Formation of Independent School District; Consideration of Financial Concerns of Transferor School
In Re: Petition for Formation of Independent School District Consisting of Borough of Highspire, 228 A.3d 584 (Pa. Cmwlth. 2020), allocatur granted Sept. 22, 2020, appeal docket 59 MAP 2020
The Pennsylvania Supreme Court granted allocatur to examine the Commonwealth Court’s determination that the Secretary of Education erroneously denied a petition for the formation of an independent school district based on the conclusion that the educational merits of the proposal did not outweigh the potential financial detriment to the original school district. The Supreme Court also granted allocatur to determine whether the Secretary of Education’s consideration of the financial impact of the proposed transfer of a school district that has been identified as financially at risk is an issue of first impression and whether a financially at risk school district’s ongoing ability to provide adequate current and future educational services is of substantial importance to students and the families that remain in a district in a proposed transfer.
In 2014, the Highspire Education Coalition (Coalition) petitioned to establish an independent school district by transferring Highspire students enrolled in Steelton-Highspire School District (Steelton-Highspire) to Middletown Area School District (Middletown). The Coalition’s petition reasoned that the students would receive better education and more extracurricular programs because Steelton-Highspire underperforms in state school assessments, is in a financial deficit, is non-compliant with teacher certification requirements, and does not properly qualify school bus drivers. Both school districts opposed the petition. The Secretary of Education (Secretary) appointed the Deputy Secretary to render a pre-adjudication determination of the petition’s educational merit. In 2018, the Deputy Secretary determined that the petition lacked educational merit because loss of revenue from the transfer would negatively impact Steelton-Highspire, which is on the financial watch list, even though Middletown produces better academic results. The Coalition challenged the determination, arguing that the Deputy Secretary’s consideration of finances falls outside of the scope of “educational merit”. Following an administrative hearing, the Secretary denied the Coalition’s challenge, reasoning that a study of finances does not fall outside of the scope of “educational merit” because the Public School Code of 1949 (School Code) “states a preference for financially stable districts” and that “the education merits of the petition for the transferring of Highspire students did not outweigh the potential for detriment to the students remaining in the Steelton-Highspire district,” notwithstanding the Secretary’s finding that the transferring students would receive a better education in the Middletown School District. Slip Op. at 6-7. Based on the Secretary’s adjudication that the petition lacked educational merit, the trial court denied the Coalition’s petition.
The Coalition appealed to Commonwealth Court, arguing that that the Secretary erred in focusing upon the financial condition of Steelton-Highspire in assessing the educational merit of the Coalition’s petition. Specifically, the Coalition argued that the Commonwealth Court’s decision In re Petition for Formation of Independent School District, 962 A.2d 24 (Pa. Cmwlth. 2008) (Riegelsville I) stands for the proposition that the Secretary’s evaluation should focus on whether the proposed transfer will “advance the public education of the affected students[.]” Riegelsville I, 962 A.2d at 28. The Coalition further argued that the School Code separates the educational merits of a proposed transfer from its financial effects, relying on In re Petition for Formation of Independent School District, 17 A.3d 977, 985 n.10 (Pa. Cmwlth. 2011) (Riegelsville II), in which, according to the Coalition, the court “implicitly rejected the principle that the financial consequences of a transfer are relevant to ‘educational merit’” and “that once the transfer is approved by the Secretary, it is the trial court that orders the establishment of an independent school district and determines ‘the amount, if any, of the indebtedness and obligations of the school district, from whose territory such independent district is taken, that [the independent school] district shall assume and pay, and, a statement prorating the State subsidies payable between or among the losing district or districts and the receiving district.’ Section 242.1(a) of the School Code, 24 P.S. § 2-242.1(a).” Slip op. at ___. Steelton-Highspire and Middletown countered, arguing that, unlike in Riegelsville II, the Secretary did not limit his analysis to financial considerations, that the School Code requires the Department of Education to assist school districts in dealing with financial distress, and that a school district’s financial condition is an appropriate factor in evaluating whether a transfer petition has merit from an “educational standpoint.”
Commonwealth Court reversed the holding of the trial court, finding that the Secretary of Education could not consider the financial impact when determining whether a petition meets the burden of proving educational merit because the financial condition does not fit within the “school considerations” held as “educational merit” in In re Weaverland Independent School District, 106 A.2d 812 (Pa. 1954), nor does it focus on instruction, course of study, and learning, which is the ordinary understanding of “educational.” Slip Op. at 14-15. Thus, the court concluded that financial consideration does not fall under the Secretary’s review and is the responsibility of the trial court under the School Code, 24 P.S. § 2-242.1(a). Specifically, the court reasoned:
It makes little sense for the Secretary to speculate on the debt of the school districts and the proration of State subsidies when it is the trial court that must make specific findings on those amounts and then furnish the totals to the State Board for its review. Categorically, the financial concerns that informed the Secretary’s decisions are not part of his review of whether a transfer petition has merit from an educational standpoint.
Slip Op. at 17.
The Supreme Court has granted allocatur to examine the following issues, as stated by the petitioner:
(1) Whether the Commonwealth Court erred in failing to follow its own precedent, as well as Supreme Court precedent, in holding the Secretary of Education could not consider the devastating financial impact a proposed transfer of territory between two school districts would impose upon an already financially-distressed school district?
(2) Whether the Commonwealth Court’s reversal of the Secretary of Education’s determination that the Petition to create an Independent School District was not meritorious from an educational standpoint was in err when it departed from its own recent precedent?
(3) Whether the Secretary of Education’s consideration of the financial impact of the proposed transfer on a school district that has been identified as financially at risk and placed on ‘Financial Watch Status’ is an issue of first impression and accordingly should be reviewed by this Court.
(4) Whether the catastrophic financial impact on a financially at risk school districts’ ongoing ability to provide adequate educational services to its current and future students is of substantial importance to the students and their families that will remain in the District.