Appeal of PAUL PUSKULDJIAN from action of the Board of Education of the North Shore Central School District regarding financial practices and application for the removal of board trustees and the district assistant superintendent of business.

Appeal of JERRY ROMANO from action of the Board of Education of the North Shore Central School District and superintendent Peter Giarrizzo regarding financial practices

Decision No. 18,090

(February 17, 2022)

Frazer & Feldman, LLP, attorneys for respondents, James H. Pyun and Laura A. Ferrugiari, Esqs., of counsel

ROSA., Commissioner.--In two separate appeals, petitioners challenge various actions of the Board of Education of the North Shore Central School District (“respondent”) and superintendent Peter Giarrizzo[1] regarding the budgets for the 2019-2020 and 2020-2021 school years.  Additionally, petitioner Puskuldjian seeks removal of all sitting board trustees and the assistant superintendent for business (“assistant superintendent”).  Because the appeals present similar issues of fact and law, they are consolidated for decision (8 NYCRR 275.18).  The appeals must be dismissed and the application for removal must be denied.

On March 26, 2020, the board adopted a proposed budget of $110.3 million for the 2020-2021 school year to be placed before the voters.  On May 28, 2020, at a budget hearing, the board announced the proposed tax levy to support the proposed 2020-2021 budget.  The board adopted the final tax levy for the 2020-2021 school year on July 9, 2020.  At meetings held on June 18, July 9, and August 27, 2020, the board approved five budget transfers, totaling approximately $5.5 million (“the budget transfers”), which petitioner Puskuldjian now challenges. 

During the June 18, 2020 meeting, the board also transferred $200,000 from “the fund balance remaining from the 2019-2020 budget” to a fund created for the “[p]rofessional [d]evelopment and payment for teachers for the [c]ontinuation of online learning” (“the professional development fund”).  The board explained that this fund was created to respond to the COVID-19 pandemic.  The board noted that “[a]ny variance between the projected and actual fund balance remaining after the book[s] are audited and closed will be used to fund the ERS Reserve, and the district’s Capital Reserve.”

During the August 27, 2020 meeting, the board transferred $2.7 million of “the fund balance remaining from the 2019-2020 budget” to the “Assigned Fund Balance for School Reopening Expenses” (“the assigned fund”), another fund created to address school reopening expenses and health and safety measures undertaken in light of the COVID-19 pandemic.

At its November 19, 2020 meeting, the board authorized a $2.9 million increase in the 2020-2021 school year budget’s general fund, to be funded by the $200,000 in the professional development fund and the $2.7 million from the assigned fund.  According to the board resolution, the combined $2.9 million was intended to be used for

costs related to necessary teaching and auxiliary staff, services, supplies and materials in response to the COVID-19 pandemic, including expenses necessary to safely reopen schools and maintain the district’s educational program, preserve property, assure health and safety of students and staff and meet the legal obligations of the district.

These appeals and application ensued.

Petitioner Puskuldjian contends that respondent unlawfully retained an amount greater than the four percent cap on budget surplus funds through its approval of the budget transfers, which violated Real Property Tax Law (“RPTL”) § 1318.  He further claims the budget transfers were made to cover “expenses not arising from the 2019-20 budget” and were instead transferred to an unlawful reserve fund.  He seeks removal of respondent board trustees and the assistant superintendent; an independent review of respondent’s “budget practices and spending”; an order mandating disclosure of respondent’s last five years of budget surpluses; and an order requiring respondent to “return the over collection of taxes to taxpayers in the form of a reduction in [the] [t]ax [l]evy, phased in over 3 years.”

Petitioner Romano contends that respondent “unilaterally” increased the 2020-2021 school year budget by $2.9 million without first providing notice to the public, a budget hearing, or a district vote as required by Education Law §§ 1716 and 2002.  Further, he contends that respondent violated RPTL § 1318 by retaining “excess funds” from the 2019-2020 school year budget and “not returning the funds to taxpayers.”  He seeks an order overturning the November 19, 2020 authorization of a budget increase and requiring respondent to “return any surplus funds to the taxpayers”; he further requests that the Office of the State Comptroller conduct a forensic audit of respondent.

Respondent board argues that petitioner Puskuldjian’s appeal should be dismissed as untimely and for failure to join necessary parties, while petitioner Romano’s appeal must be dismissed as untimely, for pleading deficiencies, and as moot.  On the merits, respondent contends that the challenged budget transfers were made according to law and generally accepted accounting practices.  Respondent further contends that petitioners have failed to establish any legal basis for the relief requested.

First, I must address the procedural issues.  The purpose of a reply is to respond to new material or affirmative defenses set forth in an answer (8 NYCRR 275.3, 275.14).  A reply is not meant to buttress allegations in the petition or belatedly add assertions that should have been raised in the petition (Appeal of Nappi, 57 Ed Dept Rep, Decision No. 17,300; Appeal of Caswell, 48 id. 472, Decision No. 15,920; Appeal of Hinson, 48 id. 437, Decision No. 15,908).  Therefore, while I have reviewed petitioners’ replies, 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.

In addition, petitioner Puskuldjian offered two additional submissions following service of his reply.  Additional affidavits, exhibits, and other supporting papers may only be submitted with the prior permission of the Commissioner (8 NYCRR 276.5).  While this provision permits the submission of additional evidence, it does not permit parties to raise new claims or defenses for which notice has not been provided (Appeal of Casey-Tomasi, 57 Ed Dept Rep, Decision No. 17,301; Appeals of Gonzalez, 48 id. 405, Decision No. 15,898).  Similarly, additional submissions should not raise new issues or introduce new exhibits that are not relevant to the pleadings (Appeal of Casey-Tomasi, 57 Ed Dept Rep, Decision No. 17,301; Appeals of Gonzalez, 48 id. 405, Decision No. 15,898).  Petitioner Puskuldjian failed to seek or obtain prior approval for these additional submissions, and I find no basis for concluding that they are necessary.  Therefore, I decline to accept them into the record (see Appeal of M.B. and J.B., 58 Ed Dept Rep, Decision No. 17,535; Appeal of Nappi, 57 id., Decision No. 17,387).

Respondent also argues that petitioner Romano’s appeal must be dismissed because he did not comply with 8 NYCRR 275.4 (a) insofar as he did not provide his name, post office address, and telephone number in the petition.[2]  For the reasons stated in Appeal of Nappi (57 Ed Dept Rep, Decision No. 17,300), I decline to dismiss the appeal on this basis.  When a petitioner is not represented by counsel, a liberal interpretation of section 275.4 (a) is appropriate, particularly where, as here, there is no evidence of prejudice to the respondent (Appeal of Nappi, 57 Ed Dept Rep, Decision No. 17,387; Appeal of DeGroff, et al., 31 id. 332, Decision No. 12,657).  I additionally note that petitioner Romano provided his address as a footer on each page of his reply.  Under these circumstances, I find that he has substantially complied with section 275.4 (a) of the Commissioner’s regulations (Appeal of Nappi, 57 Ed Dept Rep, Decision No. 17,387; Appeal of Fillie-Faboe, 34 id. 643, Decision No. 13,438).

Petitioner Puskuldjian’s request to remove all sitting board trustees and the assistant superintendent must be denied for failure to join them as necessary parties.  A person or entity whose rights would be adversely affected by a determination in favor of a petitioner is a necessary party and must be joined as such (Appeal of Sutton, 57 Ed Dept Rep, Decision No. 17,331; Appeal of Murray, 48 id. 517, Decision No. 15,934).  Joinder requires that a party be clearly named as a respondent in the caption and served with a copy of the notice of petition and petition, informing the party to appear in the appeal and to answer the allegations contained in the petition (Appeal of Sutton, 57 Ed Dept Rep, Decision No. 17,331; Appeal of Murray, 48 id. 517, Decision No. 15,934).  Here, petitioner Puskuldjian did not name any individual board trustee or the assistant superintendent in the caption of the notice of petition, nor did he serve a copy of his petition upon these individuals.  Accordingly, the application for removal must be denied (Appeal of Griffin, 60 Ed Dept, Decision No. 17,942; Appeal of Radford, 57 id., Decision No. 17,149; Appeal of Affronti, 54 id., Decision No. 16,756).

Additionally, respondent contends that the appeals are untimely as they relate to the June 18 and July 9, 2020 budget transfers; the board’s adoption of the 2020-2021 school year budget on March 26, 2020; and the board’s adoption of the 2020-2021 tax levy on July 9, 2020.  An appeal to the Commissioner must be commenced within 30 days from the decision or act complained of, unless any delay is excused by the Commissioner for good cause shown (8 NYCRR 275.16; Appeal of Saxena, 57 Ed Dept Rep, Decision No. 17,239; Appeal of Lippolt, 48 id. 457, Decision No. 15,914).  Here, petitioner Puskuldjian served his appeal on September 24, 2020 and petitioner Romano served his appeal on November 24, 2020.  To the extent these appeals challenge any acts more than 30 days prior to the dates of service, such claims are dismissed as untimely (Appeal of S.J., 60 Ed Dept Rep, Decision 17,981; Appeal of Manfredo, 56 id., Decision No. 16,943).[3]

The appeals are also moot to the extent petitioners seek an order directing respondent to return “the over collection of taxes to taxpayers in the form of a reduction in [t]ax [l]evy, phased in over 3 years” and “any surplus funds to the taxpayers.”  The gravamen of petitioners’ claims is that respondent improperly retained, through a series of budget transfers, surplus funds from the 2019-2020 school year rather than apply the alleged surplus funds to reduce the tax levy in the 2020-2021 school year.  However, there is no mechanism for returning a pro rata share of funds to the taxpayers once the tax levy is made.  Therefore, this request for relief must be dismissed as moot (Appeal of Wood and Grosso, 57 Ed Dept, Decision No. 17,358; Appeal of Wille, 56 id., Decision No. 17,050; Appeal of Liberatore, 42 id. 321, Decision No. 14,869).

Nevertheless, “[i]t is settled doctrine that an appeal will … be entertained where, as here, the controversy is of a character which is likely to recur not only with respect to the [same] parties ... but with respect to others as well” (East Meadow Community Concerts Assn. v Board of Educ. of Union Free School Dist No. 3, 18 NY2d 129, 135 [1966]; see Appeal of Wood and Grosso, 57 Ed Dept, Decision No. 17,358; Appeal of Wille, 56 id., Decision No. 17,050).  Accordingly, I decline to dismiss these appeals as moot to the extent petitioners seek relief other than the return of funds to taxpayers because the appeals raise an important legal issue concerning the deposit of funds in reserve funds, which affects all districts and taxpayers statewide (Appeal of Wood and Grosso, 57 Ed Dept Rep, Decision No. 17,358).

Turning to the merits, 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 four percent of the current school year budget, and shall not include funds properly retained under other sections of law” (RPTL § 1318 [1]; see Appeal of Wood and Grosso, 57 Ed Dept Rep, Decision No. 17,358; Appeal of Affronti, 54 id., Decision No. 16,756; Appeal of Gorman, 52 id., Decision No. 16,412).  The Commissioner has determined that this authority to retain funds beyond the limit imposed by RPTL § 1318 (1) applies only to reserve funds specifically authorized by law (Appeal of Giardina, 46 Ed Dept Rep 524, Decision No. 15,583; Appeals of Gorman, 43 id. 32, Decision No. 14,906; Appeal of Simons, 39 id. 744, Decision No. 14,367).  The Commissioner has also held that transfers of unexpended surplus funds to authorized reserve funds should be made prior to the imposition of the tax levy for the new school year (see Appeal of Wood and Grosso, 57 Ed Dept Rep, Decision No. 17,358; Appeal of Wille, 56 id., Decision No. 17,050; Appeal of Giardina, 46 id. 524, Decision No. 15,583). 

With respect to these appeals, on August 24, 2020, the Governor signed into law an act allowing school districts, among other entities, to “temporar[ily] transfer ... moneys from reserve funds to pay for operating costs or other costs attributable to the COVID-19 pandemic” (2020 McKinney’s Session Law News of NY, Ch. 157, A. 10492 [Aug. 2020]).  The sponsor’s memorandum states that this change would “provide financial and budgetary flexibility to local governments as they continue to operate and provide critical services during this difficult time and its aftermath, by … authorizing … school districts to spend or temporarily transfer moneys in reserve funds for COVID-19 pandemic-related expenses” (Sponsor’s Mem, Bill Jacket, L 2020, ch 157).

In an appeal to the Commissioner, a petitioner has the burden of demonstrating a clear legal right to the relief requested and establishing the facts upon which he or she seeks relief (8 NYCRR 275.10; Appeal of P.C. and K.C., 57 Ed Dept Rep, Decision No. 17,337; Appeal of Aversa, 48 id. 523, Decision No. 15,936; Appeal of Hansen, 48 id. 354, Decision No. 15,884).

In support of their claims, petitioners provide a copy of the “Budget Transfer Report” for the June 18, 2020 budget transfer, copies of district board minutes documenting the other budget transfers, and several notices and newsletters regarding the proposed 2020-2021 school year budget and vote.  There is no information in these documents establishing that the board improperly retained excess surplus funds in its 2020-2021 school year budget or that the November 19, 2020 budget transfer authorization was unlawful.  Additionally, petitioner Puskuldjian has failed to demonstrate that the expenses for which the budget transfers were being applied did not arise out of the 2019-2020 budget.  Consequently, petitioners have failed to carry their burden of establishing the facts upon which they request relief (see Appeal of Affronti, 54 Ed Dept Rep, Decision No. 16,756).

Although petitioners have not met their burden of proof, I have reviewed the documents submitted by respondent and am compelled to comment thereon.  An independent audit commissioned by respondent revealed that respondent exceeded the four percent limit of RPTL § 1318 (1) as of June 30, 2020—the end of the fiscal year.  The assigned fund and professional development fund balances of $2.7 million and $200,000, respectively, contributed to this overage.  While respondent asserts that its original plan was to deposit these amounts into reserve funds authorized by law, it did not do so; further, it only decided to devote this money to COVID-19 related costs in August 2020, well after the tax levy.  Respondent then backdated these transfers to the end of the fiscal year in what can only be viewed as an attempt to circumvent the four percent limit of RPTL § 1318 (1).  While the assistant superintendent claims that making such backdated transfers after the tax levy is “common practice,” respondent has identified no law that contemplates this procedure.  The Commissioner has previously held that, once taxes are levied, boards typically have no authority to assign any prior budget year surplus funds to reserve funds for use in future school years regardless of when the board discovered that the unexpended surplus funds carried forward exceeded the four percent limit in violation of RPTL § 1318 (1) (see Appeal of Wood and Grosso, 57 Ed Dept, Decision No. 17358; Appeal of Wille, 56 id., Decision No. 17,050; Appeal of Giardina, 46 id. 524, Decision No. 15,583).

Had respondent placed the $2.9 million into reserve funds prior to the tax levy, it could have proceeded as it did.  As indicated above, Chapter 157 of the Laws of 2020 authorized the temporary transfer of moneys from reserve funds to pay for costs attributable to the COVID-19 pandemic (see 2020 McKinney’s Session Law News of NY, Ch. 157, A. 10492 [Aug. 2020]).  Thus, in effect, respondent was allowed to take advantage of the flexibilities of Chapter 157 without complying with its terms.

I acknowledge the extenuating circumstances under which respondent developed its 2020-2021 budget proposal.  Respondent, like all school boards, struggled to meet the challenges of the COVID-19 pandemic during the 2019-2020 and 2020-2021 school years.  The assistant superintendent opines that “[w]ere it not for ... [these funds,] ... the District would not have been able to maintain an acceptable degree of financial stability or provide for unanticipated increases in operational expenses, such as caused by the COVID-19 pandemic.”  She further elaborates that respondent used “its available budget surplus, which had been accumulated from unspent budgeted funds due to school closures in Spring 2020, and to repurpose those funds for th[e] most important purpose – to safely reopen schools.”  Nevertheless, the Legislature did not suspend RPTL § 1318 (1) during the COVID-19 pandemic.  I therefore admonish respondent to review its budgeting practices and to comply with RPTL § 1318 (1) in the future.

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

THE APPEAL IS DISMISSED.

END OF FILE