Opinion
DOCKET NO. A-5890-13T4
02-04-2016
PISCATAWAY TOWNSHIP BOARD OF EDUCATION, Appellant, v. DAVID HESPE, COMMISSIONER OF EDUCATION OF THE STATE OF NEW JERSEY, Respondent.
David B. Rubin argued the cause for appellant. Beth N. Shore, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Shore, on the brief). Elizabeth A. Athos argued the cause for amicus curiae Education Law Center and Unitarian Universalist Legislative Ministry of New Jersey (Education Law Center, attorneys; David G. Sciarra, of counsel; Ms. Athos, on the briefs).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sabatino and O'Connor. On appeal from the Commissioner of Education. David B. Rubin argued the cause for appellant. Beth N. Shore, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Shore, on the brief). Elizabeth A. Athos argued the cause for amicus curiae Education Law Center and Unitarian Universalist Legislative Ministry of New Jersey (Education Law Center, attorneys; David G. Sciarra, of counsel; Ms. Athos, on the briefs). PER CURIAM
The Piscataway Board of Education (the "District") appeals the Commissioner of Education's rejection of its request to reduce the tuition rate that the District paid in school year 2010-11 to four charter schools for District pupils attending those schools. Following a remand from this court, the Commissioner concluded in his second final agency decision that he lacked the authority to grant the District's request under the revised version of the Charter School Program Act of 1995, N.J.S.A. 18A:36A-1 to -18 (the "Act"), notwithstanding a regulation that had been on the books in 2010-11 stating that he possessed such discretionary authority. We affirm.
I.
The pertinent background is as follows. At the end of the 2010-11 school year, four New Jersey charter schools retained what are termed "excess surplus" funds. N.J.S.A. 18A:7F-7 governs how much in excess surplus funds a public school district may retain and how those funds should be used. See Perth Amboy Bd. of Educ. v. Christie, 413 N.J. Super. 590, 602-06 (App. Div. 2010). Charter schools, however, do not have the same constraints as public school districts with respect to the retention of excess surplus funds.
The four schools were Central Jersey College Prep Charter School, Union County TEAMS Charter School, Queen City Academy Charter School, and Barack Obama Green Charter School.
In 2011, the District was an Abbott school district that was funded at a level considered "under adequacy." See Abbott ex. rel. Abbott v. Burke, 206 N.J. 332, 433, 458 (2011). In December of that year, the superintendent of the District requested that the Commissioner reduce the tuition rates for District students attending the charter schools, given their surpluses.
Christopher Cerf was Acting Commissioner in 2011, and Commissioner in 2012. By 2014, David Hespe was appointed Commissioner.
At oral argument, the District's counsel represented to us that the total surplus for the four schools is in the range of $400,000 to $600,000.
On February 3, 2012, the Commissioner denied the superintendent's request, determining that the schools were appropriately retaining the funds. The District appealed that determination, relying on a regulation, N.J.A.C. 6A:23A-22.4(e), which recited that the Commissioner had the discretion to disallow charter schools from retaining surplus funds.
On that appeal, the Attorney General argued on behalf of the Commissioner for the first time that the Commissioner did not have the legal authority to grant the District's request. The Attorney General contended that N.J.A.C. 6A:23A-22.4(e) had been superseded by L. 2000, c. 142, § 2, an amendment to N.J.S.A. 18A:36A-12 enacted in November 2000 (the "2000 amendment").
In April 2013, we issued an opinion remanding the matter to the Commissioner for further consideration. Piscataway Twp. Bd. of Educ. v. Cerf, No. A-3202-11 (App. Div. Apr. 2, 2013) (slip op. at 1-10). We noted the Attorney General's contention that the 2000 amendment had eliminated the Commissioner's discretion to adjust a school district's per-pupil payments to charter schools. Id. at 4. We recognized that on two occasions in 2004 and 2009, the State Board of Education had nevertheless readopted N.J.A.C. 6A:23A-22.4(e). Ibid. We then identified three reasons for the remand: (1) the four charter schools, which would be financially affected by the District's request if it were granted, had not been served with notice of the appeal; (2) the State Board, the rulemaking body, was not made a party to the appeal; and (3) the Commissioner's initial final agency decision had not stated explicitly whether he had the authority to grant the District's request. Id. at 8-10.
On remand, the Commissioner solicited briefs from the four charter schools, the District, and the Attorney General, but only the District and the Attorney General responded. On July 17, 2014, the Commissioner issued a second final agency decision denying the District's request, finding that the Commissioner's authority under N.J.A.C. 6A:23A-22.4(e) was indeed eliminated by the 2000 amendment. The Commissioner also noted that the State Board accordingly was going to rescind N.J.A.C. 6A:23A-22.4(e).
The District once again appealed. Its appeal was supported by amicus Education Law Center and Unitarian Universalist Legislative Ministry of New Jersey. The four charter schools have declined to participate.
In April 2015, the Commissioner sent a proposal to the State Board to repeal N.J.A.C. 6A:23A-22.4(e) because the 2000 amendment had removed his discretion to adjust tuition rates for pupils in charter schools. The Commissioner's rule proposal stated:
The proposed amendments to N.J.A.C. 6A:23A-22.4 . . . are necessary to align the rules with changes made to N.J.S.A. 18A:36A-12 [L.] 2000, c. 142 [which] repealed the part of the [Act] that provided the [commissioner] discretion to reduce a school district's charter school payment below the statutory per pupil rate. According to the current statute, school districts must pay a charter school an amount equal to 90 percent of the sum of the budget year equalization aid per pupil and the prebudget year general fund tax levy per pupil inflated by the consumer price index (CPI). Prior to the amendments made to the [Act] in 2000, the law provided the Commissioner the authority to require a school district to pay more or less than 90 percent of the per pupil amount. Since the section authorizing the Commissioner's discretion was removed, the corresponding rule is proposed for repeal.
On September 9, 2015, the State Board adopted the proposal of the Commissioner "without change" and repealed N.J.A.C. 6A:23A-22.4(e), effective October 5, 2015. 47 N.J.R. 2498(a) (Sept. 9, 2015).
In light of that action, we no longer see a need for the State Board to be involved in this matter.
II.
The District argues that the Commissioner's post-remand decision was arbitrary, capricious and unreasonable because, in its view, N.J.A.C. 6A:23A-22.4(e) legitimately authorized him to adjust the District's tuition payment to the charter schools for 2010-11. Amicus separately argues that such authority to reduce tuition payments, and thereby preserve funds for needy public school districts, is constitutionally mandated under "thorough and efficient education" principles of the New Jersey Constitution.
In evaluating these arguments, our role in reviewing the Commissioner's final agency decision is limited. Generally, we will not reverse an administrative agency's decision unless it was arbitrary, capricious, or unreasonable; violated express or implied legislative policies; offended the Federal or State Constitution; or was not supported by substantial, credible evidence in the record. Univ. Cottage Club of Princeton N.J. Corp. v. N.J. Dep't of Envtl. Prot., 191 N.J. 38, 48 (2007) (citing In re Taylor, 158 N.J. 644, 656 (1999)).
We also generally afford substantial deference to an agency's interpretation of a statute that it is charged with enforcing. Ibid. Of course, we are not bound by the agency's interpretation of a statute or its determination of a purely legal issue. Ibid.
The Education Clause of the New Jersey Constitution requires that the State provide "a thorough and efficient system of free public schools for the instruction of all the children in the State between the ages of five and eighteen years." N.J. Const. art. VIII, § 4, ¶ 1. The State's responsibility of providing a public education is largely carried out by local public school districts. In re Grant of Charter Sch. Application of Englewood on the Palisades Charter Sch., 164 N.J. 316, 319 (2000) ("In re Grant of Charter Sch. Appl."). In fulfilling this responsibility, the Legislature enacted the Act in 1996, which authorized the establishment of charter schools as an alternative to the traditional public school model. Ibid. Charter schools operate independently of local boards of education and are managed by a board of trustees. Id. at 319-20; N.J.S.A. 18A:36A-3.
The State Board is responsible for promulgating rules and regulations to effectuate the Act. N.J.S.A. 18A:36A-18. Among other things, the Act governs application procedures, supervision, management, and finances of charter schools. N.J.S.A. 18A:36A-1 to -18. In particular, N.J.S.A. 18A:36A-12 requires a public school district to pay tuition for each child from the district who attends a charter school. The amount of tuition that the district is obligated to pay is 90% of the local levy budget per pupil. Ibid. Thus, even though a district receives 100% of the local levy budget per pupil, it is only required to pay 90% to the charter school.
Prior to the 2000 amendment to the Act, the statutory scheme had provided that at the time a charter was granted, the Commissioner had discretion to adjust the per-pupil tuition that a district would pay. See In re Grant of Charter Sch. Appl., supra, 164 N.J. at 333. For example, the Commissioner could reduce the tuition to less than 90% of the local levy budget per pupil. Ibid. The Commissioner's discretion to do so could only be exercised when the district showed that the requested funding would prevent it from providing a thorough and efficient ("T&E") education to the traditional public school students in the district. Id. at 334. The 2000 amendment, however, removed this discretion from the Commissioner. L. 2000, c. 142, § 2.
The Commissioner was also empowered, conversely, to raise the tuition paid by a district, but not higher than 100% of the local levy budget per pupil. In re Grant of Charter Sch. Appl., supra, 164 N.J. at 333.
The State Board has enacted charter school regulations entitled "Fiscal Accountability, Efficiency and Budgeting Procedures" in N.J.A.C. 6A:23A. See N.J.A.C. 6A:11-4.13. For example, N.J.A.C. 6A:23A-22.4(a) provides that a charter school may not incur debt for longer than one year. In addition, N.J.A.C. 6A:23A-22.4(b) imposes requirements under which a charter school may acquire real property. N.J.A.C. 6A:23A-22.4(d) instructs the Commissioner to monitor a charter school's spending.
The critical regulation at issue here, N.J.A.C. 6A:23A-22.4(e), was adopted in 1997 and ultimately repealed effective October 5, 2015. Prior to the repeal, the regulation had provided as follows:
After completion of the school year, the district board of education may petition the Commissioner for a lower rate for the charter school's per pupil amount for the specific grade level if the charter school spends significantly less than budgeted and has accumulated a sizable surplus.
1. The Commissioner may reduce the rate based on a determination of excessive surplus. The criteria for excess surplus is determined by the Commissioner pursuant to N.J.S.A. 18A:7F-7.
2. A charter school may submit
comments to the Commissioner regarding the petition for a lower rate for the charter school's budget amount per pupil for the specific grade level from the district of residence of the charter school or non-resident district(s).
[(Emphasis added).]
The District argues that the Commissioner erred in rejecting its request as to the 2010-11 school year because N.J.A.C. 6A:23A-22.4(e), as it existed at that time, vested him with the discretion to reduce the tuition that the District was required to pay to the charter schools. According to the District, the Commissioner's final agency decisions wrongly conflated two distinct concepts: (1) the Legislature's establishment of a presumptive cash flow stream to fund the daily operations of a charter school, and (2) the Commissioner's responsibility to assure that a charter school uses funds in a fiscally responsible manner through N.J.A.C. 6A:23A-22.4(e).
We disagree with the District's contentions. Even though the Commissioner is charged with ensuring fiscal responsibility of charter schools and is given numerous powers to effectuate that goal, the power that the District wishes the Commissioner to exercise was no longer available under the governing statute after the 2000 amendment.
To be sure, N.J.A.C. 6A:23A-22.4(e) formerly gave the Commissioner discretion to adjust tuition rates when a charter school spent "significantly less than budgeted" and "accumulated a sizeable surplus." That authority was in keeping with the Commissioner's power under the then-existing version of the enabling statute, N.J.S.A. 18A:36A-12, to adjust tuition if necessary when a district would otherwise not be able to provide a T&E education.
However, the 2000 amendment removed that discretion from the enabling statute. In its place, the amended law provided a presumptive tuition rate of 90% of the local levy budget per pupil. N.J.A.C. 6A:23A-22.4(e) only authorized the Commissioner to adjust tuition so long as the enabling statute, i.e., N.J.S.A. 18A:36A-12, permitted such an adjustment.
In its policy-laden arguments, the District contends that a charter school should not be permitted to accumulate unlimited surplus funds. The District emphasizes in this regard that the Act generally calls for the Commissioner to promote fiscal responsibility in the operation of charter schools.
We certainly recognize that the Commissioner is charged with promoting fiscal responsibility for charter schools. As noted, N.J.A.C. 6A:23A-22.4(a), (b) and (c) regulate a charter school's debt, govern its acquisition of real property, and require the Commissioner to monitor classroom spending. Nevertheless, N.J.S.A. 18A:7F-7, which prohibits a public school district from accumulating excess surplus funds, has never been incorporated into the Act governing charter schools. As the statutory scheme presently exists — and has existed during the entire period of this litigation — the Legislature has not prohibited a charter school from retaining excess surplus funds.
The District argues that, despite numerous amendments to the Act, N.J.A.C. 6A:23A-22.4(e) was not held invalid in the past, and therefore, it should still be considered operational for purposes of this case despite its October 2015 repeal. That argument fails, however, for two reasons. First, as the Attorney General and Commissioner have demonstrated, the regulation, although it remained on the books through October 2015, was nullified by the 2000 amendment to the Act.
"Regulations may not trump the statutes that authorize them." State v. Fajardo-Santos, 199 N.J. 520, 531 (2009) (citing Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 844-45, 104 S. Ct. 2778, 2782-83, 81 L. Ed. 2d 694, 703-04 (1984)). A properly adopted regulation may be set aside if it "frustrates the policy embodied" in the statute. Educ. Law Ctr. ex rel. Burke v. N.J. State Bd. of Educ., 4 38 N.J. Super. 108, 116 (App. Div. 2014). This occurs when a regulation is inconsistent with the statute, extends the statute beyond the Legislature's intent, or "violates . . . express or implied legislative policies." Ibid. "An agency has the power, and sometimes the obligation, to amend existing policies and regulations." Cty. of Hudson v. Dep't of Law & Pub. Safety, 328 N.J. Super. 308, 326 (App. Div.), certif. denied, 164 N.J. 190 (2000).
Here, N.J.A.C. 6A:23A-22.4(e) was enacted in 1997 as a means of implementing the enabling statute then in force, i.e., N.J.S.A. 18A:36A-12. That older version of the statute had given the Commissioner discretion to adjust charter school tuition. However, as we have noted, with the enactment of the 2000 amendment, the Legislature removed the Commissioner's discretion to adjust a district's tuition rates. Continuing to enforce N.J.A.C. 6A:23A-22.4(e), a regulation permitting the Commissioner to adjust tuition, after 2000 would frustrate the intent of the 2000 amendment, which was to remove that very discretion. Thus, the Commissioner's final agency decision concluding that he no longer had the authority pursuant to N.J.A.C. 6A:23A-22.4(e) was sound.
Moreover, the State Board recently accepted "without change" the Commissioner's proposal to "align the rules" in the Administrative Code with the 2000 amendment to the statute. 47 N.J.R. 2498(a) (Sept. 9, 2015). Despite the agency's long delay in taking formal action to make that alignment clear and explicit, as a matter of law N.J.A.C. 6A:23A-22.4(e) simply was no longer operational after 2000.
We decline to reach the agency's argument that this appeal is moot by virtue of the October 2015 repeal of the regulation. We do note, however, that the repeal is consistent with respondent's long-asserted position that the 2000 amendment of the Act had rendered the regulation a nullity. --------
The District argues that the Commissioner's initial response to the District's application in February 2012 suggested that he possessed the authority under N.J.A.C. 6A:23A-22.4(e) to grant the request, but simply chose not to do so. We disagree. The Commissioner's initial final agency decision only stated that the charter schools were properly retaining the surplus, without any discussion of whether he had or lacked the authority to grant the District's request. In any event, notwithstanding what the Commissioner might have believed initially, the legal authority that previously existed under N.J.A.C. 6A:23A-22.4(e) was removed by the 2000 amendment. The Commissioner's authority to reduce surplus funds apparently existed in 1997 when N.J.A.C. 6A:23A-22.4(e) was first promulgated and when charter schools in our State were new and relatively untested. However, as we have noted, the enabling legislation was amended only three years later, to remove the Commissioner's authority to adjust tuition based on a charter school's retention of surplus funds. In addition, neither the 2000 amendment, nor the Legislature's subsequent amendment to N.J.S.A. 18A:36A-12 in 2007 (L. 2007, c. 260), has prohibited a charter school from retaining excess surplus funds.
We reject the separate arguments for reversal advanced by the amicus. Amicus points out that the District is an Abbott district that is not adequately funded to provide a T&E education, yet it is providing funding to charter schools that are retaining a surplus. Amicus asserts that a charter school should not retain excess surplus funds unless it can show a reason for doing so.
We accept for sake of discussion the premise that the District has not been adequately funded. See Abbott, supra, 206 N.J. at 433. In 2011, however, out of New Jersey's 560 school districts, 205 districts were similarly underfunded. Id. at 458. The fact that the District is classified as an Abbott district is not sufficient by itself to create a power for the Commissioner that the Legislature chose to remove.
Amicus further argues that the Commissioner's power to insure that all children receive a T&E education includes the authority to reduce the District's tuition rate. In support of this, amicus cites to In re Grant of Charter Sch. Appl., supra, 164 N.J. at 336, for the proposition that the Commissioner must evaluate the impact of the loss of funds to a charter school on a district's ability to provide a T&E education. That argument is unavailing, because the Court in In re Grant of Charter School Appl. specifically stated that its holding did not apply to Abbott districts or to actions under N.J.A.C. 6A:23A-22.4(e) (formerly N.J.A.C. 6A:11-7.3(e)). See In re Grant of Charter Sch. Appl., supra, 164 N.J. at 334 n.5.
Amicus proposes that the Commissioner should establish standards for handling charter school surplus funds and that the schools should be required to use such funds to offset a district's tuition obligation. In essence, amicus is making a policy proposal to extend the restrictions in N.J.S.A. 18A:7F-7 to charter schools, something the Legislature has not done to date, despite numerous intervening amendments to the Act. As the Attorney General has pointed out, there are countervailing policy arguments that weigh in favor of allowing charter schools to retain surplus funds, given their inability to incur long-term debt and the possibility that they may experience sudden drops in enrollment that might affect their ability to meet fixed expenses. The present appeal to this intermediate appellate court is not the correct vehicle for such a policy argument, which is being reserved to the policy-making branches of government or to the Supreme Court in its ongoing administration of the constitutional principles set forth in the Abbott litigation and its progeny.
For these many reasons, the Commissioner's final agency decision is affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION