Zuni Public School District v. U.S. Department of Education
Two New Mexico school districts, the Zuni Public School District #89 (Zuni) and the Gallup-McKinley Public Schools (Gallup), sued the United States Department of Education to contest the decision of the Assistant Secretary for Elementary and Secondary Education (Assistant Secretary) that the school districts had been properly funded by the State of New Mexico. Generally, federal law prohibits a state from reducing the aid it provides to a local educational agency (LEA) if the LEA receives federal Impact Aid (Impact Aid is provided to LEAs that have a federal facility, such as a military base, that the LEA cannot tax). 20 U.S.C. § 7709(a). Pursuant to 20 U.S.C. § 7709(b), however, if a state is certified by the Department as having a program of state aid "that equalizes expenditures for free public education among local educational agencies in the State," then the state is permitted to factor in the receipt of Impact Aid funds when making its own distributions of educational aid to its LEAs. The statute sets out a general disparity test to determine whether a state is equalized. Under this test, LEAs are ranked in descending order by their per-pupil expenditures or revenues. If the LEA that is ranked highest in terms of its per-pupil expenditures or revenues does not exceed the per-pupil revenues or expenditures of the lowest ranked LEA by more than twenty-five percent, then the state qualifies as equalized under the statute. 20 U.S.C. § 7709(b)(2)(A).
The Assistant Secretary determined that, for the fiscal year 1999-2000, the State of New Mexico had in effect a program of aid that equalizes expenditures for free public education among its LEAs in compliance with 20 U.S.C. § 7709(b). Zuni challenged the methodology used by the Assistant Secretary for calculating whether New Mexico had equalized expenditures, arguing that the statute requires the disparity calculation to be based on the number of LEAs in the state. The statutory language arguably conflicts with the language in the regulations that implement the statute, which require the Assistant Secretary to use the entire population of students in the state for the disparity calculation. The Assistant Secretary argued that the regulation is a reasonable interpretation of the statute.
An administrative law judge (ALJ) issued a decision sustaining the Department's certification. Both school districts appealed the ALJ's decision to the Secretary, who affirmed the ALJ's decision. A divided panel of the Tenth Circuit Court of Appeals denied the petition for review, finding that the statute was ambiguous about the methodology to be used for the disparity test and that the Secretary's regulation was a reasonable interpretation of the statute. The Tenth Circuit reheard the case en banc, and affirmed the decision of the Secretary by an equally divided court.
The Federal Impact Aid Program, 20 U.S.C. § 7709, was enacted to subsidize local State school districts which have a federal presence within the district such as military bases or, as in the present case, Indian Reservations. These local districts are not able to tax such federally impacted lands. The Impact Aid Program prohibits the State from counting these federal subsidies as part of an impacted district's budget when the State allocates operational funds to the local districts, unless the State's operational funding to districts throughout the State is "equalized" under an equalization formula under the Impact Aid Program. If the State's operational funding is determined to be "equalized," the State can reduce operational funding to an impacted district by the amount of the Impact Aid subsidy.
In 1994, the equalization formula was statutorily created and effectively repealed the equalization formula previously created by the Secretary of the United States Department of Education by regulation. However, in 1996, the Secretary, by regulation, reinstated his repealed and conflicting equalization formula and refuses to follow Congress' equalization formula. Under Congress' formula, New Mexico is not "equalized" and the intended beneficiaries receive the Impact Aid. Under the Secretary's formula, New Mexico is deemed "equalized" and the Impact Aid is taken from the impacted districts. The impacted districts are losing approximately $50,000,000 per year in Impact Aid. The Tenth Circuit was split 6 to 6 on the question, leaving the Secretary's formula in effect.
The question presented is:
1. Whether the Secretary has the authority to create and impose his formula over the one prescribed by Congress and through this process certify New Mexico's operational funding for fiscal year 1999-2000 as "equalized," thereby diverting the Impact Aid subsidies to the State and whether this is one of the rare cases where this Court should exercise its supervisory jurisdiction
to correct a plain error that affects all State school districts that educate federally connected children.
Decisions under Review: