Appeal of ANTHONY F. DELOUISE from action of the Board of Education of the Shoreham-Wading River Central School District, Superintendent Dr. Harriet Copel and District Clerk Janice Seus regarding a contingency budget.

Decision No. 16,058

(May 7, 2010)

Guercio & Guercio, LLP, attorneys for respondents, Vanessa M. Sheehan, Esq., of counsel

STEINER, Commissioner.--Petitioner appeals certain actions of the Board of Education of the Shoreham-Wading River Central School District (“respondent board” or “board”) regarding the 2009-2010 school district budget.  The appeal must be dismissed.

On May 19, 2009, the district’s voters defeated the proposed budget by a vote of 1238 in favor to 2010 opposed.  The defeated budget contained an increase in the tax rate of 26.6%.  Thereafter, on June 2, 2009, pursuant to Education Law §2023, the board resolved to adopt a contingency budget.  The contingency budget included a tax rate increase of 25.9%.  Petitioner objects to the increase in the school tax levy necessary to fund the adopted contingency budget and asserts it exceeds the 4% spending increase permitted in §2023(4)(a).

On June 16, 2009, petitioner commenced a proceeding in Supreme Court, Suffolk County, pursuant to CPLR Article 78, requesting a Temporary Restraining Order (“TRO”).[1]  On that same date, the court denied petitioner’s request for a TRO.  On July 9, 2009, the court denied petitioner’s request for a preliminary injunction based upon the doctrine of primary jurisdiction.  This appeal ensued.  Petitioner’s request for interim relief was denied on August 27, 2009.

Petitioner contends that respondents’ actions violate the uniform application of Education Law §2023(4)(a) by creating a “split tax” theory that allows the district to carry over prior expenses, bypassing the intent of the law.  He contends that the contingency budget violates Education Law §2023(4)(a) because the 25.6% increase exceeds the 4% increase in spending over 2009 expenses permitted by that section.  Petitioner seeks an order directing respondents to set aside the tax increase and comply with Education Law §2023.

Respondents contend that the appeal must be dismissed for failure to state a claim upon which relief may be granted and because petitioner has failed to demonstrate a clear legal right to the relief requested.  They assert that they fully complied with the Education Law in calculating the contingency budget and deny that their actions were arbitrary or capricious.

I must first address several procedural issues.  On August 26, 2009, petitioner served a “reply affidavit” in response to respondents’ affidavit in opposition to his stay request, for which there is no authority under the regulations (see 8 NYCRR §275.3; Appeal of Hansen, 48 Ed Dept Rep 354, Decision No. 15,884).  I will not consider this as petitioner’s reply because respondents had not yet served their answer, and indeed, were not required to serve their answer until September 1, 2009, 20 days after service of petition (8 NYCRR §275.13[a]).  On October 14, 2009, petitioner served a second “reply affidavit”.  Since this “reply” was served more than 10 days after service of the answer, it was late and I will not consider it (8 NYCRR §275.14[a]; Appeal of Peterson, 46 Ed Dept Rep 558, Decision No. 15,595; Appeal of E.B. and J.B., 46 id. 338, Decision No. 15,526).

In addition, respondents submit an affidavit that service of the “reply affidavit” was made upon a person unauthorized to accept service on behalf of the school board or the superintendent.  Therefore, its service was improper and unacceptable (see 8 NYCRR §275.8).

The district’s complex budget history dates back to the 1980s when the Shoreham Nuclear Power Plant within the district’s borders was under construction.  The power plant, however, never opened, and the property was transferred to the Long Island Power Authority.  It remained on the tax rolls of the district and the property’s taxable value was used in the computation of state aid, although, as a result of tax certiorari proceedings, the property’s taxable value was later reduced (seegenerally, Long Island Power Authority v. Shoreham-Wading River Central School Dist., 88 NY2d 503).  Consequently, the district perennially received lower allocations of state aid than it would have had the tax rolls used for calculating aid reflected the results of the tax certiorari proceedings.  Following years of litigation, the State Legislature enacted legislation authorizing recomputation of state aid payments to reflect the assessment authorized by the tax certiorari proceedings, authorizing establishment of a reserve for tax reduction, and authorizing the district to borrow money to fund its school budgets in anticipation of the receipt of such payments (see L. 2006, ch. 61, Pt. J, §1; L. 2007, ch. 340; L. 2008, ch. 298).

The State Education Department (“SED”) approved almost $36 million to be repaid to the district pursuant to such legislation, which authorized respondent board to borrow funds in anticipation of the repayment through the Municipal Bond Banking Agency (“MBBA”).  In order to borrow the money, the legislation also required the board to freeze the tax rate at the 2005-2006 level for three years, through the 2009-2010 school year.  In 2008, however, legislation was enacted (Chapter 298 of the Laws of 2008) to require a tax rate freeze only through the 2008-2009 school year.  In addition, the district asserts that it determined that borrowing through the MBBA was too costly and carried too much liability.  Instead, the district determined to borrow the money it needed to fund its budgets in anticipation of receiving the prior years’ state aid from SED through use of Revenue Anticipation Notes (“RANs”), also authorized by special legislation.

Thus, for those years of mandated tax rate freezes, although the district was increasing its budgets every year, it could not increase its revenue by increasing its tax rates, and instead borrowed funds via RANs to make up the shortfall.  Simultaneously, the amount of state aid appropriated to the district by the Legislature for prior year adjustments was reduced in 2009-2010, and consequently, the district received less in prior years’ repayments for that school year than it had anticipated.

For the 2009-2010 school year, the freeze on tax rates was no longer statutorily imposed.  According to respondents, the district determined it was no longer in the taxpayers’ best interest to continue to increase RAN debt and borrow against future payments of prior state aid repayments since it was unknown when or if those funds would be appropriated or at what level.  Accordingly, respondent board determined not to issue additional RANs in anticipation of receiving prior years’ state aid.  Since the tax freeze was no longer legislatively mandated, in adopting the 2009-2010 contingency budget, the tax rate took an unusually high jump reflecting the stagnated and artificially imposed freeze of prior years.

Respondents assert that in computing the contingency budget, although the tax rate increased, the spending increase was still within the statutory spending limit imposed by Education Law §2023.  They assert, according to the affidavit submitted by the district’s interim assistant superintendent for business (“assistant superintendent”), that the contingency budget was calculated in accordance with Education Law §2023 and a worksheet provided by SED for such purposes.  I agree.

Petitioner misapprehends the law.  He has confused the percentage used to calculate a contingency budget with a percentage increase in a tax levy.  Education Law §2023(4)(a) provides:

The contingency budget shall not result in a percentage increase in total spending over the district’s total spending under the school district budget for the prior school year that exceeds the lesser of: (i) the result obtained when one hundred twenty percent is multiplied by the percentage increase in the consumer price index ...; or (ii) four percent (emphasis added).

As I explained in Appeal of Hansen (48 Ed Dept Rep 354, Decision No. 15,884), where petitioner also misapprehended §2023(4)(a):

Section 2023(4)(e)(v) defines “Total Spending” as the “total amount appropriated under the school district budget for the school year.”  However, in calculating total spending, §2023(4)(b) mandates that respondent disregard several categories of expenditures, such as emergency, nonrecurring or capital expenditures, among others.

The determination of “total spending” is completely separate and distinct from the eventual establishment of a tax rate or tax levy.  The so-called “cap” or 4% limitation is a limitation on total spending from the prior year’s budget to the next, not on a tax rate.  A district must first establish its budget, and then determine how to garner funds to pay for the budget, through a combination of state aid, taxes and other sources of revenue.  Section 2023 has nothing to do with setting the tax rate.  Furthermore, contrary to petitioner’s allegations, nothing in §2023 permits respondents to calculate the 2009-2010 contingency budget using the 2005-2006 budget as a base.

As the assistant superintendent avers, to determine the possible contingency budget for the 2009-2010 school year, he started with the district’s prior year 2008-2009 budget as adopted by the voters ($53,753,741), from which he subtracted authorized statutory exclusions (for budgeted expenditures, court orders or judgments, budgeted capital expenditures, non-recurring expenditures, payments to charter schools and self-supporting privately funded programs) to determine the total spending, or adjusted budget for that year ($50,996,616), and then multiplied that by 4% to reach a figure of $53,036,481.  This figure was then further adjusted by adding back in certain exclusions (for budgeted expenditures for court orders or judgments, budgeted capital expenditures, payments to charter schools, self-supporting privately funded programs and the MTA employer tax) to yield the total spending allowable under a contingency budget for the 2009-2010 school year ($55,934,688).  In fact, the contingency budget adopted by the board on June 2, 2009 was $55,909,385, approximately $25,000 below the allowable maximum.

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 Brown, 46 Ed Dept Rep 584, Decision No. 15,602; Appeals of Hubbard, 46 id. 533, Decision No. 15,585; Appeal of Darrow, 46 id. 182, Decision No. 15,477).  Petitioner has failed to prove that respondents violated Education Law §2023 or any other budget provisions.  On the record before me, I cannot conclude that respondents improperly calculated the 2009-2010 contingency budget and I find that the budget is within the allowable maximum.

Nor can I find that respondents’ determination to avoid incurring additional debt or debt service was irrational or unreasonable.  Petitioners and other residents of the district benefited from years of artificially frozen tax levy rates since 2005-2006, even as their school budgets increased, and this year’s tax increase reflects that reality.

THE APPEAL IS DISMISSED.

END OF FILE.