Iowa School Bds. v. Iowa Dept. of Educ.

• Decision Date: 28 September 2007
• Docket Number: No. 05-1255.,05-1255.
• Citation: 739 N.W.2d 303
• Parties: IOWA ASSOCIATION OF SCHOOL BOARDS, Appellant, v. IOWA DEPARTMENT OF EDUCATION and The Iowa Auditor of State, Appellees.
• Court: Iowa Supreme Court

739 N.W.2d 303

IOWA ASSOCIATION OF SCHOOL BOARDS, Appellant, v. IOWA DEPARTMENT OF EDUCATION and The Iowa Auditor of State, Appellees.

No. 05-1255.

Supreme Court of Iowa.

September 28, 2007.

Dennis W. Johnson and Cristina F. Kuhn of Dorsey & Whitney LLP, Des Moines, for appellant.

Thomas J. Miller, Attorney General, and Christie J. Scase, Assistant Attorney General, for appellees.

TERNUS, Chief Justice.

School districts in Iowa want to use a special property tax levy to pay for a portion of their transportation fuel costs. The appellant, Iowa Association of School Boards, sought separate declaratory rulings from the appellees, Iowa Department of Education and the Iowa Auditor of State, that would authorize member school districts to expend property taxes levied under Iowa Code section 298.4 (2003) on fuel purchased under a "fleet services program" administered through the association. Both agencies ruled school districts could not use monies raised by the special property tax levy permitted by section 298.4 for this purpose. The agencies' declaratory orders were affirmed by the district court on judicial review. After considering the arguments of the parties and the relevant legal authorities, we agree with the district court and affirm its decision.

I. Background Facts and Proceedings.

The facts in this case are undisputed. Every school district in Iowa is required to provide transportation to students living more than a specified distance from the student's designated school. Iowa Code § 285.1(1). The annual cost of fuel to provide this transportation is a major expense for school districts. While the expense of fuel poses a challenge in itself, budgeting for this expense in a time of fluctuating fuel prices is even more challenging.

School districts operate on a fiscal year of July 1 through June 30. See id. § 24.3. Local property taxes and state aid are the two primary funding sources for the districts. See generally id. ch. 257. In order to allow sufficient time to set property tax rates for the following year, districts must certify a budget for the upcoming fiscal year by April 15. See id. §§ 24.17, .20. After a budget is certified and the time for amendment has expired, the district's authorized expenditures may not exceed the budgeted amount, as supplemented by any unspent balance from the preceding year. Id. § 257.7. In addition, the authorized tax rates and levies computed on the basis of the certified budget are final for the ensuing fiscal year. Id. § 24.20.

Because budgets are finalized so far in advance, school districts face a constant uncertainty over the impact an increase in fuel prices will have on their operating budgets. The Iowa Association of School Boards, a nonprofit organization representing the interests of its public-school district members, devised a way to assist school districts in reducing and managing unpredictable and rising fuel costs. Through a program administered by the association, Iowa Joint Utilities Management Program, Inc. (IJUMP), participating members are offered the opportunity to purchase fuel at a set price throughout the fiscal year. Under IJUMP's "fleet services program,"¹ each participating district enters into a twelvemonth, renewable participant agreement that designates IJUMP as the district's contracting agent for the purchase and delivery of vehicle fuel. The district is then permitted to purchase fuel throughout the fiscal year at a guaranteed price that is established on January 31 of the preceding fiscal year.

In addition to promising to pay for gasoline purchased pursuant to the agreement, the district agrees to pay an annual "risk management fee" determined on the basis of the price per gallon and the total number of gallons that the district "elects to insure" during the term of the contract. IJUMP uses the management fee collected from the participating district to pay any difference between the guaranteed fuel price and the actual price of fuel delivered to the district. At the end of the fiscal year, any surplus in the district's account, i.e., any remaining management fee paid by the district, may be rolled over to the next fiscal year. Alternatively, the district may choose to receive a payment based on the number of gallons of fuel purchased during the year, minus program administration costs. If the management fee is insufficient to cover the difference between the guaranteed price and the actual cost of the fuel used by the district, IJUMP will bill the district for the shortfall or will charge a higher fee in the following year to cover the deficit.

The present dispute arises from participating districts' desire to pay the management fee required by the fleet services program through a special "district management levy" authorized by Iowa Code section 298.4. Section 298.4 allows a district to levy a property tax in addition to the property taxes for the general school fund permitted by chapter 257. The tax collected through the district management levy must be placed in the district's management levy fund and can be expended only for purposes specified in section 298.4.

In January 2005, the association, on behalf of its members, filed petitions for declaratory order with the Iowa Department of Education and the Iowa Auditor of State seeking declaratory rulings that the school districts had the authority to use district management levy funds to pay the management fee required for participation in IJUMP's fleet services program. The association contended this expenditure was authorized by section 298.4(3), which allows payments from the district management levy fund "[t]o pay the costs of insurance agreements under section 296.7."

In identical declaratory orders, the department and auditor ruled that the fleet services program was not "insurance" as that term is used in section 296.7. The agencies stated that "[t]he essence of an insurance agreement is that one party pays consideration to a second party in return for the second party assuming some specified risk for the first party." They noted that, under the fleet services program, "no risk is assumed by IJUMP. The risk remains with the participating districts at all times." The agencies concluded the fleet services program was "akin to a budget-billing plan where the certainty of the price of fuel is set for a twelve-month period, but increases are still eventually absorbed solely by the district." Based on this analysis, the agencies ruled the management fee for the fleet services program did not represent the cost of an insurance agreement, and accordingly, "a district may not fund any part of its participation from the district's management levy funds."

The association filed a petition for judicial review, asking the court to reverse the agencies' decisions. Initially, the district court determined the Department of Education had authority to interpret chapters 296 and 298. Therefore, granting appropriate deference to the department's interpretation of the pertinent statutes, the district court reviewed the department's decision under section 17A. 19(10) (l). This statute states, in part, that the court "shall reverse, modify, or grant other appropriate relief from agency action" if the agency action is "[b]ased upon an irrational, illogical, or wholly unjustifiable interpretation of a provision of law." Iowa Code § 17A. 19(10) (l). After analyzing the language of section 296.7(1), the court agreed with the agencies that the participant agreement for the fleet services program was not an "insurance agreement" as contemplated by that statute. Therefore, the court held, "the agencies logically, rationally and justifiably applied [the governing statutes] to the facts of this case."

The association has appealed the district court's decision, raising two issues. First, the association contends the department's interpretation of section 298.4(3) and section 296.7(1) is not entitled to deference. Secondly, the association argues school districts have authority to use district management levy funds to pay the management fee required for participation in the IJUMP fleet services program. We address each issue separately.

II. Standard of Review.

A. General Principles. We review district court decisions on judicial review of agency action under the standards of Iowa Code chapter 17A, the Administrative Procedure Act. Mosher v. Dep't of Inspections & Appeals, 671 N.W.2d 501, 508 (Iowa 2003). Section 17A.19(10) governs review of the agency action itself. Applying the standards of section 17A.19(10), we determine whether our conclusions are the same as those of the district court. Id.

In this case, the association's challenge is based on the agencies' alleged erroneous interpretation of the controlling statutes. Consequently, one of two possible standards for review applies. Under section 17A.19(10), a court must reverse agency action when "substantial rights of the person seeking judicial review have been prejudiced because the agency action is any of the following":

c. Based upon an erroneous interpretation of a provision of law whose interpretation has not clearly been vested by a provision of law in the discretion of the agency.

. . .

l. Based upon an irrational, illogical, or wholly unjustifiable interpretation of a provision of law whose interpretation has clearly been vested by a provision of law in the discretion of the agency.

Iowa Code § 17A.19(10)(c), (l). As a comparison of these provisions reveals, the appropriate standard of review depends on whether the legislature has clearly vested the interpretation of the statute at issue in the discretion of the agency.

When an agency has not clearly been vested with the discretion to interpret the pertinent statute, the court gives no deference to the agency's interpretation of the statute. Id. § 17A.19 (11) (b). Under these circumstances, the court on judicial review simply determines whether the agency's...