On certification to the Superior Court, Appellate Division.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Like Board of Education of the City of Millville v. New Jersey Department of Education, ___ N.J. ____ (decided May 19, 2005), this case concerns funding determinations by the Commissioner of Education (Commissioner) in respect of the preschool programs required by the Court's decision in Abbott v. Burke and subsequently promulgated regulations of the Department of Education (DOE). In this matter, the City of Passaic Board of Education (District) initially raised three issues. The first issue has been resolved in the Millville opinion. That is, that the Commissioner is required to ensure that the Abbott districts have sufficient resources to provide quality preschool programs for three- and four-year-old children and that his approach to funding early childhood education does not violate that requirement.
Early in the litigation, the District withdrew its second issue, which dealt with the reallocation of monies from its undesignated general fund.
The third, and final, question was whether the DOE could reduce state preschool aid midway through the school year based on a per-pupil methodology. It is that issue that the Court addresses in its opinion.
On February 22, 2002, the DOE approved the District's initial amended early childhood budget for the 2002-2003 school year at $18,064,151. This was based on a projected enrollment of 1,917 three- and four-year olds. A mid-year audit revealed that the actual enrollment was only 1,038. The DOE approved a revised District budget of $12,330,283 based on the revised enrollment figure and then reduced the District's previously-awarded Preschool Expansion Aid (PSEA) using a per-pupil calculation to establish the adjusted award. To satisfy preschool budget demands for the remainder of the 2002-2003 school year, the District sought an additional $1,157,163.
The District appealed the PSEA reduction to the Commissioner, arguing that DOE had acted in an arbitrary and capricious manner in adjusting the award using a per-pupil methodology. The Commissioner referred the matter to the Office of Administrative Law. An Administrative Law Judge (ALJ) conducted two days of hearings before concluding that the District's challenge to the per-pupil calculation was without merit. The Commissioner accepted the ALJ's findings and conclusions.
The District appealed to the Appellate Division. In an unpublished opinion, that court held that the per-pupil methodology used to calculate the downward adjustment in the District's preschool budget was a proper exercise of the Commissioner's discretion.
The Supreme Court granted the District's petition for certification.
HELD: Adjustments to state aid formulas that are not calibrated with program costs cannot be made late in the school year unless there is a meaningful opportunity for the District to present information related to actual costs and the adjustment is then realigned with those actual costs.
1. The District argues that the per-pupil methodology used by the DOE inflated the District's savings after it experienced lower than anticipated enrollments in its preschool programs. Further, the District suffered a deficit because certain fixed costs were not reduced by the lower enrollments, thus resulting in a PSEA award that fell below actual need. Those adjustments were in contravention of the Legislature's direction in the Fiscal Year 2003 Appropriations Act. (p. 7)
2. The Court held in Abbott VIII that district budgets and DOE responses must be developed and articulated with specificity and that preschool budget calculations must yield funding decisions that are based not on arbitrary, predetermined per-student amounts, but rather on a record containing funding allocations developed after a thorough assessment of actual need. The approach taken by the Commissioner in this case is acceptable only if the Commissioner affords the District an opportunity to present data on fixed costs that cannot be reduced, and if an adjustment is made to the calculation taking into account those continuing expenses, which would bring the overall PSEA recapture amount into line with actual need. (pp. 8-9)
3. The Court's focus on actual need is consistent with the Legislature's language in the Fiscal Year 2003 Appropriations Act. "Actual need" should not be ...