City Neighbors Charter School v. Baltimore City Board of School Commissioners

ADKINS, Judge. This appeal raises questions about the amount and type of funding that the Baltimore City Board of School Commissioners (the City Board), appellee and cross-appellant, is obligated to provide to public charter schools under the 2003 Maryland Public Charter School Act (the Act), Md.Code (1978, 2004 Repl. Vol., 2005 Cum. Supp.), § 9-101 et seq. of the Education Article (Educ.).

Specifically, what does the statute mean when it requires that the City Board provide public charter schools with funding that is “commensurate with the amount disbursed to other public schools in the local jurisdiction”? See Educ. § 9-109(a). And can the City Board satisfy its obligation to “disburse” such funds by providing in-kind services in lieu of money? See id.

We are also asked to decide whether the Maryland State Board of Education (the State ⁶¹⁵ Board) has authority to grant waivers that allow public charter schools to employ teachers and staff on terms other than those set by collective bargaining agreements. Charter School Funding Law The Md. Public School Charter Act of 2003, Educ.Code section 9-101 (2003 Md. Laws, ch. 358), establishes Maryland’s public charter school program and its purpose: (b) The general purpose of the Program is to establish an alternative means within the existing public school system in order to provide innovative learning opportunities and creative educational approaches to improve the education of students. Section 9-104 of the Act spells out the application procedures for establishing a public charter school: (a)(1) An application to establish a public charter school shall be submitted to the county board of the county in which the charter school will be located.... (4)(i) Except as provided in subparagraph (ii) of this paragraph, the county board shall review the application and render a decision within 120 days of receipt of the application. ...

(2) The State Board shall render a decision within 120 days of the filing of an appeal under this subsection. (3) If the county board denies an application to establish a public charter school and the State Board reverses the decision, the State Board may direct the county board to grant a charter and shall mediate with the county board and the applicant to implement the charter. At the heart of this dispute lie the funding provisions of the Act, codified at Educ.Code section 9-109, which requires City and county boards of education to disburse to a public charter school an amount of county, State, and federal money for elementary, middle, and secondary students that is commensurate with the amount disbursed to other public schools in the local jurisdiction. (Emphasis added.) ⁶¹⁶ The Funding Disputes The City Board “conditionally granted” public school charters to both City Neighbors Charter School (City Neighbors) 1 and Patterson Park Public Charter School (Patterson Park), 2 appellants and cross-appellees (collectively, the Charter Schools), for three school years beginning in 2005-06.

In doing so, it declined to fund the per pupil budgets proposed in their respective applications. Instead, the City Board required that there be a subsequent agreement regarding funding. By November 2004, the City Board had approved a September 2005 opening date for both schools. But by February 2005, the City Board still had not made a funding commitment to either of these charter schools or any other.

The Charter Schools viewed this as a defacto denial of their applications. They separately complained to the State Board, contending that the City Board disregarded the statutory requirement that it render a decision on their applications within 120 days. Moreover, the Charter Schools asserted, the City Board failed to perform its statutory duty to “disburse” funds in an amount “commensurate” with other local public schools. City Neighbors asked the State Board to resolve these disputes via a declaratory ruling “as to the interpretation of § 9-109(a) of the Education Article.” Patterson Park noted a separate “appeal from the denial of its Application,” asking for approval and a funding level of $7,500 per pupil “plus Federal grant entitlement and special education funds[.]” On February 11, the State Board notified the parties that “oral argument” would be held in both cases on April 19. ⁶¹⁷ The City Board moved to dismiss Patterson Park’s appeal, asserting that the State Board did not have jurisdiction under section 9—104(b)(1) because Patterson Park’s application had been granted.

The City Board asked the State Board to “hear oral arguments on the Motion to Dismiss in advance of any evidentiary hearing.” On March 8, 2005, the City Board issued a memorandum announcing to all approved charter school applicants that per pupil funding for the 2006 school year would be $5,011 in cash and $2,943 in services. The City Board then moved to dismiss City Neighbors’ petition on the ground that this funding commitment mooted the action. In addition, the City Board argued that the State Board lacked jurisdiction to decide “pure questions of law” such as the meaning of section 9-109, that City Neighbors’ petition was “not timely,” and that City Neighbors failed to overcome the presumption that the City Board’s funding model was “correct.” It again requested that the State Board hear oral argument before “any evidentiary hearing.” The Charter Schools objected to the City Board’s funding proposal, and opposed its motions to dismiss. Specifically, they complained that the cash funding was inadequate, that the services to be provided were not services they require or desire, and that section 9-109 requires funding to be disbursed as cash rather than services.

In addition, they asserted, the City instructed applicants to include pre-kindergarten for at-risk children in their applications in March 2004, but then informed applicants in February 2005 that it would not fund pre-kindergarten programs for charter schools. At the April 19 hearings, the City Board and the Charter Schools argued the merits of their respective petitions. Counsel for the City Board advised that, due to a funding increase to the school system, the funding offer for both City Neighbors and Patterson Park would be increased to $8,108 per pupil for fiscal year 2006, including services. On May 6, 2005, the State Board issued decisions in both cases, which it subsequently revised on May 26.

These deci ⁶¹⁸ sions made the Charter Schools happy and the City Board unhappy. Specifically, the State Board: • set a specific dollar per student funding amount at $10,956, based on a “funding template” reflecting “the 2004-05 approved system operating budget and the 2004 enrollment count,” as well as a two percent reduction to adjust for “central office functions” provided to the charter schools by the City school system; • disapproved the City Board’s proposal to “disburse” funding through the provision of in-kind services rather than money; • directed the Charter Schools to file a separate request for waivers of collective bargaining rights enjoyed by Union members, including a requirement that the City appoint teachers, principals, and other school officials; and • directed that, in light of “the 120 day statutory deadline for a local board decision on a charter school application[,]” charter agreements “must be completed within 30 calendar days from the date of the decision approving the charter application,” but that delay and urgency in this instance required completion of these two charter agreements “within 15 business days of the date of issuance of this revised opinion.” The State Board stated that it “issued this Opinion as guidance and direction not only to the parties in this appeal but also to the charter school applicants and local systems in Maryland[.]” Despite the deadline imposed by the State Board, the imminency of the initial 2005-06 school year approved by the City Board prompted a compromise that resulted in a funding agreement to cover the 2005-06 school year only. In a short-term Charter Agreement dated June 21, 2005, both City Neighbors and Patterson Park agreed to accept a “total School Fund Allocation” “for a one-year period” only, while “preserving] all right to seek resolution of the issue of commensurate funding (as defined by § 9-109 ...) in litigation, including agency proceedings[.]” In addition, the City ⁶¹⁹ Board explicitly “agree[d] that this Charter Agreement does not resolve the disputed issue of commensurate funding[.]” On judicial review, 3 the Circuit Court for Baltimore City held that the challenge to the State Board’s funding decision is moot. The court therefore refused to vacate the State Board decision regarding funding.

In addition, the circuit court held that the State Board erred in ruling that the collective bargaining rights of public charter school employees can be waived, and therefore the court vacated that aspect of the State Board’s decision. 4 Issues On Appeal And Cross-Appeal The Charter Schools and the City Board challenge the circuit court’s decision on myriad grounds. We restate and reorder the issues as presented by the Charter School’s appeal and the City Board’s cross-appeal, as follows: I. Did the circuit court err in concluding that appellants’ judicial review petition is moot? (Raised on appeal by the Charter Schools and on cross-appeal by the City Board.) II. Should the State Board’s opinion regarding funding be affirmed or vacated?

(Appeal by both Charter Schools, cross-appeal by City Board.) This is the primary issue in this appeal.

III

Did the circuit court err in deciding the issue of whether the State Board has authority to grant waiv ⁶²⁰ ers of employee status requirements of Edue. section 9-108? (Appeal by Patterson Park.) We shall hold that the commensurate funding dispute is not moot (issue I), but that the waiver dispute should not have been decided in this action (issue III). Proceeding to review the State Board’s decision on the merits, we shall affirm it (issue II). DISCUSSION I. Charter Schools’ Appeals And City Board’s Cross-Appeal: Mootness “The test of mootness is whether, when it is before the court, a case presents a controversy between the parties for which, by way of resolution, the court can fashion an effective remedy.” Adkins v. State, 324 Md. 641, 646 , 598 A.2d 194 (1991).

The Charter Schools and the City Board contend there is a live controversy regarding funding for the 2006-07 and 2007-08 school years, both of which were conditionally approved by the City Board subject to resolution of the funding issues raised in this appeal. We agree. The circuit court erred when it held the controversy regarding Educ. section 9-109 is moot, because there is a continuing dispute over the proper interpretation of that statute and its application to these Charter Schools. Indeed, the City Board and the Charter Schools recognized this by explicitly reserving the right to litigate these questions in their temporary Charter Agreement funding only the 2005-06 school year.

Because there are unresolved disputes over funding for the 2006-07 and 2007-08 school years, there is “live controversy” that is amenable to judicial review and resolution. The primary issue before the circuit court was whether the State Board’s decision should be affirmed or vacated. That same question is presented by both the Charter Schools’ appeals to this Court, as well as the City Board’s cross-appeal. ⁶²¹ We may address the merits of these issues because our task is to perform the same review of the State Board’s decision that the circuit court should have performed. See New Bd. of Sch.

Comm’rs of Baltimore City v. Public School Admin’rs and Supervisors Ass’n of Baltimore City, 142 Md.App. 61, 70 , 788 A.2d 200 (2002). Our resolution of those questions is likely to have an immediate impact on funding for the school year that begins in the fall 2006. It will directly affect City Neighbors and Patterson Park, and indirectly affect other similarly situated public charter schools that are awaiting resolution of legal issues raised here. Specifically, the questions relating to how “commensurate” funding is determined, and whether local school boards may elect to “disburse” such funds by providing in-kind services, have potentially broad application to Maryland public charter schools.

We therefore proceed to review the State Board decision on the merits.

II

Charter Schools’ Appeals And City Board’s Cross-Appeal: Review Of The State Board’s Decision A. Standard Of Review The disputes between the Charter Schools and the City Board begin with a threshold debate over the appropriate standard of judicial review. According to the Charter Schools, courts must give “special deference” to the State Board’s interpretation of state education law, because Educ. section 2-205(e) broadly authorizes the State Board to interpret education law and policy, and to resolve controversies arising from the application of those laws: (e) Explanation of law; controversies and disputes.—(1) Without charge and with the advice of the Attorney General, the State Board shall explain the true intent and meaning of the provisions of: (i) This article that are within its jurisdiction; and ⁶²² (2) The Board shall decide all controversies and disputes under these provisions. (3) The decision of the Board is final. See also COMAR 13A.01.05.05.E (“The State Board shall exercise its independent judgment on the record before it in the explanation and interpretation of the public school laws”).

The City Board disagrees that deference is due to the State Board. To the contrary, it argues, the State Board must defer to the City Board on funding issues for local charter schools. In support, the City Board cites COMAR 13A.01.05.05.A, which provides that “[decisions of a local board involving a local policy ... shall be considered prima facie correct, and the State Board may not substitute its judgment for that of the local board unless the decision is arbitrary, unreasonable, or illegal.” The City Board points out that the General Assembly did not define “commensurate” or “disburse,” nor did it establish a funding formula or other procedures for determining what is commensurate. In its view, this legislative silence means that these are matters left to the expertise of local school boards.

The State Board has “a visitatorial power of such comprehensive character as to invest [it] with the last word on any matter concerning education policy or the administration of the system of public education[.]” Arroyo v. Bd. of Educ. of Howard County, 381 Md. 646, 664 , 851 A.2d 576 (2004). Educ. section 2-205(e) codifies this principle: (e)(1) Without charge and with the advice of the Attorney General, the State Board shall explain the true intent and meaning of the provisions of: (1) This article that are within its jurisdiction; and (ii) The bylaws, rules, and regulations adopted by the Board. (2) The Board shall decide all controversies and disputes under these provisions. (3) The decision of the Board is final. ⁶²³ “[A]ppeals concerning the intent and meaning of a provision of the Education Article ... are taken from the [local] boards to the State Board.” Hurl v. Bd. of Educ. of Howard County, 107 Md.App. 286, 299 , 667 A.2d 970 (1995); see Bd. of Educ. for Dorchester County v. Hubbard, 305 Md. 774, 789 , 506 A.2d 625 (1986).

Thus, the State Board’s “paramount role ... in interpreting the public education law” is one that “sets it apart from most administrative agencies.” Hubbard, 305 Md. at 791 , 506 A.2d 625 . We conclude that interpreting the section 9-109 requirement that “commensurate funding” be “disburse[d]” to the Charter Schools is not a matter of local policy on which the State Board must defer to the City Board. Questions regarding the meaning of education statutes invoke the comprehensive authority of the State Board. Explaining the meaning of “commensurate” and “disburse” requires construction of the state education law, which falls within the broad mandate given to the State Board under Educ. section 2-205(e) and COMAR 13A.01.05.05.E. The paramount role played by the State Board in interpreting this statutory language prevents Maryland’s Charter School Act from taking on a different meaning in each of Maryland’s local school districts.

For that reason, we hold that the State Board is not required to treat the City Board’s interpretation of section 9-109 as prima facie correct. The State Board acted appropriately in “exercising its independent judgment on the record before it in the explanation and interpretation of the public school laws” governing the Charter Schools’ applications. Moreover, we also recognize that the State Board had authority to overrule the City Board’s funding decision. After the City Board determined the amount of funding that it considered “commensurate with other local public schools,” the State Board exercised its broad authority to review that decision, and to “correct all abuses of authority and to nullify all irregular proceedings.” Zeitschel v. Bd. of Educ. of Carroll County, 274 Md. 69, 81 , 332 A.2d 906 (1975). ⁶²⁴ Here, the State Board held that the City Board must allocate funds in an amount it determined to be “equal to” the per pupil expenditures made for students in other City public schools, taking into account certain specified income and expenses.

In doing so, the State Board created a “funding template” that it used to determine the amount of funds that the City Board was obligated to disburse to City Neighbors and Patterson Park. In addition, it held that the City Board may not “disburse” funds as in-kind services rather than money. Our review of the State Board’s decision is limited to four questions: (1) whether it rests on error concerning a purely legal question; (2) whether the State Board violated a state statute; (3) whether the State Board exercised its power in bad faith, fraudulently, or in breach of trust; and (4) whether the State Board exercised its power arbitrarily or capriciously. See Hurl, 107 Md.App. at 299 , 667 A.2d 970 ; New Bd. of Sch.

Comm’rs of Baltimore City, 142 Md.App. at 78 , 788 A.2d 200 . B. Charter Schools’ Appeals: Improper Rulemaking The State Board issued its revised opinion “as guidance and direction not only to the parties in this appeal but also to the other charter school applicants and local school systems in Maryland!.]” Citing this statement, the circuit court characterized the State Board’s decision as a sweeping rule with the force of a regulation. 5 The Charter Schools argue that the circuit court erred in concluding that the State Board’s decision constituted improper rulemaking. We agree. ⁶²⁵ As we have discussed, the State Board is statutorily required to interpret and explain education statutes, including the public charter school provisions of sections 9-104 and 9-109. See Educ. § 2-205(e).

It may do so in response to a petition for declaratory ruling. The Court of Appeals long ago recognized the “well settled principle of administrative law that ‘the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.’ ” BG & E v. Pub. Serv. Comm’n of Md., 305 Md. 145, 168 , 501 A.2d 1307 (1986).

As the Court explained, “[t]he function of filling in the interstices of the Act should be performed, as much as possible, through this quasi-legislative promulgation of rules to be applied in the future. But any rigid requirement to that effect would make the administrative process inflexible and incapable of dealing with many of the specialized problems which arise____Not every principle essential to the effective administration of a statute can or should be cast immediately into the mold of a general rule. Some principles must await their own development, while others must be adjusted to meet particular, unforeseeable situations. In performing its important functions in these respects, therefore, an administrative agency must be equipped to act either by general rule or by individual order.

To insist upon one form of action to the exclusion of the other is to exalt form over necessity.” Id. at 169 , 501 A.2d 1307 (quoting SEC v. Chenery Corp., 332 U.S. 194, 202 , 67 S.Ct. 1575, 1580 , 91 L.Ed. 1995 (1947)); see generally 1 Richard J. Pierce, Jr., Administrative Law Treatise § 6.9 (2002). Thus, it is entirely proper for a party to a dispute arising from conflicting interpretations of the Education Article to petition the State Board for a declaratory ruling, or to appeal a local school decision to the State Board, and for the State Board to construe and explain the law in the course of deciding such matters. See Md.Code (1984, 2004 Repl. Vol., 2005 Cum.

Supp.), § 10-304 of the State Government Article (SG); COMAR 13A.01.05.02. There is ample precedent for ⁶²⁶ articulating standards that may apply in other cases via administrative adjudication rather than rulemaking. In BG & E v. Public Serv. Comm’n, 305 Md. at 168, 501 A.2d 1307 , for example, the Court of Appeals affirmed that an agency may interpret and apply controlling statutes while deciding a contested case, particularly when it “did not abstractly formulate new rules of binding and universal future effect, but simply articulated the standards through which it interpreted and implemented [the statute] during the course of specific contested proceedings, as it was required to do by [statute].” See also Delmarva Power & Light Co. v. Pub.

Serv. Comm’n of Md., 370 Md. 1, 34-37 , 803 A.2d 460 (2002)(reviewing similar cases). That is what happened here. City Neighbors petitioned the State Board for a declaratory ruling that the City Board failed to provide per pupil funding “commensurate” with the funding to students in other Baltimore City public schools and failed to properly “disburse” such funds.

Similarly, Patterson Park petitioned the State Board to declare the City Board’s “conditional acceptance” of its application a de facto denial, and to address the same commensurate funding and disbursement questions raised by City Neighbors. Both City Neighbors and Patterson Park presented justiciable issues concerning the meaning and application of sections 9-104 and 9-109 as those statutes apply to their pending charter school applications. The State Board had authority to resolve these disputes, by “articulating] the standards through which it interpreted and implemented [the statute] during the course of specific contested proceedings^]” See BG & E, 305 Md. at 168, 501 A.2d 1307 . Moreover, we do not agree with the circuit court that the State Board intended its decisions on these two applications to regulate all future applications “statewide.” We read the decision just as the State Board described it—mere “guidance and direction” to any “charter school applicants and local school systems in Maryland” who wish to use it “for the refinement of their working relationships[.]” The State Board acknowledged that “there is no statewide formula or methodology that determines how local school systems fund their ⁶²⁷ schools.” We view the funding template as the State Board’s effort to articulate a “reasonable starting point” and traceable methodology for establishing a per pupil funding benchmark.

C. City Board’s Cross-Appeal: Procedural Defects The City Board complains that the State Board “committed numerous procedural errors and violated the due process rights of the City Board and others.” We perceive two distinct complaints. 1. Evidentiary Hearing The City Board’s first procedural grievance is that it was denied an evidentiary hearing. In requests filed with its motions to dismiss, the City Board asked the State Board to hold “oral argument” on those motions “in advance of any evidentiary hearing” on the merits of the Charter Schools’ petitions. After denying the City Board’s motions to dismiss at the April 19 hearing, the State Board proceeded to consider the merits of the funding dispute.

The City Board complains that this deprived it of an opportunity to submit evidence responding to the merits of Patterson Park’s appeal and City Neighbors’ petition. The City Board asserts that, if given that right, it would have presented evidence that created material factual disputes on the methodology and figures used to determine funding. For example, the City Board proffers that it “would have presented evidence showing that the administrative services that the [City School system] provides accounts for approximately 6% of its total operating budget.” These higher central office costs might reflect, for instance, that a higher percentage of students in the City receive free and reduced lunches, requiring more central staffing for that program. According to the City Board, factual disputes on any such funding questions would have required transfer of the case to ⁶²⁸ the Office of Administrative Hearings, pursuant to COMAR 13A.01.05.07.A(3), 6 prior to the State Board’s decision.

Patterson Park counters by questioning “how, as a political subdivision of the State, [the City Board] is entitled to due process from the State.” See Md. State Bd. of Educ. v. Bradford, 387 Md. 353 , 363 n. 2, 875 A.2d 703 (2005). Moreover, both Charter Schools contend that the City Board asserted that the issues were “purely legal,” making an evidentiary hearing unnecessary. Finally, City Board waived any right it may have had to present such evidence. We agree that the City Board has no grounds to complain that it was denied an opportunity to present evidence.

The proceedings before the State Board were in the nature of administrative appeals, in that both City Neighbors and Patterson Park asked the State Board to provide relief from the City Board’s decisions (or lack thereof). Indeed, Patterson Park specifically asked the State Board to grant its application. Before the City Board filed either of its motions to dismiss, it received notice that “oral argument” would be taken April 19 on the merits of the Charter Schools’ claims. The City Board cites no procedural rule that guarantees the right to engage in preliminary motions practice before the State Board, separate from and prior to the regularly scheduled hearing on the Charter Schools’ appeals.

We need not decide whether there is any, because we conclude that if such right exists, the City Board waived it. Although the City Board requested that oral argument be heard on its motions to dismiss “in advance of any evidentiary hearing,” it did not specifically request an earlier hearing date for its motions. Nor did it ask that the merits hearing scheduled for April 19 be postponed so that both the motions to ⁶²⁹ dismiss and the merits hearing would not be held together. Nor did it receive from the State Board any assurances of an earlier or separate hearing on those motions.

Thus, the City Board had no reason to expect that the April 19 hearing would not proceed to the merits as scheduled, once the City Board’s motions to dismiss had been considered. Moreover, the City Board had ample opportunity to submit evidence in support of its arguments on the funding issues raised by the Charter Schools, both before and during the April 19 hearing. The City Board knew that the Charter Schools had submitted evidence in support of their appeals and their oppositions to the City Board’s motions to dismiss. At the hearing, the City Board argued the merits of the funding issues raised by both Charter Schools. 7 Moreover, the City Board did not object, or otherwise notify the State Board that it would like an additional opportunity to submit evidence.

Nor did it proffer what evidence it might have submitted or request permission to submit evidence following the hearing. Nor did it ask the State Board to reconsider its decision on that ground. In these circumstances, we have no trouble concluding that the City Board cannot complain that it was denied the right to submit evidence. The City Board appears to have assumed what neither the law nor good practice supports.

There is no law or regulation guaranteeing City Board the right to delay a merits hearing before the State Board, upon the mere filing of a motion to dismiss or a request for a hearing on that motion. Moreover, the City Board did nothing to confirm its assumption. With no request for a separate hearing, no notice that there would be one, no request to present evidence, and no ⁶³⁰ objection to the presentation of evidence, we are not persuaded that the City Board was deprived of its right to present evidence. 2. “Conversion” Of Patterson Park’s Appeal The State Board determined “that although [Patterson Park] has filed this case as an appeal of the denial of its application, we find that it is more properly handled by the State Board as a petition for declaratory ruling on the funding and employee status issues.” The City Board argues that the State Board improperly converted Patterson Park’s appeal “after the fact” to a petition for a declaratory ruling. We agree that distinct regulations apply to an appeal of a local board’s decision, see COMAR 13A.01.05.02.A, and to a petition for a declaratory ruling.

See COMAR 13A.01.05.02.D. But as the City Board concedes, “the procedures for both types of review are the same[.]” That being the case, we reject the City Board’s contention that the “substantive difference between an appeal and a petition for declaratory ruling,” by itself, merits any relief. The City Board conspicuously fails to explain why it has any right to complain in these circumstances, or what prejudice it suffered. We see none. D. Charter Schools’ Appeals And City Board’s Cross-Appeal: Interpretation Of Section 9-109 We finally reach the heart of the dispute between the Charter Schools and the City Board—the merits of the State Board’s decisions as to (1) what constitutes commensurate funding in Baltimore City and (2) how those funds may be disbursed.

The Charter Schools ask us to affirm the State Board’s interpretation of section 9-109, whereas the City Board asks us to vacate it. There are several points of disagreement, which we shall review in seriatum. ⁶³¹ 1. Duty To Disburse Section 9-109(a) requires a local board to “disburse to a charter school the amount of county, State, and federal money for elementary, middle, and secondary students that is commensurate with the amount disbursed to other public schools in the local jurisdiction.” The State Board construed this duty to “disburse” as a duty to provide money rather than services. It ruled that the City Board cannot compel the Charter Schools to accept its services in lieu of funds.

The City Board challenges that conclusion, pointing out that nothing in section 9-109 requires disbursement of money, rather than services, in the same way they are provided to other public school students. For example, the categories of expenses itemized by the City Board as “disbursed to other public schools” as services rather than cash include central office expenses, fringe benefits of retirees, Risk Management Program expenses, worker’s compensation and unemployment compensation expenses, building maintenance, and utilities. The