IN THE MATTER OF LEMONT TOWNSHIP HIGH SCHOOL DISTRICT #210,
Applicant.

Docket No. 89-48-I
Impact Aid Proceeding

DECISION

Appearances: Scott E. Nemanich, Esq. of Chicago, Illinois, for the Respondent

Mark W. Smith, Esq. of Washington, D.C., Office of the General Counsel, United States Department of Education for the Office of the Assistant Secretary for Elementary and Secondary Education

Before: Judge Allan C. Lewis

This is a proceeding instituted by Lemont Township High School District #210 (Lemont) to receive Federal financial assistance for the fiscal year 1988 under Section 2(a) of the Act of September 30, 1950, Pub. L. 874, 64 Stat. 1100 (to be codified at 20 U.S.C. § 237(a)). Previously, its application for impact aid was denied by the Assistant Secretary for Elementary and Secondary Education of the United States Department of Education (ED). ED determined that, as a result of the transfer of various real properties by the U.S. Atomic Energy Commission to the DuPage County Forest Preserve District in 1973, these properties lost their classification as Federal property as defined by 34 C.F.R. § 222.3 (1988). As a result of excluding these properties from the total amount of Federal property within Lemont's district, Lemont did not have Federal property aggregating 10 per cent or more of all real property within its district and, therefore, was ineligible for impact aid under 20 U.S.C. § 237(a).

Lemont advances two grounds for recovery. First, it asserts that the definition of Federal property in 34 C.F.R. § 222.3 is narrower than the statutory definition of Federal property in 20 U.S.C. § 244(1) and, therefore, the regulation is invalid. Second, it asserts that, as a result of various deannexations of non-Federal properties within its district, Lemont was a successor local educational agency and, therefore, was entitled to recompute its percentage of Federal property for purposes of the 10 percent requirement of 20 U.S.C. § 237(a). The tribunal holds that it does not have the authority to declare regulations invalid, that Lemont was not a successor local educational agency, and that, in any event, it may not recompute its percentage of Federal property as of the deannexations of non- Federal properties as a result thereof. Accordingly, the determination by ED was correct and Lemont's appeal is dismissed with prejudice.

    I. STATEMENT

The pertinent facts are set forth in the opinion. The detailed findings of fact are set forth in the appendix, infra.

    II. OPINION

In 1950, Congress enacted the Act of September 30, 1950 which recognized the responsibility of the United States for the impact of certain Federal activities on the local educational agencies in the areas in which these activities were conducted. Act of September 30, 1950, § 1 (20 U.S.C. § 236) (hereinafter Section 236). Congress declared that one aspect of the financial assistance program, Section 2 assistance, was to provide aid--
    
    for those local educational agencies upon which the United States has placed financial burdens by reason of the fact that--
     (1) the revenues available to such agencies from     local sources have been reduced as the result of      the acquisition of real property by the United States;

Section 236.

Generally, in order for a local educational agency to receive Section 2 impact aid, it is necessary that the United States owns real property within the district and that this property, i.e. the Federal property, aggregate 10 percent of the assessed value of all real property within the district. Sections 237(a) and 244(1).

The initial controversy is whether certain Federal property under Section 244(1), which was subsequently transferred subject to various restrictions and limitations by the Atomic Energy Commission to DuPage County in 1973, continued thereafter to constitute Federal property, and thereby, enabled Lemont to exceed the minimum 10 percent Federal property requirement of Section 237(a)(1) for the fiscal year 1988.

ED maintains that the 2,040 acres of Argonne Forest no longer constitutes Federal property for purposes of Section 237(a), even though it was transferred subject to certain limited restrictions, limitations, etc. In ED's view, Federal property, as defined by 34 C.F.R. § 222.3 (1988)(hereinafter Reg. § 222.3), is "[r]eal property . . . [t]hat the United States owns in fee simple." While the Federal government retained certain interests by virtue of the restrictions, limitations, etc. in the deed of transfer, ED asserts that these interests do not rise to the level of a fee simple interest and, accordingly, this property may not be included as Federal property in the calculation of the 10 percent Federal property requirement.

Lemont concedes that the interests retained by the United States in the Argonne property do not constitute a fee simple interest under Reg. § 222.3 and, therefore, absent the deannexations of non-Federal property discussed below, it would not qualify under the 10 percent of Federal property test of Section 237(a).

Lemont urges, however, that the definition of Federal property in Reg. § 222.3, which requires the United States to have a fee simple interest in the property, is narrower than the statutory definition of Federal property in Section 244(1). Section 244(1) defines Federal property as real property "owned by the United States" which, in Lemont's view, would include real property over which the United States retained significant dominion and control due to the limitations and restrictions imposed in its transfer such that it remained, effectively, the owner of the real property.See footnote 1 1/ Therefore, Lemont argues that the fee simple requirement of Reg. § 222.3 should be disregarded and, in so doing, urges that this tribunal declare the regulation invalid as it thwarts the statutory scheme.

Where a party challenges the validity of a regulation, it raises two issues. The first issue is whether the tribunal has the authority or power to rule on the validity of the regulation and, if so, the second issue addressed by the tribunal is whether the regulation is valid. This latter issue turns on whether the regulation reflects a reasonable interpretation of the underlying statute. Commissioner v. South Texas Lumber Co., 333 U.S. 496, 501 (1948).

A tribunal may possess the authority to pass upon the validity of regulations by virtue of its inherent authority or a specific statutory authority. Gibas v. Saginaw Min. Co., 748 F.2d 1112 (6th Cir. 1984); Panitz v. District of Columbia, 112 F.2d 39 (D.C. Cir. 1940). The inherent authority to rule on the validity of regulations extends to Article III courts. Article III courts are presided over by judges who enjoy the benefit of life tenure and a guarantee against salary diminution. Gibas, 748 F.2d at 1117. However, administrative law judges are not appointed for life and are not protected from salary diminution and, therefore, do not possess this inherent authority. 5 C.F.R. §§ 351.202(a) and 930.215; 5 U.S.C. § 5372 (1991).

In several instances, Congress created various courts and boards through specific legislation with the authority to pass upon the validity of regulations. Congress empowered "legislative courts" under Article I, such as the United States Tax Court and the United States Claims Court with such attendant authority. E.g. Brown-Forman Corp. v. Commissioner, 94 T.C. 919, 947 (1990); Anchor Hocking Corp. v. United States, 11 Cl.Ct. 173 (1986); Dow Corning Corp. v. United States, 22 Cl.Ct. 184 (1990). This tribunal is not an Article I court. In addition, Congress created several boards or other tribunals with the specific authority to pass upon this question. For example, the Tax Court of the United States, the predecessor to the Article I United States Tax Court, was an independent agency in the Executive Branch of the Government (Burns, Stix Friedman & Co, v. Commissioner, 57 T.C. 392, 394-395 (1971)) which exercised this authority. E.g. Federal Union Insurance Co. v. Commissioner, 5 T.C. 374 (1945). Similarly, the Benefits Review Board, a body within the Department of Labor, was created by Congress in 1972 and was given this specific authority according to the Sixth Circuit in Gibas, 748 F.2d 1112 (1984). Accord Carozza v. United States Steel Corp., 727 F.2d 74 (3d Cir. 1984).

In Gibas, the Sixth Circuit noted that the Board was created to fulfill the review function previously performed by the district courts regarding benefit requests under several federal workers' compensation programs. Congress expressly granted the Board the authority under 33 U.S.C. § 921(b)(3) "to hear and determine appeals raising a substantial question of law or fact." The Board could not engage in de novo review of an administrative law judge's determination and could only set aside this determination if it was not supported by substantial evidence or not in accordance with the law. Decisions by the Board were appealable to the courts of appeal. In these circumstances, the Sixth Circuit concluded that--

    [i]n sum, the Board performs the identical appellate function previously performed by the district courts. Therefore, it appears that Congress intended to vest in the Board the same judicial power to rule on substantive legal questions as was possessed by the district courts. See Carozza v. United States Steel Corp., 727 F.2d 74 (3d Cir. 1984).

Id. at 1118. It held, therefore, that the specific statutory authority conferred by Congress on the Board to decide appeals raising "a substantial question of law" included the authority to declare invalid regulations promulgated by the Secretary of Labor.

In the case at bar, it is apparent that Congress did not specifically authorize the tribunal to pass on the validity of regulations issued by the Secretary of Education. A local educational agency which is adversely affected by any action of the Secretary regarding impact aid under Section 2 is entitled to a hearing in accordance with 20 U.S.C. § 240(g) which provides that--

    [e]ach local educational agency which is adversely affected or aggrieved by any action of the Secretary under this subchapter shall be entitled to a hearing on, and review of, such action in the same manner as if such agency were a person under the provisions of chapters 5 and 7 of Title 5.

The reference to Chapter 5 of Title 5 invokes the Administrative Procedure Act, 5 U.S.C. § 551 et. seq., a statute of general application to agency adjudications. Adjudications to be determined on the record are conducted in accordance with 5 U.S.C. § 556 which delineates the parameters of the hearing. Section 556(c) details the authority of the administrative law judges in the adjudications and provides that initial decisions by administrative law judges are made subject to the published rules of the agency--

     (c) Subject to published rules of the agency and within its powers, employees presiding at hearings
    may--
    . . .
     (8) make or recommend decisions in accordance with section 557 of this title;

The term rules is further defined by 5 U.S.C. § 551(4) as "the whole or a part of any agency statement of general or particular applicability . . . designed to implement, interpret, or prescribe law" and would, therefore, include regulations promulgated by the Secretary of Education.See footnote 2 2/ Thus, the tribunal's initial decision is made subject to the published rules of the Department of Education which require the tribunal to apply the definition of Federal property as set forth in Reg. § 222.3. Hence, it is apparent that Congress did not specifically authorize the tribunal to pass upon the validity of regulations promulgated by the Secretary of Education. In fact, Congress required that the administrative law judge should follow the published rules of his or her agency.See footnote 3 3/

Lemont notes that other parts of 34 C.F.R., for example Section 81.5(b), contain restrictions which specifically provide that an administrative law judge is bound by all applicable statutes and regulations and may not waive them or rule them invalid. Lemont argues that the omission of such a restriction in 34 C.F.R. Part 218, coupled with the requirement under Reg. § 218.3 that the applicant set forth the issues of law in its request for a hearing, permits an administrative law judge to pass upon the validity of a regulation in the impact aid context as this is a question of law.

ED replies that these restrictions were added regulations promulgated more recently to make explicit what the Department considered implicit in the law through an abundance of caution. The pertinent impact aid procedural regulations, as noted by ED, were promulgated almost 40 years ago and before the more recent practice was adopted.

As noted above, the initial decision by an administrative law judge is made subject to the substantive regulations of the agency. Thus, absent a clear mandate from Congress and corresponding implementing regulations which authorize the administrative law judge to pass upon the validity of regulations--all of which are not present in this case--the tribunal must follow the substantive regulations. Therefore, Lemont's argument in this regard is rejected.

While the parties have not cited any judicial decisions on point, the dicta in several cases cited by ED support its position. For example, in Nash v. Bowen, 869 F.2d 675, 680 (1989), cert. denied 479 U.S. 985 (1989), the Second Circuit affirmed the district court's determination that the administrative law judge's decisional independence was not infringed upon by the "Peer Review Program" initiated by the Social Security Administration and wrote that--

    [a]n ALJ is a creature of statute and, as such, is subordinate to the Secretary in matters of policy and interpretation of law. Mullen v. Bowen, 800 F.2d 535, 540-41 n. 5 (6th Cir.1986); Association of ALJs, 594 F. Supp. at 1141.

Similarly, in Dixon v. Heckler, 589 F.Supp. 1494 (D.N.Y. 1984), various disability claimants sought, inter alia, a preliminary injunction enjoining the usage of a regulation by the Secretary of Health and Human Services in evaluating the severity of a claimant's impairment on the ground that it conflicted with the statute. In granting the injunction, the district court noted, in passing, that "neither the ALJs nor the Appeals Council, of course, have the authority to declare the Secretary's severity standard unlawful, but instead are required to apply that standard (along with SSR 82-55) to each of them." Id. at 1501.See footnote 4 4/

The statutory scheme adopted by Congress to resolve disputes regarding the eligibility of school districts for impact aid also supports the above conclusion. In an impact aid proceeding, the initial decision by the administrative law judge may, under Reg. § 218.8, be reviewed by the Secretary of Education--a position clearly within the Executive Branch of the Government. Thus, under the position advocated by Lemont, a determination regarding the invalidity of a regulation by an administrative law judge would occur within the process before the Executive Branch had completed its consideration and, moreover, would permit the Executive Branch to reverse such a determination which is generally judicial in nature.See footnote 5 5/ In contrast, the scheme employed by Congress with respect to the Benefits Review Board and the Tax Court of the United States required that their decisions, which included determinations regarding the validity of regulations, were appealable directly to the courts of appeals. Gibas, 748 F.2d at 1118; 26 U.S.C. § 7482(a)(1)(1967). Thus, Lemont's theory advocates a statutory scheme which is incongruous with the orderly resolution of administrative claims.

ED asserts that a ruling by the Department's Civil Rights Reviewing Authority in an interlocutory appeal in In re Chatham County School District, 53 Education Law Reporter 1474 (1989), establishes precedent which "squarely controls" the issue at bar. There, the Reviewing Authority rejected a discovery request by the school district designed to elicit information regarding the Department's view as to whether the more recent enactment of Public Law 94-142, the Education For All Handicapped Children Act (20 U.S.C. § 1401), preempted or overlapped actions by the Department under Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. § 794. The Reviewing Authority addressed the matter as follows:

    The issues of jurisdictional preemption and the possible overlapping of Section 504 and the EHA are purely issues of law, for which the requested discovery is irrelevant. The procedural regulations promulgated to accompany Section 504 clearly provide for and mandate that OCR must investigate complaints. Respondents are asking the ALJ, and ultimately this body, to declare those regulations preempted by the EHA and therefore invalid. Neither the ALJ nor the Reviewing Authority has that power [in light of Oestereich v. Selective Service Board, 393 U.S. 233 (1968)].

Id. at 1476. The above ruling is a view expressed by another body within the Department regarding its authority. In addition, the Reviewing Authority viewed the issue essentially as a challenge to the validity of its jurisdiction under Section 504, a question which is significantly different from the existence of specific authority to pass upon the validity of a substantive program-type regulation. Thus, it has only marginal relevance in this proceeding.

Based on the above, it is concluded that this tribunal does not have the authority to pass upon the validity of a regulation promulgated by the Secretary. Accordingly, it is inappropriate to rule upon the validity of Reg. § 222.3 in this decision.

Even if the 2,040 acres of the Argonne property do not constitute Federal property after their transfer to DuPage County in 1973, Lemont asserts that it, nevertheless, qualifies under the 10 percent test of Section 237(a) as a result of four deannexations of non-Federal property which occurred between 1952 and 1983.See footnote 6 6/ According to Lemont, these deannexations represent a 19% loss in the total assessed valuation of real property within its district and, therefore, its remaining Federal property constitutes more than 10 percent of its total assessed value of real property as of 1988.

In Lemont's view, each deannexation of non-Federal property causes the school district to acquire a status as a "successor" local educational agency under Reg. § 222.20 and, more particularly, Reg. § 222.20(d)(2).See footnote 7 7/ As a result thereof, it is appropriate to recompute its percentage of Federal property based upon the assessed values of the real properties within its district as of the year of the deannexation.See footnote 8 8/

ED disagrees that the deannexation of non-Federal property results in Lemont acquiring the status as a "successor" local educational agency and asserts that a "successor" local educational agency is created only under circumstances in which a new legal entity is formed. Even if Lemont were a "successor" local educational agency, ED argues that there is no authority in the governing statute or regulations which permits Lemont to recalculate its percentage of Federal property by virtue of a deannexation of non-Federal property. ED also asserts that there is no authority which permits a recomputation in the manner urged by Lemont.

Lemont asserts that, following a deannexation, it became a successor local educational agency under Reg. § 222.20, and more particularity, subsection (d)(2). This regulation provides--

     (a) Any applicant that is a party to an annexation, consolidation, deconsolidation, merger, or other similar action affecting the boundaries, classification, control, governing authority, or identity must provide to the Secretary as soon as practicable:
     (1) A description of the character and extent of the change;
     (2) The effective date of the change;
     (3) Full identification of all predecessor and successor local educational agencies (LEAs);
     (4) Full information regarding the disposition of the assets and liabilities of all predecessor LEAs;
     (5) Identification of the governing body of all successor LEAs; and
     (6) The name and address of each authorized representative officially designated by the governing body of each successor LEA for purposes of Pub.L. 81-874.
     (b) If a payment is made under sections 2, 3, or 4 of the Act (hereinafter "sections 2, 3, or 4") to an LEA that, because of a change in boundaries or organization, has ceased to be a legally constituted entity during the regular school term, the LEA may retain that payment if:
     (1) An adjustment is made in the entitlement of a successor LEA to account for the payment; or
     (2)(i) The payment does not exceed the amount the former LEA would have been entitled to receive if the change in boundaries or organization had not taken place; and
     (ii) A successor LEA is not an eligible applicant.
     (c) Any portion of a payment made under sections 2, 3, or 4 to a former LEA that exceeds the amount allowed by paragraph (b)(2)(i) of this section must be returned to the Secretary.
     (d)(1) Except as provided in § 222.21(d), a successor LEA that is eligible for section 3 or 4 assistance may elect to have the Secretary determine its section 3 or 4 entitlement for the entire fiscal year upon either of the following bases:
     (i) The entire area within its jurisdiction on the last day of that fiscal year;
     (ii) The area within its jurisdiction of one or more of the former LEAs that would have been entitled to receive payment under section 3 or 4 if the change in boundaries or organization had not occurred.
     (2) A successor LEA's section 2 eligibility and entitlement are determined in accordance with § 222.102.

The above regulation offers no support for Lemont's view that a deannexation creates or causes the affected local educational agency to become a successor local educational agency. The nature of the regulation reflects that it was promulgated primarily to provide guidance for local educational agencies which, while receiving impact aid payments, were involved in a change in boundaries or organization.See footnote 9 9/ Thus, under this perspective, it has no application in Lemont's case.

In addition, paragraph (a) of Reg. § 222.20 requires each local educational agency to provide various information in the event of a change in boundaries or the organization. Within this paragraph, the term successor local educational agency refers to an entity which is in existence after a transaction, such as a merger or consolidation, in which at least one existing local educational agency ceases to be a legally constituted entity. Thus, for example, the applicant is required under Reg. § 222.20(a)(3) and (4) to identify "all predecessor and successor local educational agencies" and to provide information regarding "the disposition of the assets and liabilities of all predecessor LEAs."

Paragraphs (b) and (c) address the circumstance under which a local educational agency is entitled to retain the impact aid payment for the year in which there was a cessation of a legally constituted local educational agency due to a change in the boundaries or organization. Subparagraph (d)(1) addresses a permissible variant in the entitlement to section 3 or 4 aid for a successor local educational agency in which at least one former local educational agency ceased to be legally constituted.

Paragraph (d)(2) directs the successor local educational agency to Reg. § 222.102 to determine its section 2 eligibility on the basis of the former school districts or the newly consolidated district. Reg. § 222.102(a) specifically applies only to a local educational agency formed by the consolidation of "two or more former school districts." Hence, the term successor local educational agency as employed in paragraph (d)(2) does not include a local educational agency which has undergone a deannexation. Accordingly, Lemont's argument that it is a successor local educational agency under Reg. § 222.20 is not supported by the regulation and, therefore, is rejected.

Even if a deannexation causes Lemont to be a successor local educational agency under Reg. § 222.20(d)(2), ED maintains there is no authority in the statute or the regulations which allows Lemont to recompute, in the year of deannexation, its percentage of Federal property as the result of the deannexation. The tribunal agrees.

For a given year, the percentage of Federal property of a local educational agency remains unaffected unless there is an acquisition of Federal property by the United States. Section 237(a); Reg. § 222.94(a). A disposition of Federal property during the current year will affect the percentage of Federal property as of the following year. Section 244(1)See footnote 10 10/ ; Reg. § 222.94(b). The increase in the percentage of Federal property due to the acquisition of Federal property is the amount that the current assessed value of this Federal property bears to the current assessed value of all real property (including the particular Federal property in question) within the school district. Section 237(a); Reg. § 222.94(a). In a similar fashion, the disposition of Federal property by the United States causes a decrease in the percentage of Federal property by the exact amount by which the percentage of Federal property was increased as a result of its acquisition. Reg. § 222.94(b); cf. H. Rep. No. 2287, 81st Cong., 2d Sess. at 27. Thus, the percentage of Federal property represents a composite of the various Federal properties within the school district and is not recalculated upon the deannexation of non-Federal property.

Lemont notes that, in ED's computation of Lemont's percentage of Federal property for 1988, ED excluded 3 parcels of Federal property which had been within the boundaries of the school district until these parcels were deannexed as part of the 1983 deannexation. Lemont questions the basis for excluding these Federal properties in determining the percentage of Federal property for 1988 when the four prior deannexations of non- Federal property did not have a similar effect.

The eligibility for impact aid is an annual determination and based upon the presence within the school district of sufficient Federal property to meet or exceed the requisite 10 percent requirement. The presence of Federal property is an implicit requirement of the statutory scheme and a prerequisite to satisfy the purpose of the impact aid legislation, namely to compensate a school district annually for the removal of real property from its tax rolls by the United States. Where this Federal property has been removed from the school district by deannexation, the legislative purpose is no longer served by the inclusion of this property within the school district's percentage of Federal property. Accordingly, it was proper for ED to exclude these 3 parcels. In any event, the treatment accorded these 3 parcels is not significant since Lemont conceded that the inclusion or exclusion of these properties in the percentage of Federal property would have no effect on its eligibility for impact aid. (Tr. 53-56.)

In addition, the entire percentage of Federal property for a school district is not recalculated upon the divestment of a Federal property. The percentage of Federal property is adjusted only to reflect the effect of the particular Federal property divested. Congress selected the time of acquisition as the appropriate time to measure the impact of Federal ownership upon the district and, accordingly, the remaining Federal property continues to be reflected in the percentage of Federal property based upon the amount by which each parcel increased the percentage of Federal property in the year of its acquisition. Reg. § 222.94(b). Thus, it is inconsistent with the statute and the regulations to redetermine, as Lemont urges, its over-all percentage of Federal property as a result of the divestment of one or more Federal properties by using the current assessed values for each of the remaining Federal properties and the current assessed values of all real property in the school district.See footnote 11 11/

Lemont argues that ED abused its discretion because it failed to promulgate a regulation that permits a redetermination of the percentage of Federal property where a deannexation of non- Federal property occurs while, at the same time, it promulgated Reg. §§ 222.20(d)(2) and 222.102, regulations which govern the consolidation of school districts. Consolidations and deannexations are significantly different events for purposes of impact aid. A consolidation eliminates at least one of the legal entities involved while a deannexation of non-Federal property affects only the size of the legal entity and, thus, has no effect on the legal status of the school district. Congress crafted a special approach for the consolidated situation to ensure that consolidations were not discouraged. H.R. Rep. No. 2287 at 10. Thus, Section 237(c) provided that the successor local educational agency could determine its section 2 eligibility either on the basis of its former LEAs or on the basis of the new, consolidated local educational agency. Section 237(c); Reg. § 222.102.

In the context of a deannexation or annexation of non-Federal property, the legal entity is unaffected and, therefore, it was not necessary to provide an alternative basis for determining the eligibility of the local educational agency. Moreover, the percentage of Federal property is also unaffected under the method chosen by Congress. Therefore, in these circumstances, it was proper for the Secretary to promulgate specific regulations governing consolidations while he left the general eligibility regulations under Reg. § 222.93 to govern deannexations and annexations of non-Federal property.

Lastly, ED asserts that Lemont failed to provide reliable data that could be used under its theory addressing deannexations to determine whether it satisfied the 10 percent test of Section 237(a). For example, ED suggests that Lemont did not obtain the official assessed values of the parcels which comprised the deannexed land. ED also requests that if the tribunal finds that the Assistant Secretary erred by failing to "consider" the deannexations in determining Lemont's percentage of Federal property for 1988, the matter should be remanded to the Department for further development due to the inadequacy of the factual record on this issue. Lemont replies that it considers ED's argument to be in "bad faith and in violations of the stipulations."

The parties executed a stipulation in this case, and paragraph 42 thereof specifically addresses this matter--

    The parties agree that if the land conveyed to the DuPage County Forest Preserve District is not Federal property within the meaning of section 403(l) of P.L. 81-874, 20 U.S.C. § 244(l), the School District is not eligible under section 2(a)(1) for FY 1988 unless the Department erred in failing to consider, in determining Lemont's section 2 eligibility, the deannexations described below that resulted in loss of property and changes in the School District's boundaries.

The stipulation is clear and its import is equally evident, that is, if Lemont's alternative position--that the deannexations should be considered in ascertaining its percentage of Federal property for 1988--is adopted, then ED agrees that Lemont is eligible for impact aid for 1988. Thus, ED's argument is irrelevant in light of the stipulation and contrary to its expressed agreement, and will not be addressed herein.

In view of the above, it is concluded that Lemont may not recalculate, for the fiscal year 1988, its percentage of Federal property for purposes of the 10 percent test under Section 237(a) by virtue of the four deannexations of non-Federal property which occurred between 1952 and 1983. Its percentage of Federal property for the fiscal year 1988 was, as determined by ED, 5.4 percent. Accordingly, it is not eligible for impact aid under Section 237(a).

    III. ORDER

On the basis of the foregoing findings of fact and conclusions of law, and the proceedings herein, it is hereby ORDERED that Lemont's appeal is dismissed with prejudice.

...........................
Allan C. Lewis
Administrative Law Judge

Issued: February 6, 1992
Washington, D.C.


    APPENDIX--FINDINGS OF FACT

1. Lemont Township High School District No. 210 is a legally constituted school district, located within the State of Illinois, that seeks financial assistance under section 2 ("section 2") of P.L. 81-874 (20 U.S.C. 237) for Federal fiscal year (FY) 1988 (school year 1987-88). No other fiscal years are at issue in this proceeding.See footnote 12 12/

2. The School District is a local educational agency ("LEA") within the meaning of P.L. 81-874, commonly known as the Impact Aid law, as that term is defined in section 403(6) of that law (20 U.S.C. 244(6)).

3. Lemont Township High School District No. 210 ("Lemont") is located in Lemont Township and Downers Grove Township in Cook and DuPage Counties, Illinois, respectively.

4. Argonne National Laboratory, formerly an installation of the Atomic Energy Commission, is an installation of the U.S. Department of Energy. It is located entirely within Lemont Township High School District No. 210 in the portion of the School District in Downers Grove Township, DuPage County, Illinois.

5. In 1947, the United States first acquired ownership of real property within the Lemont Township High School District No. 210 for the purpose of constructing and maintaining the Argonne National Laboratory. The United States acquired fee simple title to approximately 3,700 acres of predominantly farm land over a two year period, 1947 and 1948.

6. The Forest Preserve District of DuPage County, Illinois ("DuPage County Forest Preserve District"), a unit of local government, was organized in 1915, under Chapter 57 1/2 of the Illinois Revised Statutes in order to "acquire and hold lands containing natural forests . . . for the purpose of the education, pleasure and recreation of the public."

7. On February 12, 1970, the President issued Executive Order 11505 (35 Fed. Reg. 2855) establishing a procedure for identifying unneeded Federal real property and providing the President with recommendations as to the disposition of that property. The Executive Order required agency heads to survey all real property under their control and report to the Administrator of General Services all properties not utilized or underutilized.

8. As a result of the review required by Executive Order 11505, on April 13, 1971, the Manager of Argonne National Laboratory transmitted a Report of Excess Real Property (Standard Form 118) to the Regional Administrator of the General Services Administration declaring an estimated 2,040 acres of Federal property on the perimeter of the Argonne National Laboratory to be excess.

9. On May 11, 1971, the DuPage County Forest Preserve District enacted an ordinance authorizing the filing of an application on its behalf for the transfer to it of the excess Argonne National Laboratory property "subject to such exceptions, reservations, terms, covenants, agreements, conditions, and restrictions as the Secretary of the Interior, or his authorized representative may require . . . ." Pursuant to the ordinance, some time later an application was filed on behalf of the DuPage County Forest Preserve District with the Bureau of Outdoor Recreation, U.S. Department of Interior.

10. By quitclaim deed dated June 15, 1973, the United States, acting by and through the Regional Director of the Bureau of Outdoor Recreation, under authority of section 203(k)(2) of the Federal Property and Administrative Service Act of 1949 (40 U.S.C. 484(k)(2)), conveyed to the DuPage County Forest Preserve District all of its right title and interest, subject to certain easements, reservations, exceptions and restrictions stated in the deed, in the excess Argonne National Laboratory land "for and in consideration of the use and maintenance of the property . . . for public park or public recreation purposes . . . ." Easements and rights-of-ways were retained for utilities and pipelines, railroad tracts, and certain roads. The Forest District and its assignees were subject to various restrictions including that--

    1. No buildings may be erected or occupied as a permanent or temporary residence except that quarters may be provided for employees of the Forest District at sites approved by the Atomic Energy Commission;
    2. No changes in the contour of the land were permitted without prior written approval by the Atomic Energy Commission; and
    3. The Atomic Energy Commission reserved the right to enter and sample the land, water and air and to maintain continuous monitoring stations.

In addition, the property may not be sold, leased or otherwise disposed of except to another eligible government agency without the approval of the Secretary of Interior and, in any event, may only continue to be used for a public park or public recreational purposes. Recreational facilities and related services may be provided by the Forest District through concession agreements with third parties provided prior concurrence to such agreements is obtained in writing from the Secretary of the Interior. Lastly, the property may revert to the United States in the event the United States determines that the premises are needed for national defense.

After this conveyance, the DuPage County Forest Preserve District added the land conveyed by the quitclaim deed to the Waterfall Glen Forest Preserve subject to the various reservations, exceptions, and restrictions as stated in the deed.

11. Prior to the transmittal of the Report of Excess Real Property referred to in ¶ 8, the agencies involved in the conveyance of the excess Argonne National Laboratory property, including the DuPage County Forest Preserve District, met to discuss, among other things, the conditions and restrictions that were ultimately included in the quitclaim deed.

12. The Atomic Energy Commission and its successor, the U.S. Department of Energy, have annually made a payment in lieu of taxes (PILOT) to DuPage County for the Argonne National Laboratory land under section 168 of the Atomic Energy Act of 1954 (42 U.S.C. 2208). In FY 1988 the U.S. Department of Energy made a PILOT payment in the amount of $30,281.24. Each year DuPage County reallocated the PILOT payments among the units of local government within its jurisdiction including Lemont Township High School District No. 210. Lemont's share of the payment was calculated by the County by multiplying the School District's then current tax rate by the 1946 assessed value of the property within the School District held by Argonne National Laboratory. In the years 1981 - 1988 the School District received the following amounts from the PILOT payment:

    1981                            $ 9,694.03

    1982                            $ 6,671.84

    1983                            $ 9,399.24

    1984                            $ 8,743.03

    1985                            $ 9,586.66

    1986                            $ 9,586.66

    1987                            $ 9,516.68

    1988                            $ 9,586.66

Similar payments have been made to two elementary school districts, Cass School District No. 63 and Palisades School District No. 180, that have Argonne National Laboratory land within their boundaries and that have been found by the Department to be eligible to receive Section 2 assistance. The Department has never considered such payments - nor has any authority to - with regard to qualifying under the 10% criterion under section 2(a)(1)(20 U.S.C. 237(a)(1)).

13. Both parties agree that Section 2 of P.L. 81-874 (20 U.S.C. 237(a)) is the relevant statutory provision. The U.S. Department of Education ("Department") re-examines whether an applicant satisfies the eligibility criteria in that provision on an annual basis.

14. The Department determines whether a section 2 applicant meets the 10% criterion under section 2(a)(1) by:
(1) calculating, for each year in which the Federal Government has acquired and still owns in fee simple ownership of taxed real property within the school district, the percentage that the assessed value of the acquired taxed real property is, at the time of acquisition, of the total assessed value for all taxed real property in the school district (including the acquired property) at that same time; and 2) totaling the percentages computed in step number (1) to obtain the aggregate percentage of assessed value, as of the time(s) of acquisition of real property within the school district acquired by the Federal Government. If this aggregate percentage of assessed value is ten percent or more, the Department determines that the applicant meets the 10% eligibility criterion under section 2(a)(1). If this aggregate percentage of assessed value is less than ten percent, the Department determines that the applicant does not meet the 10% eligibility criterion under section 2(a)(1).

15. Where there has been a reduction in the Federal property within a school district (for example due to the divestiture of Federal property) the Department redetermines the LEA's eligibility under section 2(a)(1) by recalculating, for each year for which there was a reduction, the total assessed value at the time of acquisition of the Federal property remaining within the LEA. For each of those years, the Department then recalculates the percentage that the assessed value of the remaining acquired Federal property is, at the time of acquisition, to the total assessed value for all taxed real property in the school district (including the acquired property) at that same time. The percentages for each year in which the Federal Government acquired and still owns eligible Federal property (if more than one year) are then totalled to obtain the aggregate assessed value of the remaining Federal property. If this aggregate percentage of assessed value is ten percent or more, the Department determines that the applicant meets the 10% eligibility criterion under section 2(a)(1). If this aggregate percentage of assessed value is less than ten percent, the Department determines that the applicant does not meet the 10% eligibility criterion under section 2(a)(1).

16. Lemont first received financial assistance under the Impact Aid law beginning with FY 1969 and has received financial assistance under section 3 of P.L. 81-874 (20 U.S.C. 238), which has a different payment basis and different eligibility criteria than section 2. The School District has received a total of
$ 173,070.50 in section 3 assistance since FY 1969. The Department has no authority to consider section 3 assistance with regard to qualifying under the 10% criterion under section 2(a)(1)(20 U.S.C. 237(a)).

17. In 1966, Lemont contacted Mr. Gordon Aaland of the then Office of Education in regards to filing for Section 2 assistance. For some reason, Lemont felt and/or was led to believe that it did not meet the 10% criteria and did not apply. No one has been located who is able to testify as to the role, if any, that Mr. Aaland played in this decision.

18. The first year for which the School District applied to the Department for assistance under section 2 was Federal FY 1982 (corresponding to school year 1981-1982).

19. By letter dated April 6, 1982, Lemont Superintendent Donald E. Weber sent the Department certain documentation in support of its FY 1982 application for section 2 assistance. The School District's documentation with regard to the 10% criterion under section 2(a)(1) consisted in part of a certified document dated March 31, 1982 by the Downers Grove Township Assessor purporting to list tracts acquired by the Atomic Energy Commission in 1946, and the acreage and 1946 assessed value figure for those tracts. An asterisk beside five of the listed tracts indicates that the assessed valuation for those tracts was "extrapolated from adjacent land" by some unspecified method. The total acreage listed by the assessor was 3,733.94 acres, the approximate amount of land originally acquired for Argonne National Laboratory before the 1973 divestiture, with a listed total assessed valuation of $950,772. The School District also submitted a March 24, 1982 statement by the County Clerk of DuPage County stating that the 1946 total assessed value for all taxed real property in the School District within DuPage County was $2,797,190 ($2,303,518 in "lands" and $494,672 in "lots"). A similar statement by the County Clerk of Cook County, also dated March 24, 1982, listed the total assessed value for all taxed real property in the School District within that county to be $4,900,076. Based on figures contained in these documents, the School District submitted that it met the 10% criterion under section 2(a)(1) since the 1946 assessed value of the 3,733.94 acres, $950,772 was, by its calculation, 12.35% of the total assessed value for all taxed real property in the School District as certified by the county clerks, $7,697,266 ($2,797,190 plus $4,900,0760). The School District submitted each of its subsequent applications for section 2 assistance, including FY 1988, based upon these figures.

20. In January, 1983, Department Program Officer James H. Link notified Superintendent Weber by letter that in order to evaluate the School District's eligibility for section 2 assistance, the Department needed to be advised whether the property claimed by the School District with regard to its FY 1982 section 2 application was presently owned by the Federal Government. Superintendent Weber replied on January 19, 1983, stating that 3734.569 acres were acquired by the Federal Government in 1946, and that 2292.229 had been conveyed to the DuPage County Forest Preserve District in 1973, leaving 1442.34 acres of Argonne National Laboratory Property in Lemont Township High School District No. 210.

21. On January 31, 1983 the School District applied for section 2 assistance for FY 1983 (corresponding to school year 1982- 1983).

22. On February 8, 1983, William J. Phillips, Acting Director of the Division of Impact Aid, now the Impact Aid Program, notified Lemont Superintendent Donald E. Weber of the School District's ineligibility for section 2 assistance for FYs 1982 and 1983. He indicated a willingness to reconsider if the School District were to identify the parcels retained by the Argonne National Laboratory within 30 days and to review any correspondence Lemont had with the Division of Impact Aid in the 1960s relative to Section 2.

23. On February 9, 1983, Superintendent Weber wrote to Mr. Phillips enclosing an affidavit recounting certain events in the 1965-1966 school year.

24. On October 19, 1983, Assistant Secretary Lawrence F. Davenport notified Superintendent Weber of the School District's ineligibility for section 2 assistance for FYs 1982 and 1983 due to its failure to meet the 10% eligibility criterion under section 2(a)(1) of P.L. 81-874, 20 U.S.C. 237(a)(1).

25. On January 4, 1984, Superintendent Weber requested the Department to reconsider its determination with regard to FYs 1982 and 1983.

26. Following its FY 1983 application for assistance under section 2, the School District filed applications for assistance under section 2 for FYs 1984 - 1988, excluding FY 1986, on the following dates:

    FY 1984                January 31, 1984
    FY 1985                February 28, 1985
    FY 1987                January 31, 1987
    FY 1988                January 31, 1988

27. On June 1, 1984, Assistant Secretary Lawrence F. Davenport notified Superintendent Donald E. Weber of the School District of its ineligibility for section 2 assistance for FYs 1982, 1983, and 1984 because the property presently owned by the Federal Government within the School District did not meet the 10% eligibility criterion under section 2(a)(1) of P.L. 81-874, 20 U.S.C. 237(a)(1).

28. On July 27, 1988, Dr. Charles E. Hansen, Acting Director of the Division of Impact Aid, notified Lemont Superintendent John F. Murphy of the School District's ineligibility for section 2 assistance for FYs 1984, 1985, 1987 and 1988 because of its failure to meet the 10% eligibility criterion under section 2(a)(1) of P.L. 81-874, 20 U.S.C. 237(a)(1).

29. On September 21, 1988, the Department erroneously sent the School District a payment of $11,972.59 in section 2 assistance. The School District was advised of this error by a notice of overpayment in the form of a voucher.

30. A series of meetings between representatives of the School District and officials of the Department during the Spring and early Summer of 1989 led to a reconsideration by the Department of its previous determination under P.L. 81-874 that the School District was ineligible for section 2 assistance. This reconsideration of the School District's eligibility included field investigations by a Department program officer, Dr. Sol Spencer-Spears, and the careful review by the Department of the facts ascertained in that investigation and of the legal arguments asserted by counsel for the School District in a letter dated June 30, 1989.

31. While the reconsideration was in progress, the School District preserved its appeal rights regarding FY 1988 by filing a notice of appeal dated June 18, 1989.

32. Dr. Spencer-Spears recalculated the School District's eligibility as described in ¶ 15. Dr. Spencer-Spears obtained records from the Argonne National Laboratory demonstrating the date that title passed to the United States by deed or by declaration of taking for each of the 147 parcels acquired by the Federal Government. Title passed to the United States for all the parcels in either 1947 or 1948. Working in the Office of the County Clerk of DuPage County, Dr. Spencer-Spears examined the official land and lot books for the land in question for 1947 and 1948, the years of acquisition. He ascertained that, with the exception of one parcel, each of the 147 parcels was last reflected as having an assessed value for tax purposes in 1947 and that, commencing with 1948, with the exception of the one parcel, they were reflected on the tax records as tax-exempt Federal property with no assessed value. Thus, for all of the property except for one parcel, the 1947 assessed value was the last assessed value at the time of Federal acquisition, whether that acquisition occurred in 1947 or 1948. The one exception, Federal Tract 21, was acquired in 1948 and had a 1948 assessed value on the tax books at the time of acquisition. Federal Tract 21 was conveyed to the DuPage County Forest Preserve District in 1973 and therefore was not included in the post-divestiture eligibility calculation.

33. Dr. Spencer-Spears used a list of tracts provided to him by Lemont to identify the parcels in the School District retained by the Federal Government after the 1973 conveyance to the DuPage County Forest Preserve District. In reviewing this list, he noted that there were three parcels acquired by the Federal Government (Federal Tracts 110, 111 and 112) that were not listed as being within the School District. He verified that these parcels, though part of the school district in 1947-48, were now beyond the boundaries of the School District by comparing the County Clerk's official map of the School District and the U.S. Army Corps of Engineers map. Both maps show the dividing line between Sections 10 and 11 and thus provide a point of reference permitting confirmation that the three parcels lie outside of the School District. Accordingly, Dr. Spencer-Spears excluded these three parcels from his calculations.

34. For those eligible parcels on the list and wholly retained by the Federal Government in 1973, Dr. Spencer-Spears totalled their official 1947 assessed values obtained from the tax books. A number of the parcels were only partially retained by the Federal Government in 1973. For these parcels, Dr. Spencer- Spears used a proportion to calculate the 1947 assessed value of the retained portions of these parcels. The School District's list had the 1946 assessed value of the land originally acquired and the 1946 assessed value of the land retained. For each parcel, Dr. Spencer-Spears calculated the percentage that the 1946 assessed value of the retained acreage was of the 1946 assessed value of the land originally acquired. In order to calculate the 1947 assessed value of the portions retained, for each parcel he multiplied the percentage calculated for that parcel in the previous step by the 1947 assessed value for the parcel reflected in the tax books. The assessed values so derived for those parcels were added to the total for the undivided parcels. Dr. Spencer-Spears then divided the total assessed value of all real property figure obtained from tax assessor certifications by the total assessed value of the eligible Federal property retained after the conveyance to the Forest Preserve District to obtain the percentage of assessed value of property owned by the Federal Government in 1988.

The results of these calculations are as follows:

    POST-DIVESTITURE: Assessed Value of Federal property as a
    percentage of total assessed value of real
    property, by year of acquisition

        Total. Assess.         Assess. Val. All         %
        Fed. Prop.            Real Prop.

1947        $458,023                $8,372,391         5.4%

                                Percentage Acquired 5.4%

35. On August 16, 1989, Acting Assistant Secretary Daniel F. Bonner notified Superintendent Murphy of the Department's determination, following reconsideration, of the School District's ineligibility for section 2 assistance because the property presently owned by the Federal Government within the School District did not meet the 10% eligibility criterion under section 2(a)(1) of P.L. 81-874, 20 U.S.C. 237(a)(1).

36. On August 28, 1989, the School District supplemented its hearing request for FY 1988 in writing.

37. The School District, while stipulating that the assessed valuation of all real property in the district in the year 1947 was $8,372,391, asserts that the assessed valuation in the years of acquisition of all the federal property originally acquired for Argonne National Laboratory, which totalled $907,633, should be included and that the portion allegedly divested in 1973 was not truly divested from the Federal government and should be included in calculating the eligibility of the District for Section 2 assistance.

38. The parties agree that if the land conveyed to the DuPage County Forest Preserve District is Federal property within the meaning of section 403(l) of P.L. 81-874, 20 U.S.C. § 244(l), the School District is eligible under section 2(a)(1).

39. The parties agree that if the land conveyed to the DuPage County Forest Preserve District is not Federal property within the meaning of section 403(l) of P.L. 81-874, 20 U.S.C. § 244(l), the School District is not eligible under section 2(a)(1) for FY 1988 unless the Department erred in failing to consider, in determining Lemont's section 2 eligibility, the deannexations described below that resulted in loss of property and changes in the School District's boundaries.

40. Since 1947, a total of four major deannexations have occurred in 1952, 1960, 1965 and 1983. The deannexations in total have resulted in a reductions of the boundaries of Lemont Township High School District No. 210 by approximately 13.5% in area. There have been no annexations or consolidations to the school district since 1947.

41. It is the position of Lemont Township High School District No. 210 that the deannexations should be considered in the determination of the district's eligibility pursuant to Reg. § 222.20 which states that a party to an annexation, consolidation, deconsolidation, merger or other similar action affecting its boundaries must provide the Secretary of Education with a description of the change and the date of said change as soon as possible. The school district asserts that Reg. § 222.20 further states that an LEA's payments will be adjusted based on the changes of boundary or change in the legally constituted entity. The Department asserts that the school district's interpretation of the regulation is contrary to the express language of section 2(a)(1) of P.L. 81-874 which makes the assessed value of all real property in the school district at the time(s) of acquisition the benchmark for eligibility.

42.    The Department has made no determination regarding the eligibility of Lemont Township High School District No. 210 under section 2(a)(2) or section 2(a)(3) of P.L. 81-874. The School District's eligibility under these provisions is beyond the scope of this proceeding and is not addressed by these stipulations of fact.

43. As indicated below, following each deannexation, there was a loss to the district of the following percentages when calculated by the method described below.

        1983                         2.96%

        1965                     10.7%

        1960                      3.37%

        1952                      2.34%

Each of the above percentages was calculated by subtracting from the DuPage County assessed valuation (where all of the deannexations occurred) for the year prior to the deannexation the assessed valuation of the DuPage County portion of the school district for the year of the deannexation. That figure was then divided by the assessed valuation of the entire school district for the year prior to the deannexation to arrive at the percentage of loss.

44. Lemont's percentage of Federal property for 1988 under the theory advocated by the Department was 5.4%.





SERVICE
________________

A copy of the attached initial decision was sent by certified mail, return receipt requested, on February 6, 1992, to the following:

Mark W. Smith, Esq.
Office of the General Counsel
U.S. Department of Education
Room 4091, FOB-6
400 Maryland Avenue, S.W.
Washington, D.C. 20202

Scott E. Nemanich, Esq.
Brydges, Riseborough, Morris
Franke and Miller
28th Floor
150 North Michigan Avenue
Chicago, Illinois 60601

A copy of the attached initial decision was also sent on February 6, 1992, to--

The Honorable Lamar Alexander
Secretary of Education
U.S. Department of Education
400 Maryland Avenue, S.W.
Washington, D.C. 20202-0100


Footnote: 1 1/ In this regard, Lemont cites several cases in other areas of the law for the proposition that ownership of property does not necessarily require a fee simple interest. For example, in Corliss v. Bowers, 281 U.S. 376 (1930) the taxpayer transferred property in trust with the income to his wife for life and the remainder over to his children. The Court disregarded the fact that the legal title to the property was held by the trustee and held the grantor of the revocable trust taxable on the income earned stating--

    taxation is not so much concerned with the refinement of title as it is with actual command over the property taxed.

281 U.S. at 378.


Footnote: 2 2/ Each agency is required, moreover, under 5 U.S.C. § 552(a)(1), to publish in the Federal Register its rules of procedure, its substantive rules of general applicability adopted as authorized by law, and its statements of interpretations of general applicability adopted by the agency.
Footnote: 3 3/ This is not to say, however, that administrative law judges may not pass upon questions of law of lesser significance than a "substantial question of law" in Gibas involving the validity of a regulation. Interpretations of statutes and regulations are examples of matters clearly within their purview.
Footnote: 4 4/ This decision was subsequently vacated and the district court ultimately denied the injunction. Dixon v. Bowen, 673 F. Supp. 123 (D.N.Y. 1987).
Footnote: 5 5/ Within a judicial setting, the determination regarding the validity of a regulation is closely akin to a determination of a constitutional issue which represents "the highest exercise of judicial power." Panitz, 112 F.2d at 41.
Footnote: 6 6/ There were three major deannexations of non-Federal property in 1952, 1960, and 1965 before the transfer of the
Argonne property and a fourth major deannexation in 1983 after the 1973 transfer of the Argonne property.

Footnote: 7 7/ Reg. § 222.20, like Reg. §§ 222.94 and 222.102 discussed infra, was promulgated on February 24, 1988, and purportedly effective for the fiscal year 1988 and thereafter. 53 Fed. Reg. 5552 (1988).
Footnote: 8 8/ A recalculation of the percentage of Federal property in the year of deannexation of non-Federal property would presumably increase Lemont's percentage of Federal property. Although the total acreage of Federal property remains unchanged as a result of the deannexation of a non-Federal property, the deannexation decreases the total acreage and, presumably, the total assessed value of all real property within the district and, therefore, affects the percentage of Federal property.
Footnote: 9 9/ The regulation would also apply in a situation in which a local educational agency applied for impact aid for the first time and, during its application process, it then underwent a change in boundaries or organization. It would appear that this circumstance occurs rarely.
Footnote: 10 10/ Real property which is divested by the United States is no longer "owned" by it and, therefore, this property does not constitute Federal property within Section 244(1).
Footnote: 11 11/ There is also a practical problem with Lemont's proposed approach in that it is unlikely that the local governmental authorities maintain current assessed values for tax exempt real estate. In addition, the assessed value used in the determination of the percentage of Federal property must be the value that is assigned to the real property for the purpose of generating local real property tax revenues for elementary and secondary education current expenditures and excludes other types of values which may be assigned for various purposes. Reg. § 222.91. The last figures available for Federal properties for this purpose are the current assessed values in the year of acquisition. Hence, there are no current values available for use in subsequent years.
Footnote: 12 12/ The findings of fact reflect primarily a stipulation of fact executed by the parties.