Borough of Seaside Park v. Commissioner of the New Jersey Department of Education, A-0743-10T4; Appellate Division; opinion by Axelrad, P.J.A.D.; decided and approved for publication August 12, 2013. Before Judges Axelrad, Sapp-Peterson and Nugent. On appeal from the Chancery Division, Ocean County, C-162-07. [Sat below: Judge Buczynski.] DDS No. 16-2-0972 [79 pp.]

In 1954, Seaside Heights, Seaside Park, Island Heights, Ocean Gate, Berkeley Township and Lacey Township formed the Central Regional School District to educate their junior and senior high school students. Costs were apportioned on a per pupil enrollment basis. In 1975, legislation altered the funding mechanism to an equalized property valuation basis.

In 1998, Seaside Park passed a resolution petitioning Central Regional to alter the formula for municipal contributions, which apparently was ignored. They waited a decade to seek judicial review or assistance to compel compliance.

In 2005, Seaside Park and its board of education began the process to withdraw from or dissolve Central Regional, citing an unfair financial burden. In August 2006, the State Board of Education granted Seaside Park's petition to conduct a referendum on dissolution. The referendum was defeated by a majority of the overall votes in the district.

In 2007, plaintiffs Seaside Park, its board of education and 13 taxpaying residents, filed suit. Plaintiffs and defendant-respondents/cross-appellants, Seaside Heights Board of Education, and Island Heights and its board of education appeal from the dismissal of their claims seeking dissolution of Central Regional, permission to withdraw from the district, or alteration of the district's funding formula.

Held: The Chancery Division decision is affirmed. The Legislature has established a comprehensive scheme for plaintiffs to seek dissolution that includes a voter referendum. The referendum held on dissolution failed, and plaintiffs did not pursue the statutory processes for withdrawal and modification of the tax allocation method for Central Regional. They have not asserted a cognizable constitutional or other claim that would provide any legal or equitable basis for judicial intervention and relief. Even if they had, and are subject to a substantially inequitable tax allocation, they would not be entitled to the extraordinary equitable relief afforded in Petition for Authorization to Conduct a Referendum on Withdrawal of North Haledon School District from the Passaic County Manchester Regional High School District, 181 N.J. 161 (2004).

The panel recites the history of regional school districts and their funding and the statutory mechanisms for dissolving or withdrawing from a regional school district. It notes that in 1975, N.J.S.A. 18A:13-23 changed the basis for funding from a per-pupil basis to an equalized value of real estate in each district. In 1993, an amendment allowed regional districts to choose equalized valuation, per-pupil enrollment or a combination of the two.

The panel then says plaintiffs did not exhaust their administrative remedies as to withdrawal and failed to demonstrate why the doctrine should not be invoked in this case. The Legislature established a process for constituent municipalities to seek to withdraw from a regional school district that provides that only the board can grant permission to conduct a referendum on dissolution or withdrawal. Plaintiff's petition asked the board to authorize a referendum on dissolution or, if that request were not considered, to authorize a referendum on withdrawal. They received the relief they requested. Rather than pursuing their alternate relief of withdrawal through the legislatively mandated administrative channels, plaintiffs filed suit.

The panel rejects plaintiffs' argument of futility. It says that while Seaside Park has an uphill battle, the remedy is not illusory, as evidenced by Lacey Township's withdrawal in 1977.

The panel says the record supports the court's finding that Seaside Park slept on its rights after it passed the 1998 resolution petitioning Central Regional to alter the formula for municipal contributions. The judge correctly concluded that plaintiffs were not entitled to judicial intervention and advised Seaside Park to pursue its statutory remedy of forwarding a new resolution to Central Regional requesting a referendum authorizing this relief, which it did. The referendum failed but the process was followed and the voters spoke.

The panel next says that even if plaintiffs had exhausted their administrative remedies and are subject to a substantially inequitable allocation, they would not be entitled to the extraordinary equitable relief afforded in North Haledon. In that case, the voters approved North Haledon's withdrawal from the regional district but the commissioner disapproved it because of the impact its withdrawal would have on the racial composition of the district. The Supreme Court affirmed that decision but, recognizing the disproportional tax burden shouldered by North Haledon, remanded to the commissioner for development of an equitable cost apportionment scheme.

Here, however, neither the commissioner nor the court has mandated that Seaside Park remain a member of Central Regional in contravention of the desire of the voters. The voters rejected the referendum on dissolution, never voted on withdrawal, and rejected a modification of the funding formula in 2008. Because this case does not implicate the impact of withdrawal or dissolution on racial diversity or other constitutional issues after a successful referendum, there is no basis to invoke the extraordinary remedy of judicial intervention and mandate that the commissioner implement an equitable cost allocation.

Plaintiffs' recourse is to lobby the Legislature to change the statutory mechanisms for dissolving or withdrawing from a regional district, or revising its funding formula.

As to plaintiffs' claim that the statutory remedies are illusory, the panel says the trial court conclusion is unassailable that the mere fact that any of the constituent districts may vote against changing the apportionment method does not, as a matter of law, make the remedy illusory.

The panel rejects plaintiffs' claim that Central Regional's current system of cost apportionment does not provide an efficient system of education for the students in Seaside Park because its taxpayers are paying above the average state cost of education per pupil. After noting that municipalities and their boards of education generally lack standing to assert the rights of third-party taxpayers, the panel says plaintiffs' arguments misinterpret the constitution and relevant case law. In interpreting and implementing the "thorough and efficient" clause, courts and the Legislature have focused primarily on the education of students, not equality among taxpayers.

As to plaintiffs' attack on the constitutionality of the equalized valuation method for funding regional school districts because it imposes a greater financial burden on municipalities with high property values and few students, the panel says distribution of education costs is a legislative policy decision. Plaintiffs' arguments should be directed to that body.

The panel also rejects plaintiffs' claims that the 1975 and 1993 legislation regarding funding for regional districts violated the contracts clauses of the federal and state constitutions by substantially impairing the contract to form Central Regional under which funding was on a per-pupil basis. Regional districts are created solely through referendum and a referendum is not a contract.

Even if there were a contract to form Central Regional, the legislation did not violate the contract clauses because it served a significant and legitimate public purpose, it was based on reasonable conditions, and it was related to appropriate governmental objectives. The Legislature's wisdom in allocating tax burdens will not be second-guessed.

Nor do the 1975 and 1993 laws constitute a taking of plaintiffs' contractual right to per-pupil funding, and thus a taking of significantly more of their tax monies without just compensation. The judge correctly found plaintiffs had no property interest in inter-governmental legislation by referendum, and the method of taxation for funding Central Regional was a valid exercise of legislative power and did not constitute a taking.

Finally, the panel rejects plaintiffs' claims that they showed good cause for the court to exercise its equitable powers to address the inequities of the current situation. The panel says there is no "wrong" to remedy through law or equity. This suit is an attempt to achieve through the courts a result that plaintiffs could not achieve pursuant to relevant legislation or through the Department of Education. There is no basis, equitable or constitutional, to invalidate the challenged statutes, reverse the decisions of either the commissioner or the board, or otherwise interfere with the legislative and regulatory schemes.

For appellants/cross-respondents — Vito A. Gagliardi Jr. (Porzio, Bromberg & Newman; Gagliardi, Kerri A. Wright and Phillip C. Bauknight on the briefs). For respondents: Commissioner — Melissa T. Dutton, Deputy Attorney General (Jeffrey S. Chiesa, Attorney General; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Dutton and Susan M. Huntley, Deputy Attorney General, on the brief); Central Regional School District Board of Education — Arthur Stein (Stein & Supsie; Stein and Angela M. Koutsouris on the brief); Township of Berkeley — Francis J. Campbell (Campbell & Pruchnik); Berkeley Township Board of Education — Dina M. Vicari (R.C. Shea & Associates); Borough of Ocean Gate and Ocean Gate Board of Education — Robert W. Allen (Gluck & Allen; Gena M. Koutsouris on the brief). For respondent/cross-appellants: Borough of Island Heights — Kenneth M. Kukfa (Christian E. Schlegelon the brief); Island Heights Board of Education — Ben A. Montenegro (Montenegro, Thompson, Montenegro & Genz); Seaside Heights Board of Education — David M. Casadonte.