Thomas Jefferson Classical Acad. Charter Sch. v. Cleveland Cnty. Bd. of Educ.Â

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA15-464
Filed: 3 November 2015
Cleveland County, No. 12 CVS 41
THOMAS JEFFERSON CLASSICAL ACADEMY CHARTER SCHOOL, PIEDMONT
COMMUNITY CHARTER SCHOOL, AND LINCOLN CHARTER SCHOOL,
Plaintiffs,
v.
CLEVELAND COUNTY BOARD OF EDUCATION, D/B/A CLEVELAND COUNTY
SCHOOLS, Defendant.
Appeal by defendant from judgment entered 29 January 2015 by Judge Jesse
B. Caldwell, III in Cleveland County Superior Court. Heard in the Court of Appeals
8 October 2015.
Robinson Bradshaw & Hinson, P.A., by Richard A. Vinroot, Matthew F. Tilley
and Amanda R. Pickens, for plaintiffs-appellees.
Tharrington Smith, L.L.P., by Deborah R. Stagner, for defendant-appellant.
Christine T. Scheef and Allison B. Schafer, for amicus curiae North Carolina
School Boards Association.
TYSON, Judge.
Defendant Cleveland County Board of Education, d/b/a Cleveland County
Schools (“CCS” or “Defendant”), appeals from judgment entered in favor of Thomas
Jefferson Classical Academy Charter School, Piedmont Charter School, and Lincoln
Charter School (collectively, “the charter schools” or “Plaintiffs”) in the amount of
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$54,527.80. The trial court concluded CCS had underfunded Plaintiffs during the
2009-10 fiscal year. We affirm.
I. Factual and Procedural Background
This case returns to this Court after prior remand to the trial court by a divided
panel of this Court. See Thomas Jefferson Classical Acad. Charter Sch. v. Cleveland
Cnty. Bd. Of Educ. (Thomas Jefferson II), __ N.C. __, 763 S.E.2d 288 (2014).
Plaintiffs commenced this action on 9 January 2012 by filing a complaint, in
which they alleged CCS had underfunded the charter schools for fiscal year 2009-10.
Plaintiffs asserted CCS failed to pay them the statutorily required per-pupil amount
of all money contained in the local current expense fund. Plaintiffs alleged CCS owed
them approximately $102,480.00
Plaintiffs asserted CCS wrongfully transferred approximately $4.9 million
from the local current expense fund into a “special revenue fund” known as Fund 8.
Monies in the local current expense fund must be shared with charter schools, while
monies in a special revenue fund are not required to be shared with the charter
schools.
Plaintiffs sought a declaratory judgment that CCS was statutorily required to
allocate the funds in accordance with N.C. Gen. Stat. § 115C-238.29H (2009), and
demanded recovery in the amount of $102,480.00 and attorneys’ fees. CCS timely
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served an answer, and denied the transfer of funds to the special revenue fund
violated any relevant statutory provisions.
A non-jury trial was held on 9 October 2012. On 21 February 2013, the trial
court entered a final judgment in favor of Plaintiffs and awarded the charter schools
$57,836.00. Plaintiffs were also awarded attorneys’ fees by separate order. CCS
appealed both orders.
In an opinion issued 2 September 2014, this Court reversed the trial court’s
order awarding attorneys’ fees to Plaintiffs. This Court held “the determination of
whether funds that accrued to the local school administrative unit were ‘restricted’ is
a conclusion of law rather than a finding of fact.” Thomas Jefferson II, __ N.C. at __,
763 S.E.2d at 293.
This Court remanded the case to the trial court for “a revised judgment with
appropriate findings of fact and conclusions of law as to the funds at issue.” Id. at __,
763 S.E.2d at 295. This Court instructed the trial court that “[r]elevant findings of
fact would concern the origin, purpose, and ultimate use of the funds, not their
designation as ‘restricted.’” Id. at __, 763 S.E.2d at 293.
The hearing after remand was held on 21 November 2014. The trial court
entered a final judgment on 29 January 2015 in favor of the charter schools and
awarded them $54,527.80, which represented their “per-pupil share of those moneys
CCS had included in its Special Revenue Fund that were not, in fact, restricted.”
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Defendant gave timely notice of appeal to this Court.
II. Issue
Defendants argue the trial court erred by finding and concluding certain
revenues were not restricted, and the charter schools were therefore entitled to a pro
rata share of those revenues pursuant to N.C. Gen. Stat. § 115C-238.29H(b) (2009).
III. Standard of Review
“When the trial court sits without a jury, the standard of review on appeal is
whether there was competent evidence to support the trial court’s findings of fact and
whether its conclusions of law were proper in light of such facts.” Jackson v. Culbreth,
199 N.C. App. 531, 537, 681 S.E.2d 813, 817 (2009) (citation and quotation marks
omitted). “Evidence must support the findings, the findings must support the
conclusions of law, and the conclusions of law must support the ensuing judgment.”
Id. (citation omitted).
“The trial court’s findings of fact are binding on appeal as long as competent
evidence supports them, despite the existence of evidence to the contrary.” Curran v.
Barefoot, 183 N.C. App. 331, 335, 645 S.E.2d 187, 190 (2007) (citation omitted). “The
trial court’s conclusions of law drawn from the findings of fact are reviewable de
novo.” Id.
IV. Analysis
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Former N.C. Gen. Stat. § 115C-238.29H governed the allocation of funds
between local school administrative units and charter schools during the 2009-10
school year, which is the relevant time frame in this appeal. N.C. Gen. Stat. § 115C-
238.29H (2009). N.C. Gen. Stat. § 115C-238.29H(b) required the local school
administrative unit to “transfer to the charter school an amount equal to the per pupil
local current expense appropriation to the local school administrative unit for the
fiscal year” for each student who attends a public charter school. N.C. Gen. Stat. §
115C-238.29H(b).
This Court held the phrase “local current expense appropriation” is
“synonymous with the phrase ‘local current expense fund’ in the School Budget and
Fiscal Control Act, N.C.G.S. § 115C-426(e).” Francine Delany New School for
Children, Inc. v. Asheville City Bd. of Educ., 150 N.C. App. 338, 347, 563 S.E.2d 92,
98 (2002), disc. review denied, 356 N.C. 670, 577 S.E.2d 117 (2003). N.C. Gen. Stat.
§ 115C-426(e) defines “local current expense fund” as:
The local current expense fund shall include
appropriations sufficient, when added to appropriations
from the State Public School Fund, for the current
operating expense of the public school system in conformity
with the educational goals and policies of the State and the
local board of education, within the financial resources and
consistent with the fiscal policies of the board of county
commissioners. These appropriations shall be funded by
revenues accruing to the local school administrative unit
by virtue of Article IX, Sec. 7 of the Constitution, moneys
made available to the local school administrative unit by
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the board of county commissioners, supplemental taxes
levied by or on behalf of the local school administrative unit
pursuant to a local act or G.S. 115C-501 to 115C-511, State
money disbursed directly to the local school administrative
unit, and other moneys made available or accruing to the
local school administrative unit for the current operating
expenses of the public school system.
N.C. Gen. Stat. § 115C-426(e) (2009). See N.C. Const. art. IX, § 7(a) (“[A]ll moneys,
stocks, bonds, and other property belonging to a county school fund, and the clear
proceeds of all penalties and forfeitures and of all fines collected in the several
counties for any breach of the penal laws of the State . . . shall be faithfully
appropriated and used exclusively for maintaining free public schools.”); Francine
Delaney, 150 N.C. App. at 339, 563 S.E.2d at 93.
The applicable 2009 version of N.C. Gen. Stat. § 115C-426(c) permitted the
creation of “other funds . . . to account for trust funds, federal grants restricted as to
use, and special programs.” This Court interpreted this statutory provision in two
related cases.
In Sugar Creek Charter School, Inc. v. Charlotte-Mecklenburg Bd. of Educ.
(Sugar Creek I), this Court held county appropriations specifically earmarked for two
particular programs were subject to the mandatory provisions of N.C. Gen. Stat §
115C-238.29H(b). 188 N.C. App. 454, 460, 655 S.E.2d 850, 854, disc. review denied,
__ N.C. __, 667 S.E.2d 460 (2008). This Court’s decision emphasized the fact that the
school board had failed to set up a “separate special fund” for these programs, and
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placed the appropriations in the school board’s local current expense fund. Id. at 460-
463, 655 S.E.2d at 855-56.
This holding was expanded in Sugar Creek Charter School, Inc. v. Charlotte-
Mecklenburg Bd. of Educ. (Sugar Creek II), 195 N.C. App. 348, 360-61, 673 S.E.2d
667, 676, appeal dismissed and disc. review denied, 363 N.C. 663, 687 S.E.2d 296
(2009). In Sugar Creek II, this Court concluded several sources of revenue with either
a designated purpose or for a special program were subject to the per-pupil
distribution, because the funds were placed in the local current expense fund, as
opposed to a separate fund. This Court reiterated its prior holding in Sugar Creek I
that “[b]ecause Defendants have held these moneys in their local current expense
fund, they are required to share these moneys with Plaintiffs.” Sugar Creek II, 195
N.C. App. at 361-62, 673 S.E.2d at 676 (citation omitted).
Based on Sugar Creek I and II, this Court held “the provisions of Chapter 115C
. . . do not require that all monies provided to the local administrative unit be placed
into the ‘local current expense fund[.]’” Thomas Jefferson Classical Acad. Charter
Sch. v. Rutherford Cnty. Bd. of Educ. (Thomas Jefferson I), 215 N.C. App. 530, 543,
715 S.E.2d 625, 633 (2011), disc. review denied and appeal dismissed, __ N.C. __, 724
S.E.2d 531 (2012). “Rather, Sugar Creek I and II clearly indicate that it is incumbent
upon the local administrative unit to place restricted funds into a separate fund.” Id.
at 544-45, 715 S.E.2d at 634. This Court further stated “[i]f the funds are left in the
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‘local current expense fund,’ then they are to be considered in computing the per pupil
amount to be allocated to the charter school.” Id. at 545, 715 S.E.2d at 634.
While these prior cases clearly indicate local school boards are permitted to
place certain restricted funds in a separate fund, so as to not require their inclusion
in the charter schools’ pro rata share, “restricted funds” were not defined until this
Court’s recent decision in Thomas Jefferson II. Thomas Jefferson II, __ N.C. App. at
__, 763 S.E.2d at 292 (noting “we have never defined what ‘restricted funds’ are or
who has the authority to make that determination.”).
In Thomas Jefferson II, this Court relied on our prior holdings in Sugar Creek
I and II, and Thomas Jefferson I, and concluded “the local school administrative unit
may deposit any ‘restricted’ funds into a fund separate from the current expense
fund.” Id. (citations omitted). This Court set forth the proper legal framework under
which to analyze “restricted” funds:
We further conclude that the determination of which funds
may be placed in a separate fund is a question of law and
not solely in the discretion of the local school board, given
the mandatory language found in the budget statute [N.C.
Gen. Stat. § 115C-426(e)]. . . .
Because the issue of whether funds are “restricted”
or not is an issue of law, we further hold that the
determination of whether funds that accrued to the local
school administrative unit were “restricted” is a conclusion
of law rather than a finding of fact. . . . Relevant findings
of fact would concern the origin, purpose, and ultimate use
of the funds, not their designation as “restricted.”
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Id. at __, 763 S.E.2d at 293 (citation omitted).
This Court continued by noting “‘[r]estricted’ is not a term found in any of the
relevant statutes,” but is “the Court’s shorthand for those monies that can be placed
in a separate fund, i.e. those from ‘trust funds, federal grants restricted as to use, and
special programs’ which must be accounted for separately.” Id. (quoting N.C. Gen.
Stat. § 115C-426(c)).
This Court explained in order to determine which funds were “restricted,” “the
question is . . . whether the funds have a limited use and specific purpose, such as to
fund a special program.” Id. (citation omitted). By contrast, “unrestricted funds are
those that could be used for all of the K-12 population without restriction.” Id.
(emphasis in original). We held “[b]ased on the prior cases and the language of the
applicable statutes, we define ‘restricted’ funds as those funds which have been
designated by the donor for some specific program or purpose, rather than for the
general K-12 population of the local school system.” Id. (emphasis supplied).
Defendant argues the trial court erred by finding various sources of revenue
were not restricted, and concluding these funds are subject to a per-pupil distribution
to the public charter schools. The following sources of revenue are specifically at
issue: (1) tuition/fees; (2) indirect costs; (3) Medicaid reimbursement; (4) E-Rate; (5)
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Juvenile Crime Prevention Council; (6) Dropout Prevention Grant; (7) ROTC; (8)
WorkForce Investment Act; and (9) Gear Up Grant. We address each one in turn.
A. Tuition/Fees
Defendant argues the trial court erred by finding the funds labeled
“Tuition/Fees” were not restricted, and therefore subject to per-pupil distribution to
the charter schools. We disagree.
The trial court made the following finding of fact regarding the origin, purpose,
and use of the tuition/fees funds:
15. CCS included moneys designated as “Tuition” and
“Tuition/Fees” in its Special Revenue Fund during fiscal
year 2009-10. This money consisted of the payment of
tuition and fees CCS received from parents of students
residing outside of Cleveland County. CCS receives tuition
and fees to educate its students, including out-of-district
students, and these funds are used for CCS’s general
operating expenses and its general K-12 educational
program. The parents that pay tuition and fees to CCS
place no restriction on CCS’s use of those funds.
The trial court concluded as a matter of law that the money listed as “tuition”
and “tuition/fees” were not restricted based on this finding of fact.
CCS argues the money listed as “tuition/fees” was restricted because the money
was “paid to the Board by the Rutherford County Board of Education to provide a
teacher assistant for a single, specific special education student who resided in
Rutherford County but attended CCS.” CCS contends this money differs from the
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money listed as “tuition,” which was paid directly from parents. CCS asserts the trial
court failed to make findings of fact with respect to the origin, purpose, and use of the
“tuition/fees” funds.
David Lee (“Mr. Lee”), the chief financial officer for CCS, was asked at trial
whether he had stated in his deposition that the local source money, including money
for tuition/fees, was not restricted. He responded in the affirmative. Dr. Nellie Aspel
(“Dr. Aspel”), the director of exceptional children for CCS, testified CCS “sign[ed] an
annual contract and then we hire the teacher assistant. And then each month we
invoice Rutherford County for that month’s portion of that TA pay.” The Individuals
with Disabilities Act requires CCS to provide such services to students with
disabilities in accordance with their individualized education plans (“IEPs”). See 20
U.S.C. § 1400, et seq. Regardless of whether CCS receives reimbursement for this
particular student from Rutherford County, providing these services is part of CCS’s
general operating costs.
We have reviewed the evidence of record and the transcript, and fail to see a
significant distinction between the money paid to CCS by Rutherford County Schools,
and tuition paid by parents of CCS students residing in Cleveland County. Both
sources of tuition funds were used for CCS’s general operating expenses and its
general K-12 population.
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Competent evidence supports the trial court’s findings of fact regarding the
tuition/fees funds. These findings of fact support the trial court’s conclusion of law
that this money was not restricted based on origin, purpose, or use. See Thomas
Jefferson II, __ N.C. App. at __, 763 S.E.2d at 293. This argument is overruled.
B. Indirect Costs
Defendant argues the trial court erred by finding the funds labeled “indirect
costs” were not restricted and subject to the statutory per-pupil distribution to the
charter schools. We disagree.
The trial court made the following finding of fact with regard to indirect costs:
19. CCS included moneys designated as “Indirect Cost
Allocated” in its Special Revenue Fund during fiscal year
2009-10. This money consisted of reimbursements from
the federal government for a portion of CCS’s “general
overhead” expenses, which CCS received in connection
with its operation of federal programs. CCS refers to these
expenses as “indirect costs.” As CCS acknowledges,
indirect costs are not attributable to any particular
program within CCS, and include various general
operating expenses, such as accounting, payroll,
purchasing, facilities management, and utilities. The
federal government does not place any restriction on how
CCS uses the reimbursements it receives for indirect costs.
Testimony at trial tended to show the origin, purpose, and use of the funds for
indirect costs. Mr. Lee testified the federal government placed no restrictions on the
portion of the federal grants CCS received in relation to indirect costs and operating
expenses. Mr. Lee stated the money received from federal grant funds for indirect
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costs are spent in the normal operations of the school district, and are not spent for
any restricted programs or expenses.
Although indirect costs may be connected to federal grant money for a
particular program, this fact does not per se make these funds restricted. In Thomas
Jefferson II, this Court stated “the question is . . . whether the funds have a limited
use and specific purpose, such as to fund a specific program.” Thomas Jefferson II, __
N.C. App. at __, 763 S.E.2d at 293 (citation omitted).
Mr. Lee further testified the indirect cost money is “plain money that goes in
[the] current expense fund” and was “spent for current operating expenses.” Mr. Lee
explained no one required him to deposit the money into a separate fund, and he did
so on his own volition. Mr. Lee’s testimony supports the trial court’s findings of fact
that these funds “consisted of reimbursements,” because they were part of the federal
grant reimbursement money CCS received. Mr. Lee’s testimony also supports the
trial court’s finding of fact that the funds were not “designated by the donor for some
specific program or purpose[.]” Thomas Jefferson II, ___ N.C. App. at ___, 763 S.E.2d
at 293.
The trial court’s findings of fact regarding funds labeled “indirect costs” are
supported by competent evidence. Any evidence to the contrary does not change our
analysis regarding the classification of these funds. Under the applicable standard
of review, it is for the trial court to “pass[] upon the credibility of the witnesses and
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the weight to be given their testimony and the reasonable inferences to be drawn
therefrom.” Knutton v. Cofield, 273 N.C. 355, 359, 160 S.E.2d 29, 33 (1968). “The trial
court must . . . determine what pertinent facts are actually established by the
evidence before it, and it is not for an appellate court to determine de novo the weight
and credibility to be given to evidence disclosed by the record on appeal.” Coble v.
Coble, 300 N.C. 708, 712-13, 268 S.E.2d 185, 189 (1980) (citations omitted).
The trial court’s findings of fact support its conclusion that these funds were
not restricted based on their origin, purpose, and use. See Thomas Jefferson II, __
N.C. App. at __, 763 S.E.2d at 293. The trial court did not err by finding these funds
should have been included in the local current expense account and apportioned to
the charter schools on a per-pupil basis. This argument is overruled.
C. Medicaid Reimbursement
Defendant argues the trial court erred by concluding the Medicaid
reimbursement funds were not restricted. We disagree.
The trial court made the following finding of fact regarding the Medicaid
reimbursement funds:
27. CCS used moneys designated in its audit as
“Medicaid Reimbursement” for its general operating
expenses during its 2009-10 fiscal year. CCS received
these reimbursements for services CCS provided for
students with individual education plans (“IEP's”), i.e., in
accordance with federal law, which requires both CCS and
the Charter Schools to provide such services to students
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with learning disabilities. The evidence shows that CCS
used other moneys from its general funds to operate its IEP
programs as well, and that the federal government does not
restrict the use of the reimbursement funds once received
by CCS.
Testimony regarding the origin, purpose, and use of the Medicaid
reimbursement funds tended to show the following: Dr. Aspel stated she was
responsible for Medicaid billing for direct services. Dr. Aspel explained students with
special needs are given an IEP. An IEP is an outline of special education or
specialized instruction-related services students with disabilities will receive
throughout the school year. These students are part of the general K-12 population
enrolled throughout CCS and the charter schools.
Dr. Aspel testified CCS, as the local education agency (“LEA”), provides
services to any disabled students according to the student’s IEP. The federal
government subsequently reimburses the LEA for “what [they have] already
delivered.” Mr. Lee also admitted the $162,098.00 CCS received as “Medicaid
Reimbursement” was not restricted.
Dr. Aspel explained “[t]he Medicaid [reimbursements] go back into the
exceptional children’s budget to help offset the cost of the employment of the physical
therapist, occupational therapist, speech therapist, and all the specialized equipment
that they need to deliver the services that are on the IEP.” As discussed supra, federal
law requires both CCS and the charter schools to provide these services to students
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with disabilities regardless of whether Medicaid provides reimbursements. The
Medicaid reimbursements merely serve as an alternative source of funding to recoup
expenses CCS is mandated to incur and provide for certain students with IEPs. These
students are part of the general K-12 population.
We emphasize that under the applicable standard of review, “findings of fact
by the trial court in a non-jury case are conclusive on appeal if there is evidence to
support those findings.” Montague v. Montague, __ N.C. App. __, __, 767 S.E.2d 71,
74 (2014) (citation and quotation marks omitted). “[I]t is not for an appellate court
to determine de novo the weight and credibility to be given to evidence disclosed by
the record on appeal.” Coble, 300 N.C. at 712-13, 268 S.E.2d at 189.
The trial court’s findings of fact regarding Medicaid reimbursement funds
indicate the funds originated from the federal government as the donor. The trial
court also found these funds were used by CCS to provide services for students with
IEPs in the general K-12 population, in accordance with federal law. The transcript
and evidence clearly show the donor of the funds did not designate or restrict the
funds for a specific purpose. Competent evidence supports the trial court’s findings
of fact.
These findings of fact support the trial court’s conclusion of law that the
Medicaid reimbursement funds were not restricted based on their origin, purpose, or
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use. See Thomas Jefferson II, __ N.C. App. at __, 763 S.E.2d at 293. This argument
is overruled.
D. E-Rate
Defendant argues the trial court erred by concluding E-Rate funds were not
restricted. We disagree.
The trial court’s finding of fact regarding the E-Rate funds stated:
29. During 2009-10, CCS used moneys designated in its
audit as “E-Rate — Other Unrestricted” to reimburse other
moneys paid out of its current expense fund for internet
and telecommunications. CCS received the “E-Rate”
reimbursement funds for operating federal programs. The
evidence shows that CCS used moneys from its general
fund to pay for CCS’s telephones, internet, and
telecommunications. Providing internet, telephones, and
telecommunication services to school buildings is a utility
cost and part of the operating expenses of CCS’s general
educational program, and such money is not used for any
special program. The federal government does not restrict
the use of the reimbursement funds once received by CCS.
Testimony regarding the origin, purpose, and use of the E-Rate funds tended
to show the following: Dr. Cheryl Lutz (“Dr. Lutz”), the director of technology services
for CCS, testified E-Rate is a federal program, which reimburses the school system
for a percentage of what it pays for telecommunications and Internet access. The
amount of federal reimbursement is calculated based on the school system’s free and
reduced lunch numbers from across the general K-12 population.
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According to Dr. Lutz, CCS contracts with and pays a vendor for Internet and
telecommunications services. CCS is reimbursed by the federal government under
the E-Rate program for a portion of the money previously expended for Internet and
telecommunications services. CCS is required to apply and be approved for the E-
Rate program, before it purchases the services and must submit a reimbursement
form.
CCS funds these services from its local current expense fund prior to
reimbursement from the E-rate program. All CCS K-12 students, staff, faculty, and
bus drivers may utilize the Internet and telecommunications services. The transcript
and evidence clearly show the donor of these funds did not designate or restrict these
funds for some specific purpose.
The trial court’s findings of fact regarding the E-Rate funds indicate the federal
government was the origin of these funds. The trial court also found the E-rate funds
were used for Internet and telecommunications services for all CCS K-12 students,
staff, faculty, and bus drivers.
The trial court’s findings of fact are supported by competent evidence. These
findings of fact support the trial court’s conclusion that the E-Rate funds were not
restricted based on the origin, purpose, and use of the moneys. See Thomas Jefferson
II, __ N.C. App. at __, 763 S.E.2d at 293. This argument is overruled.
E. Juvenile Crime Prevention Council
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Defendant argues the trial court erred by concluding the Juvenile Crime
Prevention Council (“JCPC”) funds were not restricted. We disagree.
The trial court’s finding of fact regarding the JCPC funds states:
33. CCS included moneys designated as “JCPC” in its
Special Revenue Fund during fiscal year 2009-10 to hire
and pay for three school counselors. CCS received this
federal grant money to pay for the salaries and benefits of
personnel that trained, managed, and supported at-risk
students in grades K-12. The evidence revealed that in
2009-10, CCS chose to use the grant to offset salaries and
benefits for two school counselors, and to combine this
grant with another federal grant, Governor’s Crime
Commission, to offset the compensation of another school
counselor. These counselors served students in CCS’s
general K-12 population and were therefore part of its
general program. The provision of hiring and paying the
salaries and benefits of school counselors for students in
grades K-12 is a part of CCS’s current operating expenses.
Testimony regarding the origin, purpose, and use of the JCPC funds tended to
show the following: Rodney Borders (“Mr. Borders”) served as the director of
alternative programs for CCS during the 2009-2010 school year. Mr. Borders
explained CCS sets up an alternative program for students who are “at risk as far as
attendance, discipline problems, hardships in the lives, that need a smaller
environment.” Mr. Borders testified the alternative programs are funded by JCPC
moneys, which are obtained through a federal grant.
Mr. Borders explained the JCPC funds were combined with another grant from
the Governor’s Crime Commission to hire and pay the salaries and benefits of
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additional life skills counselors. Mr. Borders testified the JCPC funds were also used
to pay the salaries of life skills counselors currently employed by CCS. The life skills
counselors were available to all K-12 students in Cleveland County schools.
The trial court’s findings of fact regarding the JCPC funds indicates the origin
of the funds was from the federal government. The JCPC funds were used to pay the
salaries of life skills counselors. These life skills counselors were available to the
entire K-12 population of CCS.
The trial court’s findings of fact regarding the JCPC funds are supported by
competent evidence. These findings of fact support the trial court’s conclusion that
the JCPC funds were not restricted based on origin, purpose, and use. See Thomas
Jefferson II, __ N.C. App. at __, 763 S.E.2d at 293. This argument is overruled.
F. Dropout Prevention Grant
Defendant argues the trial court erred by concluding funds designated as the
Dropout Prevention Grant were not restricted. We disagree.
The trial court’s finding of fact regarding the Dropout Prevention Grant states:
35. CCS included moneys designated as “Dropout
Prevention Grant” in its Special Revenue Fund during
fiscal year 2009-10. CCS received this state funded grant
for purposes of providing a dropout prevention program as
part of its general K-12 educational programs and school
curriculum. The evidence revealed that CCS was given
discretion in deciding how to spend the funds received from
the Dropout Prevention Grant. For the 2009-10 fiscal year,
CCS decided to spend the funds to purchase computer
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software programs and general K-12 curriculum programs,
to pay for the salaries and benefits of three CCS employees,
specifically two teaching assistants and a truancy court
coordinator for CCS, and to provide staff development for
school counselors. Those employees were each employed
by CCS in its general K-12 program.
Testimony regarding the origin, purpose, and use of the Dropout Prevention
Grant tended to show: Tony Fogelman (“Mr. Fogelman”), the career and technical
education director for CCS, oversaw the Dropout Prevention Grant. He explained the
Dropout Prevention Grant was a “state-funded grant that provides resources to public
school systems, for them to make the decision as to how they want to best spend their
money to prevent dropouts, keep kids in school.”
Mr. Fogelman testified the Dropout Prevention Grant was targeted at all CCS
students. For the 2009-2010 school year, CSS used the Dropout Prevention Grant to
pay for two teaching assistants and a truancy court coordinator.
The trial court’s findings of fact regarding the Dropout Prevention Grant
indicate the origin of these funds was from North Carolina state government. The
transcript and evidence clearly show the Dropout Prevention Grant was intended to
benefit the entire K-12 student population. CCS exercised discretion over how to
spend the funds, in furtherance of its goal of preventing students from dropping out
of school.
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The trial court’s finding of fact regarding the Dropout Prevention Grant is
supported by competent evidence. The findings of fact support the trial court’s
conclusion that the funds designated for the Dropout Prevention Grant were not
restricted based on origin, purpose, or use. See Thomas Jefferson II, __ N.C. App. at
__, 763 S.E.2d at 293. This argument is overruled.
G. ROTC
Defendant argues the trial court erred by concluding the Reserved Officers’
Training Corps (“ROTC”) funds were not restricted. We disagree.
The trial court’s findings of fact regarding the ROTC funds state:
44. CCS included moneys designated as “ROTC” in its
Special Revenue Fund during fiscal year 2009-10 to
reimburse the salaries of its high school teachers teaching
reserve officers’ training corps courses (“ROTC”). CCS
offers ROTC courses to high school students as part of its
general high school program and regular high school
curriculum.
45. CCS received ROTC moneys from the federal
government in connection with its operation of federal
programs. During 2009-10, CCS used other moneys from
its general fund to pay for the salaries and benefits of its
ROTC teachers in the K-12 population, and the federal
government provided a reimbursement to CCS for such
expenditures. The federal government places no
restriction on the use of the reimbursement funds once
received by CCS.
Evidence regarding the origin, purpose, and use of the ROTC funds tended to
show the following: Mr. Lee testified the ROTC funds are reimbursed by the United
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States Armed Services for partial payment of ROTC instructors’ salaries. The
instructors’ salaries are initially paid out of the current expense fund. CCS is
subsequently partially reimbursed by the federal government. Mr. Lee testified the
ROTC funds were included in the current expense fund prior to the 2009-2010 school
year.
The trial court’s findings of fact indicate the origin of the ROTC funds was from
the federal government. These funds were used to reimburse ROTC instructors’
salaries paid from CCS’s current expense fund. The transcript and evidence clearly
show the federal government did not restrict the ROTC funds to a specific purpose.
Competent evidence supports the trial court’s finding of fact that “[t]he federal
government places no restriction on the use of the reimbursement funds once received
by CCS.” These findings of fact support the trial court’s conclusion that the ROTC
funds were not restricted based on origin, purpose, or use. See Thomas Jefferson II,
__ N.C. App. at __, 763 S.E.2d at 293. This argument is overruled.
H. WorkForce Investment Act
Defendant argues the trial court erred in concluding WorkForce Investment
Act (“WIA”) funds were not restricted. We disagree.
The trial court’s findings of fact regarding WIA funds state:
52. During 2009-10, CCS used moneys designated in its
audit as “WIA,” meaning WorkForce Investment Act, to
support, prepare, and train students to enter the workforce
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upon graduation from high school. The provision of
preparing and training high school students for the
workforce is part of CCS’s general educational program
and its regular curriculum.
53. CCS received the WIA funds as a federal grant
through Isothermal Community College, which distributes
moneys under the WorkForce Investment Act program to
school systems within the state. The evidence reveals that
CCS had discretion in deciding how to spend this grant for
training students to enter the workforce upon graduation.
In 2009-10, CCS chose to use this grant to offset the
salaries of two employees to work at CCS’s Job Link Center
and to pay the hourly wages of students that were placed
in the workforce through the program.
Testimony regarding the origin, purpose, and use of the WIA funds tended to
show the following: Mr. Lee testified WIA is a program administered by the
Isothermal Community College to transition CCS students into the workforce. Mr.
Fogelman testified he was responsible for overseeing WIA money.
Mr. Fogelman stated WIA is a federal program through which the federal
government distributes money to the states. He explained the states allocate this
money in the form of block grants to school systems through workforce development
boards.
Mr. Fogelman testified CCS submitted a grant application to the workforce
development board, in which it requested a certain amount of WIA funds. CCS
largely spent the money it received to pay the salaries of students who were working
for various employers through the program. WIA funds were also used to pay two
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employees who worked at the Job Link Center, which assists students in finding
employment.
Mr. Fogelman stated WIA funds were primarily used to serve the general K-
12 population of CCS, because the program is open to every age-eligible student. He
testified every student in the school, who qualified, could participate in the program.
The trial court’s findings of fact regarding WIA funds indicate the funds
originated from the federal government and were allocated throughout North
Carolina. WIA funds were used to pay two employees at the Job Link Center and to
pay the salaries of those students who participated in the program.
Competent evidence supports the trial court’s findings of facts regarding WIA
funds. These findings of fact support the trial court’s conclusion that WIA funds were
not restricted based on the origin, purpose, and use of these funds. See Thomas
Jefferson II, __ N.C. App. at __, 763 S.E.2d at 293. This argument is overruled.
I. Gear Up Grant
Defendant argues the trial court erred by concluding the Gear Up Grant funds
were not restricted. We disagree.
The trial court’s finding of fact regarding the Gear Up Grant funds states:
55. CCS included moneys designated as “Gear Up Grant”
in its Special Revenue Fund during fiscal year 2009-10.
CCS received this grant from the University of North
Carolina to support providing programs that would
increase the number of students attending a post-
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secondary educational institution. The provision of
providing a program to students in grades K-12 to increase
the number of students who attend college is part of CCS’s
general educational programs and its regular curriculum.
The evidence revealed that CCS was given great discretion
in deciding how to spend its general funds in order to
receive reimbursement funds from the Gear Up Grant. In
2009-10, CCS used moneys from the Gear Up Grant to
reimburse expenses for tutoring services CCS provided to
K-12 students, to pay for the salaries and benefits of CCS
personnel, and to provide after-school activities. The
University of North Carolina does not restrict the use of
the reimbursement funds once received by CCS.
Testimony regarding the use, origin, and source of the Gear Up Grant funds
tended to show the following: Juan Cherry (“Mr. Cherry”), a Graham Elementary
School counselor, served as the “Gear Up coordinator” during the 2009-2010 school
year. Mr. Cherry testified Gear Up is a federal grant program designed to increase
the number of students who enter and succeed in post-secondary education. CCS’s
Gear Up program was a part of the grant received by the state. The North Carolina
Gear Up grant program was administered by the University of North Carolina.
Defendant provided tutors, toured university campuses, hosted mentoring programs,
and other programs to their students through the Gear Up program. These programs
were aimed at achieving higher college attendance rates.
CCS initially spent money out of its current expense fund, and was reimbursed
through the Gear Up Grant program on a monthly basis for the money spent on the
program. CCS deposited the reimbursement money into its restricted fund. Mr.
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Cherry testified the Gear Up Grant money was spent on the general K-12 student
population, with the intention of increasing the number of CCS students who attend
college.
The trial court’s findings of fact regarding the Gear Up Grant funds indicate
the origin of these funds was from the state government to the University of North
Carolina. These funds were spent on various programs aimed at achieving higher
college attendance rates among CCS students. The programs were made available to
the general K-12 population of CCS.
Competent evidence supports the trial court’s finding of fact that “[t]he
University of North Carolina does not restrict the use of the reimbursement funds
once received by CCS.” These findings of fact support the trial court’s conclusion that
the Gear Up Grant funds were not restricted based on origin, purpose, or use. See
Thomas Jefferson II, __ N.C. App. at __, 763 S.E.2d at 293. This argument is
overruled.
V. Conclusion
The trial court properly concluded certain funds, discussed supra, were not
restricted. The trial court’s findings of fact regarding the origin, purpose, and use of
certain funds are supported by competent evidence contained in the record and
transcript.
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These findings of fact support the trial court’s conclusions of law that these
funds were not restricted, and must be included in the per-pupil share of funding
allotted to the charter schools. The order from which defendant CCS appealed is
affirmed.
AFFIRMED.
Judge McCULLOUGH concurs.
Judge BRYANT concurs in part and dissents in part by separate opinion.
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No. COA15-464 – Thomas Jefferson Classical Acad. Charter Sch. v. Cleveland Cnty.
Bd. of Educ.
BRYANT, Judge, concurring in part and dissenting in part.
I concur in the majority opinion affirming the trial court’s findings and
conclusions regarding the restricted or nonrestricted nature of certain funds;
however, I dissent from the majority’s holding that the trial court’s findings of fact
and conclusions of law support its determination that “indirect costs” and “E-rate”
funds are nonrestricted.
Indirect Costs
The majority opinion holds that the trial court did not err in finding and
concluding that “indirect costs,” which are a percentage of the total federal grant
funding that pays for the operating expenses incurred by the school system to
implement federally funded grant programs, are nonrestricted revenues. I
respectfully disagree with this holding. This Court has noted that “ ‘federal grants
restricted as to use’ . . . clearly have operating expenses . . . but that fact does not
make the funds ‘unrestricted.’ ” Thomas Jefferson et al. v. Cleveland Cnty. Bd. of
Educ., ___ N.C. App. ___, ___, 763 S.E.2d 288, 293 (2014) (“Thomas Jefferson II”)
(instructing the trial court on remand to determine whether funds are restricted).
The trial court specifically found that CCS received indirect costs “in connection with
its operation of federal programs.” Because the origin of revenue for indirect costs
was the federal grants themselves, and because the federal grant money was
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restricted to specific purposes, the funding for operating expenses incurred in
connection with those grants is likewise restricted.
Additionally, even though the trial court found that “[t]he federal government
[did] not place any restrictions on how CCS uses the reimbursements it received for
indirect costs,” it nonetheless acknowledges those funds are received in connection
with CCS’s operation of federal programs. See id. (“[W]e define ‘restricted’ funds as
those funds which have been designated by the donor for some specific program or
purpose . . . .”).
Finally, the majority opinion focuses quite a bit on Mr. Lee’s testimony. With
regard to his testimony, it is notable that the trial court found that indirect costs
“consisted of reimbursements from the federal government,” when Mr. Lee testified
exactly to the contrary. He testified that indirect costs “are not reimbursements at
all. They are in fact a part of the full [federal] grant.” It is unclear from the record
that there is evidence to support this finding of fact by the trial court. Further, the
findings by the trial court confirm that the origin and purpose of the indirect costs
were restricted. Here, the trial court found that “CCS received [the indirect costs] in
connection with its operation of federal programs,” whose funds were restricted. To
then say that the government placed no restriction on the use of those funds is not
supported by the record, and further, violates the mandate of the Court in Thomas
Jefferson II as to the definition of “restricted” funds. See id. For these reasons, I
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disagree with the majority opinion regarding indirect costs, and would hold that the
indirect costs are restricted funds.
E-Rate
The majority opinion also holds that the trial court did not err in finding and
concluding that E-Rate funding was made available by the federal government for
unrestricted use for the entire K–12 population and was not used for any special
program. Again, I disagree.
The majority opinion, as did the trial court, disregards the origin of the E-Rate
funds. The trial court’s findings are insufficient to support its conclusion that the E-
Rate funds are not restricted. The trial court, in defiance of the mandate of Thomas
Jefferson II, made conclusory findings as to use, but failed to make findings
concerning the funds’ origin and purpose. While it is true that all CCS students, staff,
and even bus drivers could use the Internet and telecommunications services
provided for by the E-Rate funds, the funds were essentially restricted because of the
nature of the strict application and approval process, which goes towards the funds’
“origin and purpose.” See id. at ___, 763 S.E.2d at 294 (instructing the trial court on
remand to determine whether funds are restricted by examining and making findings
of fact about the origins, purpose, and uses of the challenged funds). Evidence in the
record shows that the funds originated from the federal government for very specific
technological purposes and that the funds were used for those specific purposes.
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Specifically, E-Rate funds are made available to reimburse a school only after
certain pre-approved purchases are made. CCS was required to obtain approval for
the purchase of qualified technology services in advance and only then could the
school system purchase the service. Once CCS purchased the pre-approved
telecommunications and internet access, the school system was eligible to submit an
application for reimbursement at a set rate.
E-Rate funding was not made available by the federal government for
unrestricted use for the entire K–12 population. Rather, the E-Rate funds were
provided by the federal government for a specific purpose. Therefore, the trial court’s
finding of fact which includes the statement that “[t]he federal government does not
restrict the use of the reimbursement funds once received by CCS,” is not supported
by the evidence. To the contrary, the evidence established that E-rate funds would
never have been provided to defendant but for its compliance with the federal
government’s lengthy and detailed approval process to ensure that only qualified
technology services were purchased.
Despite who ultimately benefited from the use of the technology, the funds
were restricted in that pre-approval was required and the funds were used for their
specified purpose. Accordingly, I would reverse the trial court and find that the E-
rate funds were restricted by the donor—the federal government—and required to be
used for a specific purpose.
4