Application of MONIQUE MCCRAY, DORIS DODSON and KELLY VALENTIN for the removal of Fred Philips as President and member, Daniel Devine as Vice President and member, and William G. Softy and Edna Carbajal as members of the Board of Education of the Central Islip Union Free School District, and for the removal of Dr. Craig Carr as Superintendent.

Decision No. 17,307

(January 18, 2018)

Law Offices of Thomas M. Volz, PLLC, attorneys for respondents, Thomas M. Volz and Michael G. Vigliotta, Esqs., of counsel

ELIA, Commissioner.--Petitioners seek the removal of Fred Philips, Daniel Devine, William G. Softy and Edna Carbajal (“board respondents”) as members of the Board of Education of the Central Islip Union Free School District (“board”) as well as the removal of Dr. Craig Carr as Superintendent (“respondent Carr”) (collectively, “respondents”).  The application must be denied.

The underlying events at issue in this proceeding stem from litigation between the board and the State Education Department (“SED”) regarding state aid for certain building renovations.[1]  In June 2000, voters authorized the board to undertake renovation projects within several of its buildings and to levy taxes and issue bonds to finance the construction cost, which was approximately $54 million.  SED subsequently approved plans and specifications submitted by the board.  The construction was substantially completed by May 2004.  The board was required by State regulations to file final cost reports for the project by June 30 of the school year in which the certificates of substantial completion were issued or six months after the certificates were issued, whichever occurred later.  Thus, at latest, the final cost reports were due by the end of 2004.  The board did not file final cost reports until June 2008.  SED excused the late filing as to one project, but otherwise discontinued the apportioned payments and sought to recoup the state aid apportionments which had already been paid.  In March 2011, SED informed the board that it could apply for a three-year repayment plan based upon overpayments which had occurred starting in the 2003-2004 school year and ending with the 2008-2009 school year.  The board applied for such a repayment plan.

In a letter dated April 19, 2011, SED approved the board’s request for a repayment plan.  According to the plan, the board would refund SED $13,619,929 in overpayments over the course of three years by annual deductions from its general aid payments.

On May 26, 2011, the board commenced a hybrid Article 78 and declaratory judgment proceeding in Supreme Court, Albany County concerning the overpayment, to which the board asserted it was entitled.  The board requested issuance of a temporary restraining order (“TRO”) (1) restraining SED from enforcing the collection of the overpayments; and (2) ordering SED to pay the board the state building aid which it had withheld for the 2009-2010, 2010-2011, and 2011-2012 school years.  Supreme Court granted the board’s request for a TRO, which resulted in a payment from SED to the board in the amount of approximately $7.5 million.  This amount was received by the district during the 2011-2012 school year.  It is undisputed that the board retained some or all of this money during the 2011-2012 and 2012-2013 school years.

On March 30, 2012, the Governor signed Chapter 57 of the Laws of 2012, effective April 1, 2012, which “ratified and validated” the actions and omissions of any school district which failed to file timely final cost reports for otherwise eligible school construction projects so long as the reports were filed by December 31, 2012.  If filed by this deadline, the legislation directed SED to pay apportioned aid to each district in full except for a late filing penalty.  Following passage of this legislation, Supreme Court dismissed the board’s lawsuit as moot on January 30, 2013, which was affirmed by the Appellate Division on October 30, 2014 (see Bd. of Educ. of Cent. Islip Union Free Sch. Dist. v. Steiner, 121 Ad3d 1473).

In March 2014, the Office of the New York State Comptroller (“Comptroller”) issued a report of examination entitled “Central Islip Union Free School District Financial Management” which covered the period from July 1, 2012 to June 30, 2013 (the “Comptroller report”).  However, as noted in the report’s executive summary, the auditors “expanded [their] scope back to July 1, 2008” upon initiation of the audit.  As relevant to this appeal, the Comptroller concluded that district officials “underestimated revenues and overestimated expenditures in the Board-adopted budgets for fiscal years 2008-09 through 2012-13 ....”  Specifically, the Comptroller found that, expressed as a percentage of the next year’s budget appropriations, the district maintained unexpended surplus funds in the amount of 10 percent in the 2010-2011 fiscal year; 18 percent for the 2011-2012 fiscal year; and 5 percent for the 2012-2013 fiscal year.  The Comptroller further noted that, while maintaining this surplus, “[d]istrict officials continued to increase the real property tax levy by more than $6.6 million, a 9 percent increase.”

The Comptroller noted that, after the district learned of the potential $13.6 million liability to SED in February 2010, “the entire amount needed was accumulated in unexpended surplus funds by the end of the 2010-11 fiscal year, due to the operating surplus incurred that year.”  But, despite this, “officials continued to accumulate additional unexpended surplus funds in subsequent years.”  The Comptroller further opined that SED’s claim to the withheld state aid was “no different than any other claim against the [d]istrict.”  Therefore, the comptroller reasoned that:

setting money aside to pay this claim, should it come due, does not restrict these funds because the [d]istrict could decide to use these resources for other purposes or issue debt if and when the claim comes due.

The Comptroller additionally noted that district officials had “hoped that funds for this contingent liability could be placed in a reserve and excluded when calculating the statutory limit.”  However, the Comptroller noted that “there is no statutory authority to establish a reserve for this liability.”  This application ensued.

Petitioners contend that respondents wilfully violated the Real Property Tax Law (“RPTL”) §1318 by retaining funds greater than four percent of the next fiscal year’s budget for the 2010-2011, 2011-2012 and 2012-2013 fiscal years.  Specifically, petitioners contend that the district’s unexpended surplus funds, expressed as a percentage of the next year’s budget, totaled 10 percent at the end of fiscal year 2010-2011; 18 percent at the end of fiscal year 2011-2012; and five percent at the end of fiscal year 2012-2013.  Petitioners complain that, at a time when the community was experiencing economic decline and high home foreclosure rates, district officials increased the tax levy, generating operating surpluses in excess of $25 million from 2008-2009 through 2012-2013.[2]  Petitioners argue that respondents violated RPTL §1318 “by not using the unexpended, unreserved funds in excess of the 4 percent limit to reduce the district’s tax levy for the upcoming school years.”  Petitioners also assert that “[r]espondents have a responsibility ... to bring information to the community about matters that affect their legal obligation to pay taxes” and “were obligated to be truthful and ethical and not jeopardize the community’s trust.”  Also, petitioners assert that petitioners McCray and Dodson “raised questions about the [d]istrict’s practices of deliberately creating excess funds by under estimating revenue and over estimating expenditures” at an April 8, 2013 board meeting, where respondents “acknowledge[d]” that there were “no internal controls to measure whether budget expenditures are efficient and increases are warranted.”  Petitioners request that respondents be removed from their respective offices.

Respondents argue that I should be precluded from issuing a decision in this matter because the allegations concern an “ongoing dispute between the [d]istrict and SED concerning SED’s [o]rder that the [d]istrict return to the State[,] aid which SED has classified as an overpayment.”  Respondents further contend that the unexpended surplus funds were solely attributable to the approximately $7.5 million received in connection with the TRO, and that receipt of these funds placed the district in the “impossible dilemma” of having to determine whether to treat the funds as “surplus funds” under RPTL §1318 or retain the funds in case SED prevailed in the underlying lawsuit.  Respondents argue that the application fails to allege a wilful violation of law sufficient to warrant removal pursuant to Education Law §306.  Respondents further contend that the application is moot as the district is developing a corrective action plan and will not hold “$5.46 million dollars of the State’s money as of June 30, 2014.”  Respondents further argue that respondents acted based upon the advice of counsel; compliance with RPTL §1318 was “irreparably prevented” by the intervening and/or superseding event of SED’s order to the district to return the “overpayment” of funds to the State; the disputed funds are not “surplus funds” within the meaning of RPTL §1318(1); and respondents’ actions were legally justified.  Finally, respondents request certificates of good faith in accordance with Education Law §3811.

I will first address a preliminary matter.  Respondents argue that I am unable to issue an impartial decision in this matter because, according to respondents, the application concerns an ongoing dispute between SED and respondent board.  Education Law §306 provides for an application to the Commissioner of Education when a petitioner seeks the removal of a board member or school officer.  While recusal may be necessary in an adjudicatory proceeding before the Commissioner under certain circumstances, I find that no such circumstances exist in this case.  Respondents do not articulate any specific reasons or basis for my recusal other than the fact that the Commissioner and SED were respondents in a lawsuit initiated by the board regarding entitlement to state aid payments.  I do not find that this lawsuit, which has concluded, compromises my impartiality or otherwise requires my recusal in this case.  Therefore, I am statutorily required to review this application and I decline to recuse myself (see e.g. Application of Simmons, 53 Ed Dept Rep, Decision No. 16,596; Appeal of Wayne, 39 id., Decision No. 14,298).

Next, I must address several procedural issues.  Petitioners submitted a reply in this matter.  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.

The application for the removal of respondent Carr as superintendent must be denied as moot.  The Commissioner will only decide matters in actual controversy and will not render a decision on a state of facts which no longer exist or which subsequent events have laid to rest (Appeal of a Student with a Disability, 48 Ed Dept Rep 532, Decision No. 15,940; Appeal of M.M., 48 id. 527, Decision No. 15,937; Appeal of Embro, 48 id. 204, Decision No. 15,836).  I take judicial notice of information published on the district’s official website indicating that, in or about September 2016, the board hired a new superintendent and respondent Carr no longer serves in that position (see Application of McCray, 57 Ed Dept Rep, Decision No. 17,240).  Therefore, the application to remove respondent Carr as superintendent of the Central Islip Union Free School District must be denied as moot (Appeal of Affronti, 54 Ed Dept Rep, Decision No. 16,756; Appeal of Gonzalez, 48 id. 415, Decision No. 15,900; Appeal of Gonzalez, 48 id. 405, Decision No. 15,898).

Respondents contend that the application must be dismissed as 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).  The 30-day limitation period also applies to a removal application made pursuant to Education Law §306 (8 NYCRR §277.1; Application of Kelty, 48 Ed Dept Rep 476, Decision No. 15,921; Appeal of Budich, 48 id. 383, Decision No. 15,892).  In addition, a removal application may be timely commenced within 30 days of the petitioner’s good faith discovery of the alleged conduct even though the actual conduct occurred more than 30 days before the application was instituted (Application of Nett and Raby, 45 Ed Dept Rep 259, Decision No. 15,315; Application of Bean, 42 id. 171, Decision No. 14,810).

Respondents contend that petitioners’ allegations are based upon budgets which were approved at the end of the 2010-2011, 2011-2012, and 2012-2013 school fiscal years, and that the latest date which could conceivably give rise to petitioners’ claims is April 8, 2013, the date the board approved the 2013-2014 budget.[3]  Petitioners contend that this application is timely because it was commenced within 30 days of the date of “official notification” of the Comptroller’s report on March 21, 2014.  In response, respondents assert that as board members and/or residents of the community, “each [p]etitioner knew or should have known of the budgets approved by the [b]oard each year” as well as “the [d]istrict’s decision with regard to the funds in dispute at the time the budgets were approved during each fiscal year.” 

I find that petitioners have failed to establish that they were unable in good faith to discover the facts underlying their claims until receipt of the Comptroller’s report (Appeal of Affronti, 54 Ed Dept Rep, Decision No. 16,756; Application of Paladino, 53 id., Decision No. 16,594; Application of Leman and Sluys, 39 id. 330, Decision No. 14,252).  Additionally, I note that, by petitioners’ own admission, at least one petitioner was a member of the board during each of the challenged school years.  In their reply, petitioners identify the dates when they were elected to the board and/or sworn in as May/July 2011 (McCray), July 2012 (Dodson) and May/July 2013 (Valentin).  Thus, petitioners’ application for removal is untimely and must be denied.[4]

Although the application must be denied as untimely, it would also be denied 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]). Accordingly, the Commissioner has repeatedly held that, at the end of each school year, all unexpended operating funds in excess of the statutorily permitted four percent of the amount of the budget for the upcoming school year must be applied to reduce the tax levy (Appeal of Delessio, 57 Ed Dept Rep, Decision No. 17,220; Appeal of Wille, 56 id., Decision No. 17,050; Appeal of Uy and Norden, 44 id. 368, Decision No. 15,201).

A member of the board of education or a school officer may be removed from office pursuant to Education Law §306 when it is proven to the satisfaction of the Commissioner that the board member or school officer has engaged in a wilful violation or neglect of duty under the Education Law or has wilfully disobeyed a decision, order, rule or regulation of the Board of Regents or Commissioner of Education (Application of Kolbmann, 48 Ed Dept Rep 370, Decision No. 15,888; Application of Schenk, 47 id. 375, Decision No. 15,729).  To be considered wilful, the board member or officer’s actions must have been intentional and with a wrongful purpose (see Application of McCray, 57 Ed Dept Rep, Decision No. 17,240; Application of Nett and Raby, 45 id. 259, Decision No. 15,315).

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).

Although petitioners have alleged and proved violations of the RPTL, which respondents admit, the actions of which petitioners complain do not rise to the level of a wilful violation or neglect of duty under the Education Law (Application of Nett and Raby, 45 Ed Dept Rep 259, Decision No. 15,315; see Appeal of Giardina, 46 id., Decision No. 15,583; Appeal of Uy and Norden, 44 id. 368, Decision No. 15,201).  In particular, petitioners have produced no evidence that any respondent acted with a wrongful purpose.  Additionally, each board member has asserted, and petitioners have not contested, that they took the actions which resulted in the accumulation of unexpended surplus funds during the disputed timeframe after receiving the advice of counsel.  It is well-settled that a board member who acts on the advice of counsel will not be found to have engaged in a wilful violation or neglect of duty that would justify removal under Education Law §306 (see Application of Goldin, 39 Ed Dept Rep 14, Decision No. 14,158; Appeal of McCall, 34 id. 29, Decision No. 13,224; Appeal of Landgrebe, 32 id. 49, Decision No. 12,754).  Therefore, the application must be denied.

Additionally, I note that General Municipal Law §35, Education Law §2116-a(3)(c) and §170.12 of the Commissioner’s regulations set forth the process with regard to addressing findings and recommendations made in an audit by the Comptroller, including the implementation of a corrective action plan that must also be filed with SED.  I take administrative notice that the board filed a corrective action plan with SED in response to the audit report recommendations in which it agreed with all four of the Comptroller’s recommendations and included an implementation plan to: (1) ensure that future budgets reflect realistic estimates of revenues and expenditures including appropriate use of the district’s fund balance; (2) make a concerted effort to adopt budgets that appropriately use surplus funds to support the next year’s operations; (3) ensure compliance with the statutory limit on unexpended surplus funds; and (4) use the district’s unexpended surplus finds to benefit the children and taxpayers of the district by investing in student focused activities, reducing property taxes, paying off debt, financing one-time expenditures and increasing reserves.   

Although the application must be denied, in view of the significant issues raised in the audit report regarding certain of the board’s past practices, I remind respondents to ensure that they comply fully with the requirements of RPTL §1318 and implement the recommendations contained in the Comptroller’s report and its corrective action plan, particularly with regard to the realistic estimation of revenues and expenditures and the appropriate use of unexpended surplus funds.  In this regard, I note that, contrary to respondents’ representations, the record shows that the withheld state aid was not the sole source of the unexpended surplus funds during all of the years at issue in this appeal as well as those covered by the Comptroller’s report.  The Comptroller’s report raises serious issues regarding the board’s under- and overestimation of the costs of certain programs.  In light of the above, I caution respondents that future noncompliance with the recommendations of the Comptroller or the corrective action plan could give rise to a finding of wilfulness (see Application of Nett and Raby, 45 Ed Dept Rep 259, Decision No. 15,315; Appeal of Esther F., 39 id. 357, Decision No. 14,258).

One administrative matter remains.  Respondents have requested certificates of good faith pursuant to Education Law §3811(1).  Such certification is solely for the purpose of authorizing the board to indemnify a respondent for legal fees and expenses incurred in defending a proceeding arising out of the exercise of his or her powers or performance of duties as a board member or other title listed in §3811(1).  It is appropriate to issue such certification unless it is established on the record that the requesting respondent acted in bad faith (Application of McCray, 57 Ed Dept Rep, Decision No. 17,240; Application of Valentin, 56 id., Decision No. 17,014; Application of Paladino, 53 id., Decision No. 16,594).  In view of the fact that there has been no finding that any respondent acted in bad faith, I hereby certify solely for the purpose of Education Law §3811(1) that respondents Philips, Devine, Softy and Carbajal are entitled to receive the requested certificate.  Additionally, to the extent such a certificate is necessary, I hereby certify that respondent Carr, who was the superintendent at the time of the events giving rise to this application, is also entitled to receive the requested certificate (Application of McCray, 57 Ed Dept Rep, Decision No. 17,240; Appeal of Affronti, 54 id., Decision No. 16,756; Appeal of Johnston, 50 id., Decision No. 16,184).

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

THE APPLICATION IS DENIED.

END OF FILE