Court Holds Loss of Revenue Is Sufficient Cause to Deny Transfer of Property to Different School District

When State Board of Education Reviews Owners’ Petition for Transfer

Spitznagel v. State Bd. of Edn., Slip Opinion No. 2010-Ohio-2715.
Franklin App. No. 07AP-757, 2008-Ohio-5059 and 2008-Ohio-6080. Judgment of the court of appeals affirmed.
Lundberg Stratton, O'Connor, and Lanzinger, JJ., concur.
Pfeifer, J., concurs in judgment only.
O'Donnell and Cupp, JJ., dissent.
Brown, C.J., not participating.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2010/2010-Ohio-2715.pdf

(June 17, 2010) The Supreme Court of Ohio held today that evidence of a loss of revenue to the school district in which property is currently located is a legally sufficient basis for the State Board of Education to deny a petition by the owners of that property to transfer to a different school district. The Court’s 4-2 majority opinion, which affirmed a decision of the 10th District Court of Appeals, was authored by Justice Evelyn Lundberg Stratton.

In 2004, more than 75 percent of the property owners in the Cuyahoga County village of Walton Hills, including Brian Spitznagel, signed a petition asking the state board of education to approve the transfer of all property within the village from the Bedford City School District to the Cuyahoga Heights Local School District. A 2005 evidentiary hearing before a state board referee resulted in a recommendation that the transfer be denied. The referee based his recommendation primarily on findings that the proposed transfer would have a negative financial impact on the Bedford district, and that the resulting loss of tax revenue would require cutbacks in the district’s services to its remaining students.

In light of changes to state school funding laws enacted by the General Assembly in June 2005, the board sent the case back to the referee for a second evidentiary hearing to reconsider the economic impact of the proposed transfer. While finding that the Bedford district’s loss of tax revenue resulting from the transfer would be less severe under the revised school funding formula, the referee again recommended disapproval of the property transfer based on his finding that it would still have a significant negative financial impact on Bedford. The state board issued a decision denying the transfer in December 2006. The Walton Hills residents exercised their right to appeal that decision to the Franklin County Court of Common Pleas, which upheld the board’s ruling. They then appealed the trial court’s decision to the 10th District Court of Appeals.

On review, the 10th District reversed and remanded the case to the State Board of Education, 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 was not a legally sufficient basis to deny the transfer. In support of that ruling, the court of appeals cited its own 2007 decision in Bartchy v. State Bd. of Edn., a case that was then under review by the Supreme Court of Ohio. On the day the 10th District announced its decision in this case, the Supreme Court announced its own decision overturning Bartchy. In light of the Supreme Court’s ruling, the Bedford district and State Board of Education applied to the 10th District for reconsideration. The court of appeals reconsidered its prior decision and found that the Supreme Court’s opinion in Bartchy 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. Based on that finding, the court reversed its earlier decision and affirmed the trial court’s affirmation of the board’s decision.

Spitznagel and the other Walton Hills property owners sought and were granted Supreme Court review of the 10th District’s decision.

In today’s decision, Justice Stratton wrote: “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. ... (W)hile 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.’ 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 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 ... 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.”

With regard to the impact of today’s ruling on future attempts by owners to transfer their property to a different school district, Justice Stratton wrote: “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. ... 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. ... 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.”

Justice Stratton’s opinion was joined by Justices Maureen O’Connor and Judith Ann Lanzinger. Justice Paul E. Pfeifer concurred in judgment only.

Justice Terrence O’Donnell entered a dissent, joined by Justice Robert R. Cupp, in which he disputed the majority’s holding that a mere loss of revenue by the relinquishing school district, without a specific showing of harm to the educational operations of that district, is legally sufficient to support denial of a requested property transfer by the state board of education. “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,” wrote Justice O’Donnell. “Rather, the school board must consider the impact of the revenue loss on the relinquishing district.”

In this case, Justice O’Donnell observed that the state board of education referee initially estimated that the Bedford district would lose up to 10 percent of its tax base if the requested transfer was approved, and found that a revenue loss of that magnitude would have a detrimental impact on the district’s operations. He pointed out, however, that at the second evidentiary hearing factoring in legislative changes in the school funding formula, evidence showed that the proposed transfer would result in less than a two percent reduction in funding for the Bedford district. “The referee thus did not and could not make specific factual findings regarding whether the revised projections of financial loss would result in a detrimental impact on the fiscal or educational operation of the Bedford City School District,” wrote Justice O’Donnell. “Instead, the referee merely assumed that the same detrimental impact would result from a smaller 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. ... 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. 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.”

Chief Justice Eric Brown did not participate in the court’s deliberations or decision in this case.

Contacts
Stephen W. Funk, 330.376.2700, for Brian Spitznagel and other Walton Hills property owners.

D. Lewis Clark Jr., 614.365.2700, for the Bedford City School District.

Benjamin C. Mizer, 614.466.8980, for the State Board of Education.

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