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Decision No. 17,166

Appeal of MARIE UNAPANTA from action of the Board of Education of the East Meadow Union Free School District regarding financial practices.

Decision No. 17,166

(August 29, 2017)

Cronin, Cronin, Harris & O’Brien, P.C., attorneys for petitioner, Laureen Harris, Esq., of counsel

Jaspan Schlesinger LLP, attorneys for respondent, Michael D. Raniere, Esq., of counsel

ELIA, Commissioner.--Petitioner challenges certain financial practices of the Board of Education of the East Meadow Union Free School District (“respondent”).  The appeal must be dismissed.

Petitioner, who seeks to bring this appeal as a class appeal, contends that respondent violated Real Property Tax Law (“RPTL”) §1318 by exceeding the four percent fund balance limit and that it breached its fiduciary responsibilities to make sound financial decisions by engaging in misleading budget practices, including adopting a fund balance policy that is not in compliance with RPTL §1318, failing to establish a reserve fund policy and failing to document resolutions for the adoption and maintenance of its existing reserve funds.  As relief, petitioner requests an order directing respondent to:  return a pro rata share of funds to taxpayers; use any excess reserve funds to lower real property taxes, increase necessary reserve funds, pay for one-time expenditures or pay down debt; develop comprehensive policies and procedures related to the establishment of reserve funds; review all reserves and determine if the amounts reserved are necessary, reasonable and in compliance with statutory requirements; include the funding and use of all reserves on the adopted budget plan each year; and approve tax warrants in strict compliance with the statutory requirements.

Respondent asserts that the appeal is untimely, moot and that a class appeal is not permitted.  It also asserts that the petition is not properly verified and fails to set forth a claim upon which relief may be granted.  In addition, respondent claims that the reply should not be considered to the extent it raises new assertions or contains new exhibits.  Respondent requests that the appeal be dismissed in its entirety. 

I will first address several procedural matters.  Petitioner attempts to bring this appeal on behalf of individuals who “either reside or own properties within the East Meadow School District.”  An appeal may only be maintained on behalf of a class where the class is so numerous that joinder of all members is impracticable and where all questions of fact and law are common to all members of the class (8 NYCRR §275.2; Appeal of Pollicino, et al., 48 Ed Dept Rep 279, Decision No. 15,858; Appeal of Strade, et al., 48 id. 73, Decision No. 15,797).  A petitioner must set forth the number of individuals he or she seeks to represent and must show that all questions of law and fact would be common to all members of the class (Appeal of Pollicino, et al., 48 Ed Dept Rep 279, Decision No. 15,858; Appeal of Strade, et al., 48 id. 73, Decision No. 15,797).  Other than identifying the proposed class as residents or property owners within the district, petitioner’s pleadings do not include any allegations to meet the requirements for a class appeal.  Not only does petitioner fail to identify the number of class members, she offers no explanation of how all questions of fact and law would be common to all residents and property owners of the school district.  Therefore, class status is denied.

Petitioner submits a “Reply Affidavit” which includes additional facts and exhibits concerning respondent’s retention of unexpended funds that were not in the petition.  In the reply affidavit, petitioner for the first time makes specific allegations that respondent improperly retained unexpended surplus funds from the 2015-2016 school year, and submits a copy of respondent’s 2016-2017 budget and 2015-2016 and 2016-2017 budget statements in support of her allegations.  The purpose of a reply is to respond to new material or affirmative defenses set forth in an answer (8 NYCRR §§275.3 and 275.14).  A reply is not meant to buttress allegations in the petition or to belatedly add assertions that should have been in the petition (Appeal of Caswell, 48 Ed Dept Rep 472, Decision No. 15,920; Appeal of Hinson, 48 id. 437, Decision No. 15,908; Appeal of Baez, 48 id. 418, Decision No. 15,901).  Therefore, while I have reviewed the reply, I have not considered those portions containing new allegations or exhibits that are not responsive to new material or affirmative defenses set forth in the answer, including petitioner’s new allegations relating to the retention of unexpended surplus funds from 2015-2016 into the 2016-2017 school year and the budgetary exhibits to the reply affidavit.

Respondent contends that the appeal is untimely.  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).  Under RPTL §1318(1), an appeal is timely if it is brought within the school district’s fiscal year during which unexpended surplus funds are allegedly improperly retained (Appeal of Wille, 56 Ed Dept Rep, Decision No. 17,050; Appeal of Affronti, 54 id., Decision No. 16,756; Appeal of Gorman, 52 id., Decision No 16,412; Appeal of Schadtle, 40 id. 60, Decision No. 14,421; Appeal of Siver, 37 id. 498, Decision No. 13,912).  In the reply affidavit, petitioner clarifies that she is only challenging unexpended surplus funds from the 2015-2016 school year that were improperly retained into the 2016-2017 school year.  This appeal was commenced on July 13, 2016, during the 2016-2017 school district fiscal year.  Accordingly, the appeal is timely as it was commenced during the school district fiscal year in which the surplus funds are alleged to have been improperly retained.

Respondent also contends that the appeal is not properly verified.  Section 275.5 of the Commissioner's regulations requires that all pleadings in an appeal to the Commissioner be verified.  When a petition is not properly verified, the appeal must be dismissed (Appeal of D.P., 46 Ed Dept Rep 516, Decision No. 15,580; Appeal of C.S., 46 id. 260, Decision 15,501).  Petitioner verified the petition on May 9, 2016.  However, the petition is dated July 12, 2016.  In her reply affidavit, petitioner’s attorney claims that the petition was timely verified by petitioner, but that there was:

[C]onfusion and a delay in the ultimate service and filing of the petition, which caused the dates between your deponent’s verification and [p]etitioner’s verification to differ.[1] 

Petitioner’s verification is dated more than two months before the date of the petition.  Therefore, I find that the petition was not properly verified and I will not excuse this omission as petitioner was represented by counsel (see Appeal of Acosta, 54 Ed Dept Rep, Decision No. 16,782; Appeal of Dupras, 47 id. 471, Decision No. 15,757).  Accordingly, the appeal must be dismissed for lack of proper verification.

Even if the appeal were not dismissed on procedural grounds, it would be dismissed on the merits.  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]; Appeal of Affronti, 54 Ed Dept Rep, Decision No. 16,756; Appeal of Gorman, 52 id., Decision No. 16,412).  Accordingly, at the end of each school year all unexpended surplus funds in excess of the designated percentage (depending on the school year) of the amount of the budget for the upcoming school year must be applied to reduce the tax levy (Appeal of Affronti, 54 Ed Dept Rep, Decision No. 16,756; Appeal of Gorman, 52 id., Decision No. 16,412; Appeal of Wolfley and McCauley, 50 id., Decision No. 16,225).

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).

The petition in this appeal consists almost entirely of statements taken from the State Comptroller’s February 2016 audit report of the district’s financial condition which covered the period July 1, 2012 through August 31, 2015.  I note that the audit report references certain limited information with respect to the 2015-2016 fiscal year, including that the district’s budgeted appropriations for that year were $195.8 million.  However, there is no information in the audit report concerning unexpended surplus funds for the 2015-2016 fiscal year.  Nor is there any information in the audit report concerning the retention of unexpended surplus funds for the 2016-2017 fiscal year.  Moreover, I note that neither party has submitted evidence demonstrating the actual amount of unexpended surplus funds, if any, from the 2015-2016 fiscal year retained by respondent into the 2016-2017 fiscal year or the budget appropriations for the 2016-2017 fiscal year.[2]

Based on this record, I am unable to make any determination as to whether respondent improperly retained unexpended surplus funds in excess of four percent of the 2016-2017 budget in violation of the RPTL §1318(1) because the record does not include relevant actual financial information.  Consequently, petitioner has failed, on this record, to carry her burden of establishing facts sufficient to sustain the appeal (see Appeal of Affronti, 54 Ed Dept Rep, Decision No. 16,756).

I further note that the record indicates that respondent is implementing corrective action in response to the audit report.  Although I am constrained to dismiss the appeal, in view of the very serious issues raised in the audit report regarding certain financial practices, I admonish respondent to ensure that it complies fully with the requirements of RPTL §1318 and addresses the audit recommendations, particularly with regard to its fund balance policy[3] and reserve funds.  I remind respondent that compliance with the statutory four percent fund balance is not merely aspirational, but rather is required as a matter of law.  Respondent may not have a fund balance policy that contemplates exceeding the fund balance limit.  I remind respondent that New York State Education Department staff are available to provide technical assistance to respondent and its administration to assist in its continuing corrective actions.

In light of this disposition, I need not address the parties’ remaining contentions.

THE APPEAL IS DISMISSED.

END OF FILE

 

[1] The petition is also verified by the attorney for petitioner who is not a party to the appeal.  However, the petition must be verified by the oath of a petitioner (8 NYCRR §275.5[a]).  As petitioner’s attorney is not a petitioner, her verification is improper (see Appeal of Campbell, 56 Ed Dept Rep, Decision No, 16,948).

 

[2] While respondent asserts that, for the 2016-2017 fiscal year, the amount budgeted to the unrestricted fund balance constituted exactly four percent of the its total budget, that assertion is in its memorandum of law and is not supported by any documentation.  A memorandum of law should consist of arguments of law (8 NYCRR §276.4).  It may not be used to add belated assertions or exhibits that are not part of the pleadings (Appeal of Bruning and Coburn-Bruning, 48 Ed Dept Rep 84, Decision No. 15,799; Appeal of Wright, 47 id. 202, Decision No. 15,668).  Therefore, I have not considered such portions of respondent’s memorandum of law.

 

[3] In respondent’s corrective action plan dated February 11, 2016, respondent’s superintendent indicates that respondent will revise its fund balance policy to ensure compliance with statutory requirements and that respondent will be presented with a revision to its policy prior to the end of the fiscal year.  While respondent attaches a fund balance policy, adopted on June 23, 2011, to its answer herein which provides that “[t]he target is to maintain an unassigned fund balance of not less than 4% of the estimated annual operating expenditures for the ensuing fiscal year,” respondent does not indicate whether it revised such fund balance policy to ensure compliance with statutory requirements.