IN THE MATTER OF BELLEVUE PUBLIC SCHOOLS,
Docket No. 97-55-I
Impact Aid Proceeding
Appearances: Patrick J. Sullivan, Esq., Papillion, NE., for Bellevue Public Schools
Jane A. Hess, Esq., Washington, D.C., for the Office of Assistant Secretary for
Elementary and Secondary Education
Before: Chief Judge Allan C. Lewis
This is an action by Bellevue Public Schools (Bellevue) to overturn a determination by the
Assistant Secretary for Elementary and Secondary Education (ED) regarding the amount of
Federal impact aid due Bellevue for the Federal fiscal year 1997.See footnote 11 Bellevue argues that revenues
distributed to local educational agencies under Neb. Rev. Stat. § 79-3804 should be considered as
revenues derived from local sources in determining Bellevue's local contribution rate for
purposes of ascertaining the amount of its Federal impact aid. Based upon the facts and
conclusions of law, infra, the determination of the Assistant Secretary for Elementary and
Secondary Education is upheld.
In 1994, Congress reaffirmed its responsibility for the impact of certain Federal activities on the
local educational agencies (LEAs) within a state. These Federal activities place financial
burdens upon local educational agencies. Revenues available to such agencies are diminished as
the result of the acquisition of real property by the United States, the provision of education for
children residing on the property owned by the United States and for children whose parents are
employed on property owned by the United States, and the sudden and substantial increase in
school attendance resulting from Federal activities. Section 8001 of the Improving America's
Schools Act of 1994, Pub. L. 108-382, 108 Stat. 3518, 3749 (20 U.S.C.A. § 7701).
In order to receive Federal impact aid, an affected local educational agency is annually required
to submit an application to the Secretary of Education. Section 8005(a) (20 U.S.C.A.
§ 7705(a)). The amount of basic support or payment is determined by a student weighing system and a local contribution rate (LCR) or its equivalent. In Bellevue's case, the comparable LCR approach provided the maximum amount of basic support for Federal fiscal year 1997. The amount of its payment was determined by--
In computing the aggregate local current expenditures, the State educational agency is directed
by 34 C.F.R. § 222.41(a)(2) to consider only those aggregate current expenditures made by the
generally comparable LEAs from revenues derived from local sources. No State or Federal
funds may be included.
B. Revenues Derived From Local Sources
The dispute between the parties focuses upon whether the state income tax receipts distributed to
Bellevue's comparable LEAs pursuant to Neb. Rev. Stat. § 79-3804(3) (1994) may be considered
as revenues derived from local sources and, therefore, are included in the determination of
Bellevue's comparable LCR.See footnote 22
The term revenues derived from local sources has two definitions. First, the term was recently
defined by Congress in October 1994 when it enacted Section 8013(11) (20 U.S.C.A.
§ 7713(11)) as part of the Improving America's Schools Act of 1994. Congress provided that
revenues derived from local sources are the--
As ED correctly notes in its brief, this tribunal lacks the authority to invalidate a regulation
promulgated by the Secretary and must, therefore, follow the regulation. In re Smithville R-II
School District, Dkt. No. 91-4-I, U.S. Dep't of Education (Sec. Dec. July 27, 1992). Therefore,
any differences between the statutory and regulatory definitions are meaningless before this
tribunal. The regulatory definition controls.
Under 34 C.F.R. § 222.2(c), revenues derived from local sources means real estate tax funds,
other taxes or receipts received from the county, and any other local tax or miscellaneous
receipts. A reasonable interpretation of this regulation would limit local source revenues to taxes
levied by the local government such as real estate taxes, local sales taxes, and local income taxes.
This view would exclude taxes levied by a state such as a state income tax.
ED, however, advances a much broader interpretation of this regulation. In its view, local source
revenue may also include taxes levied by the state if, under the taxing statute, the tax is
dedicated as a local revenue and is distributed to the LEAs precisely in the proportion that it
was generated within their geographical area. According to ED, this qualifies as a local tax or
miscellaneous receipts under 34 C.F.R. § 222.2(c).
As applied to the instant case, ED argues that the Nebraska State income tax in question does not
qualify as a local tax since it is not dedicated as a local revenue and is not distributed to the LEAs
in the proportion that it was generated in their local areas. Under the Nebraska taxing statute, ED
maintains that the income tax is dedicated as a state tax, not a local tax, because it is designated
as a distribution of state aid to [the] districts under Neb. Rev. Stat. § 79-3804(1). In addition,
ED asserts that some LEAs do not receive a distribution proportionate to income tax collected
within their district. Of the six classes of school districts, ED notes that the two school districts,
i.e. class I (K-8) and class VI (9-12 only) do not receive the full 20 percent of the projected State
income tax receipts which is made available to schools in the other four classes. Neb § 79-
3804(2) and (3).
Given ED's interpretation of revenue derived from local sources under 34 C.F.R. § 222.2(c), the
tribunal agrees with ED's position. The Nebraska state income tax is not a revenue derived from
local sources because it is not dedicated as a local tax or revenue. As such, the Nebraska state
income tax may not be considered in determining Bellevue's comparable local contribution rate.
Accordingly, Bellevue's complaint must be rejected.
C. Bellevue's Argument
In order to make and preserve the record for purposes of an appeal, it should be noted that
Bellevue argues that the distributions of Nebraska State income tax to the local educational
agencies constitute revenues derived from local sources as that term is defined by Section
8013(11). Bellevue maintains that the statutory definition, not the regulatory definition, must be
used in computing the comparable local contribution rate under 34 C.F.R. § 222.41 because the
introductory except clause of this regulation mandates that the statutory definition applies--
Bellevue then argues that, under either subsection of Section 8013(11), the distribution of the
Nebraska state income tax qualifies as revenues derived from local sources as it provides that--
Therefore, under Bellevue's view, the Nebraska State Department of Education must consider
the distribution of the State income tax receipts to Bellevue's comparable LEAs in determining
Bellevue's local contribution rate.See footnote 77
On the basis of the foregoing, it is HEREBY ORDERED that Bellevue's appeal is dismissed
Allan C. Lewis
Chief Administrative Law Judge
Issued: July 13, 1998
On July 13, 1998, a copy of the attached initial decision was sent by certified mail, return receipt requested to the following:
Patrick J. Sullivan, Esq.
Adams & Sullivan
Attorneys at Law
1246 Golden Gate Drive, Suite 1
Papillion, Nebraska 68046-2843
Jane A. Hess, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
FOB - 10B, Room 5442
Washington, D.C. 20202-2110