and equally open to all; and to adopt all suitable means to secure to the people the advantages and opportunities of education.
SD Const art VIII, §1. The South Dakota Constitution specifies four sources of funding that go to the local school districts for public education. The first source is the interest from a permanent trust fund, whose principal derives from the sale of public school lands acquired from the United States government, property escheated to the State, gifts and donations, and other property "acquired for public schools." SD Const art VIII, §2. The constitutional provision provides for the permanent trust fund as follows:
All proceeds of the sale of public lands that have heretofore been or may hereafter be given by the United States for the use of public schools in the state; all such per centum as may be granted by the United States on the sales of public lands; the proceeds of all property that shall fall to the state by escheat; the proceeds of all gifts or donations to the state for public schools or not otherwise appropriated by the terms of the gift; and all property otherwise acquired for public schools, shall be and remain a perpetual fund for the maintenance of public schools in the state. It shall be deemed a trust fund held by the state. The principal shall never be diverted by legislative enactment for any other purpose, and may be increased; but, if any loss occurs through any unconstitutional act, the state shall make the loss good through a special appropriation.
[¶9.] SD Const art VIII, §3 directs that the interest and income from the fund "be faithfully used and applied each year for the benefit of the public schools of the state" as follows:
The interest and income of this fund together with all other sums which may be added thereto by law, shall be faithfully used and applied each year for the benefit of the public schools of the state, and shall be for this purpose apportioned among and between all the several public school ...