Appeal of JOSEPH P. GIARDINA from actions of the Board of Education of the Bedford Central School District; Mark Slivka, President and finance subcommittee member; Brad Sacks, finance subcommittee member; Mark L. Betz, Assistant Superintendent for Business and Administration; and Coughlin Foundotos Cullen & Danowski, LLP, regarding reserve funds and financial practices.

Decision No. 15,583

(May 8, 2007)

Ingerman Smith, L.L.P., attorneys for respondent Board of Education, President Mark Slivka, member Brad Sacks, and Assistant Superintendent Mark L. Betz, Lawrence W. Reich, Esq., of counsel

Vedder Price, Kaufman & Kammholz, P.C., attorneys for respondent Coughlin Foundotos Cullen & Danowski, LLP, John. H. Eickemeyer, Esq., of counsel

MILLS, Commissioner.--Petitioner appeals certain financial practices and the use of tax certiorari reserve fund (“TCRF”) monies by the Board of Education of the Bedford Central School District (“respondent board” or “board”); board president Mark Slivka (“Slivka”); Brad Sacks (“Sacks”), a member of the board’s finance subcommittee; Mark L. Betz, the district’s assistant superintendent for business and administration (“assistant superintendent”) (collectively “the district respondents”); and its external auditing firm, Coughlin Foundotos Cullen & Danowski, LLP (“auditors”).  The appeal must be sustained in part.

At its meeting on July 14, 2005, the board approved a motion to authorize the appropriation of $650,000 from the 2004-2005 undesignated fund balance to the 2005-2006 budget to reduce the tax levy for the 2005-2006 school year.  It also approved a motion that the board approve “the establishment of a 2004–2005 Tax Certiorari Reserve, effective June 30, 2005, and fund it with any excess fund balance, not to exceed the certiorari petitions of $1,429,489.”  By letter dated September 1, 2005, the assistant superintendent notified the auditors that the board authorized the funding of a 2004-2005 TCRF in the amount of $1,310,000 from its June 30, 2005 fund balance effective June 30, 2005.

The 2005-2006 tax warrant, issued September 2005, provided in relevant part:

On May 17, 2005, the Bedford Central School District voters approved two propositions totaling $96,244,025, of which $95,994,025 is for school budget general fund appropriations and $250,000 is for transfers to capital fund for furniture and equipment.  Therefore, the total approved budget appropriation for expenditures for the 2005-2006 school fiscal year is $96,244,025.  For 2005-2006 the expected non-tax revenue is $9,257,499 and appropriated undesignated, unreserved fund balance is $650,000.  The balance to be raised through a tax levy is as follows: $86,336,526.

Petitioner asserts that the TCRF was improperly established on July 14, 2005.  He contends that the TCRF was improper because the board failed to state a specific amount appropriated for it.  Consequently, he contends, the TCRF was not established prior to the issuance of the tax warrant as required by law.  In addition, because the amount of the TCRF was indefinite, he contends that the amount of the 2004-2005 surplus was likewise inaccurate and most likely was understated.

Petitioner also asserts that, to the extent the TCRF might be deemed allowable, its total was unreasonable according to Education Law §3651(1-a), and the board significantly over-funded it merely to avoid returning more than $650,000 in surplus funds to taxpayers.  He also claims that the entire 2005–2006 tax warrant was invalid because it failed to specifically state the amount of the surplus in excess of two percent as required by statute.  He asserts further that the auditors failed to discover or disclose the significant over-funding of the 2004-2005 TCRF and erroneously concluded that the board practices complied with the RPTL and Education Law.

Petitioner contends generally that the budget practices of the district respondents produce planned multi-million dollar surpluses resulting in unnecessary and commensurately higher property taxes.  He claims that since the 2000-2001 school year, the board has failed to use the surpluses to reduce the tax levy as required by Real Property Tax Law (“RPTL”) §1318(1).  He contends that the district respondents have created unnecessary TCRFs and historically over-funded them to avoid returning surplus funds to the voters.

Petitioner seeks to have the Commissioner intervene in and oversee the board’s budget process.  He also seeks to have the board restate and correct all its tax certiorari reserves for school years 2002-2003 through 2004-2005 before the 2006-2007 budget proposition is presented to the voters, make available all relevant work papers from the 2004-2005 audit report, and comply with the RPTL and Education Law.  Petitioner further seeks the removal of Slivka and Sacks from their respective offices, and the removal of the assistant superintendent and auditors.  Petitioner’s request for interim relief was denied on February 8, 2006.

The district respondents contend that the petition fails to state a claim upon which relief may be granted.  They assert they have substantially complied with RPTL §1318(1) and Education Law §3651(1-a).  They also assert that the appeal must be dismissed as untimely, and for improper notice for the removal of Slivka and Sacks.  They maintain that the Commissioner lacks jurisdiction to remove the assistant superintendent and auditors.  They also state that the Commissioner does not issue advisory opinions.

The auditors contend that they are not a proper party to this appeal, that the Commissioner lacks jurisdiction over them, or, to the extent the Commissioner has jurisdiction, that he lacks the authority to remove them as auditors for the district.  They contend further that the petition is untimely and fails to state a claim upon which relief may be granted as to them.  Finally, they assert that petitioner lacks standing to maintain the appeal.

     I must first consider several procedural issues.  By letter dated May 15, 2006, petitioner requested permission to submit an amended petition purporting to include information about the district’s proposed 2006-2007 budget and 2005-2006 TCRF.  On May 24, 2006, the district respondents submitted a reply affidavit requesting that I reject petitioner’s request.  On June 5, 2006, petitioner submitted a reply to this affidavit.  I have reviewed these submissions.  The information in petitioner’s amended petition concerning the proposed 2006-2007 budget and 2005-2006 TCRF is derived from worksheets, work documents, and estimates generated before the end of the school year and, as such, is speculative.  Since petitioner is not foreclosed from bringing a timely appeal regarding these funds pursuant to RPTL §1318(1), I decline to accept it.  Consequently, I also reject the reply affidavit and reply.

     Petitioner attempts to bring his appeal on behalf of all taxpayers of the district.  Although petitioner, as a district resident and taxpayer, has standing to maintain the appeal, he may not do so on behalf of other taxpayers.  An appeal may only be maintained on behalf of a class where the class is so numerous that joinder of all members is impracticable and where all questions of fact and law are common to all members of the class (8 NYCRR §275.2; Appeal of Ockimey, 44 id. 169, Decision No. 15,136; Appeal of Garmaeva, 43 id. 253, Decision No. 14,988).  A petitioner must set forth the number of individuals he or she seeks to represent and must show that all questions of law and fact would be common to all members of the class (Appeal of Garmaeva, 43 Ed Dept Rep 253, Decision No. 14,988; Appeal of Broardt, 42 id. 126, Decision No. 14,796).  Petitioner’s pleadings are entirely devoid of any allegations addressing those criteria.  Therefore, petitioner’s request for class status is denied.

     An appeal to the Commissioner must be commenced within 30 days from the making of the decision or the performance of the act complained of, unless any delay is excused by the Commissioner for good cause shown (8 NYCRR §275.16; Appeal of O’Brien, 44 Ed Dept Rep 43, Decision No. 15,092; Appeal of Spina, 43 id. 354, Decision No. 15,016).  However, an appeal under RPTL §1318(1) is timely if it is brought within the school year during which unexpended surplus funds are allegedly improperly retained (Appeal of Golden, 45 Ed Dept Rep 392, Decision No. 15,362; Appeal of Uy and Norden, 44 id. 368, Decision No. 15,201; Appeals of Gorman, 43 id. 32, Decision No. 14,906).

Petitioner objects to the establishment of the 2004-2005 TCRF and contends that the board retained an unexpended fund balance in excess of two percent of the 2005-2006 budget in violation of RPTL §1318(1).  This appeal was commenced on January 25, 2006 during the 2005-2006 school year, the year during which the unexpended surplus funds were allegedly improperly retained.  To the extent petitioner challenges the creation and funding of the 2004-2005 TCRF, the appeal is timely.  For all prior school years, however, the appeal is untimely.

     The Commissioner will only decide matters in actual controversy and will not render a decision on a state of facts which no longer exist or which subsequent events have laid to rest (Appeal of B.K. and R.K., 44 Ed Dept Rep 195, Decision No. 15,146; Appeal of V.L., 44 id. 160, Decision No. 15,132; Appeal of Garvin, 44 id. 30, Decision No. 15,087).  To the extent petitioner sought to stay the development of the 2006-2007 budget until respondents corrected prior TCRFs and could forecast a reasonable estimate of the 2005-2006 fund balance, the denial of his request for interim relief on February 8, 2006, rendered that portion of the appeal moot.

     To the extent petitioner seeks to remove the assistant superintendent, the appeal must be dismissed.  Education Law §306 authorizes the Commissioner to remove a “trustee, member of the board of education, clerk, collector, treasurer, district superintendent, superintendent of schools or other school officer . . . .”  An assistant superintendent is not specifically enumerated as a school officer within the statute, and there is nothing in the record to suggest that the assistant superintendent in this case is a school officer.  As a district employee, he is not subject to removal under §306 (seeAppeal of Berman, 46 Ed Dept Rep 64, Decision No. 15,442; Application of Eagelfeld, 36 id. 186, Decision No. 13,696).

     The auditors assert that the Commissioner lacks jurisdiction over them.  Pursuant to Education Law §2116-a, they are independent contractors required to conduct external audits of the district.  While the Commissioner has jurisdiction to review the scope of the contract with the board, the auditors similarly are not school officers under Education §306 and are therefore not subject to removal.

     The district respondents contend that the appeal lacks jurisdiction over Slivka and Sacks because the caption of the petition and notice of petition do not properly seek their removal in accordance with §277.1(b) of the Commissioner’s regulations.  Slivka and Sacks are clearly named as respondents in the caption.  Furthermore, the notices of petition for each respondent contain the proper removal language pursuant to §277.1(b) and affidavits of service indicate that petitioner served Slivka and Sacks with a copy of the petition and notice.  It is the notice of petition that alerts a party that he or she is required to appear in the appeal and answer the allegations contained in the petition (8 NYCRR §275.11).  Under these circumstances, I find no basis for dismissal for lack of jurisdiction.

     Turning to the merits, RPTL §1318(1) requires that at the conclusion of each fiscal year, a board of education must apply any unexpended surplus funds to reduce its tax levy for the upcoming school year.  Surplus funds are defined as "any operating funds in excess of two percent of the current school year budget, and shall not include funds properly retained under other sections of law" (RPTL §1318[1]).  Accordingly, at the end of each school year, all unexpended operating funds in excess of two percent of the amount of the budget for the upcoming school year must be applied to reduce the tax levy (Appeal of Golden, 45 Ed Dept Rep 392, Decision No. 15,362; Appeals of Gorman, 43 id. 32, Decision No. 14,906).

However, RPTL §1318(1) permits a board of education to retain additional unexpended operating funds when authorized to do so “under other sections of law.”  Thus, the authority to exceed the two-percent limit applies only to reserve funds specifically authorized by law (Appeals of Gorman, 43 Ed Dept Rep 32, Decision No. 14,906; Appeal of Simons, 39 id. 744, Decision No. 14,367; Application of Mills, 34 id. 92, Decision No. 13,243).  Education Law §3651(1-a) authorizes the establishment of a TCRF without voter approval, provided that “the total of the monies held in such reserve fund shall not exceed the amount which might reasonably be deemed necessary to meet anticipated judgments and claims arising out of such tax certiorari proceedings.”

The 2004-2005 school year ended on June 30, 2005 (see Education Law §2[15]).  Therefore, the board’s resolution on July 14, 2005, to retroactively create a TCRF “effective June 30, 2005” was improper.  Under §3651(1-a), monies deposited in a TCRF must be used for tax certiorari proceedings for the tax roll in the specific year such monies are deposited.  Since the board intended the 2004-2005 TCRF to be used for claims arising during the 2004-2005 year, the board had to establish the TCRF not only with 2004-2005 funds, but during the 2004-2005 year.  I find, therefore, that the board improperly established the 2004-2005 TCRF and I admonish the district respondents to comply fully with the requirements of Education Law §3651(1-a) in the future.

     The district respondents also failed to comply with RPTL §1318’s requirement that "[t]he warrant of the collecting officer . . . shall state the amount of unexpended surplus funds in the custody of the board and shall further state that except as authorized or required by law, such unexpended surplus funds have been applied in determining the amount of the school tax levy."  Thus, the tax warrant should have explicitly stated the amount of surplus funds used to reduce the tax warrant.

     This failure, however, does not invalidate the tax warrant (seeAppeal of Silletti, 40 Ed Dept Rep 426, Decision No. 14,518).  Although the statutory language did not appear precisely in the tax warrant, the warrant sufficiently stated that the “appropriated undesignated, unreserved fund balance is $650,000.”  The district respondents are directed to use the statutory language in the future.

     Finally, petitioner seeks to remove Slivka and Sacks.  Although he contends that he seeks to remove them only from their respective positions on the board, not from the board itself, both board officers and board members are school officers (Education Law §2[13]), and the Commissioner has the power to remove school officers pursuant to Education Law §§306 and 1706.

A member of the board of education may be removed from office pursuant to Education Law §306 when it is proven to the satisfaction of the Commissioner that the board member has engaged in a willful violation or neglect of duty under the Education Law or has willfully disobeyed a decision, order, rule or regulation of the Board of Regents or the Commissioner of Education (Application of Lilly, 43 Ed Dept Rep 459, Decision No. 15,050; Application of Kavitsky, 41 id. 231, Decision No. 14,672; Application of Lilker, 40 id. 704, Decision No. 14,588).  To be considered willful, respondents’ actions must have been intentional and with a wrongful purpose.  Removal from office is a drastic remedy that should be taken only in extreme circumstances (Application of Cimino, 39 Ed Dept Rep 583, Decision No. 14,319; Application of Brennan, 35 id. 214, Decision No. 13,520).

     In an appeal to the Commissioner, a petitioner has the burden of demonstrating a clear legal right to the relief requested and the burden of establishing the facts upon which petitioner seeks relief (8 NYCRR §275.10; Appeal of Hoey and Kosowski, 45 Ed Dept Rep 501, Decision No. 15,394; Application of Bliss, 45 id. 308, Decision No. 15,331; Appeal of Rubinstein, 45 id. 299, Decision No. 15,329).  Although the retroactive establishment of the TCRF was technically improper as set forth above, there is nothing in the record to support a claim of purposeful deception.  The board made logistical and procedural mistakes by failing to act prior to the end of the 2004-2005 fiscal year.  Under the circumstances in this case, however, petitioner has failed to prove that any individual actions of Slivka or Sacks rose to the level of willful misconduct justifying removal.

In light of this disposition, I need not address the parties’ remaining arguments.

     THE APPEAL IS SUSTAINED TO THE EXTENT INDICATED.

     IT IS ORDERED that respondent board review the district’s budgeting practices and henceforth fully comply with Education Law §3651(1-a) and Real Property Tax Law §1318 and approve the district’s tax warrants in strict adherence to the statutory requirements.

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