Chula Vista City School Dist. v. Bennett, 86-1097

• Decision Date: 20 July 1987
• Docket Number: No. 86-1097,86-1097
• Citation: 824 F.2d 1573
• Parties: 40 Ed. Law Rep. 1152 CHULA VISTA CITY SCHOOL DISTRICT, Poway Unified School District, and Sweetwater Union High School District, Plaintiffs/Cross-Appellants, v. William J. BENNETT, Secretary of Education, Defendant/Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1573

824 F.2d 1573

40 Ed. Law Rep. 1152

CHULA VISTA CITY SCHOOL DISTRICT, Poway Unified School District, and Sweetwater Union High School District, Plaintiffs/Cross-Appellants, v. William J. BENNETT, Secretary of Education, Defendant/Appellant.

Appeal No. 86-1097.

United States Court of Appeals Federal Circuit.

July 20, 1987.

Howard S. Scher, Dept. of Justice, of Washington, D.C., argued for defendant/appellant. With him on the brief were Richard K. Willard, Acting Asst. Atty. Gen., Peter K. Nunez, U.S. Atty. and Anthony J. Steinmeyer. Also on the brief was John R. Mason, Office of Gen. Counsel, U.S. Dept. of Educ., of Washington, D.C., of counsel.

Donald Jay Solomon, of San Diego, Cal., argued for plaintiff/cross-appellants Chula Vista.

Leonard Pollard, II, of San Diego, Cal., argued for plaintiff/cross-appellants Poway & Sweetwater. With him on the brief were Lloyd M. Harmon, Jr., County Counsel and Daniel J. Wallace, Chief Deputy.

Clifford D. Weiler, Brown and Conradi, of San Diego, Cal., was on the brief for amicus curiae, Coronado Unified School Dist., Hueneme School Dist., South Bay Union School Dist. and Travis Unified School Dist.

Before DAVIS, Circuit Judge, BALDWIN, Senior Circuit Judge, and SMITH, Circuit Judge.

EDWARD S. SMITH, Circuit Judge.

The United States District Court for the Southern District of California held the $50 Rule, used by the Secretary of Education to evaluate applications for Impact Aid by local school districts, to be invalid as inconsistent with the legislative history of the Impact Aid statute. The district court granted summary judgment to cross-appellants and ordered the Secretary to process the applications using another method of evaluation. We reverse and remand.

Issues

(1) Whether the district court erred in holding that the $50 Rule was inconsistent with the legislative history of the Impact Aid statute;

(2) Whether the district court erred in holding that the notice and comment provisions of the Administrative Procedure Act and the General Education Provisions Act do not apply to the $50 Rule;

(3) Whether the $50 Rule was applied to the amended applications by the Department of Education in violation of 20 U.S.C. Sec. 1232(c); and

(4) Whether the district court erred in holding that the Government is not estopped from applying the $50 Rule to the amended applications.

I. Background

A. The Impact Aid Program.

The Impact Aid program grew out of the unprecedented mobilization and war production programs necessitated by World War II. This massive federal activity often caused hardship to local school districts in the area of the activity because large amounts of real property were removed from the tax rolls at the same time the population increased dramatically. When the problem did not subside after the war ended, Congress responded in 1950 by creating the Impact Aid program. ¹ It was a continuation of certain previously existing programs, and its stated purpose was to provide "Federal assistance to those areas which are or may become overburdened by reason of increased Federal activities." ² Congress attempted to achieve this purpose by providing funds which the local educational agencies (LEA) could use to pay for their current operating expenses.

Three types of assistance are available under the Impact Aid program. Section 3 Assistance ³ is intended to

compensate school districts in reasonable amounts for the cost of educating children who, because they reside on tax-exempt Federal property or because their parents are employed on such property, do not in effect pay their own way. * * *

The statute prescribes the rate of payment, called the local contribution rate (LCR), and gives the Secretary of Education (Secretary) the task of determining which school districts are "generally comparable" to the applicant LEA's district. It also establishes a minimum payment amounting to one-half the average per-pupil expenditure in the applicant's state, or one-half the average per-pupil expenditure in the United States as a whole, whichever is greater. ⁴

The regulations provide two methods for determining "generally comparable" school districts: the group rate method and the individually selected comparable district (ISCD) method. ⁵ Since 1977, California has used the ISCD method exclusively. Under the ISCD method, the applicant LEA submits the names of "approximately five" school districts in its state that it considers generally comparable to its own district. The Secretary then reviews the application and selects those districts he considers generally comparable to the applicant's district. The regulations set out the factors the Secretary is required to consider in determining general comparability. Once the generally comparable districts are selected, the amount spent on current expenditures from local sources by these districts is determined. That amount is divided by the total average daily attendance of students in the generally comparable districts. The quotient is the LCR to which the applicant school district is entitled.

B. The $50 Rule.

For almost 30 years the Secretary has used an unwritten guideline, the $50 Rule, to aid in evaluating claims of general comparability. The $50 Rule compares the "local effort" of the applicant district to the proposed LCR obtained from the districts to which it claims to be generally comparable. "Local effort" is determined by dividing the total revenues for current expenditures obtained solely from local sources by the number of "non-federal" children. ⁶ A proposed LCR generally will not be approved if it exceeds an LEA's local effort by more than $50. Thus, the $50 Rule seeks to ensure that Impact Aid payments are related to the amount the LEA actually spends to educate its children without regard to the federal impact.

C. The Grid.

In fiscal years (FY) 1978 and 1979, the Secretary also used a "grid" to evaluate an applicant's claim of generally comparable school districts. The "grid" is simply a list of 14 criteria used to compare school districts. The criteria are legal classification, total average daily attendance, cost per pupil paid from local sources and from all sources, grade levels maintained, percent of pupils transported, pupil-teacher ratio, assessed valuation per pupil, ratio of assessed value to true value, tax rate for current expenses and for all school purposes, curricula offered, teacher salary, and economic characteristics. Using the grid, the Secretary determined that school districts were generally comparable to the applicant only when they were comparable in at least 5 of the 14 criteria.

The grid was used in conjunction with the $50 Rule in FY 1978. In FY 1979, for a period of only about 3 months, the grid was used exclusively before it was dropped completely.

D. The Facts.

Initially, the Secretary informed all applicants that the $50 Rule would be used to calculate the LCR's for FY 1979. The LEA's involved in this appeal spent a relatively small amount per pupil in the second fiscal year that preceded 1979. ⁷ Therefore, they submitted initial applications requesting the statutory minimum LCR of $792.09, or one-half the average per-pupil expenditure in California. In these initial applications, the LEA's were not required to submit the names of generally comparable school districts since they had requested the minimum LCR.

On April 9, 1979, a memorandum was circulated within the Department of Education (department) concerning the treatment of ISCD applications for FY 1979. The memorandum stated that the grid method was to be used to evaluate general comparability, with a minimum of 5 of the 14 criteria necessary to establish comparability. In doing so, it changed long-standing department policy by dropping the $50 Rule. Pursuant to this memorandum, the department processed approximately 700 original ISCD applications. Of these, 129 LEA's received LCR's higher than they could have obtained under the $50 Rule.

The LEA's involved in this case filed amended applications following the change in department practice. These amended applications requested substantially higher LCR's than had the original applications. Eight of the applications were initially approved by the department. ⁸ The department later rescinded its approval and refused to approve any of the other amended applications the LEA's had filed.

The LEA's filed requests for an administrative hearing to challenge the department's refusal to approve the amended applications. The administrative law judge (ALJ) held that the predecessor to 34 C.F.R. Sec. 222.30(b)(2) expressly authorized the Secretary "to make the type of comparison that takes place under the '$50 Rule' in deciding whether to approve an LEA's local contribution rate." The ALJ also found that the $50 Rule was an interpretative rule and therefore not subject to the notice and comment requirements of the Administrative Procedure Act (APA) or the General Education Provisions Act (GEPA). Lastly, the ALJ determined that only four of the LEA's had relied to their detriment on the department's initial approval of their amended applications. The ALJ ordered the department to reinstate its approval of those four applications.

Some of the LEA's requested review of the ALJ's decision by the Secretary. The Secretary declined to review the decision, finding nothing in the record to indicate clear abuse of discretion by the ALJ.

Two suits were filed in the United States District Court for the Southern District of California by the school districts, and the two were later consolidated. ⁹ The district court rendered an oral opinion on cross-motions for summary judgment. First, the district court held that the $50 Rule was an interpretative rule and that it was not invalid for failure to follow the notice and comment procedures of the APA or the GEPA. The court also held that the LEA's were not entitled to the additional aid under a theory of equitable estoppel. The...