In re Petition for Formation of Indep. Sch. Dist. Consisting of the Borough of Highspire

228 A.3d 584

IN RE: PETITION FOR FORMATION OF INDEPENDENT SCHOOL DISTRICT CONSISTING OF the BOROUGH OF HIGHSPIRE, Dauphin County, Pennsylvania

Appeal of: Highspire Education Coalition

No. 242 C.D. 2019

Commonwealth Court of Pennsylvania.

Argued: December 12, 2019

Filed: March 2, 2020

Adam C. Zei, Lemoyne, for Appellant.

Jeffrey D. Litts, Lancaster, for Appellee Middletown Area School District.

Vincent L. Champion, Carlisle, for Appellee Steelton-Highspire School District.

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE ANNE E. COVEY, Judge

OPINION BY PRESIDENT JUDGE LEAVITT

The Highspire Education Coalition (Coalition) appeals an order of the Court of Common Pleas of Dauphin County (trial court) denying its "Petition for Formation of an Independent School District." The trial court did so because the Secretary of Education, Pedro A. Rivera (Secretary), determined that the petition to transfer students residing in the Borough of Highspire out of the Steelton-Highspire School District and into the adjacent Middletown Area School District lacked merit from an educational standpoint. The Secretary so ruled despite finding that the transferring students would receive a better education in the Middletown School District. The Coalition contends that the Secretary erred in basing his decision on financial concerns, not educational merit. For the following reasons, we agree with the Coalition and reverse and remand the matter to the trial court.

Background

On August 15, 2014, the Coalition¹ petitioned the trial court to establish an independent school district for the purpose of transferring Highspire students presently enrolled in the Steelton-Highspire School District to the Middletown Area School District. Steelton-Highspire has approximately 1,200 students from Steelton and 276 students from Highspire. Middletown has approximately 2,300 students.

The Coalition's petition offered several reasons for the transfer. Steelton-Highspire students do not show expected educational progress, as measured annually by the Department of Education, and they underperform on the Pennsylvania System of School Assessment (PSSA) tests. By contrast, Middletown students perform above the state's proficiency level; outperform Pennsylvania students statewide; and enjoy more extracurricular programs. The Coalition's petition also pointed out that the Auditor General found that Steelton-Highspire has a financial deficit; is non-compliant with teacher certification requirements; and does not properly qualify its school bus drivers.

Steelton-Highspire and Middletown both opposed the Coalition's transfer petition. Steelton-Highspire denied the allegations, called them conclusions of law to which no response was required, and stated that the Auditor General's report spoke for itself. Middletown's answer stated that its proficiency in PSSA testing in reading and math fell slightly below the state average, as did its School Assessment Test scores. It furloughed teachers in 2010 because of budget constraints. Both school districts requested the trial court to deny the petition. Neither school district's answer contained new matter.

The parties stipulated that the Coalition satisfied the initial procedural requirements for a valid transfer petition. Specifically, the petition was signed by a majority of the taxable residents of Highspire; described the boundaries of the territory to be included in the transfer; stated the reason for the transfer; and identified the school district to which the transfer was proposed. In light of this record, the trial court then transferred the matter to the Secretary to consider the merits of the petition from an educational standpoint.

Pre-Adjudication

The Secretary appointed Deputy Secretary Matthew Stem to render a pre-adjudication determination on the educational merits of the Coalition's petition. The Secretary sent "Educational Impact Projection Questionnaires" to both districts and engaged PFM Consulting, LLC (PFM), to do a financial and a classroom audit of both districts. The Department's legal counsel advised the Coalition that it could not participate in PFM's review but that it would be given 30 days to comment on PFM's study. Reproduced Record at 1021a (R.R. ––––).

On July 18, 2017, PFM issued its report. The report compiled data on both districts with respect to student services, staffing, student attendance and graduation rates. It summarized the academic programs at the elementary, middle school and high school levels, as well as the school achievement and student growth data. The PFM Report focused on finances and made projections of tax revenue and state subsidies should the transfer occur. It then summarized "the review team's conclusions as to the educational impact of the proposed transfer given the instructional and financial changes" that would result in each district. PFM Report at 41; R.R. 1070a. The "review team" concluded that the transfer would negatively affect the students remaining in Steelton-Highspire because of its impact upon the district's "financial flexibility." Id. at 48; R.R. 1077a.

On February 2, 2018, Deputy Secretary Stem issued a pre-adjudication determination that the proposed transfer of Highspire students lacked educational merit. His decision referred to documents submitted by all three parties and the PFM Report. He acknowledged that Middletown produces better academic results than does Steelton-Highspire, which favored the transfer. However, the Deputy Secretary found that Steelton-Highspire's loss of revenue from the transfer would have a negative impact on the students remaining in Steelton-Highspire, which is on the Secretary's financial watch list.

Adjudication

The Coalition requested an administrative hearing on the Deputy Secretary's decision, and the Secretary granted the request.² He appointed a hearing officer, who convened a hearing on June 11, 2018. The parties agreed to proceed with "a joint stipulation with documents referred to in the stipulation copied on a [compact disc]," which was entered "into the record as a joint exhibit." Notes of Testimony, 6/11/2018, at 6 (N.T.––––); R.R. 1344a. The stipulation accepted some of Deputy Secretary Stem's 257 findings of fact. However, it also stated that the "parties are not stipulating to the accuracy or the relevance of the facts or documents subject to these stipulations and the parties explicitly reserve the right to object to facts or documents on these bases." Stipulation ¶9 at 1; R.R. 59a. On July 25, 2018, the parties submitted a second stipulation of facts with exhibits, which added two documents to the evidentiary record.

Thereafter, the parties submitted briefs with proposed findings of fact and conclusions of law. The Coalition argued that the PFM Report constituted inadmissible hearsay because it was prepared by anonymous individuals of unknown qualifications who did not sign or date the report. The Coalition argued that the PFM Report was tainted by this lack of transparency and, consequently, was unreliable and speculative. The Coalition further argued that the report's financial analysis was beyond the scope of the Secretary's "educational merit" review. The Coalition argued that the educational information in the PFM Report demonstrated that Middletown achieves an educational outcome for students that is superior to that achieved by Steelton-Highspire.

Steelton-Highspire argued that an assessment of the educational merit of the proposed transfer should not be limited to a consideration of Highspire students but should also consider the students remaining in its district. It argued that its educational programs are comparable to Middletown's notwithstanding its financial challenges. The reduction in student population would reduce Steelton-Highspire's educational responsibility, but the concomitant loss of revenue would adversely affect its finances. It predicted teacher layoffs and an increase in class size.

Middletown argued that the proposed transfer would strain its facilities, staff and programs. Specifically, the transfer could crowd its elementary school buildings; could end its Head Start program for lack of space; could increase special education, technical and transportation costs; and could curtail supplemental education initiatives at the secondary level. The increase in tax revenue and state subsidies would not be sufficient to take on 276 students from Highspire. Middletown also predicted an increase in class size.

On January 16, 2019, the Secretary issued an adjudication that affirmed Deputy Secretary Stem. It addressed each of the Coalition's contentions.

The Secretary first addressed the Coalition's contention that a study of finances falls outside the scope of "educational merit." The Secretary reasoned that the Public School Code of 1949 (School Code)³ states a preference for financially stable school districts. Steelton-Highspire is on the Department's "Financial Watch Status" list, and the proposed new district would strip Steelton-Highspire of 30% of its real estate tax revenue and 40% of its earned income tax revenue, for a total of $1.6 million per year. The school district's state education subsidy might be reduced by $2 million per year. The Secretary opined that the School Code requires the Department to assist school districts confronting financial hardship.

Second, the Secretary addressed the Coalition's objection to the admissibility and quality of the PFM Report. The Secretary found that the Coalition agreed to enter the PFM Report into the record, subject to its hearsay objection. Because the Coalition chose not to examine a witness from PFM who was made available for questioning, the Secretary rejected the Coalition's objections to the PFM Report.

Finally, the Secretary addressed the educational merits of the Coalition's proposed transfer. He explained that the factors historically found relevant to educational merit include...