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Decision No. 15,736

Appeal of VINCENT F. COOK from action of the Board of Education of the Liverpool Central School District and Superintendent Jan Matousek regarding budget practices.

Decision No. 15,736

(April 3, 2008)

O’Hara & O’Connell, P.C., attorneys for respondents, Dennis G. O’Hara and Celia E. Moore, Esqs., of counsel

MILLS, Commissioner.--Petitioner challenges certain financial practices of the Board of Education of the Liverpool Central School District (“board” or “respondent board”) and its superintendent.  The appeal must be dismissed.

At the June 19, 2006 meeting of the board, the superintendent and the assistant superintendent for administrative services (“assistant superintendent”) advised the board of the need to amend the appropriations budget for 2005-2006 and to amend four fund balances.  Under the heading “2005-2006 Tentative Fund Balance Analysis and Budget Amendment,” the meeting minutes show proposed increases totaling over $2.4 million to four funds: the Unreserved Fund Balance, the Tax Certiorari Reserve, the Capital Reserve Fund, and the Reserve for Encumbrances.  The minutes do not state the amount of the budget amendment.  However, the parties do not dispute that the budget amendment was for $1,808,407, as outlined in a June 19, 2006 memorandum from the assistant superintendent to the superintendent and provided to the board.  In that memorandum, the assistant superintendent determined that nine items of alleged contingent expenses, totaling $3.8 million, could be charged to the 2005-2006 budget, but the budget would only have to be amended by $1.8 million, because over $1.9 was available in the budget to offset additional expenditures.  Apparently, the district had an extraordinary year for realizing excess revenue resulting in a large surplus.

At the June 19, 2006 meeting, the board also passed a resolution authorizing an adjustment to the services contract with the Onondaga-Cortland-Madison Board of Cooperative Educational Services (“BOCES”) to purchase additional technology, in the 2006-2007 school year, in an amount not to exceed $600,000 for 280 laptops, a cafeteria point-of sale system (Nutri-Kids) and other miscellaneous technology items.

Petitioner contends that the board improperly combined a budget transfer and a budget amendment by offsetting excess revenue of $1.9 million against the total $3.8 million in expenditures.  He contends that the board improperly approved the budget amendment because the nine expenditures outlined in the assistant superintendent’s June 19, 2006 memorandum were neither emergency nor contingency items.  He asserts that the BOCES technology was for the 2006-2007 school year and therefore was improperly purchased with surplus revenue from 2005-2006.  He also asserts that the BOCES technology items were not ordinary contingent expenses and did not qualify for a budget transfer.  In addition, petitioner alleges that the board misled the voters because at the time it presented the proposed 2006-2007 budget, it omitted those technology expenses, even though the 2005-2006 budget had not yet been amended to include those expenses.

Petitioner further alleges that the district experienced a surplus in 2005-2006 of $3.8 million over the 2% limit allowable under Real Property Tax Law (“RPTL”) §1318(1).  Overall, he alleges a pattern of financial abuse dating back to at least 2004-2005, when the board withheld $700,000 to fund the Teacher’s Retirement System (“TRS”) from the proposed 2004-2005 budget presented to voters, then amended the budget in June 2005 to fully fund the TRS with $700,000 in surplus revenue.  He contends that State aid was deliberately understated by over $700,000 on the August 2004 tax warrant to create the 2004-2005 surplus to pay the TRS.

Petitioner also asserts that on the 2005 tax warrant, respondents failed to reflect the best estimate of State aid available at the time, understating the amount of State aid by $661,498.  He also states that the warrant was improperly edited by hand, increasing State aid by that amount, and arbitrarily reducing revenue from “Other Sources” on the warrant by the same amount in order to deliberately create a surplus that made the June 19, 2006 budget amendment possible.  He asserts that by adding $661,498 to the 2004-2005 Unreserved Fund Balance, it rose to an amount above the limit allowable under RPTL §1318(1).

Petitioner requests that the Commissioner reprimand the board and superintendent for deliberate and significant violations of the budget process, that any surplus revenue for the 2006-2007 school year be used to offset the 2007-2008 tax levy and not be applied to discretionary reserve accounts such as the Capital Reserve Fund, and that the board be stayed from amending the 2006-2007 budget to purchase non-emergency, non-contingent items with surplus revenue.  Petitioner’s request for interim relief was denied on March 21, 2007.

Respondents contend that the petition fails to state a claim upon which relief can be granted, is untimely and seeks an advisory opinion, and deny any improper financial practices.  Respondents contend that the assistant superintendent’s June 19, 2006 memorandum did not concern budget transfers but rather demonstrated the necessity of a budget amendment for certain emergency and contingent expenses incurred during 2005-2006.  They further contend that each expenditure was a proper exercise of the board’s discretion.  Respondents deny that any amendment to the 2005-2006 budget was for expenditures for the 2006-2007 school year, and assert that encumbrances for technology were made to the 2005-2006 budget that were carried forward to the 2006-2007 budget as provided by law.  Regarding the August 2005 tax warrant, respondents deny improperly completing the warrant.  Respondents further deny that the board exceeded the limit under the RPTL in any budget years questioned by petitioner or that the June 19, 2006 budget amendment had any impact on the Unreserved Fund Balance.

I must first address several procedural issues.  Section 275.8(a) of the Commissioner’s regulations requires that the petition be personally served upon each named respondent.  Although the caption and body of the petition name the superintendent as a respondent, in addition to the board, petitioner’s affidavit of service indicates that the petition was served only on the district clerk.  Accordingly, to the extent petitioner asserts claims for relief against the superintendent, his failure to serve her requires dismissal of those claims.

Respondents request that I strike as unresponsive the affidavit of petitioner’s wife, with exhibits, which were attached to the reply.  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 E.R., 45 Ed Dept Rep 487, Decision No. 15,389; Appeal of Ramroop, 45 id. 473, Decision No. 15,385; Appeal of C.R., 45 id. 303, Decision No 15,330).  I have reviewed the reply, including the affidavit and exhibits, and decline to strike it.  However, I have not considered those portions containing new allegations or any exhibits that are not responsive to new material or affirmative defenses set forth in the answer.

Pursuant to §276.4 of the Commissioner’s regulations, petitioner was required to serve his memorandum of law within 20 days after service of respondents’ answer.  Respondents personally served the answer on petitioner on April 2, 2007.  The memorandum was due, therefore, on April 22, 2007, a Sunday.  When a time period ends on a Saturday, Sunday or a public holiday, a document may be served on the next succeeding business day, in this case, Monday, April 23, 2007 (see General Construction Law §25-a[1]).  However, petitioner did not serve his memorandum of law until April 24, 2007.  While the Commissioner may permit the late filing of a memorandum of law where a party has established good cause for the delay and demonstrated the necessity of such memorandum to the determination of the appeal (8 NYCRR §276.4[a]), there has been no such showing here.  I find petitioner’s belated apology for tardiness to be unavailing.  Therefore, I have not considered petitioner’s untimely memorandum of law (seeAppeal of Curran, 44 Ed Dept Rep 470, Decision No. 15,235).  Accordingly, I need not address the extent to which the memorandum of law relies on unresponsive portions of the affidavit attached to the reply.

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 O’Brien, 44 Ed Dept Rep 43, Decision No. 15,092; Appeal of Spina, 43 id. 354, Decision No. 15,016).  Respondents contend that the appeal is untimely for several reasons.  The petition was served on March 12, 2007, during the 2006-2007 school year, 34 months after the voters approved the 2004-2005 budget in May 2004; 21 months after the board amended the 2004-2005 budget in June 2005; 19 months after the board approved the 2005 tax warrant on August 23, 2005; and 9 months after the board amended the 2005-2006 budget and increased fund balances on June 19, 2006.  Accordingly, all these challenged actions are untimely.

Moreover, the appeal is also untimely even under the standard for alleged violations of RPTL §1318(1).[1]  Under that section, an appeal is timely if it is brought within the school year during which unexpended surplus funds are allegedly improperly retained (Appeal of Golden, 45 Ed Dept Rep 392, Decision No. 15,362; Appeal of Uy and Norden, 44 id. 368, Decision No. 15,201; Appeals of Gorman, 43 id. 32, Decision No. 14,906).  In this case, petitioner contends that the district had a surplus in the 2005-2006 school year, as reflected by the changes to the August 2005 tax warrant and amendments to the 2005-2006 budget on June 19, 2006.  Since the appeal was not commenced until March 2007, the year after which the surplus funds were allegedly improperly retained, these claims are untimely (seeAppeal of Giardina, 46 Ed Dept Rep 524, Decision No. 15,583).

Petitioner offers as an excuse for his late petition the fact that he had written letters to and questioned respondents at meetings and finally resorted to a request for information under the Freedom of Information Law (“FOIL”), which he did not receive until March 7, 2007.  However, I do not find these facts persuasive, especially because petitioner did not submit his FOIL request until February 5, 2007, seven and a half months after the June 19, 2006 meeting.

Moreover, the appeal is 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 C.A., Sr., 45 Ed Dept Rep 388, Decision No. 15,360; Appeal of the New York Charter Schools Assn., Inc., et al., 45 id. 376, Decision No. 15,355; Appeal of the Bd. of Trustees of the N. Merrick Public Library, et al., 45 id. 363, Decision No. 15,350).  To the extent petitioner challenges the board’s financial practices in the 2004-2005 and the 2005-2006 school years, those budget years have concluded, and no meaningful relief can be granted with respect to those years.  Accordingly, the appeal must be dismissed as moot (seeAppeal of Cirillo, 46 Ed Dept Rep 388, Decision No. 15,541).  Furthermore, petitioner’s request to stay any amendments to the 2006-2007 budget was rendered moot by the denial of interim relief.  Finally, there is no basis for an exception to the mootness doctrine since this case concerns now-settled legal issues and is also dismissed on other grounds.

Although the appeal is dismissed, I must comment on the board’s financial practices.  In determining the 2005 tax levy, the board was required to use the best estimate of State aid that was reasonably available at the time the tax warrant was issued (Appeal of Muench, 45 Ed Dept Rep 508, Decision No. 15,397).  The record indicates that the board did not do so.  In the future the board should ensure that appropriate estimates are used and that the tax levy is reduced where appropriate.

In addition, the board admits that it used unanticipated revenue from the 2005-2006 budget to “encumber” and fund the purchase of BOCES technology in the 2006-2007 school year.  Since the appeal is dismissed, I need not examine the propriety of all nine expenditures comprising the budget amendment, but it is clear that at least some of those expenses were not unanticipated contingent expenses.  Thus, the board had no authority to increase the budget appropriation approved by the voters (see Education Law §1718, 8 NYCRR §170.2[k] and Appeal of Cirillo, 46 Ed Dept Rep 388, Decision No. 15,541; Appeal of Clark, 37 id. 386, Decision No. 13,885).  Furthermore, by doing so, the board failed to fully disclose all expenditures that should have been included in the 2006-2007 budget pursuant to Education Law §1716.  I remind the board of the necessity of including such expenditures in the proposed budget.



[1] RPTL §1318(1) requires that 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 two percent of the current school year budget, and shall not include funds properly retained under other sections of law."  In 2007, the definition of surplus funds was amended to mean “in excess of three percent” for the 2007-2008 school year, and “in excess of four percent for the 2008-2009 school year and thereafter (L.2007, ch.238).