Maine School Administrative Dist. No. 15 v. Raynolds

• Decision Date: 16 April 1980
• Citation: 413 A.2d 523
• Court: Maine Supreme Court
• Parties: MAINE SCHOOL ADMINISTRATIVE DISTRICT NO. 15 et al. v. Harold RAYNOLDS, Jr., Commissioner, et al.

Page 523

413 A.2d 523

MAINE SCHOOL ADMINISTRATIVE DISTRICT NO. 15 et al. v. Harold RAYNOLDS, Jr., Commissioner, et al.

Supreme Judicial Court of Maine.

April 16, 1980.

Verrill & Dana, Michael T. Healy (orally), Portland, for School Administrative Dist. No. 15.

Drummond, Woodsum, Plimpton & MacMahon, P. A., Harry R. Pringle (orally), Portland, for School Administrative Dist. No. 24.

Waldemar G. Buschmann, Asst. Atty. Gen. (orally), Augusta, for defendants.

Before McKUSICK, C. J., and WERNICK, GODFREY and ROBERTS, JJ.

WERNICK, Justice.

We have before us appeals from a judgment of the Superior Court (Cumberland County) taken by plaintiff, Maine School Administrative District No. 15 (MSAD No. 15) and intervenor plaintiff, Maine School Administrative District No. 24 (MSAD No. 24). ¹ The judgment adjudicated that the plaintiff and the intervenor plaintiff lacked legal right to retain for their own unrestricted use the income earned from the temporary investment by each of them of the unused portion of proceeds derived from capital outlay school construction bonds issued under the statutory program of state aid for school construction (20 M.R.S.A §§ 3457-61). The judgment also denied the permanent injunction sought by the Districts to enjoin the defendants, Harold Raynolds, Jr., Commissioner of the Department of Education and Cultural Services, and the State Board of Education, from reducing, by the amount of the net income each District had earned by its temporary investment of bond proceeds, the school construction aid the state was obligated to pay to the plaintiff and the intervenor plaintiff.

The principal issues raised by the appeals focus upon the provisions of 20 M.R.S.A. § 3457, and of related legislation and regulations, regarding the financing of those public school construction projects approved by the State Board of Education prior to July 1, 1977.

We deny the appeal of plaintiff MSAD No. 15 and affirm the judgment insofar as it adjudicated against MSAD No. 15 and in favor of defendants, although our reasoning in support of this conclusion differs from that of the Superior Court Justice.

However, because of special circumstances in regard to the intervenor plaintiff MSAD No. 24 indicating that it might have the benefit of an equitable estoppel, we set aside the judgment of the Superior Court insofar as it adjudicated against MSAD No. 24 and remand the case as to it to the Superior Court for further proceedings concerning the issue of equitable estoppel.

The pertinent facts have been stipulated.

In January 1974, plaintiff MSAD No. 15 received from the State Board of Education the approvals making it eligible, pursuant to 20 M.R.S.A. § 3457, to receive financial aid from the state in the construction of a new high school. The inhabitants of the District subsequently authorized the directors of the District to issue bonds to raise up to $2,800,000 for use as capital outlay. On October 11, 1974, the State Board, in accordance with 20 M.R.S.A. § 3458, granted the application of MSAD No. 15 for state school construction aid of $2,800,000, and the District thereafter issued capital outlay bonds in the amount of $2,575,000. During the period the school was being constructed, the District made temporary investments of the bond proceeds not being used to defray expenses. As of December 16, 1977, the investment had produced interest of $116,928.78 and subsequently additional interest has been earned. None of the income thus realized has ever been spent by MSAD No. 15.

Intervenor plaintiff MSAD No. 24 received the State Board of Education approvals rendering it eligible for state school construction aid, pursuant to 20 M.R.S.A. § 3457, during January of 1974. In elections held in February and December of that year the inhabitants of the District authorized the directors of the District to issue capital outlay bonds for school construction totalling $5,650,000. By March 28, 1975, the State Board of Education, in accordance with 20 M.R.S.A. § 3458, had issued approvals to MSAD No. 24 for school construction aid totalling $5,498,700. On March 19, 1975 and October 15, 1975, the District issued capital outlay bonds in the amounts of $5,310,000 and $185,000 respectively. During the period of school construction MSAD No. 24 made temporary investments of the bond proceeds while they were not being used. It had realized $289,927.09 in interest as of December 28, 1978 when it intervened in this action. Having credited this income to its general budget, MSAD No. 24 spent most of it all but approximately $57,000 in budget years 1976-77 through 1978-79.

In February, 1977 the State Board of Education notified the plaintiff, and sometime later the intervenor, that upon the filing of final construction reports and the completion of audits, (conditions precedent to the payment of any financial assistance under 20 M.R.S.A. § 3457), the Board would reduce the state aid payments to each District, respectively, by the amount of the income it had earned by its temporary investment of unused bond proceeds, The State Board relied on its "Policy XII", which was issued January 15, 1976, effective the following day, as the basis for requiring such reduction. Included in Policy XII were the following provisions "C. . . . Proceeds from the bond sale shall be used immediately to pay short term principal and interest costs. Unused portions of the bond proceeds shall be reinvested at all times, in such manner as to be fully secured with as high rate of return as possible. Income from the reinvestment of unused bond proceeds shall be applied toward the interest costs of temporary borrowing.

"D. The difference between the income from reinvesting unused portions of bond proceeds and the interest costs for temporary borrowing shall be applied toward the next interest payment or principal and interest payment listed on the debt retirement schedule filed with the Department until the difference is depleted.

"H. Interest earned from the time the SBA-1 is filed to the next interest or principal and interest payment is due may be retained for local school use.

"I. Effective Date: This policy shall be effective January 16, 1976 except that the Commissioner is authorized to grant exceptions to this policy in cases where its implementation causes hardships on individual projects."

The Districts challenge the legality of these provisions of Policy XII, contending that (1) they lie outside the scope of such regulatory power as was lawfully delegated to the State Board by the legislature, and (2) they are inconsistent with the purposes manifested generally in the state program of financial aid for school construction, as well as with those purposes particularly reflected in 20 M.R.S.A. § 3457. In addition, the Districts claim that Policy XII must be held inapplicable to them; to apply it to them would make the regulation retroactive and in this instance the legislature has not conferred power on the State Board of Education to regulate with retroactive effect. A further contention, made by the intervenor plaintiff MSAD No. 24, is that because it spent most of the income it derived from the temporary investment of the bond proceeds (while they were not being used) in reliance on written representations of the Associate Commissioner of Education that Policy XII was inapplicable to it, defendants should be held equitably estopped to apply the policy to the amounts of interest thus spent.

1.

The Superior Court Justice concluded that the correct interpretation of the statutes under consideration is that the legislature itself mandated the reduction in school construction aid imposed here by defendants. In support of this view defendants call to our attention various provisions in the comprehensive statutory scheme for school aid construction. They refer, for example, to the express statement in 20 M.R.S.A. § 3457 that the allocating of financial assistance shall be to

"provide further incentive for the establishment of larger School Administrative Districts."

This statement, they argue, implies that the interest derived from the temporary investment of construction bond proceeds while they are not being used must be applied to reduce the amount of reimbursement from state funds, since thereby state funds are made available to be spread to more districts and construction projects. In addition, defendants maintain that the overall statutory scheme manifests legislative intendment that the state program of financial assistance for school construction projects should not result in a "windfall" to a particular District which receives state assistance. This objective is reflected in the requirement, in Section 3457, that all federal funds (other than federal revenue sharing funds) be deducted before "computing the eligible expenditure of any administrative unit for construction aid", as well as in the statutory directives that units receiving state construction aid shall carry fire insurance and allied coverage on the completed project, shall use the insurance proceeds for repairs in the event of damage, and shall not receive subsidy on those proceeds. Similarly, specifically as to projects with financing approved under 20 M.R.S.A. § 3460, the legislature has expressly mandated that those units receiving "advance" payments shall invest any portion of the advances not required for immediate disbursement, as well as that an amount equal to any interest earned on such investment "shall be deducted from any balance of construction aid payable to the unit on the project."

However, we regard these arguments as cutting against, rather than supporting, the point the defendants seek to make. The arguments show that where it was the legislature's purpose to establish its own mandate for reductions in particular instances and respects in the amount of state construction aid to be paid to a local administrative unit, the legislature knew how to accomplish...