NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1318-07T11318-07T1

IN RE: PETITION FOR AUTHORIZATION

TO CONDUCT A REFERENDUM ON THE

WITHDRAWAL OF THE BOROUGH OF

ORADELL FROM THE RIVER DELL

REGIONAL SCHOOL DISTRICT

Argued January 27, 2009 - Decided

Before Judges Winkelstein, Fuentes and Chambers.

On appeal from a final decision of the Commissioner of Education, Board of Review.

Vito A. Gagliardi, Jr., argued the cause for appellant, Borough of Oradell (Porzio, Bromberg & Newman, attorneys; Mr. Gagliardi, of counsel and on the brief; Kerri A. Wright, on the brief).

Stephen R. Fogarty argued the cause for respondent, River Edge Board of Education (Fogarty & Hara, attorneys; Mr. Fogarty, of counsel and on the brief; Thomas Scapoli, on the brief).

Rodney T. Hara argued the cause for respondent, River Dell Regional School District Board of Education (Fogarty & Hara, attorneys; Mr. Hara, of counsel and on the brief; Brent R. Pohlman, on the brief).

William R. Lindsley, attorney for respondent, Borough of River Edge, joins in the brief filed by respondent, River Edge Board of Education.

Sookie Bae, Deputy Attorney General, argued the cause for respondent, Board of Review (Anne Milgram, Attorney General, attorney; Melissa H. Raksa, Deputy Attorney General, of counsel; Ms. Bae, on the brief).

The opinion of the court was delivered by

WINKELSTEIN, P.J.A.D.

On May 10, 2007, the Borough of Oradell filed a petition for authorization to conduct a referendum to withdraw from the River Dell Regional School District (the District) in Bergen County. The District consists of two municipalities, Oradell and the Borough of River Edge. Petitioner's withdrawal would dissolve the District.

Petitioner premised its withdrawal on the creation of mutual "send-receive" agreements. River Edge, the River Edge Board of Education and the District each objected to petitioner's request. A Board of Review (the Board) voted to deny the petition on October 16, 2007. In January 2008, the Board amplified its decision. The Board's determination was primarily informed by its finding that dissolution of the District would produce an excessive debt burden for the constituent school districts. Petitioner appeals, and we affirm substantially for the reasons expressed by the Board. In doing so, we conclude that a school district's excessive debt burden may be determined by factors in addition to a district's borrowing margin.

The District was formed in 1956. Each municipality has a board of education that provides for the education of children in kindergarten through sixth grade (K-6). River Dell Middle School (the middle school), located in River Edge, educates children in the District in grades seven and eight; and River Dell High School (the high school), located in Oradell, educates students in the District in grades nine through twelve. In 2003, voters in the two municipalities passed a referendum to renovate the high school at a cost of $22 million, to be repaid over twenty years. In 2005, River Edge approved an $18.8 million renovation to its two elementary schools.

Petitioner has fewer students in the District than does River Edge. Nevertheless, because costs for the District are apportioned between the municipalities according to the equalized value of real estate in each municipality, and because petitioner has a higher equalized value of real estate than River Edge, petitioner pays a higher percentage of the District's expenses. Apportioning tax levies on a per-pupil basis, for the 2007-2008 school year River Edge paid roughly $12,200 per student while petitioner paid $17,800 per student.

At petitioner's behest, in December 2006, Statistical Forecasting, LLC (Statistical) and James L. Kirtland, CPA, prepared a feasibility study (the feasibility study) to determine the educational and financial ramifications of petitioner's withdrawal from the District. The feasibility study concluded that dissolution was feasible and that petitioner was paying a disproportionate share of the District's costs. For example, the feasibility study found that for fiscal year 2005, the equalized value of real estate for petitioner was $1.7 billion and for River Edge it was $1.6 billion. As such, petitioner was paying 52% of the costs of the District while River Edge was paying only 48%.

The feasibility study called for elimination of the District with the two municipalities' boards of education assuming responsibility for education of all students. This could only be accomplished if the municipalities entered into mutual "send-receive" agreements. Under such agreements, the seventh and eighth graders from Oradell would be sent to the middle school in River Edge, and the high school students from River Edge would be educated in Oradell, thus providing a K-12 education for the children of both municipalities. According to this plan, the children and teachers in both municipalities would remain in the same schools. River Edge would become a K-8 district, while petitioner would become a K-6/9-12 district. The feasibility study concluded that the dissolution of the District would result in a savings to petitioner of more than $2 million per year.

In April 2007, Dr. Aaron Graham, the Bergen County Superintendent of Schools (the Superintendent), issued a report listing four advantages and eight disadvantages of petitioner's withdrawing from the District. The Superintendent pointed out that N.J.S.A. 18A:13-23.3 provides a statutory mechanism for changing the apportionment of costs, which could provide a solution to petitioner's problem. He also expressed that the equalized value of real estate in the two municipalities was nearly equivalent and that petitioner's cost per pupil was higher because the District had fewer students residing in Oradell than in River Edge. He concluded that withdrawal would be disruptive to students and costly to taxpayers.

In response to a Board request for additional information regarding the debt burden that would result from dissolution, as well as the ability of the two school districts to maintain efficient school systems, River Edge submitted two additional reports. The first report, prepared by Vincent D. Yaniro of VDY Consulting, LLC, discussed the financial aspects of petitioner's withdrawal from the District. Although Yaniro's figures were virtually the same as those contained in petitioner's feasibility study, his conclusions were different. He found that dissolution would present an excessive debt burden to River Edge because petitioner would inherit a completely renovated high school, whereas River Edge would inherit a middle school that had not been renovated since 1968 and required major repairs. Yaniro opined that River Edge would not have the borrowing capacity to fund the estimated $24 million in repairs to the middle school. He based his conclusions on a long range facility plan (LRFP), created in 2005, which detailed the repairs necessary in the middle school.

The second report, prepared by Dr. Karen Lake, a school superintendent and former school principal, discussed the educational impact of dissolution of the District. Dr. Lake concluded that the dissolution would create staffing shortages and would require formation of a new high school administration because petitioner had never administered a high school. Moreover, because River Edge had refused to enter into a "send-receive" relationship with petitioner, Dr. Lake expected that neither municipality would be capable of guaranteeing a K-12 education, as is required by statute.

Kirtland and his consultants submitted supplemental studies responding to the concerns raised by Lake and Yaniro (the supplemental report). Petitioner maintained that upon dissolution, the District's $21.8 million debt due to the renovation of the high school would be split, with petitioner assuming responsibility for 55.8% and River Edge being liable for 44.2%. Therefore, the supplemental report concluded that the borrowing margin, i.e. the ability of each municipality to incur additional debt, would be $16 million for River Edge and $39 million for petitioner; consequently, the dissolution would not cause excessive debt for either municipality. Kirtland also stated that the need for renovations to the middle school was speculative because it was based on information from 2005. He also disagreed with Lake's conclusions that there would be a teacher shortage, and that petitioner's board of education would not be capable of administering a high school.

After reviewing all of the evidence, the Board determined that withdrawal would impose an excessive debt burden on River Edge because its $16 million borrowing margin would be inadequate to fund the $24 million in repairs to the middle school. The Board also concluded that withdrawal would prevent maintenance of an efficient educational system in both school districts because neither district would be capable of providing a K-12 education to its students. The Board noted the District's prior success in providing an excellent education to its students, and that the Legislature has called for the elimination of all districts that are not K-12 by 2010. The Board made the following findings:

[D]issolution of River Dell would produce an excessive debt burden for the constituent districts. The 2005 Long Range Facilities Plan ("LRFP")3 for River Dell anticipates over $24 million in renovations to the middle school in the next few years, which would cause River Edge to exceed its debt limit. Oradell contends that it is likely the repairs would be made prior to the completion of the dissolution process, and that in any event, the need for repairs is speculative at this point. However, it cannot be disputed that the resulting debt limitations would severely constrain River Edge's ability to make the necessary repairs to the middle school.

The . . . impact of this excessive debt would be compounded by the tax implications of the proposed dissolution.

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3 Every district is required to file a LRFP in accordance with N.J.S.A. 18A:7G-4.

The Board found a potential shift in tax burden to River Edge if Oradell was permitted to withdraw from the District; River Edge residents would incur a substantial tax rate increase. In discussing whether dissolution would impact the efficiency of the school districts, the Board

noted that the configuration proposed by Oradell, whereby the Oradell district would be comprised of K-6 and 8-12, and River Edge would be limited to a K-8 is not in existence anywhere else in the State of New Jersey, would clearly have been designed for no other purpose than addressing Oradell's concerns with the apportionment of River Dell's costs. Moreover, the sending-receiving agreement upon which the entire proposal rests, and which Oradell itself acknowledges as being critical, is one that River Edge does not consent to. The . . . fact that Oradell itself concedes that the dissolution could not be effectuated without such an agreement, supports its view that an efficient school system could not be maintained in either district upon dissolution. In favor of its position, Oradell asserted that River Edge would not have any alternative choice but to acquiesce to a send-receive agreement in the event of a dissolution. The Board was not persuaded by this reasoning.

Additionally, . . . dissolution of River Dell in favor of two districts that would remain dependent upon each other would be in opposition to the aims of recent legislation, N.J.S.A. 18A:7-8(h), which was enacted to promote the elimination of these types of districts in favor of regional districts over the course of the next three years.

. . . .

The other considerations which militate against the petition were discussed in connection with whether an excessive debt burden or inefficient system of education would result, and are reiterated here. As stated, the proposed dissolution is inconsistent with the current trend throughout the state towards consolidation as evidenced by A-4.

To permit dissolution of River Dell in light of the eventual recommendation by the Executive County Superintendent to eliminate the resulting configurations within the next three years would be disruptive and inefficient in the long-term. Oradell's suggestion that the regional district be dissolved for the sole purpose of realizing a financial benefit is inconsistent with the trend toward consolidation, and ultimately does not further the primary objective of ensuring a Thorough and Efficient Education. The parties are in complete agreement that the River Dell has enjoyed great history of success in educating their students. Oradell's current proposal seeks to dismantle that district for no other purpose but to reduce its costs. However, Oradell may seek a referendum on modification of the apportionment of costs through the mechanism provided by statute at N.J.S.A. 18A:13-23.3, without seeking the dissolution of the Regional School District.

Ordinarily, an appellate court will reverse the decision of an administrative agency only if it is arbitrary, capricious or unreasonable, or it is not supported by substantial credible evidence in the record as a whole. Henry v. Rahway State Prison, 81 N.J. 571, 579-80 (1980). Considerable weight is given to agency expertise where such expertise is relevant. Nanavati v. Burdette Tomlin Mem'l Hosp., 107 N.J. 240, 251 (1987). An appellate court, however, is not bound by an "agency's interpretation of a statute or its determination of a strictly legal issue." In re Taylor, 158 N.J. 644, 658 (1999) (internal quotation omitted). And our review calls for "careful and principled consideration of the agency record and findings." Id. at 657-58 (internal quotation omitted).

The New Jersey Constitution requires that the State provide "a thorough and efficient system of free public schools for the instruction of all the children in the State between the ages of five and eighteen years." N.J. Const. art. VIII,