Appeal of THOMAS KACKMEISTER from action of the Board of Education of the Greece Central School District and its Superintendent and Assistant Superintendent of Finance, and Christa Construction, SWBR, LeChase Construction, The Pike Company, LeCesse Construction Co., HS Industrial Equipment, LVI, Billitier Electric Inc., Cable-Wiedemer Inc., Finger Lakes Piping, Inc., Sear Brown Project Delivery, Faulks Plumbing Heating and Air Conditioning, Quinlan Communications Group, Connor and Haas, Inc., AAC Contracting, Inc., F-E-S Associates, Battle Associates, Robert F. Hyland and Sons, O'Grady McCormick Mechanical Contractors, Monroe Piping and Sheet Metal Inc., Massa and the Town of Greece, regarding reserve funds and capital construction projects.

Decision No. 14,560

(April 13, 2001)

Wayne A. Vander Byl, Esq., attorney for respondents Board of Education, Superintendent and Assistant Superintendent

MILLS, Commissioner.--Petitioner challenges a number of fiscal and contractual actions taken by the Board of Education of the Greece Central School District ("respondent board"), its Superintendent and its Assistant Superintendent for Finance and Support Services (collectively referred to as the "district respondents"). The appeal is sustained in part.

Petitioner, a resident and taxpayer, contends, inter alia, that the district respondents are: improperly using a single proposition to authorize a series of annual expenditures from 3651 reserve funds rather than obtaining specific authorization from district voters for such expenditures each fiscal year; improperly levying taxes for appropriations to replenish reserve funds in excess of the ultimate limits established for those funds; and improperly including authorizations to expend those appropriations from the reserve funds during the same fiscal year as the funds are authorized to be transferred into the reserve funds. Petitioner further challenges the legality of a contract to appoint Christa Construction as the general manager of a school renovation project, on the grounds of a possible conflict of interest, and challenges the legality of the extension of a lease of property to a developer without a further public vote. Petitioner's requests for interim relief were denied on June 20, 2000.

To the extent that petitioner purports to challenge certain reserve fund propositions from 1999 or previous years, and seeks reformation or annulment of such past propositions, his claims must be dismissed as untimely. Section 275.16 of the Regulations of the Commissioner of Education requires that an appeal be instituted within 30 days from the making of the decision or the performance of the act complained of. However, to the extent that such prior propositions have an effect upon current board actions or propositions regarding reserve funds, I will address petitioner’s claims.

Most of petitioner's complaints arise out of respondent board's proposed funding and use in fiscal year 2000-01 of various reserve funds established by respondent board pursuant to Education Law 3651 (the record does not indicate that this appeal involves any reserve funds established pursuant to Article 2 of the General Municipal Law). The purpose of a 3651 reserve fund is to permit a school district to set aside a sum of money for a future expenditure, rather than fund the expenditure through the current year's budget or through issuing bonds at the time of the expenditure. The reserve fund is established by a majority vote of the district's electorate to approve a proposition that sets forth the purpose of the reserve fund, the ultimate amount thereof, its probable term, and the source from which the money would be obtained to fund the account (Education Law 3651[1]). An amount should be paid into the reserve fund sufficient to meet the requirements of the proposition, and the voters may direct that additional funds derived from other sources may be paid into the fund (id.). The "ultimate amount" of the reserve fund, as the term is used in Education Law 3651(1), constitutes the total amount of money that may be paid into the reserve fund over the entire term of the fund.

One reserve fund specifically challenged by petitioner is the Building Capital Reserve Fund ("BCRF"). The BCRF was established in 1978 with an approved ultimate limit of $1.25 million. The voters approved an increase in the ultimate limit in 1987 to $3.55 million. This limitation thus established that a maximum of $3.55 million could be paid into the reserve fund over the entire life of the fund, irrespective of the balance of the fund at any given time or expenditures from the fund.

The record reveals, however, that respondent board has deposited much more than this ultimate amount into the BCRF over the life of the fund. For example, in April 1982 the voters approved transfers into the fund totaling more than $2.3 million, although the ultimate limit of the fund at that time was $1.25 million. The record also establishes that the voters approved a proposition in May 1999 to "increase the annual budgetary appropriation for such fund by the sum of $490,000" beginning 1999-2000 and extending over subsequent fiscal years. An accounting provided by respondents indicates that more than $16 million has been transferred into the BCRF since it was established, in violation of the ultimate limit established by the voters in 1987.

Petitioner also challenges the lack of a current established probable term for the BCRF when the terms of the fund were amended in the May 1999 proposition. When established in 1978, respondent board advised voters that the BCRF had a probable term of 10 years. However, the fund is now more than 22 years old. The voters in May 1999 approved a proposition calling for an additional $490,000 appropriation for the BCRF for 1999-2000 and an unspecified number of subsequent fiscal years. The record is devoid of any indication that the voters have been asked to approve, or have in fact approved, an amendment of the original stated probable term of ten years, nor did the May 1999 proposition purport to establish any amended time limitation for the reserve fund or the additional appropriations to fund the BCRF.

At the time of the fund's creation in 1978, respondent board properly established a probable term of 10 years in compliance with Education Law 3651[1]. Respondent board also included language in the 1978 proposition, however, that "such fund shall continue in existence for its stated purpose until liquidated ... or until its funds are exhausted." Such generalized, indefinite language is inappropriate when establishing a reserve fund, and does not comply with the mandates of the Education Law. The life of a reserve fund is limited to the specific probable term established in the proposition creating the fund, or by some subsequent amendment that takes effect during that term. Although accumulated moneys in the fund may be expended after the expiration of the probable term until the fund is depleted, no funds may be transferred to a 3651 reserve fund nor can the terms of the reserve fund be amended after the expiration of the probable term. In sum, once the established probable term has expired, the reserve fund is essentially defunct except as a vehicle to hold the accumulated funds. No more funds may be added, no amendment can be made to the terms of the fund, and it simply must be spent down by appropriate propositions to expend the accumulated funds.

Additionally, district voters approved propositions authorizing annual maximum expenditures from the BCRF in lump sum figures - $200,000 per year (1978), $1 million per year (1982 and 1987) and $2 million per year (1999 and 2000). None of the propositions described in the record before me provided the voters with a "specific purpose" for the expenditure as required by Education Law 3651(3). In addition, the accounting provided by respondent board reveals that more than $22 million has been expended from the BCRF since its inception. Further, the propositions provided to me in the record purport to authorize such general annual expenditures for a period beyond the current fiscal year.

After a careful review of the record and the contentions of the parties, it is apparent that the district respondents are operating an improper "rolling reserve fund," replenishing the funds in the BCRF as they are expended without regard to the ultimate amount or probable term approved by district voters at the time the fund was originally established or through subsequent amendment.

A 3651 reserve fund can be analogized to a long-term savings account for a specific future objective, for which the voters have approved a set maximum amount of money that can be transferred into this savings account by the district over the established life of the fund. In contrast, the district respondents have been treating the BCRF in the same manner as a checking account, putting funds in and expending those funds annually without regard to the ultimate limit established by the voters. Once the total transfers to the BCRF since 1978 exceeded $3.55 million, the excess transfers were not authorized by Education Law 3651 and constituted an improper use of district funds.

The district respondents are also continuing to transfer money into the reserve fund that has essentially expired because it reached its probable term. The voters established a 10-year probable term for the BCRF in 1978. There was no amendment of this probable term prior to 1988, so the fund expired as of 1988. Once a reserve fund has reached the end of its probable term, no additional money may be transferred into the fund (regardless of whether the fund achieved its ultimate limit) nor may there be any amendment of the terms of the reserve fund. The school district is only authorized to continue to expend the money from the reserve fund in accordance with proper voter authorizations.

It is also clear that the district respondents are not obtaining proper voter approval for expenditures from the BCRF in compliance with Education Law 3651(3), because they are not providing voters with the specific purpose of such expenditures, and are not obtaining annual approval from the voters for expenditures in a particular fiscal year. Such reserve funds are to be created for specific purpose(s), which must be disclosed to the voters at the time they approve the establishment of the fund, not for miscellaneous and sundry projects that may arise over time.

Similarly, the expenditures from reserve funds should be for the specific purpose(s) for which the fund was established, and the proposition to approve the expenditure should explicitly state the purpose of the proposed expenditure (Education Law 3651[3]). Although the stated purpose(s) of a reserve fund may be somewhat broad, the spending authorization should be specific and give the voters adequate notice of the particular intended use of the funds. A proposition authorizing the funding of a reserve fund or an expenditure from a reserve fund is limited to the fiscal year for which the voters approved the proposition, and may not contain language purporting to continue such authorization indefinitely into future fiscal years (accord, Opn. State Comptr. 83-223 [it is improper to use a single proposition to authorize a series of annual expenditures of a certain amount from a reserve fund]). As the Comptroller noted in Opinion 83-223, the statutory requirement of "specific purpose" mandates that each and every expenditure must be authorized separately by the voters, so that the voters can evaluate the expenditure in light of circumstances existing at the time each expenditure is to be made. The Comptroller found "no evidence that the statute was meant to permit a standing authorization of a recurring annual expenditure" (id.).

Petitioner challenges the funding of, and expenditures from, other reserve funds in this appeal. A Bus Purchase Reserve Fund was established in January 1977, with a probable term of 10 years and a stated ultimate limit of $2.5 million. The 1977 proposition contained language, similar to the proposition establishing the BCRF, which purported to extend the probable term indefinitely. The accounting provided by respondent board indicates that the Bus Purchase Reserve Fund is still being funded more than 13 years after its probable term expired. The accounting also reveals that, although the reserve fund was fully funded in the amount of $2.5 million the very first year, respondent board has nevertheless continued to transfer funds into the reserve fund in excess of $15 million.

The district's third 3651 reserve fund is a School District Equipment Fund. This fund was established in May 1999, with an ultimate amount of $1 million and a probable term of 10 years. The accounting provided by respondent board indicates that, irrespective of the stated ultimate limit, $1.45 million was transferred into the fund in 1999-2000. No funds were transferred into the fund for the 2000-01 school year.

The district respondents are admonished to comply with Education Law 3651 in the operation of all of the district’s reserve funds established pursuant to that section. No funds may be transferred to a reserve fund over the entire life of the fund in excess of the stated ultimate limit of the fund. A reserve fund should be established for specific purpose(s) and for a specific probable term in keeping with the stated purpose(s). Expenditures from a reserve fund must be for such specific purpose(s), and the specific purpose of the expenditure must be set forth in the proposition seeking authorization from the voters for the expenditure. No transfers may be made to a reserve fund after its probable term has expired, regardless of whether it has been fully funded to its ultimate limit.

Petitioner also challenges the district respondents' presentation of propositions to district voters that purport to transfer money into reserve funds and to spend that reserved money in the same fiscal year. This is an inappropriate use of a 3651 reserve fund. As noted above, a reserve fund is intended as a mechanism to reserve and accumulate funds over time for a future project, not as a vehicle to finance a current project or current needs. There is no sense whatsoever in depositing money received from current tax levies into a reserve fund, and then conveying the money via an interfund transfer to the district's capital fund to expend the money during the same fiscal year. If there is money from current tax levies available for such current needs, the money should simply be deposited directly into the capital fund for expenditure.

Petitioner additionally challenges a contract with Christa Construction ("Christa") for pre-referendum and construction management services, in connection with a construction bond proposition, because of a possible conflict of interest. The contract with Christa was procured through a request for proposals ("RFP") process, in connection with a bond proposition to be presented to voters in June 2000 to construct an addition to a district school.

Petitioner notes his "concern" that there are various interrelationships between school district personnel and the corporation, e.g., two pieces of property are owned jointly by a Christa employee and an assistant superintendent who was the facilitator of the RFP process that selected Christa; one Christa employee was a previous superintendent of the school district; and the vice president of Christa is a former school district employee. However, none of petitioner's allegations of potential conflict fall within the specific definitions of conflict of interest as set forth in Article 18 of the General Municipal Law ("GML"), 800 et seq., or identifies a violation of the prohibitions contained in GML 805-a. In an appeal to the Commissioner, petitioner bears the burden of establishing all the facts upon which he seeks relief (8 NYCRR 275.10; Appeal of Alexander, 39 Ed Dept Rep 265, Decision No. 14,232; Appeal of Trombley, 39 id. 115, Decision No. 14,189) and demonstrating a clear legal right to the relief requested (Appeal of Alexander, supra; Appeal of Logan, 38 id. 694, Decision No. 14,120). Petitioner has failed to establish that there was any taint to the contract award to Christa as a result of the cited interrelationships, and thus is not entitled to the relief of invalidating the contract. The record indicates that respondent board gave careful consideration to various proposals, and used its judgment to procure the services of the contractor that best fit the requirements of the RFP.

Petitioner also argues that the district respondents improperly used an RFP process rather than an open bid process to procure these services. The district respondents argue that, because this contract was for professional services, use of an RFP process pursuant to GML 104-b was appropriate rather than use of a competitive bid process under GML 103. Although I do not have a copy of the RFP or the contract before me, and I am thus not conversant with the particular duties required of Christa under the contract, petitioner has not rebutted the contention that the contract calls for professional services. Professional services contracts involving specialized skills, expertise and the exercise of judgment and discretion are outside the scope of competitive bidding (Schulz v. Cobleskill-Richmondville Central School District, 197 AD2d 247 [3d Dept 1994]; Appeal of Shravah, et al., 36 Ed Dept Rep 396, Decision No. 13,760, judgment granted dismissing petition to review, Supreme Ct., Albany Co. (Lamont, J.), December 18, 1997). Use of the RFP process was appropriate under these circumstances.

In a related challenge, petitioner contends that district Policy 6700 is vague and deficient, and that the district respondents should be ordered to rewrite the policy to "specify exactly what 'specialized consultant services' are." In the instant appeal, petitioner does not establish that there is any vagueness or dispute as to whether the services provided by Christa under the contract constitute "specialized consultant services," and thus fails to sustain his burden to show that he is entitled to any relief with respect to this particular contract. I will not address the language of this policy in the abstract, without a particular application of the policy before me for consideration. The Commissioner does not issue advisory opinions in appeals brought pursuant to Education Law 310 (Appeal of Instone-Noonan, 39 Ed Dept Rep 413, Decision No. 14,275; Appeal of Weiss, 39 id. 69, Decision No. 14,176).

Petitioner next challenges the validity of a lease between the school district and David Christa for a parcel of land owned by the district. District voters authorized a 30-year lease on May 16, 1990, and the lease permitted construction of a building on the property. Petitioner contends that the limit of a lease under Education Law 403-a is 10 years, and that the lease expired as of May 2000 because there has been no subsequent proposition approved by the voters to extend the lease. Petitioner's interpretation of 403-a, however, is inaccurate. Subsection (5) of 403-a provides that a lease may be for a period in excess of 10 years if approved by the voters. The proposition approved by the voters on May 19, 1990 clearly advised voters that the lease was for a period of 30 years, in compliance with 403-a(5). Because the lease is still valid, I need not address petitioner's additional contention that the school district should use the building constructed by David Christa on the leased premises rather than ask the voters to approve the construction of an addition to an existing school facility.

Petitioner additionally appears to challenge a lease-purchase provision in the lease agreement, but fails to establish that there is any present intention by the parties for David Christa to purchase the leased property. Petitioner further challenges the rental rate in the lease, but this rate was set in 1990 when the lease was executed. A challenge to the provisions of the lease is therefore untimely at this point (8 NYCRR 275.16).

Petitioner also complains that David Christa has apparently paid no property tax on the building constructed on the leased property over the last 10 years. Petitioner asks that I direct the district respondents to refrain from dealing with the Christa Corporation unless and until it pays all taxes, especially school taxes. However, the Commissioner has no authority to enforce the Real Property Tax Law ("RPTL") against private parties. Petitioner must address these concerns with the appropriate authorities in compliance with the RPTL.

THE APPEAL IS SUSTAINED TO THE EXTENT INDICATED.

IT IS ORDERED that the district respondents cease any future transfers, that have not already been approved by the voters, to reserve funds created under Education Law 3651 in excess of the stated ultimate limits over the entire life of the reserve funds or after the expiration of the stated probable term of such reserve funds; and that any propositions to expend money from 3651 reserve funds must be limited to the current fiscal year and must state with specificity the purpose for each such expenditure.

IT IS FURTHER ORDERED that the district respondents cease their practice of seeking voter approval authorizing transfers into reserve funds and authorizing the expenditure of those funds during the same fiscal year.

END OF FILE


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