On appeal from a final decision of the Commissioner of Education, Board of Review.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Winkelstein, Fuentes and Chambers.
On February 5, 2007, the Township of Liberty filed a petition to withdraw from the Great Meadows Regional School District (the District) in Warren County. The District consists of two municipalities, Liberty and the Township of Independence. Independence opposed the withdrawal. Following a public hearing, on April 20, 2007, the Board of Review (the Board) denied Liberty's application. On May 31, 2007, the Board amplified its decision. We affirm substantially for the reasons expressed by the Board.
The District, formed in 1993, consists of three schools: Liberty Township Elementary School, attended by Liberty Township children from kindergarten through fifth grade (K-5) (Liberty Elementary); Independence Township Central School, attended by Independence Township children from K-5 (Independence Central); and Great Meadows Regional Middle School (Great Meadows Regional), attended by children of both townships from grades six through eight. Both townships send their students to Hackettstown High School for grades nine through twelve, pursuant to a sending-receiving agreement.
Liberty's withdrawal would result in the dissolution of the District. N.J.S.A. 18A:13-63. Upon the dissolution, the Liberty students would leave Great Meadows Regional and return to Liberty Elementary, which would revert to the K-8 school it was prior to the formation of the District. Liberty submitted a dissolution Feasibility Study and a Supplement to that study (collectively the Study). According to the Study, the dissolution would cause a loss of between forty to sixty students per grade in grades six through eight at Great Meadows Regional. Enrollment at Liberty Elementary, which has a capacity of 358 students, could range between 388 and 421 students as a K-8 school over the next five years. Classrooms dedicated to art and music would likely be lost, as would an additional classroom used by the Warren County Special Services District. The Study predicted that Independence Central would not need any changes. The sending-receiving agreements with Hackettstown School District would continue.
The Study proposed a staggered transition plan where, in the first year, Liberty students entering the sixth grade would remain at Liberty Elementary, while seventh and eighth grade students would remain at Great Meadows Regional. The following year, only eighth grade students would remain at Great Meadows Regional, with sixth and seventh graders remaining at Liberty Elementary.
The Study indicated that even if Liberty Elementary used rooms currently dedicated to music, art and computers as regular classrooms, enrollment could exceed capacity, requiring additional classrooms. Therefore, as addressed by the Study, replication of the curriculum now offered at Great Meadows Regional would require portable classrooms or additional construction at Liberty Elementary.
The studies submitted by both parties contain additional analysis and conclusions concerning the debt that would be incurred upon dissolution; the cost of new construction at Liberty Elementary, other administrative costs caused by having two separate districts, the State aid that would be received by the separate districts, the quality of education that would be provided upon dissolution, and property tax considerations.
The Board determined that upon dissolution, Liberty would incur an excessive debt burden. The Board relied upon the parties' projections of what Liberty's borrowing margin would be as an independent district. A school district's borrowing margin is established by a formula that relates to the amount of debt a district can incur through the issuance of bonds, which is determined by a percentage of the averaged equalized valuation of taxable property within a district. See N.J.S.A. 18A:24-1b; N.J.S.A. 18A:24-19. As a K-8 district, Liberty would have a total borrowing margin of 3% of the average equalized valuation of its taxable property. N.J.S.A. 18A:24-19.
The Study stated that Liberty would have a total borrowing margin of $8,574,634 after dissolution. After subtracting Liberty's proportional share of Great Meadows's net school debt, calculated to be $3,351,301, Liberty would be left with an available borrowing margin of $5,223,333. The Split Trail Report, which Liberty attached to its supplemental brief to the Board, estimated Liberty's total borrowing margin to be $9,237,324 and the net school debt to be $2,293,165, resulting in an available borrowing margin of $6,944,159.
The District submitted a report prepared by Vincent D. Yaniro of VDY Consulting. The Yaniro report calculated that Liberty had a total borrowing margin of $9,213,232, and would incur $2,332,800 of Great Meadows's school debt upon dissolution. The report discussed the $5,268,700 construction cost for Liberty Elementary, the same figure calculated in the Study, as part of Liberty's outstanding debt. Using the numbers in the Yaniro report, the Board concluded that upon dissolution, Liberty would only have an available borrowing margin of $1,611,732. While none of Liberty's submissions include an available borrowing margin this low, the Split Trail Report stated that if Liberty authorized the anticipated bonds for the addition, Liberty would use nearly 82% of its available borrowing margin. This would result in a remaining borrowing margin similar to that referenced in the Yaniro report.
Originally, both Liberty and the Board assumed that when Liberty borrowed the money to pay for the addition, the State would contribute 40% of Liberty's yearly payments on that debt. The Board was concerned that this State aid would not be available when the addition was constructed; therefore, it requested that the parties analyze Liberty's debt burden assuming that debt service would no longer be available. The Yaniro report concluded that without State debt service, the project would cost an additional $733,402 over a four-year period. While the Split Trail Report notes that this loss would "have a slightly negative impact," it concludes that the average taxpayer in Liberty would still save over $1,100 compared to the current configuration. This conclusion was based on the original tax impact analysis contained in the Study, as well as on the assumption that the current formula for State aid will remain in place. The Warren County Superintendent (the Superintendent) noted that even with 40% debt service, Liberty would assume $2,561,695 in debt from the Regional District, and $3,161,220 of new debt for the addition.
The Board also considered a letter submitted by Edwards Engineering Group stating that stricter future environmental treatment standards would require Liberty to replace Liberty Elementary's sewage treatment system at a potential cost of over $500,000 (plus operating costs). Edwards recommended a septic system at the cost of $250,000 to $350,000. The Board found that this cost should be considered in light of Liberty's borrowing margin.
The Board found not only that dissolution would cause Liberty to incur an excessive debt burden, but that the remaining school districts could not maintain efficient school systems without excessive costs. In reaching that decision, the Board relied upon the following: the need for Liberty to obtain temporary classrooms to accommodate additional sixth through eighth grade students and administrative staff; the need for Liberty to hire additional administrative and support staff; the need for Liberty to purchase additional professional services, equipment, and supplies; and that Great Meadows Regional would be underutilized after dissolution.
According to the Study, portable classrooms might be necessary at Liberty Elementary to match the co-curricular courses available at Great Meadows Regional. The number of new classrooms needed would depend on the desired class size, and whether there would be dedicated music, art, and computer rooms.
In his letter objecting to Liberty's proposed withdrawal, the Superintendent stated that Liberty Elementary would need portable classrooms during the three- to five-year transition period, while construction would be ongoing, and dedicated classrooms would not be available for art and music. Similarly, the Yaniro report concluded that portable classrooms would be necessary during construction, regardless of whether a staggered transition was implemented pursuant to Liberty's proposal. That report stated that four portable classrooms for twenty-five pupils would be necessary, each of which would cost $150,000 per year. The Study confirmed this need, proposing an addition including six classrooms with a maximum capacity of twenty-five, an art room, computer room, and a multi-purpose room. The Board adopted the Yaniro report's conclusion that temporary classrooms could cost Liberty $600,000 per year over a period of three to five years following dissolution.
The Study further noted that upon dissolution, Liberty would need to hire a new superintendent, a business administrator, two secretaries, and possibly a bookkeeper. It described the need for a second administration as a disadvantage of withdrawal. The Split Trail report found that an administrative principal (a combination of a superintendent and principal) and a business ...