Frederick Classical Charter School, Inc. v. Frederick County Board of Education

ROBERT A. ZARNOCH (Retired, Specially Assigned), J. “The movement to create charter schools, either by converting existing schools or by starting new ones, began in the 1990s from a growing concern that the public schools, at least in some areas, were not living up to legitimate public expectations, and the movement took root and spread quickly.” Baltimore City Bd. of Sch. Com’rs v. City Neighbors Charter Sch., 400 Md. 324, 328 , 929 A.2d 113 (2007). This movement has not been without controversy. In particular, the methodology for disbursing public funds for charter school use has been an area of unique difficulty for policy makers.

After six years of discussion and debate, see id. at 348-56 , 929 A.2d 113 , the General Assembly passed the Public Charter School Act of 2003. Laws of 2003, ch. 358. The Act provided that funding for charter schools would be “commensurate with the amount disbursed to other public schools in the local jurisdiction.” Md.Code (1978, 2014 Repl. Vol.), Education Article (“Educ.”) § 9-109(a).

Following the approval of its charter application, in 2013, Frederick Classical Charter School, Inc. (“Frederick Classical”), appellant, protested that the Frederick County Board of ⁴⁴³ Education (“FCPS”), appellee, violated Educ. § 9-109 by failing to include transportation funds in its fiscal year 2014 funding allocation even though Frederick Classical was not providing transportation for its students. This decision was upheld by both the State Board of Education (the “State Board”) and the Circuit Court for Frederick County. Frederick Classical appealed to this Court and presents the following question for our review, which we have rephrased: Did the State Board err in finding that the Local Board provided full funding despite the fact that it did not include transportation funding in Frederick Classical’s funding allocation? We hold that the State Board did not err in upholding the decision of FCPS not to include transportation funding for Frederick Classical because FCPS complied with State Board of Education rulings and state education law.

We affirm the decision of the circuit court. BACKGROUND A. Charter School and Transportation Funding This case concerns a dispute about local board of education funding for a charter school — specifically whether the local board was required to provide funding for transportation services that neither it nor the charter school provided. We begin with background on charter schools and transportation funding in Maryland. “[E]ach county board shall arrange for the transportation of students to and from consolidated schools.” 1 Educ. § 4-120(b). However, local school boards are not required to provide transportation to all students who attend public schools.

See, e.g., Educ. § 7-801(b)(l) (“At its own expense, a county governing body may provide transportation for public school students in addition to the transportation provided by ⁴⁴⁴ the State” (Emphasis added)); § 7-805 (specifying conditions under which a school bus may be used to transport any student who lives within the mileage limit). The state distributes grants to the county boards to provide transportation services for public school students and disabled children, pursuant to the formula set out in Educ. § 5-205. 2 This section sets restrictions on this funding, requiring that any excess funds be applied to the following fiscal year and that a county board may not transfer student transportation funding to any other category. Educ. § 5-205(a). Charter schools are “semi-autonomous public schools that operate under a contract with a state or local school board.

The contract, or charter, defines how the school will be structured, staffed, managed, and funded, what programs will be offered, and how the school will operate and account for its activities.” City Neighbors Charter Sch., 400 Md. at 328 , 929 A.2d 113 . As the Court of Appeals has noted, the principal objective of those who desired to create charter schools “was to develop and implement innovative and more effective educational programs, and, to do that, they needed and demanded freedom from some of the structural, operational, fiscal, and pedagogical controls that governed the traditional public school system.” City Neighbors Charter Sch., 400 Md. at 329 , 929 A.2d 113 . In view of this goal, the State Board of Education has held that the funding mix of each fund source to the local board of education need not be duplicated ⁴⁴⁵ at the charter school level. City Neighbors Charter Sch. v. Balt.

City Bd. of Sch. Comm’rs, MSBE Op. No. 05-17 (2005) (“City Neighbors”). Recounting the development of its interpretation of funding allocation for charter schools, the State Board, in its opinion below, stated: The Charter School Program, which became law in 2003, requires that a local board “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.” Md.Code, Educ. § 9-109.

On May 26, 2005, this Board issued three revised opinions explaining the meaning of the terms “commensurate” and “disbursed” in accordance with its power to interpret State education law. This Board stated that the word “commensurate” meant “proportionate” and that “disbursed” meant “expended.” City Neighbors Charter Sch. v. Baltimore City Bd. of Sch. Comm’rs, MSBE Op. No. 05-17 (2005).

This Board further stated that commensurate funding “includes funding for services for which students in the public charter schools are eligible such as free and reduced price meals, pre-kindergarten, special education, English-language learners, Perkins, Title I, and transportation.” Id. In order to assist local school systems, this Board provided a formula designed to result in a proportionate amount. Id. The formula takes the annual school system operating budget (including all federal, State, and local funding) divided by the September 30 enrollment count for the previous year minus two percent for reasonable central office functions to arrive at the [per pupil allocation (“PPA”) ].

Id. In addition, the charter school may be responsible for reimbursing the school system for the cost of any services that the county provides. Id. [The State Board’s opinion in City Neighbors was upheld by the Court of Appeals in Baltimore City Bd. of Sch. Com’rs v. City Neighbors Charter Sch., 400 Md. 324 , 929 A.2d 113 (2007).] ⁴⁴⁶ A year later, in Monocacy Montessori Communities, Inc. v. Frederick County Bd. of Educ., MSBE Op.

No. 06-17 (2006), this Board considered whether a different formula created by FCPS was consistent with State law and the State Board’s previous opinions. [W]e explained that a school system could use a different formula so long as it resulted in a “bottom line amount of money such that this Board could conclude that the school system was providing proportionate/commensurate funds to the charter school.” Id. We disagreed that the amount of funding must be “equal” because an equal PPA allocation would not take into account the value of in-kind services provided by FCPS. Id. We next analyzed in Monocacy the formula applied by FCPS.

A major difference in the FCPS formula was that it broke down the unrestricted budget in each of fifteen categories. Under the formula, no money was allocated for transportation because the charter school had agreed that it would provide for the transportation needs of its students. We noted that transportation dollars had been a part of the State Board’s standard formula, but that the charter school would not be entitled to these funds if it had agreed to forgo them. After analyzing the FCPS formula in full and comparing it to our own formula, this Board concluded that FCPS needed to pay an additional $12 per pupil in order to meet the commensurate funding requirement.

Id. In other words, in MMCI, the State Board determined that a local board may use an alternative funding formula, as long as that formula resulted in a per pupil allocation that was similar to the allocation set out in City Neighbors. Keeping in mind the State Board’s interpretation of Educ. § 9-109 set out above, we now turn to the facts of this case. B. Current Proceedings On April 6, 2011, the Frederick County School Board approved Frederick Classical’s application for the formation of a charter school.

The Local Board and Frederick Classical ⁴⁴⁷ subsequently entered into a contract, the charter, that described the relationship between Frederick Classical and FCPS. With regard to school funding, the charter states that: [i]n accordance -with ED § 9-109[ 3 ] and further clarified in corresponding State Board Rulings, the [Local] Board shall disburse to [the 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. With regard to transportation of students, Section H of the charter states: Transportation shall be the responsibility of [Frederick Classical] families with the following exceptions: 1. Students who live along an established bus route that passes the School facility; and 2.

Special education students with transportation on their IEP’s. If [Frederick Classical] subsequently determines to provide transportation during the term of this Charter, it may contract with an approved provider for transportation services within provisions allowable under the negotiated agreement. On June 26, 2013, FCPS provided Frederick Classical with its charter school funding for fiscal year 2014, which calculated the PPA at $8,818.54, resulting in Frederick Classical receiving approximately $2.4 million based on an enrollment of 280 students. On August 14, 2013, Frederick Classical objected to FCPS’s allocation formula and contended that it was not consistent with Maryland law because it did “not include the Transportation category of funding ...” Frederick Classical requested that FCPS consider funding the school to “include, at least, the Transportation category of funding” in the calcu ⁴⁴⁸ lation.

In a letter dated September 25, 2013, FCPS denied Frederick Classical’s request for transportation funding, stating that its “allocation is based on the formula that has been previously accepted and approved by the Maryland State Board of Education as being consistent with Maryland law and the Board has determined that it is the formula that will be applied here.” Neither Frederick Classical nor FCPS provided transportation to Frederick Classical’s students. On October 25, 2013, Frederick Classical appealed FCPS’s decision to the Maryland State Board of Education. Frederick Classical requested that the State Board reverse FCPS’s decision to deny the funding under the charter and Educ. § 9-109. Alternatively, Frederick Classical asked the State Board for a declaratory ruling that the Local Board’s 2013-2014 funding allocation for Frederick Classical is inconsistent with State law.

It urged the State Board to apply a de novo standard of review and exercise independent judgment in its evaluation of the appeal given that the case represents a dispute as to State public school law. FCPS responded with a motion for summary affirmance, denying that its decision was arbitrary, unreasonable, or illegal. FCPS filed an affidavit of Leslie R. Pellegrino, CPA, the County Board’s Executive Director of Fiscal Services, which stated that when making the calculation for allocating funds to Frederick Classical, her office “use[d] the same approach and formula that was used by the School System and approved in the State Board Opinion issued in Monocacy Montessori Communities, Inc. v. Frederick County Board of Education, MSBE Op. No. 06-17 (2006).” On May 20, 2014, the State Board upheld FCPS’s decision concerning the level of funding allocated to the School for the 2013-14 school year.

Frederick Classical Charter School, Inc. v. Frederick County Board of Education, MSBE Op. No. 14-21 (2014). It denied Frederick Classical’s alternative request for a declaratory ruling. At the outset, the State Board determined that the appeal concerned a dispute regarding the rules and policies of a local board, and, therefore, it gave deference to the decision of FCPS.

The State Board observed ⁴⁴⁹ that “the local board’s decision must ‘be considered pñma facie correct’ and upheld unless [Frederick Classical] proves that the local board’s decision was arbitrary, unreasonable, or illegal.” The State Board reviewed its previous rulings on the allocation of money to public charter schools. It noted that “[although transportation costs are among the funds that could be included in a [per pupil allocation], this will depend on the arrangement between the local school system and the charter school.” In its view, “a plain reading of the Charter language indicate[d] that [Frederick Classical] is not responsible for providing transportation” and that “if [Frederick Classical] received funds for services it did not provide, it would be receiving more than its commensurate share of county funds.” The Board upheld the decision of FCPS and held that “[t]aking into account transportation costs is consistent with our prior rulings. In determining a [funding allocation], it is not arbitrary, unreasonable, or illegal for a county to consider the actual services provided by the charter school to reach a commensurate level of funding.” Frederick Classical petitioned for judicial review in the Circuit Court for Frederick County on June 18, 2014. The circuit court upheld the State Board’s decision on February 5, 2015.

Frederick Classical appealed to this Court on March 6, 2015. 4 DISCUSSION The Maryland Constitution, Art. VIII § 1 directs the General Assembly to “establish throughout the State a thor ⁴⁵⁰ ough and efficient System of Free Public Schools; and shall provide by taxation, or otherwise, for their maintenance.” The General Assembly created the Department of Education, headed by the State Board of Education, which is mandated to oversee “[t]he general care and supervision of public elementary and secondary education.” Educ. § 2-106. Section 2-205 of the Education Article enumerates the powers and duties of the State Board. It provides that the Board shall “(1) Determine the elementary and secondary educational policies of this State; and (2) Cause to be carried out those provisions of this article that are within its jurisdiction.” Educ. § 2-205(b). Subsection (e) describes the Board’s abilities to explain the intent and meaning of the Education Article and Maryland education policy: (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 (ii) The bylaws, rules, and regulations adopted by the Board.

(2) ... [T]he Board shall decide all controversies and disputes under these provisions. (3) The decision of the Board is final. Section 2-205, therefore, “invests the State Board with the last word on any matter concerning educational policy or the administration of the system of public education. This has been described as ‘a visitatorial power of the most comprehensive character.’ ” Bd. of Educ. of Talbot County v. Heister, 392 Md. 140, 153 , 896 A.2d 342 (2006) (quoting Wilson v. Bd. of Ed. of Montgomery County, 234 Md. 561, 564 , 200 A.2d 67 (1964)).

As a result of the visitatorial power of the State Board on education matters, the decisions of the State Board of Education are entitled to greater deference than those of most other administrative agencies. Patterson Park Pub. Charter Sch., Inc. v. Baltimore Teachers Union, 399 Md. 174, 197 , 923 A.2d 60 (2007) (citing Board of Education of Talbot ⁴⁵¹ County v. Heister, 392 Md. 140, 155 , 896 A.2d 342 (2006)). Frederick Classical’s arguments to the contrary are unavailing. 5 Frederick Classical suggests that we should not give heightened deference to the opinion of the State Board because the “State Board may not decide finally purely legal questions, and may not exercise its powers arbitrarily or capriciously.” 6 Although Frederick Classical characterizes this case as purely a matter of contract interpretation, as discussed below, the issues involved in this proceeding constitute an interplay between Frederick Classical’s charter, the local school board funding formula, and State Board decisions — matters of education policy rooted deeply in the powers of the State Board.

Here, the State Board was deciding a matter of education policy, and, thus deserves the heightened deference accorded to it. Although we give the decision of the State Board heightened deference, we review the decision under the arbi ⁴⁵² trary and capricious standard. See Bd. of Educ. of Somerset County v. Somerset Advocates for Educ., 189 Md.App. 385, 401-02 , 984 A.2d 405 (2009). “ ‘Decisions contrary to law or unsupported by substantial evidence are not within the exercise of sound administrative discretion, but are arbitrary and illegal acts.’” Hurl v. Bd. of Educ. of Howard County, 107 Md.App. 286, 306-07 , 667 A.2d 970 (1995) (quoting Deft of Health v. Walker, 238 Md. 512, 523 , 209 A.2d 555 (1965)). State Board regulations define decisions of a county board as being “arbitrary” where “contrary to sound educational policy” or where a “reasoning mind could not have reasonably reached the conclusion the local board ... reached.” COMAR 13A.01.05.05B.

These regulations define decisions as being illegal, if, among other things, they exceed the statutory authority or jurisdiction of the local board or misconstrue the law. COMAR 13A.01.05.05C. When an administrative agency acts in a manner that is inconsistent with its earlier decisions, without providing an adequate explanation for the different results, it acts arbitrarily and capriciously. Somerset Advocates for Educ., 189 Md.App. at 401-02 , 984 A.2d 405 (Citation omitted).

Frederick Classical contends that the State Board acted arbitrarily and capriciously in declining to reverse FCPS’s decision not to provide transportation funding. Specifically, it contends that the State Board erred in interpreting the charter language, that the State Board’s ruling is inconsistent with its decisions in City Neighbors, supra, and Monocacy Montessori Communities, Inc. v. Frederick County Bd. of Educ., MSBE Op. No. 06-17 (2006) [“MMCI ”], and that the Board’s ruling was inconsistent