New Jersey Association of School Administrators v. Cerf, A-4647-10T4; A-4997-10T1; Appellate Division; opinion by Grall, J.A.D.; decided and approved for publication October 25, 2012. Before Judges Fuentes, Grall and Ashrafi. On appeal from the Chancery Division, Morris County, C-7-11, and Passaic County, C-24-11. DDS No. 16-2-8069 [27 pp.]

Pursuant to N.J.S.A. 18A:7-8(j), each executive county superintendent must review and approve all employment contracts for superintendents in his district. N.J.A.C. 6A:23A-3.1(e)(2) set forth the standards to be used. In November 2010, the commissioner of the Department of Education proposed amendments to 6A:23A-3.1 and 6A:23A-1.2 to set salary caps based on enrollment. He advised the ECSs that contracts expiring after Feb. 7, 2011, should not be renegotiated or extended before the effective date of the new regulations.

Each of plaintiff-superintendents’ contracts in these appeals was to expire on June 30, 2011. Each plaintiff was either in the process of negotiating, or had already negotiated, a new contract, none of which had been approved by the ECS. In each, the base salary exceeded the per-pupil cap for the school district.

These appeals challenge the commissioner’s adoption and implementation of the amended regulations capping superintendents’ salaries.

Held: The salary cap does not exceed the authority delegated to the commissioner in N.J.S.A. 18A:7-1 to -16, or violate the Separation of Powers Clause in the New Jersey Constitution. Nor does it conflict with the authority of a local school board to fix its superintendent’s salary. Application of the salary cap to superintendents whose contracts expired on June 30, 2011, is not precluded by 18A:17-20.1 or -20.2, and the commissioner did not violate the rulemaking provisions of the Administrative Procedure Act in directing the ECSs to suspend review of renegotiated contracts pending adoption of the salary caps.

The panel first considers the relevant enabling statutes and regulations, noting that the Legislature enacted a series of laws intended to reduce property taxes through, inter alia, oversight and limitation of spending by school districts and it assigned responsibility for that oversight to the commissioner and the ECSs. It then addresses plaintiffs’ objections to the amended regulations.

First, plaintiffs claim that imposing a salary cap exceeds the commissioner’s authority under N.J.S.A. 18A:7-1 to -16. The panel says the cap based on enrollment is tailored to address a factor the Legislature expressly designated as critical in controlling district spending — per pupil administrative expenditures. Thus, it is consistent with and furthers the Legislature’s goal of controlling excessive spending. The commissioner determined that the initial regulations were not furthering that objective. Accordingly, he made an adjustment — a salary cap — that conformed with the Legislature’s direction to focus on per-pupil administrative costs. There is nothing arbitrary, capricious or unreasonable in his effort to rein in spending with the cap.

Second, plaintiffs argue the cap is in direct conflict with 18A:17-19, which provides that the board of education employing the superintendent shall set his salary. The panel says that the cap limits a board’s authority to fix a salary higher than the cap, but it does not fix the salary. Moreover, 18A:7-8(j), not the cap, limited a board’s authority to pay as much as it wishes by mandating review and approval of all contracts for superintendents for compliance with standards set by the commissioner. The panel says 18A:17-19 can be read together with 18A:7-8(j) and N.J.A.C. 6A:23A-3.1(e)2 to provide that a district’s board may fix a superintendent’s salary within the applicable cap. The effect is wholly consistent with the Legislature’s primary goal in providing oversight of school district spending and not inconsistent with the board’s statutory authority to fix salary.

Third, plaintiffs contend that the salary cap cannot be applied to them because the terms of their prior contracts “were automatically renewed by operation of law.” The panel says this position is inconsistent with their conduct as all three plaintiffs and their respective boards behaved as if the superintendent’s salary was open to negotiation, not a matter dictated by operation of law. Further, the argument is not supported by the statutes on which plaintiffs rely. N.J.S.A. 18A:17-20.1 provides that a superintendent “shall be deemed reappointed for another contracted term of the same duration as the previous contract,” unless given timely notice of the intent not to reappoint.N.J.S.A. 18A:17-20.2 provides that “[d]uring the term of an employment contract … a superintendent shall not be … reduced in compensation,” except for good cause. The only contractual term 18A:17-20.1 addresses is duration. It is silent on conditions of employment on reappointment, such as salary. Moreover, 18A:17-20.2 limits the protection for salary to “the term of any employment contract.” It does bar reduction in salary under a subsequent contract.

Fourth, plaintiffs argue that the commissioner’s adoption of the salary cap violates the state constitution’s Separation of Powers Clause by usurping power committed to the Legislature. The panel says this argument simply recasts the question whether the commissioner exceeded the authority delegated by the Legislature. The Separation of Powers Clause addresses something quite different — instances where executive branch action is so incompatible with existing laws as to impair the essential integrity of the constitutional powers of the Legislature. Here, the commissioner has done what the Legislature directed: promulgate a regulation setting standards for contract review that will reduce excessive administrative expenditures.

Fifth, plaintiffs claim that the commissioner’s directive requiring each ECS to postpone review and approval of contracts required formal rulemaking in conformity with the APA. The panel says the commissioner’s directive is properly viewed as falling within an exception to the APA’s definition of rulemaking — it is an intra-agency or interagency statement exempt from the rulemaking requirements.

Finally, plaintiffs urge invalidation of the amendment to N.J.A.C. 6A:23A-3.1(e)(10)(iii), which provides that a superintendent’s merit bonus shall be considered extra compensation for purposes of 17:3-4.1 and shall not be cumulative. They claim that this regulation intrudes on the authority of the Department of Treasury, Teachers’ Pension Annuity Fund, to identify compensation that is creditable toward pension. However, the panel says the amendment simply repeats what 17:3-4.1 provides.

For appellants in A-4647-10 — Maria M. Lepore. For appellant in A-4997-10 — Andrew Babiak. For respondents — Michael C. Walters, Deputy Attorney General (Jeffrey S. Chiesa, Attorney General; Melissa H. Raksa, Assistant Attorney General, of counsel).