IN THE MATTER OF THE PETITION FOR AUTHORIZATION TO CONDUCT A REFERENDUM ON THE WITHDRAWAL OF NORTH HALEDON SCHOOL DISTRICT FROM THE PASSAIC COUNTY MANCHESTER REGIONAL HIGH SCHOOL DISTRICT

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NOS. A-0

A-0811-13T1

IN THE MATTER OF THE PETITION FOR

AUTHORIZATION TO CONDUCT A REFERENDUM

ON THE WITHDRAWAL OF NORTH HALEDON SCHOOL

DISTRICT FROM THE PASSAIC COUNTY

MANCHESTER REGIONAL HIGH SCHOOL DISTRICT.

__________________________________________

October 22, 2015

Argued September 29, 2015 Decided

Before Judges Yannotti, St. John and Guadagno.

On appeal from the Department of Education, Docket No. 64-2/06.

Allan P. Dzwilewski argued the cause for appellant/cross-respondent (in A-0789-13) Borough of Prospect Park (Schwartz Simon Edelstein & Celso, LLC, attorneys; Mr. Dzwilewski, of counsel; Mr. Dzwilewski and Christopher A. Dzwilewski, on the briefs).

Vito A. Gagliardi, Jr. argued the cause for respondents/cross-appellants (in A-0789-13) and respondents (in A-0811-11) North Haledon Board of Education and the Borough of North Haledon (Porzio, Bromberg & Newman, P.C., attorneys; Mr. Gagliardi, of counsel; Mr. Gagliardi and Kerri A. Wright, on the briefs).

Derlys M. Gutierrez argued the cause for respondent (in A-0789-13) and appellant (in A-0811-13) Borough of Haledon (Adams Gutierrez & Lattiboudere, LLC, attorneys; Ms. Gutierrez, of counsel; Ms. Gutierrez and Sandra T. Jimenez, on the briefs).

Geoffrey N. Stark, Deputy Attorney General, argued the cause for respondent (in A-0789-13 and A-0811-13) Commissioner of Education (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Mr. Stark, on the brief).

PER CURIAM

The Borough of Haledon ("Haledon") and the Borough of Prospect Park ("Prospect Park") appeal from a final decision of Commissioner of Education Christopher Cerf ("Commissioner Cerf"), dated August 29, 2013, establishing a funding allocation formula for the constituent municipalities of the Manchester Regional High School District (the "District"). The Borough of North Haledon and the North Haledon Board of Education ("North Haledon") cross-appeal from Commissioner Cerf's decision. We affirm.

I.

We briefly summarize the relevant facts. In 1957, the voters in North Haledon, Haledon and Prospect Park approved the formation of the District, in order to provide secondary education for students from the three municipalities. The Manchester Regional High School opened in July 1960, and the three constituent municipalities continued to operate their own schools for kindergarten through eighth-grade students. Initially, the District's costs were apportioned among the constituent municipalities on a per pupil basis.

In 1967, the State Legislature enacted Title 18A of the New Jersey Statutes, governing education. L. 1967, c. 271. The newly enacted N.J.S.A. 18A:13-23 provided in pertinent part that operating expenses of regional school districts shall be apportioned on a per pupil basis, when the district has apportioned those costs on the basis of the number of pupils enrolled on the last school day of September of the current school year. L. 1967, c. 271.

In 1975, the Legislature amended N.J.S.A. 18A:13-23 to require that funding for regional school districts be apportioned "upon the basis of the portion of each municipality's equalized valuation allocated to the regional district, calculated as described in the [definition section] . . . of this amendatory and supplementary act." L. 1975, c. 212, 29.

The term "equalized valuation[]" was defined as "the equalized valuation of the taxing district or taxing districts as certified by the Director of the Division of Taxation on October 1 of the pre-budget year." Id. at 3. This amendment caused a significant increase in North Haledon's share of the District's operating expenses. In re Petition for Authorization to Conduct a Referendum on the Withdrawal of N. Haledon Sch. Dist. from the Passaic County Manchester Reg'l High Sch. Dist., 181 N.J. 161, 165-66 (2004).

In 1993, N.J.S.A. 18A:13-23 was again amended. L. 1993, c. 67, 1. The amended statute provided that appropriations for regional districts could be apportioned among their constituent municipalities based upon

a. the portion of each municipality's equalized valuation allocated to the regional district . . . ;

b. the proportional number of pupils enrolled from each municipality on the 15th day of October of the prebudget year in the same manner as would apply if each municipality comprised separate constituent school districts; or

c. any combination of apportionment based upon equalized valuations pursuant to subsection a. of this section or pupil enrollments pursuant to subsection b. of this section.

[Ibid.]

The amended statute provided, however, that the adoption of a new apportionment scheme required "approv[al] by the voters of each municipality at the annual school election or a special school election." Ibid.

In 1995, North Haledon sought voter approval to return to its original per pupil apportionment scheme. In re Withdrawal of N. Haledon Sch. Dist., supra, 181 N.J. at 166. The referendum was not approved by the statutorily-required majority of voters in Haledon or Prospect Park. Ibid. As a result, the District's costs continued to be apportioned based on equalized property values. Ibid. By 1994, North Haledon was required to pay more than half of the District's operating costs, but only providing about twenty-eight percent of the students. Ibid.

In November 2001, North Haledon filed a petition with the Commissioner "for permission to submit the issue of withdrawal to the voters." Id. at 167. The Commissioner referred the matter to the Board of Review (the "Board"), which is authorized by N.J.S.A. 18A:13-56 to decide "whether the question of withdrawal should be put to the voters." Id. at 167-68. The Board approved the referendum, and directed the Superintendent of Schools for Passaic County (the "Superintendent") to schedule a special school election to consider the withdrawal. Id. at 171.

The Superintendent scheduled the election for September 24, 2002. Id. at 172. North Haledon objected to the wording of the ballot question and the interpretative statement, and sought redress in the Law Division, which determined that the Commissioner had jurisdiction to address these issues. Ibid. The Commissioner revised the ballot question and statement. Ibid. Then, in a special election, the voters approved North Haledon's withdrawal. Ibid.

The Commissioner established July 1, 2003, as the effective date of withdrawal. Ibid. The District, Haledon and Prospect Park appealed from the Board's decision allowing North Haledon's petition to proceed, and the District challenged the Law Division's order authorizing the Commissioner to revise the ballot question and interpretative statement. Ibid. The appeals were consolidated. Ibid.

We reversed the Board's decision because North Haledon's withdrawal "would exacerbate [the District]'s racial and ethnic imbalance." In re Petition for Authorization to Conduct a Referendum on the Withdrawal of N. Haledon Sch. Dist. from the Passaic County Manchester Reg'l High Sch. Dist., 363 N.J. Super. 130, 135 (App. Div. 2003). Thereafter, the Supreme Court affirmed our judgment, as modified, holding that "the constitutional imperative to address racial segregation require[d] the Board to compel North Haledon to remain in the Regional District despite the tax burden on its citizens." In re Withdrawal of N. Haledon Sch. Dist., supra, 181 N.J. at 186.

The Court stated that, because North Haledon would be "compelled to participate in a Regional District," the statute governing allocation of costs did not apply "and the Commissioner [could] determine cost allocations among and between Haledon, Prospect Park, and North Haledon" without voter approval. Ibid. The matter was remanded to the Commissioner with directions that he "develop, in consultation with the constituent municipalities, an equitable cost apportionment scheme" for the District. Ibid.

On January 18, 2005, Commissioner William A. Librera ("Commissioner Librera") issued a new cost-apportionment formula, allocating sixty-seven percent of the costs based upon equalized property values and thirty-three percent upon pupil enrollment. Commissioner Librera required the new apportionment method to be phased in over a four-year period, and fully implemented in the 2009-2010 school year.

North Haledon, Haledon and Prospect Park appealed Commissioner Librera's decision to the State Board of Education (the "State Board"). On February 1, 2006, the State Board remanded the matter to Acting Commissioner Lucille Davy ("Acting Commissioner Davy"), who had replaced Commissioner Librera in September 2005. The State Board directed Acting Commissioner Davy to provide "the basis and rationale for the 'determinations' set forth in the January 18, 2005 decision."

On February 16, 2006, Acting Commissioner Davy referred the matter to the Office of Administrative Law for a hearing before an Administrative Law Judge ("ALJ") as an uncontested case, pursuant to N.J.A.C. 1:1-21.1. Acting Commissioner Davy asked that a record be developed concerning Commissioner Librera's methodology for allocating the District's costs.

The ALJ conducted hearings in the matter in January and February 2010. North Haledon presented expert testimony from James Kirtland ("Kirtland"), and Haledon and Prospect Park presented expert testimony from Melvin L. Wyns ("Wyns"). North Haledon's Mayor, Randy George; Prospect Park's chief financial officer, tax collector and treasurer, Stephen Sanzari; and Haledon's municipal clerk and acting borough administrator, Allen Susen, also testified.

On March 16, 2011, the ALJ filed an initial decision with the Acting Commissioner recommending that sixty-seven percent of the District's costs be allocated on a per pupil basis, and thirty-three percent based upon property valuation. The ALJ suggested that the proposed allocation methodology be implemented over two years.

On August 29, 2013, Commissioner Cerf issued his final decision. He determined that fifty percent of the District's costs should be allocated based on equalized property values and fifty percent based on student enrollment, to be implemented over two years. These appeals followed.

II.

Haledon and Prospect Park argue that Commissioner Cerf's decision should be reversed and the court should order that the District's costs be allocated entirely based upon equalized property values. In response, North Haledon contends the costs should be allocated based on one of two methodologies: eighty percent pupil enrollment and twenty percent property valuation; or sixty-seven percent pupil enrollment and thirty-three percent equalized property values.

We note initially that the scope of our review of the Commissioner's decision is limited. In re Proposed Quest Acad. Charter Sch. of Montclair Founders Grp., 216 N.J. 370, 385 (2013). We may only "reverse an agency's decision if it is arbitrary, capricious or unreasonable." Ibid. (citing In re Petitions for Rulemaking, N.J.A.C. 10:82-1.2 & 10:85-4.1, 117 N.J. 311, 325 (1989)). Our review of an administrative decision is limited to three inquiries

(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based is action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.

[Id. at 385-86 (citing Mazza v. Bd. of Trs., 143 N.J. 22, 25 (1995)).]

Based upon our thorough review of the record, we are convinced that Commissioner Cerf complied with the Supreme Court's mandate, and established a funding allocation scheme that is equitable to all three constituents of the District.

In his decision, Commissioner Cerf noted that the Supreme Court had mandated the establishment of an allocation formula that took into account North Haledon's "forced membership" in the District and its "disproportionate contributions" to the District. The Commissioner stated, however, that the Supreme Court had not ordered the Department to subsidize North Haledon because the Department has not precluded North Haledon's withdrawal from the District.

Commissioner Cerf also stated that the ALJ had correctly determined that "ability to pay" should play a role in the establishment of a new allocation formula. The Commissioner noted that the Department uses "ability to pay" as a factor in deciding the amount of equalization aid it will provide to school districts.

In considering the relative wealth of the District's constituents, the Commissioner took note of the equalized property values of these municipalities, considering data from October 2011, which showed that the equalized property values are $1,386,555,637 for North Haledon; $617,316,105 for Haledon; and $312,110,315 for Prospect Park.

The Commissioner also took note of the aggregate annual income of the residents of the three municipalities, based on data compiled by the New Jersey Department of the Treasury. That data showed aggregate income of $338,284,733 for North Haledon; $148,620,964 for Haledon; and $93,455,527 for Prospect Park. The Commissioner pointed out that, in determining an equitable allocation formula, it was reasonable to consider that Haledon and Prospect Park receive more school equalization aid than North Haledon.

Furthermore, Commissioner Cerf noted that, according to 2010 census data, almost eighty-seven percent of North Haledon's residents are homeowners, whereas more than fifty percent of Haledon's and Prospect Park's residents rent their dwellings. North Haledon had maintained that the property tax burden does not fall on residents who rent their residences, while Haledon and Prospect Park had asserted that property owners pass along the entire property tax burden to their tenants.

The Commissioner wrote that landlords could be expected to attempt to pass along these costs to tenants, but they may not always be able to do so, due to market conditions. The Commissioner found, based on data for 2011 from the New Jersey Department of Community Affairs, that North Haledon's equalized property tax rate is lower than the rates of Haledon and Prospect Park. In addition, the Commissioner said that certain demographics have a bearing upon a municipality's "ability to pay" the District's costs. The Commissioner pointed out that the 2010 census revealed that over twenty percent of North Haledon's population are senior citizens, as compared to 10.4% in Haledon, and 8.2% in Prospect Park.

The census also indicated that the percentage of residents receiving Social Security benefits is greater in North Haledon than the other two constituents, although eight-five percent of North Haledon residents are income earners, which suggested that not all of the residents of North Haledon are on fixed incomes.

Commissioner Cerf considered other factors as well. He compared the number of students sent by each constituent to the District, and pointed out that in 2008, North Haledon sent only 96 students, while Haledon sent 355 and Prospect Park sent 331. The Commissioner further noted that, under the prior allocation scheme, the taxpayers in North Haledon were subsidizing the education of students from the other two municipalities. In addition, the Commissioner referenced a study indicating that if North Haledon had been permitted to withdraw from the District, with its one-hundred percent equalized valuation method, it could have saved from $240,000 to $440,000 each year.

The Commissioner determined that, based on a consideration of all relevant factors, an allocation of costs based on a fifty-fifty split between equalized valuation and student enrollment was "the most balanced" method. The Commissioner noted that this methodology still leaves North Haledon with a per pupil cost that is more than twice that of the other constituents. Consequently, North Haledon would be providing a subsidy for students who do not reside in North Haledon. Under the circumstances, the Commissioner did not believe a more burdensome allocation to North Haledon would be appropriate.

We are convinced that there is sufficient credible evidence in the record to support the Commissioner's determination that a "fifty-fifty split" is an equitable means of allocating the District's costs. As noted, the Supreme Court required the Commissioner to devise an equitable allocation formula, and left this determination to the Commissioner's discretion.

As we stated previously, Haledon and Prospect Park argue that the only equitable allocation is one based on equalized valuation. On the other hand, North Haledon maintains that the Supreme Court essentially ruled that continued allocation based on equalized valuation was unfair and allocation based on either an 80/20 or 67/33 split would be equitable.

We are convinced, however, that the Court did not direct the Commissioner to reject or establish any particular allocation formula. The Court's sole mandate was to develop an equitable allocation formula in consultation with the three affected municipalities. We are convinced that the Commissioner fulfilled that mandate.

North Haledon argues that the Commissioner erred by considering a municipality's ability to pay in deciding upon an allocation formula. We disagree. The Commissioner correctly relied upon our decision in Stubaus v. Whitman, 339 N.J. Super. 38, 60-61 (App. Div. 2001), certif. denied, 171 N.J. 442 (2002), where we said it was constitutional to require greater local support for school districts from districts that "appear able to pay more based upon the district's property values and average income."

Here, the Commissioner properly found that the relative wealth of the constituent municipalities must be balanced against "North Haledon's burden of having been compelled to remain in [the District]." The Commissioner properly considered the relevant data in assessing each of the constituents' ability to pay the District's costs.

North Haledon also argues that the Commissioner's allocation formula is inequitable since it allegedly requires North Haledon to continue to bear a disproportionate share of the District's costs. Again, we disagree. The Commissioner aptly noted that under his allocation method, North Haledon's savings are comparable to the savings it would have achieved if it had been permitted to withdraw from the District.

We have considered the other arguments presented by Haledon, Prospect Park and North Haledon and conclude that they are without sufficient merit to warrant discussion. R. 2:11-3(e)(1)(E).

Affirmed.