Spitznagel v. State Board of Education , 126 Ohio St. 3d 174 ( 2010 )

[Cite as Spitznagel v. State Bd. of Edn., 126 Ohio St.3d 174, 2010-Ohio-2715.]
SPITZNAGEL ET AL., APPELLANTS, v. STATE BOARD OF
EDUCATION ET AL., APPELLEES.
[Cite as Spitznagel v. State Bd. of Edn., 126 Ohio St.3d 174, 2010-Ohio-2715.]
Public schools — Territory transfers pursuant to R.C. 3311.24 — State Board of
Education may consider a loss of revenue to be a sufficient demonstration
of a financial or educational detriment to the transferring school district
to prevent transfer — Judgment affirmed.
(No. 2009-0015 — Submitted December 15, 2009 — Decided June 17, 2010.)
APPEAL from the Court of Appeals for Franklin County, No. 07AP-757,
2008-Ohio-5059 and 2008-Ohio-6080.
__________________
LUNDBERG STRATTON, J.
I
{¶ 1} This case presents two questions for our review: (1) is it error to
find that a territory transfer would cause significant detriment to the fiscal or
educational operation of the transferring school district under Ohio Adm.Code
3301-89-02(B)(9) based only upon a showing of a potential loss of revenue, and
(2) is it error to rely upon racial factors in a denial of a school transfer petition
when the racial impact is found to be de minimis?
{¶ 2} We hold that evidence of a loss of revenue is a legally sufficient
basis for the State Board of Education to determine that a territory transfer would
cause some detriment to the fiscal or educational operation of a school district.
As the determination of the first question is sufficient to decide the outcome of
this case, we will not answer the second. Because we hold that the State Board of
Education did not commit a legal error regarding the revenue loss and because the
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factual determinations are not challenged in this appeal, we affirm the decision of
the court of appeals.
II
{¶ 3} The Bedford City School District serves four communities,
including the village of Walton Hills. In 2004, more than 75 percent of the
registered voters in the village of Walton Hills, including appellant Brian
Spitznagel, signed a petition requesting that the State Board of Education, an
appellee, transfer Walton Hills from the Bedford City School District to the
Cuyahoga Heights Local School District. See R.C. 3311.24. Both school districts
submitted the required answers to questions from the Ohio Department of
Education, and the board appointed a referee to conduct a hearing. See Ohio
Adm.Code 3301-89-02(F). After the hearing, the referee issued his first report
and recommendation, in which he recommended denying the transfer.
{¶ 4} In his report and recommendation, the referee considered the
school districts’ answers to the 17 questions posed to them and ten additional
factors required under Ohio Adm.Code 3301-89-03(B). Of these factors, he
found that four favored the transfer, seven disfavored the transfer, and 16 were
either neutral or inapplicable.
{¶ 5} The factors found to disfavor the transfer were (1) the racial-
isolation implications, (2) Bedford’s loss of property valuation, which would be
detrimental to its fiscal or educational operation, (3) Walton Hills’s lack of
isolation from Bedford, (4) the resulting slight percentage increase in the Bedford
school district’s black population, (5) the substantial upheaval that the transfer
would cause due to Walton Hills’s longstanding loyalties to Bedford, (6) the
transfer of nearly $8,000,000 to Cuyahoga Heights from Bedford for only 45
students, which would not be commensurate with educational responsibilities
assumed, and (7) the ineffective utilization of Bedford’s facilities resulting from
the transfer.
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{¶ 6} The referee focused on the financial detriment to the Bedford
school district as the main factor against the transfer. After the first hearing, he
found that the transfer would deprive Bedford of at least $4,000,000 annually
from real estate taxes in Walton Hills, even after a state-subsidy increase of over
$3,500,000. The referee found it foreseeable that Bedford would “be immediately
forced into enacting some * * * extreme fiscal measures to address the expected
loss” and forced to “make significantly detrimental modifications to the
educational programming” already in place. He found it “wholly foreseeable that
the loss of the Walton Hills tax monies would cause the closing of facilities,
reduced educational programming, and staff and faculty cutbacks, and other
curtailments.”
{¶ 7} The factors found to favor the transfer were that (1) both districts
would have remaining pupil population and property valuation sufficient to
maintain high school centers, (2) the transfer would not create a district with
noncontiguous territory, (3) the district territories would be contiguous after
transfer, and (4) the educational program of Bedford would not be impaired by the
loss of 45 students.
{¶ 8} After receiving the report, the state board remanded the matter to
the referee to consider what effect 2006 Am.Sub.H.B. No. 66 (“H.B. 66”), a
personal property tax measure, would have on the transfer. Following a hearing,
and posthearing briefing on the effects of 2006 Sub.S.B. No. 321, a bill designed
in part to mitigate losses that school districts in a territory transfer would suffer as
a result of H.B. 66, the referee produced a second report and recommendation,
again recommending a denial of the transfer.
{¶ 9} The referee’s second report explicitly adopted and incorporated the
first report. After considering the effect that the two tax law modifications would
have, the referee found that the parties disagreed as to the degree of financial loss
Bedford would suffer. The petitioners’ expert testified that the smallest amount
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of revenue Bedford would lose over the first five years after the transfer was
approximately $7,000,000. The petitioners had suggested five methods of
revenue recovery, such as levying available millage, to mitigate some of the
financial loss, but the referee found that all but two of the methods were
uncertain. After considering the two mitigation techniques that were certain to
take effect, the referee found that the transfer would “impose a significant
detrimental financial impact” on Bedford.
{¶ 10} In December 2006, the board accepted the referee’s second report
and recommendation and denied the transfer. Appellants appealed this decision to
the Franklin County Court of Common Pleas pursuant to R.C. 119.12. The trial
court affirmed the decision, finding that the board’s action was supported by
reliable, probative, and substantive evidence.
{¶ 11} On appeal, the Franklin County Court of Appeals reversed and
remanded, holding that a loss of funding without a specific finding as to how the
loss of funds would be a significant detriment to the transferring school district is
a legally insufficient basis to deny the transfer. Spitznagel v. State Bd. of Edn.,
Franklin App. No. 07AP-757, 2008-Ohio-5059, ¶ 53-56. The court held that a
loss of revenue alone is legally insufficient to show that a school’s facilities
would be ineffectively utilized. Id. at ¶ 68-70. The court based this holding
partially on its decision in Bartchy v. State Bd. of Edn., 170 Ohio App.3d 349,
2007-Ohio-300, 867 N.E.2d 440. The court of appeals also held that the board
erred when it determined that a showing of a de minimis change in racial
composition constituted racial isolation and applied that finding as a factor against
the transfer.
{¶ 12} On the day the court of appeals decided this case, we announced
our decision reversing the court of appeals’ decision in Bartchy. Bartchy v. State
Bd. of Edn., 120 Ohio St.3d 205, 2008-Ohio-4826, 897 N.E.2d 1096. In view of
our decision, the state board and the Bedford school district applied for
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reconsideration. Upon reconsideration, the court of appeals held that our Bartchy
opinion articulated a policy of deference to the board’s decisions, allowing
consideration of revenue loss as a factor against transfer without specific findings
quantifying the harm. Spitznagel v. State Bd. of Edn., Franklin App. No. 07AP-
757, 2008-Ohio-6080, ¶ 7-8. The court of appeals also held that while it did not
change its reasoning regarding the racial considerations, that error itself was not
enough to merit reversal of the board’s decision. Id. at ¶ 9. The court reversed its
earlier decision and affirmed the trial court’s affirmation of the board’s decision.
Id. at ¶ 11. We accepted appellants’ discretionary appeal. Spitznagel v. State Bd.
of Edn., 121 Ohio St.3d 1449, 2009-Ohio-1820, 904 N.E.2d 900.
III
{¶ 13} Ohio Adm.Code Chapter 3301-89 dictates the process by which
the State Board of Education considers an application to transfer territory from
one school district to another. The “primary consideration” in school territory
transfer cases is “the present and ultimate good of the pupils concerned.” Ohio
Adm.Code 3301-89-01(F). Before rendering its decision, the board is to ask,
“Will the loss of either pupils or valuation be detrimental to the fiscal or
educational operation of the relinquishing school district?” Ohio Adm.Code 3301-
89-02(B)(9). Appellants would have us hold that evidence of a potential loss of
revenue caused by a territory transfer, without more, is legally insufficient to
show that the transfer would be detrimental to the fiscal or educational operation
of the transferring school district. They cite Crowe v. State Bd. of Edn. (Oct. 26,
1999), Franklin App. No. 99AP-78, 1999 WL 969708, for that proposition. We
hold that the state board may consider a loss of revenue to be a sufficient
demonstration of a financial or educational detriment to the transferring school
district. The question of whether, or how much, it should weigh against the
transfer is dependent upon the facts and evidence in each case.
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{¶ 14} Under R.C. 119.12, when a decision of a state board is appealed, a
court of common pleas must decide whether the board’s order was “supported by
reliable, probative, and substantial evidence and is in accordance with law.” The
court of appeals is even more limited in its review and can overturn findings of
fact “ ‘only if the trial court has abused its discretion.’ ” Rossford Exempted
Village School Dist. Bd. of Edn. v. State Bd. of Edn. (1992), 63 Ohio St.3d 705,
707, 590 N.E.2d 1240, quoting Lorain Cty. Bd. of Edn. v. State Emp. Relations
Bd. (1988), 40 Ohio St.3d 257, 260-261, 533 N.E.2d 264. A court of appeals has
plenary review when deciding whether the decision is in accordance with the law.
Bartchy, 120 Ohio St.3d 205, 2008-Ohio-4826, 897 N.E.2d 1096, at ¶ 43. A
majority of justices in Bartchy reinforced this standard of deference. The
plurality opinion stated that “the standards of review in the common pleas court
and the court of appeals are meant to ensure proper deference to the state board,”
id. at ¶ 95, while the concurring opinion found error because “the court of appeals
substituted its judgment for that of the trial court on issues of fact.” Id. at ¶ 98
(Lanzinger, J., concurring in syllabus and judgment only).
{¶ 15} In Bartchy, we affirmed the decision of the board in which a
revenue loss was considered a factor against a territory transfer without specific
findings regarding the nature of the detriment. Id. at ¶ 84. In Bartchy, the
transferring district would have lost assessed property valuation worth potentially
$373,840. Id. at ¶ 58. We agreed that the financial loss to the transferring district
would “not be significant,” and while the referee in Bartchy found only that the
revenue loss would be detrimental to the school district in “some way,” the
plurality opinion held that he “was within his authority” when he did so and that
he “was not required to ignore these concerns.” Id. at ¶ 82-83.
{¶ 16} The referee in this case was also within his authority to consider
the financial loss to be detrimental to the fiscal or educational operation of
Bedford, especially when the loss in this case is significantly higher than the loss
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in Bartchy and the evidence of the impact of the loss is stronger. In Bartchy,
while the loss in valuation was assessed at $373,840, here the loss of actual
revenue was potentially in the millions. And whereas the school districts in cases
cited by appellant did not specifically describe the harm possibly resulting from a
loss of revenue, see, e.g., Crowe, Franklin App. No. 99AP-78, 1999 WL 969708,
* 2, the record here includes evidence tending to prove the harm that could occur
if the district lost revenue. In his reports, the referee found it “wholly
foreseeable” that the revenue loss would result in “the closing of facilities,
reduced educational programming, and staff and faculty cutbacks, and other
curtailments damaging the district students.” This conclusion was supported by
the testimony of the treasurer of the Bedford district, who explained the school’s
financial reports at the hearing and discussed the impact that a loss of revenue
would have on programs such as summer school, extracurricular activities,
transportation, special education, and teacher retention. Although the expected
revenue loss was viewed as less after the legislative changes, the evidence does
demonstrate the impact a financial loss could have on Bedford. With evidence of
significant possible losses in revenue and their possible effects, the board did not
err when it considered the loss as causing a financial or educational detriment that
factored against the transfer.
{¶ 17} Appellants also argue that the referee erred by not considering the
mitigation techniques that could reduce the financial loss suffered by Bedford.
This argument is without merit, as the referee did consider two of the mitigation
techniques: the savings from the loss of students and the change in tax law. He
declined to apply the techniques that were not legally binding. The referee was
within his authority to determine that some of the techniques should not have
been considered in his recommendation, and we defer to that decision because it
appears that evidence supports the referee’s conclusions.
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{¶ 18} Our holding here will not render school-territory-transfer petitions
meaningless, as argued by appellants, because courts will still be able to review
the state board’s decisions regarding revenue loss under the abuse-of-discretion
standard. Even if a loss in revenue is considered a factor against transfer, the
overall decision must be supported by the evidence. The Bartchy plurality
affirmed the board’s rejection of the requested transfer based on the small revenue
loss only because there was so little evidence presented in favor of the transfer.
See Bartchy, 120 Ohio St.3d 205, 2008-Ohio-4826, 897 N.E.2d 1096, at ¶ 84. In
a different case, after considering all of the evidence, a court may find that the
state board weighed a showing of a revenue loss too heavily against a transfer.
See id. See also Residents of Baldwin Rd. v. Ohio Dept. of Edn., Franklin App.
No. 02AP-257, 2002-Ohio-5522, at ¶ 19 (the state board depended too heavily on
small revenue loss and ignored extensive and persuasive evidence in favor of
transfer). A state board could also determine that a loss of revenue is so
insubstantial to the operation of the district that it will not consider it as a factor
against transfer. In Levey v. State Bd. of Edn. (Feb. 28, 1995), Franklin App. No.
94APE08-1125, 1995 WL 89703, * 4, the Tenth District Court of Appeals noted
that although the referee had considered the loss of revenue, he had decided that it
was not “ ‘a factor significant enough to stand in the way of the proposed
transfer.’ ” This holding creates the correct balance between giving deference to
the state board and giving school territory transfer petitions fair consideration
upon appeal.
{¶ 19} Questions regarding the weight given to the revenue loss in the
overall balancing of factors and whether the petitioners met their burden are not
before us in this case. The only question before us concerning the revenue loss is
the legal sufficiency of the decision regarding the single factor in Ohio Adm.Code
3301-89-02(B)(9).
IV
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{¶ 20} The Walton Hills residents also assert that the state board erred in
applying racial factors against the transfer, because the transfer would have only a
de minimis impact on the affected school districts’ racial composition. The
significant revenue loss was the primary negative factor against the transfer, and
little weight was given to the finding of de minimis racial impact. If error
occurred, it does not affect the outcome of this case, rendering it harmless.
Therefore, we need not decide this question and its constitutional implications, as
it is not necessary to do so. See Hall China Co. v. Pub. Util. Comm. (1977), 50
Ohio St.2d 206, 210, 4 O.O.3d 390, 364 N.E.2d 852.
V
{¶ 21} For the foregoing reasons, we affirm the judgment of the court of
appeals.
Judgment affirmed.
O’CONNOR and LANZINGER, JJ., concur.
PFEIFER, J., concurs in judgment only.
O’DONNELL and CUPP, JJ., dissent.
BROWN, C.J., not participating.
__________________
O’DONNELL, J., dissenting.
{¶ 22} Respectfully, I dissent.
{¶ 23} This case presents the issue of whether the state board of education
may deny a petition to transfer territory from one school district to another based
solely on a loss of revenue to the relinquishing (or transferring) school district.
The lead opinion resolves this issue by concluding that “the state board may
consider a loss of revenue to be a sufficient demonstration of a financial or
educational detriment to the transferring school district.” However, a
relinquishing district will always suffer a loss of some revenue when there is a
transfer of territory from one school district to another. Further, the evidence here
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is insufficient to support the board’s finding that the loss of revenue will impair
the fiscal or educational operations of the relinquishing district, and the state
board compounded this error when it found that a de minimis impact on racial
isolation also weighed against the transfer.
Loss of Revenue
{¶ 24} Ohio Adm.Code 3301-89-02(B)(9) directs the board to consider
this question: “Will the loss of either pupils or valuation be detrimental to the
fiscal or educational operation of the relinquishing school district?” Notably, the
relevant consideration is not whether there will be a loss of pupils or a loss of
valuation; rather the regulation directs the board to evaluate whether those losses
will have a detrimental impact on the fiscal or educational operation of the
relinquishing district. Thus, Ohio Adm.Code 3301-89-02(B)(9) expressly
recognizes that a loss of students and revenue will occur in every territory transfer
and that those losses, per se, are insufficient to support the board’s denial of a
transfer when there is no resulting detriment to the operations of the school
district. Rather, the school board must consider the impact of the revenue loss on
the relinquishing district.
{¶ 25} The question, then, is whether any reasonably foreseeable loss of
revenue will be “detrimental to the fiscal or educational operation” of the
relinquishing school district. If that loss of revenue, no matter the amount, does
not have a detrimental impact on the fiscal or educational operation of the district,
the state board may not rely on it to deny a petition to transfer territory.
{¶ 26} In this case, insufficient evidence supports the state board’s finding
that the loss of revenue will be detrimental to the fiscal or educational operation
of the Bedford City School District. At the initial hearing, Mary Ann Nowak, the
district treasurer, testified that the expected loss of revenue would affect school
programs, but, as the lead opinion acknowledges, she did not have an accurate
projection of the amount that the school district would lose as a result of the
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transfer because “the expected revenue loss was viewed as less after the
legislative changes.” Lead opinion at ¶ 16. The treasurer believed that the district
would lose almost $4,000,000 each year out of an annual budget of almost
$40,500,000 for 2004. Notably, Lowell Davis, a former school district treasurer
and Spitznagel’s expert, testified that a shortfall in a school district’s budget of ten
percent would cause the state board to place the district on fiscal watch. After
hearing the evidence, the referee found in his first report that the loss of revenue
would cause a detrimental impact on the Bedford City School District.
{¶ 27} The state board remanded the matter for the referee to consider
what effect 2006 Am.Sub.H.B. No. 66 (“H.B. 66”), which phases out the tangible
personal property tax, would have on the proposed transfer. The referee
considered the effect of H.B. 66 as well as 2006 Sub.S.B. No. 321 (“S.B. 321”),
which mitigates losses to the relinquishing school district as a result of the
passage of H.B. 66. Relying on the testimony of Spitznagel’s expert, Todd
Puster, the referee recognized that the passage of H.B. 66 and S.B. 321 could
mean that the Bedford City School District would lose as little as $1,400,000 per
year over the next five years. Further, the referee accepted the expert’s opinion
that the school district could save an additional $600,000 by no longer having to
provide educational services to students from Walton Hills. Therefore, based on
the revised projections presented at the second hearing, the revenue loss to the
Bedford City School District amounts to less than two percent of the district’s
$44,900,000 annual budget for 2005, but the referee received no evidence that a
two percent loss of revenue would detrimentally affect the Bedford City School
District.
{¶ 28} The referee thus did not and could not make specific factual
findings regarding whether the revised projections of financial loss would impair
the fiscal or educational operation of the Bedford City School District. Instead,
the referee merely assumed that the same detriment would result from a smaller
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revenue loss. However, testimony that a ten percent loss of revenue will cause a
detriment to the school district does not prove that the same detriment results
from a two percent loss of revenue.
{¶ 29} As the lead opinion acknowledges, at best, the evidence before the
state board represented only “evidence of significant possible losses in revenue
and their possible effects.” (Emphasis added.) Lead opinion at ¶ 16. In my view,
speculation as to the potential impact of a potential loss of revenue does not
support a decision to deny a petition for a school district transfer.
{¶ 30} Accordingly, my view is that the state board may not rely on
evidence of a mere loss of revenue to deny a petition for transfer of territory when
there is insufficient evidence that the revenue loss would be detrimental to the
fiscal or educational operation of the relinquishing school district.
Racial Isolation
{¶ 31} Ohio Adm.Code 3301-89-02(B)(2) requires the state board to
consider the following: “Are there racial isolation implications?” and “If
approved, would the transfer result in an increase in the percentage of minority
pupils in the relinquishing district?” The referee found that any resulting racial
isolation would have a de minimis impact on students. Nonetheless, he concluded
that the resulting racial isolation constituted a factor weighing against the territory
transfer.
{¶ 32} Also, Ohio Adm.Code 3301-89-03(B)(5) provides that “[t]he
transfer shall not cause, preserve, or increase racial isolation.” In evaluating the
impact of the transfer on racial isolation pursuant to this regulation, the referee
found that “[u]sing the numbers to judge, the determination must be made that a
transfer would ever so slightly change the racial composition in the effected [sic]
districts, and, as such, this factor disfavors the transfer.” (Emphasis added.)
{¶ 33} The majority does not reach the issue of whether the state board
erred in weighing racial factors against the transfer when any resulting racial
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isolation would be negligible. However, the error of the state board in finding
that a de minimis impact on racial isolation weighs against the transfer
compounds its misapplication of the law in finding a detrimental impact on the
fiscal or educational operation of the relinquishing district from the mere loss of
revenue. Accordingly, I disagree with the lead opinion that any error would have
been harmless.
{¶ 34} For these reasons, I would reverse the judgment of the court of
appeals and on these facts order the state board to grant the petition to transfer.
CUPP, J., concurs in the foregoing opinion.
__________________
Roetzel & Andress, L.P.A., Stephen W. Funk, and David R. Harbarger, for
appellants.
Richard Cordray, Attorney General, Benjamin C. Mizer, Solicitor General,
Alexandra T. Schimmer, Chief Deputy Solicitor General, and Todd R. Marti,
Assistant Attorney General, for appellee State Board of Education.
Squire, Sanders & Dempsey, L.L.P., D. Lewis Clark Jr., and Meghan E.
Hill, for appellee Bedford City School District.
Chester, Willcox & Saxbe, L.L.P., and Donald C. Brey, urging affirmance
for amici curiae city of Bedford, city of Bedford Heights, and village of
Oakwood.
Scott, Scriven & Wahoff, L.L.P., and Patrick J. Schmitz, urging
affirmance for amicus curiae Ohio School Boards Association.
Janice St. John, urging reversal for amici curiae Edward Thellmann, Karen
Mellon, Rita Charsanko, Dean Penix, and Joanne Podojil, members of the Walton
Hill Education Network.
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