Department of Educ., State of Hawaii v. Bell

• Decision Date: 10 September 1985
• Docket Number: Nos. 82-7697,82-7698,s. 82-7697
• Citation: 770 F.2d 1409
• Parties: 27 Ed. Law Rep. 42 DEPARTMENT OF EDUCATION, STATE OF HAWAII, Petitioner, v. Terrel BELL, Secretary of Education, United States Department of Education, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1409

770 F.2d 1409

27 Ed. Law Rep. 42

DEPARTMENT OF EDUCATION, STATE OF HAWAII, Petitioner, v. Terrel BELL, Secretary of Education, United States

Department of Education, Respondent.

Nos. 82-7697, 82-7698.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 14, 1985.

Decided Sept. 10, 1985.

Charleen M. Aina, Honolulu, Hawaii, for petitioner.

John R. Mason, Richard B. Mellman, Washington, D.C., for respondent.

Appeal from the Education Appeals Board.

Before HUG and SKOPIL, Circuit Judges, and CURTIS, ^* District Judge.

SKOPIL, Circuit Judge:

The Education Appeals Board ("EAB") found Hawaii violated provisions of Title I of the Elementary and Secondary Education Act of 1965, Pub.L. 89-10, 79 Stat. 27, as amended, 20 U.S.C. Sec. 2701 et seq. (1976 Supp. V) ("Title I"). The Secretary of Education ("Secretary") demanded that Hawaii repay the Department of Education $2,109,618. Hawaii appeals from the EAB decision, claiming the Secretary misinterpreted and misapplied Title I provisions in determining the validity of the audit conducted by the Health Education and Welfare Audit Agency ("Audit Agency"). We affirm.

FACTS AND PROCEEDINGS BELOW

I. Procedural Background.

The state of Hawaii received federal funding pursuant to Title I of the Elementary and Secondary Education Act of 1965. In accordance with Title I, the federal government's Audit Agency conducted two audits. The Audit Agency issued Final Determination letters on December 2, 1977 and April 9, 1979, finding Hawaii had violated Title I provisions. Based on those findings, the Department of Education sought recovery from Hawaii of $2,109,618. Hawaii petitioned the EAB regarding both audits. The EAB heard the appeals simultaneously and affirmed both audits in separate opinions on September 21, 1982.

In October 1982, pursuant to 34 C.F.R. Sec. 78.82 (1983), the parties submitted comments on the EAB's decisions to the Secretary of Education. On November 18, 1982 Hawaii also petitioned this court, pursuant to 20 U.S.C. Sec. 1234d (1982), for review of the EAB's decision. On November 26, 1982 the Secretary of Education affirmed the decision of the EAB but remanded the case with instructions to reduce damages pursuant to the Title I statute of limitations. See 20 U.S.C. Sec. 884 (1976). The Secretary affirmed the EAB in all other respects. The parties stipulated as to the reduction in damages. The EAB issued a final decision in February 1985.

II. Background of the Elementary and Secondary Education Act of 1965.

Title I was enacted in an effort to assist financially state and local education The statutory scheme of Title I is structured in a manner that ensures the funds appropriated to a state are used for the benefit of economically disadvantaged children. Hufstedler, 662 F.2d at 210. "Local education agencies obtain federal grants through state educational agencies, which in turn obtain grants from the Department of Education upon providing assurances to the Secretary that the local education agencies will spend the funds only on qualifying programs." Bell v. New Jersey, 461 U.S. at 776, 103 S.Ct. at 2189 (citations and footnotes omitted); Bennett v. Kentucky Department of Education, --- U.S. ----, 105 S.Ct. 1544, 1547, 84 L.Ed.2d 590 (1985). ² At the same time, the Act was not intended "to prescribe the specific types of programs or projects that will be required in school districts. Rather, such matters are left to the discretion and judgment of the local public educational agencies...." S.Rep. No. 146, 89th Cong., 1st Sess., reprinted in 1965 U.S.Code Cong. & Ad.News 1446, 1454. Two particular provisions of Title I work to ensure that the federal funds are spent by the state in the manner intended by Congress; the no-supplant and comparability provisions. It is the Secretary's interpretation of these statutes and the regulations enacted pursuant to that interpretation that Hawaii challenges on appeal.

                associations serving areas with a great number of children from low income families.  The statute's goal was to expand and improve these children's educational programs in an effort to give them an education equal to that of children from more financially fortunate areas of the nation.  20 U.S.C. Sec. 2701 (1982).  The legislature perceived a national problem;  many school children were not receiving an adequate public education.  Title I was a "massive" effort to break the "link between economic privation and educational underachievement" in the nation.   New Jersey v. Hufstedler, 662 F.2d 208, 210 (3d Cir.1981), rev'd on other grounds sub nom.  Bell v. New Jersey, 461 U.S. 773, 103 S.Ct. 2187, 76 L.Ed.2d 312 (1983). 1   "Title I funds were designed to supplement the basic education programs generally offered by state and local agencies....  Title I contemplated that state and local funds be allocated first, with Title I funds 'layered on top, thereby concentrating the available educational assistance on those needing it the most.' "   Indiana Dept. of Public Instruction v. Bell, 728 F.2d 938, 941 (7th Cir.1984) (quoting Alexander v. Califano, 432 F.Supp. 1182, 1185 (N.D.Cal.1977) )
                

STANDARD OF REVIEW

Generally, an agency's interpretation of the statute which it administers, "while not binding, is entitled to substantial deference by a court." Turner v. Prod, 707 F.2d 1109, 1115 (9th Cir.1983) (citing United States v. Rutherford, 442 U.S. 544, 553-54, 99 S.Ct. 2470, 2475-76, 61 L.Ed.2d 68 (1979) ), rev'd on other grounds sub nom. Heckler v. Turner, --- U.S. ----, 105 S.Ct. 1138, 84 L.Ed.2d 138 (1985). This court's review of a regulation's validity is limited to determining whether the regulation is reasonably related to the purposes of the enabling statute. American Hospital Management Corp. v. Harris, 638 F.2d 1208, 1212 (9th Cir.1981). The Secretary's

                determination that a state has misused Title I funds must be supported by substantial evidence and must reflect an application of the proper legal standards.   Bennett, 105 S.Ct. at 1550
                

MERITS

I. The No-Supplant Provision.

In an effort to make clear that Title I funds were intended to supplement state funds in Title I schools, in 1970 Congress adopted 20 U.S.C. Sec. 241e(a)(3)(B) (1976 Supp. V). This provision states:

Federal funds ... will be so used (i) as to supplement and, to the extent practical, increase the level of funds that would, in the absence of such Federal funds, be made available from non-Federal sources for the education of pupils participating in programs and projects assisted under this subchapter, and (ii) in no case, as to supplant such funds from non-Federal sources, ....

A. The Secretary's Interpretation and Application of of the No-Supplant Provision.

The Secretary interprets the no-supplant provision to mean that a state must provide, with local funds, the same education for its Title I children as it does for its non-Title I children. In order to receive the funds, the project area ³ must assure the federal government that use of the grant funds will not result in a decrease in state and local funds to educate Title I students, and "neither the project area nor the educationally deprived children residing therein will otherwise be penalized in the application of State and local funds" because of the receipt of Title I funds. 45 C.F.R. Sec. 116.17(h) (1972). The federal funds

"(1) will be used to supplement, and to the extent practical increase, the level of State and local funds that would, in the absence of such Federal funds, be made available for the education of pupils participating in that project; (2) will not be used to supplant State and local funds available for the education of such pupils; and (3) will not be used to provide instructional or auxiliary services in project area schools that are ordinarily provided with State and local funds to children in nonproject area schools."

Id.

In order to ensure proper state use of Title I funds, Congress authorized the Audit Agency to audit state expenditures. 20 U.S.C. Sec. 1232f (1982). The Audit Agency audited Hawaii's expenditures with regard to the supplanting provision from 1973 through 1976. It determined that Hawaii had violated the no-supplant provision and misspent $398,495. In particular, the Agency found that Hawaii's Modified Curriculum Project and its Language Arts Project were improperly funded with Title I money.

Hawaii implemented a Modified Curriculum Project designed to keep in school those students who indicated, both through grades and attendance records, a likelihood of dropping out. The students who participated in the Modified Curriculum Project were enrolled in the Hawaii school system. Hawaii concedes, however, that the Project received no state funds and the children who participated attended no state-funded classes. Hawaii also implemented a Language Arts Project funded with Title I money. The students enrolled in the Language Arts Project did not attend any additional state-funded language arts classes. The Agency found these programs violated the no-supplant provision.

Hawaii asserts that the Secretary's interpretation of Title I's no-supplant provision is unreasonable. The state argues that availability of funds is what is crucial and the amount actually disbursed to each student is not material. It argues that even though the children in the Modified Curriculum Project attended no state-funded classes, they indirectly received state funding. This is because the state education budget allocations are made indirectly to all students by way of teacher assignments. Further, all Modified Curriculum Project students were given the opportunity to attend state-funded classes and therefore state funds were available. The state proffers the same arguments with respect to the Language Arts Project. The state also argues that because the courses offered to the Title I children in the Modified Curriculum Project and Language Arts Project were so different from...