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Sloan v. Klagholtz

New Jersey Superior Court, Appellate Division


June 28, 2001

ANDREW SLOAN, A MINOR BY HIS GUARDIAN DUANE SLOAN; HEATHER HATHAWAY, A MINOR BY HER GUARDIAN, ROBERT STUART; HOPE HATHAWAY, A MINOR BY HER GUARDIAN, ROBERT STUART; CHRISTINA HARSHAW, A MINOR BY HER GUARDIAN, EDWARD HARSHAW; GLADYS SEPULVEDA, A MINOR BY HER GUARDIAN, GLORIA GUTIERREZ; ERIC MOREY, A MINOR BY HIS GUARDIAN, WILLIAM MOREY; AND THE BOARD OF EDUCATION OF THE CITY OF WILDWOOD, PETITIONERS-APPELLANTS,
v.
LEO F. KLAGHOLTZ, COMMISSIONER OF EDUCATION, AND NEW JERSEY DEPARTMENT OF EDUCATION, RESPONDENTS-RESPONDENTS.

On appeal from State Board of Education, Docket No. 100-4/98.

Judges Skillman, Conley and Lesemann.

The opinion of the court was delivered by: Skillman, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

As amended September 18, 2001

Argued May 30, 2001

The Wildwood Board of Education and six students who attend schools in Wildwood appeal from a final decision of the State Board of Education which rejected their challenge to the Department of Education's determinations of the amount of state school aid Wildwood was entitled to receive for the 1997-98 and 1998-99 school years. Appellants' primary argument is that the stabilization provisions of the Comprehensive Educational Improvement and Financing Act of 1996 (CEIFA), N.J.S.A. 18A:7F-1 to -36, under which certain school districts received less than the full amount of state school aid to which they would have been entitled under the basic CEIFA funding formula, are unconstitutional. We conclude that the stabilization provisions of CEIFA are constitutional, and affirm the State Board's final decision.

The Legislature enacted CEIFA after the Supreme Court held in Abbott v. Burke, 136 N.J. 444 (1994) that the provisions of the Quality Education Act (QEA), N.J.S.A. 18A:7D-1 to -37, governing state aid for public education were unconstitutional as applied to "special needs districts," sometimes referred to as "Abbott districts." As described by the Court:

[CEIFA] determines that the educational opportunity . . . can and should be provided at a fixed per-pupil cost. The prescribed amount, referred to as the "T & E amount," purports to be the cost that is sufficient to ensure that a thorough and efficient education may be achieved in all districts. . . .

The T & E amount is neither the minimum nor the maximum amount that a school district is permitted to spend per-pupil. Like all of the predecessor statutes, CEIFA requires each school district to raise locally a portion of the per-pupil expenditure. Similar to QEA, the required local share under CEIFA is dependent on local property taxes . . . . State aid makes up the difference between the required local share and the T & E amount. . . . [Abbott v. Burke, 149 N.J. 145, 161-64 (1997) (citations omitted).]

Appellants' constitutional challenge is directed solely at the stabilization provisions of CEIFA, which were designed to temporarily moderate any decrease or increase in state school aid resulting from the transition from the QEA to the CEIFA funding formula. N.J.S.A. 18A:7F-10a provides that "the total stabilized aid for each district shall not be increased by more than the district's stabilization aid growth limit," and N.J.S.A. 18A:7F-3 sets forth a formula for calculating this limit on any increase in state aid over the amount paid in the prior year.

For the 1997-98 school year, the Department of Education determined that the amount of state aid to which Wildwood would have been entitled under the basic CEIFA funding formula was $2,445,907. However, the application of the stabilization aid growth limit reduced the actual amount of state aid to $645,851. For the 1998-99 school year, the Department calculated state aid under the basic CEIFA funding formula to be $2,955,107. However, applying the stabilization aid growth limit, the actual amount of state school aid to which Wildwood was entitled was $710,439.

In April 1998, the Wildwood Board of Education (the Board) brought an action in the Law Division seeking to compel the Department of Education to disburse the full amount of state school aid to which Wildwood would have been entitled under the basic CEIFA formula for both the 1997-98 and 1998-99 school years, without application of the stabilization aid growth limit. The trial court dismissed the complaint on the ground that the Board had failed to exhaust administrative remedies.

The Board responded by filing a petition with the Commissioner of Education, which contended that students in Wildwood were being denied a thorough and efficient education by application of the stabilization aid growth limit and sought essentially the same relief the Board had earlier sought in the Law Division. By an amended petition, six students in the district were added as parties. The Department of Education moved to dismiss the petition.

The Board then filed a complaint in the Chancery Division, seeking an order enjoining the Commissioner from taking any adjudicative action in the pending administrative matter and directing him to transfer the matter to the Office of Administrative Law (OAL) for a hearing before an Administrative Law Judge (ALJ). The trial court rejected this application and dismissed the Board's complaint.

The Board appealed the dismissal of its Law and Chancery Division actions to this court. We consolidated the appeals and affirmed the dismissal of both complaints in an unreported opinion. Board of Educ. of City of Wildwood v. Loewe, A-5337- 97T1, and Board of Educ. of City of Wildwood v. Klagholz, A-6811- 97T1 (decided Feb. 17, 1999). We stated in the course of our opinion:

We are mindful [the Board's] complaint ultimately poses a constitutional challenge to application of the stabilization aid growth limit to the Wildwood School District. However, inextricably interwoven with a full consideration of any constitutional issue are complex issues requiring fact-finding; namely, whether there is a factual basis for plaintiff's conclusion that application of N.J.S.A. 18A:7F-10a to it will deprive the school district of its ability to provide a "thorough and efficient" education to its students. [slip op. at 8-9.]

After our opinion was filed, the Department of Education sent a letter directing the Board to submit "a specific, detailed explication of how the district failed to offer a thorough and efficient system of education during each of the two years at issue . . ., and the manner in which such alleged deficiencies are a direct and proximate result of the funding mechanism set forth in CEIFA." The Board did not submit any factual materials in response to this letter. Instead, it submitted a "Supplemental Brief" which reiterated the Board's legal argument that the application of the stabilization provisions of CEIFA is, "by definition," unconstitutional, and that the Board had no obligation to submit factual materials showing the impact of those provisions upon its educational program:

[I]n enacting the C.E.I.F.A. statute the Legislature defined "thorough and efficient education" in terms of a monetary formula. That formula computed to the penny precisely how much money was needed to provide a thorough and efficient education, how much money was to be provided by the individual school district, and how much money was to be provided through state aid. The way the formula is structured, if the school district provides its calculated portion of funding, and if the state of New Jersey provides aid in the amount specified by the formula, then the children will receive a thorough and efficient education.

The problem is, the State of New Jersey failed to pay over the needed C.E.I.F.A. aid. Instead, [pursuant to the stabilization provisions,] the State of New Jersey paid $645,848.00 in C.E.I.F.A. aid in 1997-98, and $710,439.00 in C.E.I.F.A. aid for 1998-99.

Since the Wildwood School District did not receive the required amount of C.E.I.F.A. funding for 1997-98 and 1998-99, then by definition, the children did not [receive] a thorough and efficient education.

On January 10, 2000, the Commissioner issued a final decision dismissing appellants' petition challenging the amount of state school aid distributed to the Wildwood school district for the 1996-97 and 1997-98 school years. The Commissioner dismissed the petition as it related to the 1997-98 school year on the ground that it was filed beyond the 90-day limitation period allowed under the Department's rules. In addition, the Commissioner noted that even if the petition had been timely as to the 1997-98 school year, he would have rejected it on the merits for the same reasons he rejected appellants' petition relating to the 1998-99 school year. In rejecting Wildwood's challenge to CEIFA's stabilization provisions and dismissing its petition relating to the 1998-99 school year, the Commissioner stated:

The final aid amount due any district under CEIFA is derived through the cumulative application of the act's several formulas, including core curriculum standards, categorical and stabilization aid formulas . . . . The only action taken by [the Department of Education] was to implement, in addition to all other formulas required, those provisions of the statute which were structured, for the years in question, to create a transition between the prior and new funding systems; so as, in the interest of avoiding disruption and promoting effective use of funds, to prevent both extraordinary increases and extraordinary decreases in the aid provided to any district.

The State Board affirmed the Commissioner's decision for the reasons expressed in his opinion.

I.

Before considering the constitutionality of the stabilization provisions of CEIFA, we first address several preliminary procedural points raised by appellants.

First, appellants argue that the Commissioner violated the Administrative Procedure Act (APA) and the regulations adopted thereunder by failing to transfer their petition to the OAL. Under N.J.S.A. 52:14F-7(a), an agency head has exclusive authority to determine whether an administrative matter is a "contested case" within the intent of the APA. N.J.S.A. 52:14B- 2(b); see In re Unif. Admin. Procedure Rules, 90 N.J. 85, 105 (1982). If a matter before an agency does not present contested material issues of fact that can be decided only "after [an] opportunity for an agency hearing," N.J.S.A. 52:14B-2(b), it is not a contested case subject to transfer to the OAL. Quad Enters. v. Borough of Paramus, 250 N.J. Super. 256, 263 (App. Div. 1991). Moreover, even if an administrative matter is found to be a "contested case," the agency head may elect to conduct the hearing himself. N.J.S.A. 52:14F-8(b); see In re Carberry, 114 N.J. 574, 584-86 (1989).

To implement these statutory provisions, the OAL has adopted administrative rules that encourage the prompt identification of "contested cases." N.J.A.C. 1:1-4.1(a) provides:

After an agency proceeding has commenced, the agency head shall promptly determine whether the matter is a contested case. If any party petitions the agency head to decide whether the matter is contested, the agency shall make such a determination within 30 days from receipt of the petition and inform all parties of its determination.

In addition, with respect to administrative matters that are determined to be "contested cases," N.J.A.C. 1:1-8.1(a) provides:

After the parties have complied with all pleading requirements, the agency shall within 30 days either file the case with the Clerk of the Office of Administrative Law in the manner provided by N.J.A.C. 1:1-8.2 or retain it under the provisions of N.J.S.A. 52:14F-8 and notify all parties of the decision to retain.

Appellants argue that, pursuant to N.J.A.C. 1:1-8.1(a), the Commissioner was required to determine whether to retain the case or transfer it to OAL within thirty days after the filing of their second amended petition on August 18, 1998. However, by its plain terms, N.J.A.C. 1:1-8.1(a) only applies "[a]fter the parties have complied with all pleading requirements." In this case, the applicable pleading requirements, which "are governed by [the rules of] the agency with subject matter over the case[,]" N.J.A.C. 1:1-6.1(a) that the Court held the QEA state school aid funding formula to be unconstitutional on its face -- is erroneous. In fact, the Court held the QEA to be unconstitutional only insofar as it failed "to assure parity of regular education expenditures between the special needs districts and the more affluent districts." Abbott v. Burke, supra, 136 N.J. at 447. Accordingly, the Court declared the QEA state school aid formula to be unconstitutional "as applied to the special needs districts." Abbott v. Burke, supra, 149 N.J. at 159. The Court did not declare the formula to be unconstitutional as applied to other school districts. Because Wildwood is not a special needs district, it cannot claim any rights based on the declaration of invalidity of the QEA funding formula as applied to special needs districts.

Moreover, there is no evidence that application of the stabilization provisions of CEIFA in calculating the state school aid distributed to Wildwood resulted in any significant decrease in its school budgets.*fn1 Insofar as the record before us indicates, the stabilization provisions may have only resulted in the imposition of a greater tax burden upon local property owners, a consequence that does not implicate the Thorough and Efficient Education Clause of the New Jersey Constitution. Therefore, we reject appellants' constitutional challenge to the stabilization provisions of CEIFA.

Appellants also argue that the Commissioner "miscalculated the CEIFA aid to which [Wildwood] is entitled." However, this argument is predicated on the assumption that the calculation of the state school aid distributable to Wildwood under the express terms of the CEIFA stabilization provisions would be unconstitutional, and consequently, those provisions must be interpreted in a manner that preserves their constitutionality. Because we conclude that the stabilization provisions of CEIFA are constitutional, there is no need to re-interpret them in order to preserve their constitutionality.

Affirmed.


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