liibulletin: Zuni Public School Dist. No. 89 v. = Department of Education

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Zuni Public School Dist. No. 89 v. Department of = Education=20 (05-1508)

Court appealed from: United States Court of Appeals, = Tenth=20 Circuit

Oral Argument Date: Jan. 10, 2007

SEPARATION OF POWERS, ADMINISTRATIVE LAW, = EDUCATION,=20 CHEVRON, FEDERAL IMPACT AID, STATUTORY INTERPRETATION

The Federal Impact=20 Aid Act provides federal funding to school districts located on = Indian=20 Reservations, military bases, or land with federal presence. Under the = Act, the=20 Secretary of Education can divert federal aid from the district back to = the=20 state if it determines that the state's school district operational = funding is=20 =93equalized.=94 After determining that New Mexico's funding for the = year 1999-2000=20 was equalized, the Secretary allowed the state to withhold federal = subsidies=20 from certain districts. The Zuni = Public=20 School District claims that the Secretary's formula for determining = whether=20 a school district receives federal subsidies conflicts with the plain = meaning of=20 the Act. In resolving this issue, the Supreme Court will clarify = the scope=20 of Chev= ron=20 U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 = (1984),=20 the seminal case governing agency interpretations of enabling = legislation.

[Question(s= )=20 presented] | [Issue(= s)]=20 | [Facts] |=20 [Di= scussion]=20 | [Anal= ysis]=20

Question(s) presented

Whether the Secretary has the authority to create and impose his = formula over=20 the one prescribed by Congress and through this process certify New = Mexico's=20 operational funding for fiscal year 1999=962000 as =93equalized,=94 = thereby diverting=20 the Impact = Aid=20 subsidies to the State and whether this is one of the rare cases where = this=20 Court should exercise its supervisory jurisdiction to correct a plain = error that=20 affects all State school districts that educate federally connected=20 children.

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Issues

Should the Supreme = Court follow=20 Chev= ron=20 and defer to the Secretary of Education's formula to determine = whether a=20 school district should continue to receive federal funding, although the = formula=20 apparently conflicts with the statutory method?

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Facts

The Zuni Public School = District=20 (=93Zuni=94) is located almost entirely within Zuni and Navajo = Reservation lands in=20 New Mexico. Brief for Petitioner at 2. The Federal Impact = Aid Act=20 provides subsidies to Zuni as well as other school districts located on = Indian=20 Reservations, military bases, or land with other types of federal = presence. 20 U.S.C. =A7 = 7709 et seq.=20 (2000). The Act permits a state to offset its operational funding to = school=20 districts by the amount of the federal aid if it can prove that the = districts=20 are =93equalized.=94 Brief for Petitioner at 2=963. The rationale is = that if all=20 districts are receiving the same amount of funds, = =93federally-impacted=94 districts=20 are no worse off due to their special status than other districts. = Pursuant to=20 statutory authorization, the Secretary of Education initially determined = equalization according to a standard contained in a 1976 regulation. 41 = Fed.Reg.=20 26320, 26327 (June 25, 1976); see Zuni = Public=20 School District No. 89 v. U.S. Dep't of Education, 393 F.3d = 1158, 1163=20 (10th Cir. 2004). Under this regulation, a state is equalized if there = is no=20 more than a 25 percent difference in per-pupil revenue between the = district with=20 the highest per-pupil revenue and the district with the lowest per-pupil = revenue. To ensure accuracy and fairness, the formula excludes outliers: = districts are ranked according to per-pupil expenditure, and then = districts with=20 pupil attendance at or above the 95th percentile and at or below the 5th = percentile, are excluded. Id.=20 at 1163.

The Secretary used this standard for almost twenty years, until = Congress=20 altered the statutory language in 1994. Brief for Petitioner at 3. The = new=20 language proposed a different method for excluding outliers: to = determine=20 whether funding was equalized, the new statute focused on per-pupil = expenditure,=20 not pupil attendance, instructing the Secretary to disregard districts = =93with=20 per-pupil expenditures or revenues above the 95th percentile or below = the 5th=20 percentile of such expenditures or revenues.=94 20 U.S.C. =A7 = 7709=20 (2000).

The Secretary promulgated a regulation in 1995 to enable, i.e., = implement the=20 statute. See 34 = C.F.R. Part=20 222 (2006). The regulation recited the 1976 enabling statutory = language, but=20 revived the pupil-attendance method of determining disparity in the = appendix.=20 Brief for Petitioner at 3. Using the pupil-attendance method for the = 1999=962000=20 fiscal year, the Secretary found that New Mexico was equalized and = allowed the=20 State to reduce operational funding by $50 million, or approximately 2.7 = percent=20 of the state's expenditures on public education. Id. at 4. If the = per-pupil expenditure formula had been applied, the State would = not have=20 been deemed equalized, and districts like Zuni would have continued to = receive=20 the $50 million subsidy. Id.

Zuni objected to the use of the pupil-attendance formula and sought = relief=20 from an administrative law judge in the Department of Education. Id. = When=20 the administrative law judge found that he lacked jurisdiction to = question the=20 Secretary's method and the Secretary refused to hear an appeal, Zuni=20 successfully appealed to the U.S.=20 Federal Court of Appeals for the Tenth District. Id. at 5. = The=20 three-judge panel upheld the Secretary's method. Zuni,=20 393 F.3d at 1161. On review, an en banc panel of the Court was evenly = divided=20 and therefore left the decision standing. Zuni = Public=20 School District No. 89 v. U.S. Dep't of Education, 437 F.3d 1158 = (10th=20 Cir. 2006). On September 26, 2006, the U.S. Supreme Court granted = certiorari.=20

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Discussion

Bernard Schwartz, a former investigator for the House Committee on=20 Legislative Oversight, once famously degraded administrative agencies as = the=20 =93headless fourth branch of government.=94 = =91Headless=20 Fourth Branch=92 Denounced by FCC Prober, Harvard Law Record, = Apr. 3,=20 1958. The administrative agency, as the fighting arm of the executive = branch,=20 plays a critical role in adding meat to the bare bones of statutory law. = However, agency exercise of rule-making power raises questions about = whether the=20 agency has overstepped its scope of authority. In Zuni Public = School=20 District No. 89 v. Dep't of Education, the Supreme Court must determine = whether=20 the Department of = Education has=20 acted beyond the limits of its granted power. The Court will also = determine what=20 the proper role of a reviewing court should be with respect to agency=20 interpretations.

The battle-lines for the confrontation between the three branches of=20 government were sharply drawn with the Supreme Court's ruling in Chev= ron=20 U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 = (1984).=20 In Chevron, the court expounded what is now the well-settled = formula for=20 determining the appropriate judicial stance in reviewing an agency's=20 interpretation of its enabling statute. As a threshold matter, a = court=20 must determine whether the statute clearly expresses Congress's intent.=20 Chevron, at 843. If Congress has directly spoken to the matter at = hand,=20 then the court's inquiry is at an end. If the statute is silent or = ambiguous as=20 to Congressional intent, then the agency interpretation will stand, = provided it=20 is a permissible construction of the statute. Id.<= /I>=20

Lower courts promptly adopted the Chevron two-step analysis, = also=20 known as =93Chevron deference,=94 in reviewing agency = constructions. See,=20 e.g., Nat'l Resources Defense Council v. Env'l Protection = Agency, 907=20 F.2d 1146,1160 (D.C. Cir. 1991) (holding that courts can take into = account=20 whether an agency interpretation leads to a sensible result in deciding=20 permissibility). In the last few years, however, the Supreme Court has = begun to=20 whittle down Chevron deference. See, e.g., U.S.= v. Mead=20 Corp., 533 U.S. 218 (2001) (denying Chevron deference to = agency=20 opinion letters not promulgated after a public notice and comment period = as part=20 of a formal rule-making process); Food= and Drug=20 Admin'n v. Brown & Williamson Tobacco Corp., 529 U.S. 120 = (2000)=20 (denying FDA interpretation of Food, Drug, and Cosmetic Act as granting=20 jurisdiction over tobacco products). This trend suggests that the Court = might be=20 reconsidering the scope of Chevron. See Brow= n &=20 Williamson, at 133 (denying deference because issue involved = important=20 public policy questions that Congress could not have intended FDA to = address=20 unilaterally).

A decision in this case will clarify the Supreme Court's position on=20 Chevron deference. The Secretary of Education argues that the = Court=20 should defer to the agency's interpretation of the Federal Impact Aid = Act, 20 U.S.C. =A7 = 7709,=20 because the Act is ambiguous. Brief=20 for the Federal Respondent in Opposition at 9. Even if the Act is=20 unambiguous, the Secretary continues, the Court should let the agency=20 construction stand because it results in a sensible outcome. An = exclusion method=20 that is sensitive to pupil attendance, the Secretary argues, is more = even-handed=20 among states than a method that does not take pupil attendance into = account.=20 Using the Secretary's method, the remaining field in every state will = include=20 ninety percent of all students whereas using the method preferred = by the=20 school district will create differences among states. For example, in = states=20 with few large districts, the remaining field might only be, say, = seventy=20 percent of students, and in states with many small districts, the = remaining=20 field could be ninety-five percent of students. Id.=20 at 11.

Zuni, however, urges the Court to refrain from according Chevron=20 deference to the Secretary's formula. Brief for Petitioners at 37. = According=20 to Zuni, Congress did not give the Secretary express or implied = authority to=20 override its formula. Id. at 39, 41. Furthermore, because the = Secretary's=20 formula conflicts with the explicitly stated statutory method, it cannot = be a=20 permissible rendition of the statute. Id. at 44.

An outcome for the Secretary will almost immediately impact all = districts=20 that currently receive Federal Impact Aid. School districts like Zuni = that serve=20 children on Native-American reservations would be subject to a formula = that=20 might rob them of substantial funding. Ebonne= Ruffins,=20 Medill=97On the Docket: Zuni Public School District No. 89 v. U.S. Dep't = of=20 Education (citing John Dossett, General Counsel for the National = Congress of=20 American Indians). Furthermore, this change in policy would affect not = only=20 school districts located on Indian Reservations but also others on any=20 federally-impacted land. A finding for the School District, however, = would=20 maintain the status quo.

More significantly, though, a finding for the Secretary could signal = that the=20 Court is re-affirming Chevron deference after Mead and = Brown=20 & Williamson. Conversely, an outcome for the School District = will=20 continue the erosion of Chevron. Given that the decision falls = squarely=20 within Chevron's structure=97as it involves an agency = interpreting a=20 legislative directive=97and given that the Secretary's interpretation = arguably=20 leads to a sensible result, denying deference would be a serious blow to = Chevron.

A decision either way has potential political implications. = Conservatives on=20 the Court have been the unlikely champions of Chevron deference. = See=20 U.S. v. Mead, 533 U.S. 218 (Scalia, J., dissenting). With Justices = Roberts=20 and Alito on the Court, there might be a movement to resuscitate=20 Chevron.

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Analysis

THE COMPETING STANDARDS

This case involves two competing standards for determining whether a = state=20 has equalized its school district funding. Equalization exists if there = is not=20 more than a 25 percent difference between the district that receives the = most=20 per student and the district that receives the least. Both approaches = consult an=20 initial list which ranks the school districts by the amount they receive = per=20 student. The districts at the top and the bottom of the list are then = removed,=20 leaving a final list where the districts receiving the most and least = are then=20 compared. Zuni,=20 393 F.3d at 1163, 1166. The dispute is over the formula used to remove = the=20 districts from the top and bottom of the initial ranking. The Secretary = of=20 Education's formula would disregard the districts at the top and bottom = of the=20 list until 5 percent of the student population of the state is removed = from both=20 ends. Id= at=20 1163. This would leave a list that includes roughly 90 percent of the = student=20 population. Zuni's standard would determine where the 95th and 5th = percentiles=20 of money per student fall on the ranked list of districts and disregard=20 districts above and below those numbers. Id= at=20 1166; Brief for Petitioner at 12. Zuni's standard uses a basic = statistical=20 formula which looks only at the list and not at the overall student = population=20 of the state. Zuni,=20 393 F.3d at 1170; Brief for Petitioner at 14=9622.

THE STATUTORY AND REGULATORY LANGUAGE

The debate between these standards focuses on 20 U.S.C. =A7 = 7709=20 (b)(2)(B)(i), which states that, in making the redacted list, one = should=20 =93disregard [school districts] with per-pupil expenditures or revenues = above the=20 95th percentile or below the 5th percentile of such expenditures or = revenues in=20 the State[.]=94

The Secretary of Education's regulation, 34 = C.F.R. pt.=20 222, subpt. K, app (2006), implements the statute. The appendix of = the=20 regulation dictates that the list should be redacted in a way that = =93[identifies]=20 those [school districts] in each ranking that fall at the 95th and 5th=20 percentiles of the total number of pupils in attendance in = the=20 schools of those [districts].=94 Id= =20 (emphasis added).

Zuni argues that the Secretary's regulation is invalid because the = language=20 of the Secretary's standard directly conflicts with the standard = enunciated in=20 the statute. Brief for Petitioner at 5=966.

Under Chev= ron,=20 a regulation created by an administrative agency should be given = deference if=20 the statute that authorized the regulation was ambiguous and the = interpretation=20 in the regulation is a permissible one. 467 U.S. at 843. But if = Congress's=20 intent was clear and conflicts with the regulation, the regulation is = invalid.=20 Id.<= /I>=20 Therefore, the first step in the analysis is to determine whether the = statute is=20 ambiguous. Id.<= /I>

AMBIGUITY IN THE STATUTE

Zuni argues that the procedure for eliminating districts is specific = and=20 requires determining the 95th and 5th percentiles based on the = expenditure=20 figures only. In particular, the placement of the phrase =93of such = expenditures=94=20 after =935th percentile=94 appears to eliminate ambiguity by specifying = how the=20 percentiles are to be determined. Zuni argues that if the plain meaning = of=20 percentiles is applied to the statute, then the method is obvious. Brief = for=20 Petitioner at 31. The Secretary's response is that the method is not so=20 abundantly clear, and that this is, in part, evidenced by the two = alternative=20 interpretations offered by Zuni in earlier proceedings. Zuni,=20 393 F.3d at 1167.

Zuni's strongest argument is that the Secretary's pupil attendance = method is=20 in no way contemplated or suggested by the statute, which would mean = that the=20 method is outside the range of reasonable interpretations. Brief for = Petitioner=20 at 18. The Secretary's interpretation appears to require that = =91percentile=92 in=20 the statute be broad enough to imply =91percentile based on pupil = attendance.=92=20 Zuni argues that this strays inexcusably beyond the presumption that = Congress=20 intends the ordinary meaning of its words. Id. at 31, 38. The = Secretary=20 could argue that his method is shorthand for creating a data array = representing=20 every student with his or her corresponding per-pupil expenditure, then = finding=20 the 95th and 5th percentiles on the list of all students in the state. = This=20 interpretation more closely tracts the statute while giving the same = results as=20 the pupil attendance method. However, the Secretary's claim of ambiguity = seems=20 to stem simply from the alternate interpretation, regardless of whether = the=20 statute is specific enough on its own. In fact, the Secretary's = arguments appear=20 to advocate a different method of statutory interpretation which would = go beyond=20 the text to determine ambiguity. Arguments for the Secretary's method = all=20 emphasize the history and purpose as integral to the ambiguity inquiry,=20 injecting intent into what is normally simply a textual exercise. Id. = at=20 25.

CONGRESSIONAL INTENT

Assuming that ambiguity exists, a clear congressional intent, if = shown, will=20 settle the interpretation in favor of what Congress intended. Both sides = argue=20 that intent is clear, but each argues that the intent supports their = side. In=20 the Secretary of Education's view, Congress clearly wished to adopt the = formula=20 that was used by the Secretary from 1976 onward because Congress never=20 explicitly stated that it wished to diverge from it when it crafted the = 1994=20 statute. Zuni,=20 393 F.3d at 1166=9667. In opposition, Zuni argues that the language of = the 1994=20 statute clearly indicates intent to modify the standard. Brief for = Petitioner at=20 8. Zuni observes that the 1974 statute specifically directed the = Secretary of=20 Education to create a test for determining whether a state had equalized = its=20 funding of school districts; the 1974 statute did not dictate the = standard or=20 the formula to be used. Id. In contrast, the 1994 statute removed = the=20 language authorizing the Secretary to create a standard and included a=20 =93Computation=94 section which specifies the 25 percent disparity = standard and the=20 basis for determining which school districts should be included on the = list that=20 determines the disparity. Id. at 11=9612. Most importantly, the = 1994=20 statute does not have any language indicating that the percentiles = should be=20 based on pupil attendance. Id.

Zuni appears to have the stronger position, as Chevron and its = progeny=20 point to the text of the relevant statute as the starting point. = See Yello= w=20 Transp., Inc. v. Michigan, 537 U.S. 36, 45 (2002). The = Secretary's=20 attorney at the original administrative hearing in this case conceded = that the=20 language of the statute and the regulation were in conflict, but the = argument=20 advanced by the attorney and later by the Tenth Circuit panel is that = the purpose=20 of Congress is clear despite any difference in language. Brief for = Petitioner at=20 25. This is an argument to either ignore the language or interpret the = language=20 with reference to the history of the Secretary's prior regulation. As = the=20 administrative judge noted, the analysis would end with the 1994 = statute's text=20 because there is no accompanying legislative history. Joint Appendix at = 29=9630.=20 In addition, ignoring the text would break one of the cardinal rules of=20 statutory interpretation which is that the Court must assume that = Congress chose=20 its words purposefully and as an indication of its intent. See Zuni,=20 393 F.3d at 1172.

APPLICATION OF CHEVRON DEFERENCE

In essence, the Secretary's interpretation does not appear to be a=20 permissible one because there is insufficient ambiguity, and the = interpretation=20 should therefore not be afforded Chevron deference. Brief for = Petitioner=20 at 44. Regardless, the regulation appears to be outside the scope of=20 Chevron deference due to statements by the Secretary that the = regulation=20 was not meant as a substantive change to the statute, along with the = fact that=20 the regulation did not go through the rule-making procedure = Chevron and=20 Mead require. Id. at 43. Under those facts, the Court will = have to=20 cede greater deference than it did in Chevron, if it wishes to = side with=20 the Secretary. The Court will likely have to alter or overrule an = earlier case=20 to find for the Secretary, unless it reaches the conclusion that the = statute was=20 ambiguous and the Secretary's method was permissible. Alternatively, the = Court=20 might be swayed by the Secretary's argument that his method achieves a = result=20 more in tune with the Congress's purpose, thereby continuing to erode = its=20 Chevron jurisprudence.

UNCERTAIN CERTIORARI, UNCERTAIN DIRECTION

The uncertainty of what issues the Court will focus on is in part = linked to=20 the procedural history of the case. The decision to hear this case seems = to be=20 based on the supervisory power enunciated in Supreme Court Rule = 10. If=20 that is the case, some members of the Court might have anticipated a = major error=20 in the application of federal law. The difficulty is in determining what = the=20 error might be, in part because the appeal is not from a reasoned = opinion, but=20 from a split en banc decision which simply affirms the Secretary = of=20 Education's refusal to hear an appeal. Zuni, 437 F.3d 1158 (10th = Cir.=20 2006). If the Justices agreed with the result, there is seemingly no = reason to=20 hear the case other than to simply provide guidance in light of the = split=20 decision. If the Court sees an error, the error could lie in anything = from=20 improper statutory interpretation to a need to alter the Chevron=20 deference rules.

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Conclusion

In this case, the Supreme = Court=20 will have to decide whether the Secretary of Education's formula for = qualifying=20 a school district for federal funding should stand despite allegedly = clash with=20 a statutorily-prescribed method. The Zuni=20 Public School District argues that the Secretary's process directly=20 conflicts with the statute and thus should not be accorded deference. = The=20 Secretary argues that the statue is ambiguous and that its own = interpretation is=20 reasonable. In addressing this issue, the Court will clarify the scope = of=20 =93Chevron deference.=94

Authors

Prepared by: Ferve Ozturk and = Dylan Letrich

Additional Sources

U.S.=20 Dep't of Education: About Impact Aid=20
LII = Law About . . . Administrative Law=20
Wikipedia = on =85 Statutory Interpretation

Acknowledgments

The authors would like to thank for Professor Jonathan = Siegel for his insight into this case.

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