Appeal of CARMEN DELESSIO from action of the Board of Education of the Katonah-Lewisboro Union Free School District regarding financial practices.

Decision No. 17,220

(October 18, 2017)

Ingerman Smith, LLP, attorneys for respondent, Mary Anne Sadowski, Esq., of counsel

ELIA, Commissioner.--Petitioner challenges certain financial practices of the Board of Education of the Katonah-Lewisboro Union Free School District (“respondent” or “board”), including the alleged illegal use of funds budgeted for other purposes for a capital project without voter approval.  The appeal must be dismissed.

Petitioner alleges that the district pays for unapproved capital projects by improperly uses ordinary budget line items intended for normal maintenance for capital projects and then over-budgeting for maintenance expenditures. Petitioner also alleges that respondent has improperly moved funds to district reserves without voter approval in violation of Education Law §3651 and has violated Real Property Tax Law (“RPTL”) §1318 by overestimating expenditures and improperly retaining funds that should have been used to reduce taxes.  Petitioner further alleges that the financial practices of the district have led to the presentation of budgets that include misleading and false statements.  Petitioner alleges that respondent approved a 2014-2015 school year budget that “deceptively” included a transfer of $400,000[1] from general funds to a capital reserve by intentionally hiding it in the “fine print” of the budget.    Petitioner further alleges that on October 9, 2014, respondent voted to use $45,000 of the money improperly transferred to the “capital budget” to hire an architectural firm in connection with a capital project to renovate and construct a district office building (“district office building project”).

Petitioner’s request that I issue a stay to prevent respondent from taking further steps toward construction of the district office building project and to halt use of regular budget funds for capital projects was denied.

Respondent denies petitioner’s allegations and asserts that its budget practices are fiscally sound and in accordance with law. Respondent contends that funds were lawfully transferred in 2010 and 2012 from surplus budget codes to line items for Contract Service-Grounds and Minor Building Repairs/Improvements, respectively, and that petitioner has failed to prove that such funds have been expended for capital projects which were not approved by district voters.  Respondent further contends that its proposed 2014-2015 budget included an inter-fund transfer to the capital fund for certain maintenance and repair projects, including the district office building project, that the district office building project was discussed at a public meeting held on or about May 8, 2014 and that voter approval of the district office building project was obtained when the voters approved the district’s 2014-2015 budget on May 20, 2014. Respondent further contends that the appeal should be dismissed for failure to state a claim upon which relief may be granted and for untimeliness.

I will first address the procedural issues.  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 Lippolt, 48 Ed Dept Rep 457, Decision No. 15,914; Appeal of Williams, 48 id. 343, Decision No. 15,879).  Petitioner contends that the appeal is timely because it was served within 30 days of respondent’s October 9, 2014 vote to use $45,000 to hire an architectural firm for the district office project from the $400,000 that petitioner alleges was improperly transferred to a capital reserve in the 2014-2015 budget.  Petitioner further contends that the appeal is timely because it is brought under Real Property Tax Law §1318 to challenge respondent’s alleged improper retention in the 2014-2015 school year of unexpended surplus funds in excess of the four percent statutory limit. 

Petitioner originally attempted to serve a copy of his petition on respondent on November 10, 2014, but by letter dated November 17, 2014, my Office of Counsel (“OC”) returned the petition for failure to include the notice required under 8 NYCRR §§275.11 and 276.1, and for failure to include a caption to his appeal. The letter from OC advised petitioner that if a corrected petition was served and filed within two weeks of the date of the letter, for purposes of determining timeliness, the appeal would be deemed to have commenced when personal service of the original petition was made.  Petitioner subsequently commenced this appeal by service of a corrected petition on respondent on November 24, 2014, during the 2014-2015 school year and within the one-week period set forth in the OC letter. 

An appeal brought pursuant to RPTL §1318(1) is timely if it is brought within the school district’s fiscal year during which unexpended surplus funds are improperly retained (Appeal of Gorman, 52 Ed Dept Rep, Decision No. 16,412; Appeal of Schadtle, 40 id. 60, Decision No. 14,421; Appeal of Siver, 37 id. 498, Decision No. 13,912). Therefore, to the extent that petitioner challenges the alleged improper retention of surplus funds in the 2014-2015 school district fiscal year, the appeal is timely.

However, to the extent petitioner challenges the inter-fund transfer included in the 2014-2015 budget and the allegedly deceptive way it was presented in the budget, the appeal is untimely since it was not commenced within 30 days of approval of the 2014-2015 budget on May 20, 2014 (see Appeal of Lawson, 33 Ed Dept Rep, Decision No. 13,102). Contrary to petitioner’s argument, his time to appeal from the allegedly illegal transfer of funds in the 2014-2015 budget is not extended by the board’s subsequent approval of an expenditure of funds from the capital fund for expenses of an architectural firm in developing plans and specifications on October 9, 2014.  Petitioner cites no authority to support his position or any evidence establishing that his delay is reasonable under the circumstances and, therefore, I find no basis upon which to excuse the late filing for “good cause” (8 NYCRR §275.16; see e.g. Application of Jones, et al., 55 Ed Dept Rep, Decision No. 16,823; cf. Application of Griffin, 31 id. 221, Decision No. 12,625 [where removal of board members sought for both approving a spending plan in excess of budgeted fiscal appropriations and incurring expenditures in excess of said appropriations, claims arising from the budget vote were untimely because the challenged action of the board occurred 21 months prior to the commencement of the proceeding, but claims regarding expenditures incurred were timely because, based on the complexity of the financial issue, it was reasonable for petitioner to wait until he was able to verify the level of overspending before commencing the appeal]).

Finally, the appeal is clearly untimely with regard to the development and adoption of budgets for the 2010-2011, 2011-2012 and 2012-2013 school years and any allegedly illegal fund transfers that occurred during those years. The various actions challenged by petitioner regarding the transfer of operating funds to the capital fund for use in minor maintenance and repair projects and for construction of the district office building are discrete actions by the board without continuing effect and I do not find that respondent’s action in transferring operating funds to its capital fund for such purposes are intrinsically illegal.  Under such circumstances the continuing wrong doctrine, which is an exception to the general 30 day rule for bringing an appeal, does not apply (Appeal of Wille, 56 Ed Dept Rep, Decision No. 17,050).  Petitioner has not provided any excuse for the delay and, with the exception of petitioner’s claim that respondent has violated RPTL §1318 by carrying over excess surplus funds into its 2014-2015 budget, the appeal must be dismissed as untimely.

Turning to the merits, 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 Aversa, 48 Ed Dept Rep 523, Decision No. 15,936; Appeal of Hansen, 48 id. 354, Decision No. 15,884; Appeal of P.M., 48 id. 348, Decision No. 15,882).

Under RPTL §1318(1), 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 four percent of the current school year budget, and shall not include funds properly retained under other sections of law" (RPTL §1318[1]).  Accordingly, the Commissioner has repeatedly held that, at the end of each school year, all unexpended operating funds in excess of the statutorily permitted four percent of the amount of the budget for the upcoming school year must be applied to reduce the tax levy (Appeal of Wille, 56 Ed Dept Rep, Decision No. 17,050; Appeal of Uy and Norden, 44 id. 368, Decision No. 15,201; Appeals of Gorman, 43 id. 32, Decision No. 14,906).

Petitioner alleges that respondent has exhibited a pattern of overestimating its expenditures from 2010 through 2012, and has provided data showing that the budgeted expenditures in the district’s 2010-2011 through 2012-2013 budgets exceeded actual expenditures in each year.  However, beyond this alleged past practice of overestimating expenditures, petitioner has not provided any proof that the estimating process used by respondent in developing its budget for the 2014-2015 school year was irrational, unreasonable or in violation of law (see Appeal of Gorman, 52 Ed Dept Rep, Decision No. 16,412).  In fact, the record is devoid of evidence relating to the district’s unrestricted fund balance under the 2014-2015 school district budget, including the amount retained in reserve funds.  On this record, therefore, I am unable to make any determination on whether respondent board improperly retained unexpended surplus funds in violation of RPTL §1318 in conjunction with its 2014-2015 budget.  Therefore, petitioner has failed to meet his burden of proving his claim that respondent has violated RPTL §1318 and such claim must be dismissed (see Appeal of Affronti, 54 Ed Dept Rep, Decision No. 16,756).

While petitioner’s claims relating to respondent’s allegedly illegal use of budget funds for capital projects that have not been approved by the voters have been dismissed as untimely, for the benefit of the parties, I will briefly discuss such claims.  I agree with respondent that Education Law §§416(1) and 1709(22), which require voter approval of school construction projects, do not require that such approval be obtained solely through separate propositions. Thus, it is possible to include a capital project, such as a maintenance and repair project, in the school district’s budget and obtain the required voter approval through approval of the budget, which is what respondent did with the district office building project.  On page 107 of the school district budget, respondent indicates that $600,000 in operating funds have been transferred to the capital component of the budget for a variety of maintenance and repair projects and “Renovations/construction at JJMS or JJHS to construct new District Office.”  While petitioner alleges that $400,000 was transferred by respondent to a capital reserve fund, that allegation is denied by respondent, and there is no evidence in the record to support such allegation. Thus, Education Law §3651 relating to reserve funds does not apply. Petitioner has not identified any illegality in the inter-fund transfer, other than his complaint that voter approval had not been obtained, which did occur through voter approval of the budget in this case.

However, Education Law §1716(4) requires that expenditures for maintenance and repair be included in a rental, operations and maintenance section of the capital component of the budget.  In Application of Cimino, 39 Ed Dept Rep 583, Decision No. 14,319, the Commissioner ruled that it was unlawful for a district to treat a reconstruction project as a maintenance project and fund it out of the operations and maintenance budget rather than treat it as a capital project.  While the record here does not include a specific description of the district office building project, the board resolution approving a contract for architectural services for the project indicates that it is a project for the purpose of constructing a new district office, and the language on page 107 of the budget itself suggests that it is a reconstruction project.  If so, I remind respondent that it is improper to treat a reconstruction project as a maintenance project and fund it in the rental, operations and maintenance section of the capital component of the budget (Application of Cimino, 39 Ed Dept Rep 583, Decision No. 14,319).

Finally, while the record indicates that respondent disclosed to the voters in various budget documents and in public discussions that a portion of the $600,000 inter-fund transfer would be used to fund the district office building project, many of those disclosures were lacking in detail and could have caused voter confusion.  To avoid unnecessary disputes in the future, respondent should be very explicit in identifying the nature and amount of expenditures for any capital project included within the district budget.

THE APPEAL IS DISMISSED.

END OF FILE