| Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions |
|
|
|
| Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions |
|
|
|
|
You can search the entire site. or go to the recent opinions, or the chronological or subject indices. North Slope Borough and North Slope Borough School District v. State of Alaska, Department of Education and Early Development (4/2/2021) sp-7511
Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
NORTH SLOPE BOROUGH and )
NORTH SLOPE BOROUGH SCHOOL ) Supreme Court No. S-17546
DISTRICT, )
) Superior Court No. 3AN-16-09264 CI
Appellants, )
) O P I N I O N
v. )
) No. 7511 - April 2, 2021
STATE OF ALASKA, )
DEPARTMENT OF EDUCATION )
& EARLY DEVELOPMENT, )
)
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Kevin M. Saxby, Judge.
Appearances: Molly Brown and Jessica Dillon, Dillon &
Findley, P.C., Anchorage, and Allen Clendaniel and Lea
Filippi,Sedor,Wendlandt, Evans &Filippi,LLC,Anchorage,
for Appellants. Janell M. Hafner, Chief Assistant Attorney
General, and Kevin G. Clarkson, Attorney General, Juneau,
for Appellee.
Before: Bolger, Chief Justice, Winfree, Maassen, and
Carney, Justices. [Borghesan, Justice, not participating.]
CARNEY, Justice.
----------------------- Page 2-----------------------
I. INTRODUCTION
Alaska's school debt reimbursement program allows municipalities to be
reimbursed by the Department of Education and Early Development for bond payments
related to school construction and renovation. To qualify for reimbursement, eligible
bonds must be repaid in approximately equal payments over a period of at least ten years.
Foryearsamunicipalityissued, and sought reimbursementfor,construction
bonds that did not satisfy the equal payments requirement and the Department
reimbursed the municipality. But when the municipality, after a several year absence,
sought reimbursement for additional bonds that did not comply with the equal payments
requirement, the Department denied the reimbursement.
The municipality sought administrative review, and the Department's
commissioner upheld the decision. The municipality then appealed to the superior court
and requested a trial de novo. The superior court denied the request for a trial de novo
and affirmed the Department's decision. The municipality now appeals both the
Department's and superior court's decisions. Because neither the Department nor the
superior court erred, we affirm their decisions.
II. FACTS AND PROCEEDINGS
A. Alaska's School Debt Reimbursement Program
TheDepartmentofEducationandEarly Development oversees primaryand
secondary public education in Alaska.1 One of the Department's responsibilities is to
distribute "approximately $1.5 billion annually in general fund support to over 500
1 See AS 14.07.020(a)(1).
-2- 7511
----------------------- Page 3-----------------------
2
public schools in 270 communities" to help fund education. The Department
accomplishes this responsibility in part through a school debt reimbursement program. 3
The school debt reimbursement program allows municipalities to seek
4 According
reimbursement for payments made on approved school construction bonds.
to the Department, municipalities typically engage in a multi-step process to receive
reimbursement. First, the municipality submits a construction project application, which
the Department reviews for compliance with certain statutory and regulatory
requirements.5 The municipality then seeks voter approval to issue municipal bonds to
help fund the project and, after making a payment on the bond, the municipality submits
a request to the Department for allocation in the annual budget.6
Specific statutory criteria govern the Department's allocation of debt
7 For example, AS 14.11.100(j)(1) requires municipalities to
reimbursement funds.
include information about total anticipated interest payments and estimated annual
operation and maintenance costs on the local bond measure ballot. Another section of
2 See AS 14.07.020(a)(11), (13); see generally AS 14.07.020(a).
3 AS 14.11.100(a)-(b).
4 AS 14.11.100(a)(1)-(19). Municipal bonds "are debt securities issued by
states . . . to fund day-to-day obligations and to finance capital projects such as building
schools." Municipal Bonds, Investor.gov, https://www.investor.gov/introduction-
investing/investing-basics/investment-products/bonds-or-fixed-income-products-0.
Purchasing a municipal bond is essentially "lending money to the bond issuer in
exchange for a promise of regular payments . . . and the return of the original investment,
or 'principal.' " Id.
5 See, e.g., AS 14.11.100(j)(4)-(5); 4 Alaska Administrative Code (AAC)
31.060-.062 (2020).
6 AS 14.11.102; 4 AAC 31.060(e); 4 AAC 31.062.
7 See generally AS 14.11.100.
-3- 7511
----------------------- Page 4-----------------------
the statute - the one at issue here - requires that applicable bonds "be repaid in
approximately equal annual principal payments or approximately equal debt service
payments over a period of at least 10 years." 8
Allocation requests must be submitted to the Department by October 15 of
9 After
the fiscal year preceding the fiscal year in which reimbursement is sought.
receiving therequests,theDepartment submits astatewideappropriation request through
the governor's annual budget. In the event the legislature does not appropriate sufficient
funds to cover all allocation requests, the Department must distribute funds pro rata to
all eligible municipalities.10
Before reimbursing a municipality, the Department contacts the
municipality's trust agent - who receives money from the municipality and makes
payments to bond holders - to confirm receipt of payment from the municipality. It
also verifies that the reimbursement request amount matches the trust agent's signed
payment confirmation. If there are available funds, the Department then reimburses the
municipality for the statutorily approved percentage of funds or its pro rata share.11
B. Facts
The dispute in this case concerns five bonds issued by the North Slope
Borough between 2006 and 2013. Despite the statutory requirement for approximately
8 AS 11.14.100(j)(3). According to the Department, most municipalities
submit their initial allocation request before they issue bonds. In these cases, the
Department accepts an estimated debt service schedule. Once a bond is sold, the
Department requires an actual debt service schedule prior to reimbursement.
9 4 AAC 31.060(e).
10 AS 14.11.100(c).
11 See AS 14.11.100(a)(1)-(19); AS 14.11.100(c).
-4- 7511
----------------------- Page 5-----------------------
12
equal debt service payments over a period of at least ten years, for a number of years,
the Borough had issued bonds with unequal service payments and the Department had
partially reimbursed the Borough for them. The Borough asserted that the noncompliant
payment terms for these bonds allowed it to achieve "short term budget certainty" and
ensure it had sufficient revenue to make bond payments. The Department employee
responsible for reviewing the Borough's allocation requests later supplied an affidavit
stating he was unaware of the statutory requirements for eligible bonds when he
recommended reimbursement of the noncompliant bonds.
The bonds in this case, 2006A, 2008A, and 2009B (the earlier bonds) and
2012A and 2013A (the later bonds), were issued and approved by Borough voters in
2006 through 2013. When the Borough submitted allocation requests for them, the
Department determined that none of the bonds complied with the requirements of
AS 14.11.100(j)(3).
Although the Department states that municipalities usually request prior
approval before issuing bonds, the Borough issued and began making payments on the
earlier bonds before submitting any requests for project approval or debt reimbursement.
The Borough requested approval for projects funded by these earlier bonds after
construction was substantially completed. In July 2011 the Borough requested approval
for the Nuiqsut Trapper School Renovation, a project that had been substantially
completed eight months earlier. In March 2012 the Borough requested approval for the
Tikigaq School Gym and Locker Room Renovation project in Point Hope, which had
been completed in January 2008. The Department approved both projects in June 2012
12
AS 14.11.100(j)(3).
-5- 7511
----------------------- Page 6-----------------------
13
and agreed the projects were eligible for reimbursement at a 70% rate. The 2006A,
2008A, 2009A, and 2009B bonds were identified as funding sources for the projects.
In October 2012 the Borough requested allocation for its anticipated debt
service payments in fiscal year 2014. The request included anticipated payments on
three of the bonds - 2006A, 2008A, and 2012A. In June 2013 the Borough requested
approval for a second project at the Point Hope school, the Tikigaq School Major
Renovation and New Gymnasiumproject; it later identified the 2012A and 2013A bonds
as funding sources for this project. And in September the Borough requested allocation
for its anticipated debt payments in fiscal year 2015 on the 2006A, 2008A, 2012A, and
2013A bonds.
In August 2014 the Department's Director of School Finance and Facilities
denied the Borough's June 2013 project application for the Tikigaq School Major
Renovation and New Gymnasium project. The rejection letter stated that the bonds
identified to fund the project did not meet the statutory requirements of approximately
equal debt service payments over a period of at least ten years. The Borough asked the
Department to reconsider its decision. In the alternative, the Borough asked for a
written, final determination so that it could begin the administrative appeals process. No
response to the Borough's September 2014 letter exists in the record.
InNovembertheBorough formally requested anexplanation why it had not
received reimbursement for payments on the five bonds. The Department responded in
January 2015 that the bonds werenot eligiblefor reimbursement because the debt service
schedules did not comply with AS 14.11.100(j)(3).
13
See AS 14.11.100(a)(16).
-6- 7511
----------------------- Page 7-----------------------
C. Proceedings
1. Agency proceedings
14
The
In February 2015 the Borough appealed to the Commissioner.
Borough made three central claims: that theDepartment's denial constituted an unlawful
change in policy or practice prohibited by equitable estoppel; that the denial of the
Borough's June 2013 project application based on the unequal payment structure of the
later bonds was a violation of "the statutory process outlined in AS 14.11.100"; and that
it was unlawful to deny reimbursement of payments on the earlier bonds after approving
the construction projects associated with those bonds. The Commissioner appointed a
15
designee to review the Department's decision.
In March thedesigneeissued herdeterminationaffirming theDepartment's
decision that the bonds were "not amortized in approximately equal payments over ten
years as required by AS 14.11.100(j)(3)." As a result, the designee also affirmed the
Department's denial of the Borough's June 2013 project application because the bonds
it proposed to fund the project did not meet the statutory requirements.
The Borough requested a formal hearing.16 After early motion practice the
hearing officer issued an order in June 2015 stating that "[t]he parties appear to agree the
core issue is one of statutory construction that may be subject to summary adjudication"
and asked them to brief the standard of review he should use.17
14 See 4 Alaska Administrative Code (AAC) 40.020 (2020).
15 See 4 AAC 40.030.
16 See 4 AAC 40.040.
17 4 AAC 40.040(e)(9) defines the standard of review to be used in formal
hearings and states:
(continued...)
-7- 7511
----------------------- Page 8-----------------------
18
The hearing officer issued a recommended decision in July 2015, which
the Commissioner remanded for further clarification. The hearing officer issued a final
recommended decision in August, and the Commissioner adopted it.
After reviewing the parties' briefs and the language of the regulation, the
hearing officer concluded that under 4 AAC 40.040(e)(9), he was required to uphold the
Department's initial denial unless the decision maker did not have a reasonable basis for
her decision based on substantial evidence available to her at the time. He also
concluded that he was required to uphold the Department's review of the initial decision
unless the Commissioner's designee abused her discretion based on substantial evidence
available to her at the time she conducted the review.
17 (...continued)
[T]he hearing officer shall recommend that the commissioner uphold the
initial decision maker or the commissioner's designee unless the hearing
officer determines that
(A) the initial decision maker did not have a reasonable basis
for the decision, based upon substantial evidence that was
available to the initial decision maker at the time of the
decision; or
(B) the commissioner's designee abused the designee's
discretion in failing to grant the relief requested by the district
or applicant, based upon substantial evidence that was
available to the designee at the time of the decision.
The hearing officer asked the parties to brief specifically how this standard of review
should apply to summary adjudication.
18 The hearing officer submits a recommended decision to the commissioner,
who reviews the decision and may adopt "all, part, or none" of the recommended
decision, or may remand the decision with written instructions for further hearing or
further deliberation. 4 AAC 40.040(f) and (g).
-8- 7511
----------------------- Page 9-----------------------
After reviewing the record, including the evidence the parties submitted
with their summary adjudication motions, the hearing officer determined there was "a
reasonable basis . . . to decide . . . the bonds were not eligible for debt reimbursement"
based on substantial evidence available to the Department at the time it issued its initial
decision. The hearing officer next reviewed the information the Commissioner's
designee cited in support of her decision and concluded that the designee did not abuse
her discretion in affirming the Department's initial decision or in rejecting the Borough's
estoppel argument.
2. Superior court proceedings
19
The Borough appealed to the superior court and moved for a trial de novo.
In its motion the Borough asserted that the hearing officer had reviewed the
Department's decisions under the wrong standard and adopted disputed material facts,
which was inappropriate at the summary adjudication stage. TheBorough claimed it was
denied an opportunity to develop an adequate record as a consequence, thus warranting
a trial de novo. The Department objected, arguing that the Borough had ample
opportunity to develop the record as part of the administrative hearing process and that
the record was adequate to allow appellate review.
The court denied the Borough's motion. It reasoned that the Department's
administrative procedures did not deny the Borough due process, and that any error due
to the hearing officer's choice of an improper standard of review was harmless.
After the motion for a trial de novo was denied, the parties turned to the
Borough's administrative appeal. The Borough again argued that the hearing officer
employed the wrong standard of review and incorrectly adopted disputed facts in the
19 Alaska Appellate Rule 609(b)(1) provides: "In an appeal from an
administrative agency, the superior court may in its discretion grant a trial de novo in
whole or in part."
-9- 7511
----------------------- Page 10-----------------------
Department's favor; that the Department wrongly interpreted AS 14.11.100(j)(3), which
the Borough argued "does not prohibit a municipal entity from pooling projects into one
bond with a separate school debt schedule or require separate bonding for schools"; that
the earlier bonds substantially complied with statutory requirements, and that the
Department should be estopped from denying reimbursement. The superior court
rejected each of the Borough's arguments. The Borough now appeals the superior
court's denial of a trial de novo and the Department's denial of the reimbursement
requests.
III. STANDARDS OF REVIEW
Because the Borough sought a trial de novo in lieu of proceeding with the
administrative appeal, we first review the superior court's denial of its motion. "We
20 When a
review the superior court's denial of a trial de novo for abuse of discretion."
superior court acts as an intermediate court of appeals,21
"we independently review the
22
administrative decision."
The deference we afford to agency decisions in our independent review
23 For "questions of law
varies based on the type of determination disputed on appeal.
involving 'agency expertise or the determination of fundamental policies within the
scope of the agency's statutory functions,' " we evaluate "whether the agency's decision
20 Horner-Neufeld v. Univ. of Alaska Fairbanks, 389 P.3d 6, 11 (Alaska
2017).
21 See AS 22.10.020(d); AS 44.62.560(a); Alaska R. App. P. 602(a)(2).
22 Titus v. State, Dep't, of Admin., Div. of Motor Vehicles, 305 P.3d 1271,
1276 (Alaska 2013) (quoting Alaska Exch. Carriers Ass'n, Inc. v. Regulatory Comm'n
of Alaska , 202 P.3d 458, 460 (Alaska 2009)).
23 Davis Wright Tremaine LLP v. State, Dep't of Admin. , 324 P.3d 293, 298-
99 (Alaska 2014).
-10- 7511
----------------------- Page 11-----------------------
is supported by the facts and has a reasonable basis in law, even if we may not agree with
24
the agency's ultimate determination."
For questions of law involving no agency
expertise, we substitute our "own judgment for that of the agency even if the agency's
25 "We review an agency's interpretation and
decision had a reasonable basis in law."
application of its own regulations using the reasonable basis standard of review" and will
defer to the agency's interpretation "unless its 'interpretation is plainly erroneous and
inconsistent with the regulation.' "26
"We apply our independent judgment to determine whether an agency
action is a regulation subject to the notice and public comment provisions of the
27
[Administrative Procedure Act]."
IV. DISCUSSION
A. The Superior Court Did Not Abuse Its Discretion By Denying The
Borough's Request For A Trial De Novo.
Alaska Appellate Rule 609 grants the superior court discretion to hold a
28 This procedure is "rarely
trial de novo in an appeal from an administrative agency.
warranted."29
De novo review is appropriate "where the agency record is inadequate;
24 Nicolos v. N. Slope Borough , 424 P.3d 318, 325 (Alaska 2018) (quoting
Davis Wright Tremaine , 324 P.3d at 299).
25 Tesoro Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903
(Alaska 1987).
26 Davis Wright Tremaine, 324 P.3d at 299 (quoting Kuzmin v. State,
Commercial Fisheries Entry Comm'n, 223 P.3d 86, 89 (Alaska 2009)).
27 Alyeska Pipeline Serv. Co. v. State , 288 P.3d 736, 741-42 (Alaska 2012).
28 Alaska R. App. P. 609(b)(1).
29 S. Anchorage Concerned Coal., Inc. v. Municipality of Anchorage Bd. of
(continued...)
-11- 7511
----------------------- Page 12-----------------------
where the agency's procedures are inadequate or do not otherwise afford due process;
or where the agency was biased or excluded important evidence in its decision-making
process."30
The Borough argues that it is entitled to a trial de novo. It claims the record
was inadequate due to the hearing officer's failure to hold a full hearing as permitted by
4 AAC 40.040, which would have allowed it to more fully develop witness testimony.
The Borough further contends that Department procedures were inadequate because the
Borough was "precluded . . . fromcontesting disputed material facts at a formal hearing."
31
But the Borough stipulated to summary adjudication.
The Borough was not required to agree to summary adjudication; it could
have argued that there were disputed material facts, making summary adjudication
inappropriate. But it did not. The Borough instead conceded there were no disputed
material facts and argued for summary judgment in its favor. That it did not like the
hearing officer's decision does not mean it was denied an adequate opportunity to be
heard. And if there was evidence material to the Borough's position, the Borough had
the opportunity to introduce it and should have done so. There was no dispute that the
five bonds at issue did not comply with AS 14.11.100(j)(3) as the Department interpreted
the statute. The record at the administrative hearing provided an adequate basis for the
hearing officer's decision.
29 (...continued)
Adjustment , 172 P.3d 774, 778 (Alaska 2007).
30 Id.
31
See 4 AAC40.040(e)(3)(F) (allowingparty requesting formal hearing after
designee's decision to request "summary adjudication").
-12- 7511
----------------------- Page 13-----------------------
In addition, although the Borough argues it was not given an opportunity
to cross-examine and impeach witnesses, it has not made any factual claim that, if true,
would have affected the Department's decision. It has not claimed that the Department
excluded important evidence or was biased in its decision-making process. The
Borough's claims are that the Department wrongly interpreted AS 14.11.100(j)(3); that
32 that
the Department's interpretation violated the Administrative Procedure Act (APA);
the earlier bonds substantially comply with the statute; andthat equitable estoppel should
require the Department to reimburse the Borough. These are not factual disputes; they
are disputes about legal conclusions. The superior court did not abuse its discretion by
denying the Borough's motion for a trial de novo.
B. TheHearing OfficerAppropriately Applied The Deferential Standard
Of Review To The Designee's Decision To Deny Reimbursement.
The hearing officer reviewed the Department's denial of the Borough's
reimbursement under the standard prescribed by 4 AAC 40.040(e)(9). The language of
the regulation makes clear that it requires deference to the Department's decision: "the
hearing officer shall recommend that the commissioner uphold the initial decision maker
or the commissioner's designee unless . . . the initial decision maker did not have a
reasonable basis for the decision . . . [or] the commissioner's designee abused [its]
discretion."33 The Borough argues that this standard was inappropriate and that the
hearing officer should have reviewed the Department's decision under Alaska Civil Rule
56. But the Borough fails to make a compelling argument that the regulation's standard
was not appropriate and appears to misunderstand Rule 56. Because the hearing officer
32 AS 44.62.010-.950 (describing requirements for delegation of legislative
authority to government departments and agencies).
33 4 AAC 40.040(e)(9).
-13- 7511
----------------------- Page 14-----------------------
correctly applied the reasonable basis test required by regulation to review the
Department's decision deferentially, we find no error.
The Borough claims that because summary adjudication is mentioned only
in 4 AAC 40.040(e)(3)(F), the standard of review defined in 4 AAC 40.040(e)(9) was
not meant to apply to decisions on summary adjudication. Instead, the Borough asserts
that Rule 56, which governs summary judgment in civil cases, should apply. In support,
the Borough cites several decisions from the Office of Tax Appeals and our decision in
34
Smith v. State, Department of Revenue, Child Support Enforcement Division .
Smith does not support the Borough or even address the appropriate
standard of review. There we held that a hearing officer could properly resolve Smith's
appeal of his child support obligation by summary adjudication because there were no
35 We did not expressly address the standard of review that
material facts in dispute.
should apply.36 We stated only that when no material facts were in dispute, summary
adjudication afforded the litigant "a fair opportunity to contest legal issues."37
The legislature created the Office of Tax Appeals and gave it "original
jurisdiction to hear formal appeals frominformal conferencedecisions oftheDepartment
of Revenue."38 The hearing officer in each tax appeal case the Borough cites decided
matters as would a trial court in response to summary judgment motions: after
34 790 P.2d 1352 (Alaska 1990).
35 Id. at 1353.
36 See id.
37 Id.
38 AS 43.05.405.
-14- 7511
----------------------- Page 15-----------------------
concluding that no facts material to the outcome were in dispute, they made purely legal
determinations.39
A closer look at Rule 56 reveals a fundamental misconception in the
Borough's argument. Rule 56 does not set out a standard of review; it prescribes
procedures for filing motions for summary judgment, evidence that may be submitted
and relied on by the court when making a decision, how the court should resolve any
factual disputes, and when summary judgment is appropriate.40
Nor do the cases from the Office of Tax Appeal support the Borough's
argument. The statute governing administrative reviews before that agency expressly
provides that the administrative law judge reviews all questions de novo.41 As we have
explained,
[T]he legislature created [in the Office of Tax Appeals] the
functional equivalent of a full trial court charged with the task
ofimpartially resolving tax disputes. Accordingly, theOffice
of Tax Appeals, like any trial court, must review and
determine facts de novo, and exercise its independent
judgment in interpreting and applying the law to the facts. [42]
As a result, the Office of Tax Appeals functions like a trial court, making factual findings
and drawing legal conclusions de novo. Rule 56 does not affect its role; the rule simply
states that a tribunal may issue a summary decision only when undisputed facts "show
39 See In re No Name, Inc., OAH No. 04-0321-TAX at 5 (July 6, 2013); In re
VECO Corp., OAH No. 10-0137-TAX at 2 (Oct. 12, 2012); In re City of Valdez's
Objection, OAH Nos. 06-0250-TAX, 06-0251-TAX at 3-5 (Apr. 25, 2011); In re City
of Valdez Notice of Escaped Prop., OAH No. 04-0322-TAX at 4 (Aug. 27, 2010).
40 See Alaska R. Civ. P. 56(a), (b), (c), (e).
41 AS 43.05.435.
42 State, Dep't of Revenue v. DynCorp & Subsidiaries, 14 P.3d 981, 984
(Alaska 2000) (footnote omitted).
-15- 7511
----------------------- Page 16-----------------------
that there is no genuine issue as to any material fact and that any party is entitled to a
judgment as a matter of law." 43
The Department's regulations expressly prescribe a deferential standard of
44 The hearing officer must recommend that the Commissioner affirm the
review.
Department's initial decision if substantial evidence provides a reasonable basis for the
decision.45 Likewise, the hearing officer must recommend upholding the review by the
Commissioner's designee if substantial evidence supports that there was no abuse of
discretion.46 Rather than resembling Rule 56's directions to a trial court considering
summary judgment, this standard of review suggests that the hearing officer acts more
like an appellate court deferentially reviewing previous decisions than a trial court.
While Rule 56 guides the procedural aspects of the hearing officer's
decision, as it does for trial courts and the Office of Tax Appeals, it does not establish
the standard of review. Summary adjudication before any of these tribunals would be
inappropriate if material facts were disputed. Such a dispute could have precluded the
legal conclusion that there was a reasonable basis for the initial decision or could have
raised issues regarding whether the Commissioner's designee abused her discretion.
If the Borough had shown through affidavits or other evidence obtained
through discovery that the Commissioner's designee relied on inappropriate factors in
reviewing the initial decision, it might have created a material factual dispute sufficient
to call into question whether the designee abused her discretion. But the absence of
disputed material facts relevant to the central legal questions presented to the hearing
43 Alaska R. Civ. P. 56(c).
44
See 4 AAC 40.040(e)(9).
45
4 AAC 40.040(e)(9)(A).
46
4 AAC 40.040(e)(9)(B).
-16- 7511
----------------------- Page 17-----------------------
officer - whether the decision had a reasonable basis and whether the Commissioner's
designee abused her discretion - meant that summary adjudication was appropriate.
The hearing officer conducted the appropriate analysis. He considered the
evidence that was before the Department's initial decision maker at the time she made
her decision and concludedthat undisputed facts provided substantial evidence that there
was a reasonable basis for the initial decision. The hearing officer then considered the
evidence that the Commissioner's designee reviewed in affirming the initial decision and
concluded that undisputed facts provided substantial evidence that the designee did not
abuse her discretion.
C. There Is A Reasonable Basis For The Department's Conclusion That
The Bonds Did Not Comply With The Statute.
The parties dispute the standard under which we should review the
Department's interpretation of AS 14.11.100(j)(3). The Borough argues that we should
interpret the statute de novo. The Department counters that we should apply the more
deferential reasonable basis standard.
1. The reasonable basis standard is appropriate.
Wereviewan agency's interpretation ofastatuteunder thereasonablebasis
standard "when the interpretation at issue implicates agency expertise or the
determination of fundamental policies within the scope of the agency's statutory
functions."47
The legislature has charged the Department with the duty of "review[ing]
plans for construction . . . and major rehabilitation of . . . public elementary and
secondary schools and . . . determin[ing] and approv[ing] the extent of eligibility for state
47 Marathon Oil Co. v. State, Dep't of Nat. Res., 254 P.3d 1078, 1082 (Alaska
2011).
-17- 7511
----------------------- Page 18-----------------------
aid."48 In order to determine whether an application is eligible for reimbursement, the
Department must interpret the eligibility requirements in the statute. Statutory
interpretation therefore falls squarely within the scope of its duty.
The Borough argues that its "bond structure lowers the amount of interest
associated with the debt[] and provides budget certainty," thus furthering the purpose of
the reimbursement program by providing affordable educational facilities. But as the
Department notes, whether the Borough's bond structure furthers the purpose of the
reimbursement program is a question that falls squarely within the Department's
expertise. And whether the bonds " 'provide[] budget certainty' for the Department or
the State . . . is a policy question about managing the public fisc that can only be
determined by looking to unique internal government policy considerations."
Interpretation of AS 14.11.100(j)(3) thus "implicates agency expertise" and policy
49
considerations that fall "within the scope of the agency's statutory functions."
Applying the reasonable basis standard of review to the Department's interpretation of
the statute is therefore appropriate.
2. The Department's determination that the bonds do not comply
with statutory requirements is supported by the language of the
statute and has a reasonable basis in law.
The Borough concedes that the earlier bonds do not satisfy statutory
requirements. The parties' main dispute over the later bonds concerns whether their
payment terms satisfy the requirement "that the bonds must be repaid in approximately
equal annual principal payments or approximately equal debt service payments over a
48 AS 14.07.020(a)(11).
49 Marathon Oil Co., 254 P.3d at 1082.
-18- 7511
----------------------- Page 19-----------------------
period of at least 10 years." 50 When applying the reasonable basis standard of review,
we seek "to determine whether the agency's decision is supported by the facts and has
a" reasonable basis in law, even if we may not agree with the agency's ultimate
determination.51
Resolution of the dispute depends on the interpretation of "bond" as used
in AS 14.11.100(j)(3). The Department's interpretation implicitly refers to each bond
as a whole. The Borough's interpretation, however, treats "bond" as referring only to
the school debt portion of the bond, rather than the entire bond. If the Borough's
interpretation is correct, the school-related portions were spread out over ten years and
could have been deemed approximately equal. This would mean that the 2012A and
2013A bonds complied with AS 14.11.100(j)(3)'s amortization requirement.
Interpreting "bond" to refer to bonds as a whole, instead of only the school
debt portion, is consistent with the plain language of the statute and is reasonable based
on the Department's expertise. That "bond" refers to the bond itself, and not a sub-
component of the bond, is also the most natural reading of the statute. There is no
indication in the statute that "bond" has any alternative meaning, nor has the Borough
offered any legislative history to overcome the statute's plain meaning.52 Moreover,
50 AS 14.11.100(j)(3).
51 City of Valdez v. State, 372 P.3d 240, 246 (Alaska 2016) (quoting Davis
Wright Tremaine LLP v. State, Dep't of Admin., 324 P.3d 293, 299 (Alaska 2014)).
52 See Reasner v. State, Dep't of Health & Soc. Servs., Office of Children's
Servs., 394 P.3d 610, 617 (Alaska 2017) (noting that when interpreting a statute "[t]he
plainer thestatutory languageis, themoreconvincingtheevidenceofcontrary legislative
purpose or intent must be" (alteration in original) (quoting State, Commercial Fisheries
Entry Comm'n v. Carlson, 270 P.3d 755, 762 (Alaska 2012))).
-19- 7511
----------------------- Page 20-----------------------
treating bonds as a whole is crucial to the Department's process of verifying a
municipality's payment information.
Before reimbursing a municipality, the Department verifies that the
reimbursement request matches the amount received by the municipality's trust agent.
If the Department accepted the Borough's breakdown of school-related payments, "[t]he
[trust agent's] payment confirmation would not match the amount reimbursed."
Accepting the Borough's interpretation would also result in "alternative schedules like
the ones submitted" by the Borough that "are susceptible to change and may not
represent the actual selling and paying off of the bond." The Department's interpretation
of the statute's requirement that equal payment terms for the bonds are required ensures
that the payment verification process is accurate and not susceptible to unexpected
changes.
Because the Department's conclusion that bonds 2012A and 2013A do not
satisfy the statutory requirements is reasonable and is supported by the plain language
of the statute, we affirm its decision that the bonds do not comply with statutory
requirements.
D. The Department's Interpretation Of AS 14.11.100(j)(3) Did Not
Violate The Administrative Procedure Act.
The APA "establish[es] basic minimum procedural requirements for the
53 "An agency's failure
adoption, amendment, or repeal of administrative regulations."
to satisfy the APA's procedural requirements renders its action invalid."54
53 AS 44.62.280.
54
Friends of Willow Lake, Inc. v. State, Dep't of Transp. & Pub. Facilities,
Div. of Aviation & Airports, 280 P.3d 542, 548-49 (Alaska 2012).
-20- 7511
----------------------- Page 21-----------------------
The APA defines "regulation" to "mean[] every rule, regulation, order, or
55
standard of general application or [any] amendment, supplement, or revision" thereof.
"Although the definition of 'regulation' is broad, it does not encompass every routine,
56 " '[A] common sense
predictable interpretation of a statute by an agency."
interpretation of [a] regulation's applicability' is not a regulation, so long as it does not
provide 'new requirements nor [make] the existing ones any more specific.' "57 "When
anagency's interpretation does not add substantive requirementsto thestatutebut simply
interprets the statute 'according to its own terms,' the agency is not required to adopt the
interpretation as a regulation under the APA."58
The Borough asserts that the Department's interpretation of
AS 14.11.100(j)(3) went beyond the plain language of the statute and implemented "the
statutory requirements of AS 14.11.100" in an "expansive and unforeseeable" way,
which is characteristic of a regulation. But, as the Department points out, that assertion
"conflates the Department's oversight of a statute with a prior 'interpretation' of it." A
prior Department employee acknowledged in his affidavit that he failed to apply and
interpret AS 14.11.100 correctly when he recommended reimbursement for the
Borough's previous bonds. That employee's failure to abide by applicable law was not
55 AS 44.62.640(a)(3).
56 Friends of Willow Lake, 280 P.3d at 549 (quoting Smart v. State, Dep't of
Health & Soc. Servs., 237 P.3d 1010, 1017 (Alaska 2010)).
57 Id. (second and third alterations in original) (quoting Alaska Ctr. for the
Env't v. State, 80 P.3d 231, 244 (Alaska 2003)).
58 Alyeska Pipeline Serv. Co. v. State , 288 P.3d 736, 742 (Alaska 2012)
(quoting Alyeska Pipeline Serv. Co. v. State, Dep't of Envtl. Conservation , 145 P.3d 561,
573 (Alaska 2006)).
-21- 7511
----------------------- Page 22-----------------------
"a rule, regulation, or order"; it did not constitute a regulation. An employee's oversight
59
does not "represent [the Department's] official policy positions." The Department's
later application oftherelevant statute"simply interprets the statute 'according to its own
60
terms.' "
The Borough cites no authority for its position that the Department's
misinterpretation of AS 14.11.100 when reviewing the previous bonds is an official
policy position that should be treated as a regulation or that complying with the law
when reviewing the current bonds constitutes a change that requires compliance with the
APA. Although the Department's past reimbursement of the Borough's unequal bond
payments may have led the Borough to believe it could continue to structure its bonds
the same way, there is no indication in the record that the former employee's failure to
apply the controlling lawconstituted aformal interpretation ofthestatute that would bind
future review.
The Borough also argues that "the Department's newly imposed general
obligation bond requirement . . . makes [more] specific and implements the statutory
requirements of AS 14.11.100." It asserts that the Department must therefore comply
with the APA. The Department's current interpretation corrects a previous oversight.
It was neither "expansive or unforeseeable" that once it learned of its previous failure to
apply the law, the Department would correct that failure. Such a correction is a common
59 See Chevron U.S.A., Inc. v. State, Dep't of Revenue , 387 P.3d 25, 40
(Alaska2016) (holdingthat internal documents could not be considered a departure from
a previous interpretation because they "were never meant to represent . . . official policy
positions").
60 Id. It is also of note that some six years passed between the former
employee's approval of noncompliant applications and the Borough's request for the
allocations at issue here.
-22- 7511
----------------------- Page 23-----------------------
sense interpretation of the law, not a regulation. The Department was not required to
comply with the APA's notice and comment provisions before determining that the
Borough's bonds did not comply with statutory requirements.
E. The Doctrine Of Substantial Compliance Does Not Apply.
The Borough concedes that its earlier bonds do not strictly comply with
AS 14.11.100(j)(3). But it argues that because the bonds substantially comply, the
Department should have granted its reimbursement requests.
"We have 'adopted the doctrine of substantial compliance' in order to carry
out legislative intent and give meaning to all parts of a statute 'without producing harsh
61
and unrealistic results.' "
When applying the doctrine, we consider the purpose served
by the statutory requirements "because 'substantial compliance involves conduct which
falls short of strict compliance . . . but which affords the public the same protection that
62
strict compliance would offer.' "
The legislature added AS 14.11.100(j) in 1983 through House Bill (H.B.)
251.63
The legislative history of the bill suggests that the legislature was concerned with
rising costs associated with the debt reimbursement program in light of declining state
64 The legislature considered a number of measures to contain the cost of the
revenue.
61 Adamson v. Municipality of Anchorage , 333 P.3d 5, 13 (Alaska 2014)
(quoting Jones v. Short, 696 P.2d 665, 667 (Alaska 1985)).
62 Id. at 14 (quoting Jones, 696 P.2d at 667 n.10).
63 Ch. 82, § 3, SLA 1983.
64 See Testimony of Ginny Chitwood, Exec. Dir., Alaska Municipal League
at 4:03-4:21, Hearing on Senate Committee Substitute for Committee Substitute for
House Bill (S.C.S.C.S.H.B.) 251 Before the Sen. Fin. Comm., 13th Leg., 1st Sess. (May
19, 1983); Testimony of Bob Greene at 11:53-12:56, Hearing on S.C.S.C.S.H.B. 251
(continued...)
-23- 7511
----------------------- Page 24-----------------------
school reimbursement program, including imposing a one-year moratorium on debt
reimbursement, reducing the percentage of bond payments covered from 90% to 50%,
65 The
and requiring the Commissioner's approval prior to a local bond measure vote.
final House bill capped reimbursements at 50% for bond measures approved by voters
after June 30, 1983, required Commissioner pre-approval of local bond measures, and
added what is now AS 14.11.100(j)(3), requiring equal payments over a period of at least
ten years.66
Subsequent hearing testimony before the Senate Finance Committee also
illustrated the legislature's concern with the predictability of future appropriations to the
reimbursement program in light of tightening state budgets. A witness from the Alaska
Municipal League acknowledged that "the legislature and the administration need to . . .
be able to know ahead of time how much the entitlement is going to be and have some
control over what that entitlement is."67 She pointed out that because any bond issue
64 (...continued)
Before the Sen. Fin. Comm., 13th Leg., 1st Sess. (May 19, 1983).
65 See Minutes, Sen. Fin. Comm. Hearing on H.B. 251, 13th Leg., 1st Sess.
(May 18, 1983).
66 Ch. 82, §§ 2, 3, SLA 1983.
67 Testimony of Ginny Chitwood, Exec. Dir., Alaska Municipal League at
4:03-4:21, Hearing on S.C.S.C.S.H.B. 251 Before the Sen. Fin. Comm., 13th Leg., 1st
Sess. (1983). The text of the bill considered by the Finance Committee included the
precursor to what is now AS 14.11.100(j)(3) assection (j)(2), and required eligible bonds
to not be "redeemed before expiration" and "repaid in equal payments over a period of
at least 15 years." Senate Committee Substitute for Committee Substitute for House Bill
251, 13th Leg., 1st Sess. (1983). The legislature changed this language in conference to
its current form, requiring only "approximately equal" payments "over a period of at
least 10 years." Conference Committee Substitute for House Bill 251, 13th Leg., 1st
(continued...)
-24- 7511
----------------------- Page 25-----------------------
would include the schedule of payments over the length of the bond, "future year
entitlements can be determined easily . . . [and] there is no reason why every district
can't have a five-year projection on what new bonds they anticipate selling and what the
bond redemption schedule will be especially if you require a certain minimum length of
term of bond." 68
This concern with the predictability of future appropriations led to the ten-
year amortization term. Requiring a ten-year minimum term of approximately equal
annual payments would provide more certainty about future obligations and allow the
State to more predictably plan future budgets. The legislative history shows the
legislature's concern with the State's budget, not those of municipalities like the
Borough.
The payment schedules for the earlier bonds do not further this legislative
intent. The debt service schedules for each of these bonds show significant balloon
payments in later years. The 2006A bond required the Borough to pay off approximately
85% of the bond principal in the final two years. The 2008A and 2009B bonds likewise
required similar large principal payments in later years. The 2008A schedule required
a pay off of approximately 60% of the bond principal in the final two years. And the
2009B bond required no principal payments for the first four years followed by large
payments in years six and seven. The bonds' structure do not provide the certainty for
67 (...continued)
Sess. (1983).
68
Testimony of Ginny Chitwood, Exec. Dir., Alaska Municipal League at
5:47-6:17, Hearing on S.C.S.C.S.H.B. 251 Before the Sen. Fin. Comm., 13th Leg., 1st
Sess. (May 19, 1983).
-25- 7511
----------------------- Page 26-----------------------
State budgeting purposes that the legislature sought. In fact, the bonds contain precisely
the type of payment schedules the legislature wanted to avoid.
Substantial compliance by its terms assumes that the party asserting its
application must have largely satisfied relevant requirements. Where, as here, the party
asserts a position that is actually contrary to the stated requirements and would
undermine the legislature's intent in passing the law, the doctrine of substantial
compliance does not apply.
Accepting the Borough's reimbursement requests would condone the type
69 The Department
of payment schedules AS 14.11.100(j)(3) is intended to prevent.
properly rejected the Borough's substantial compliance argument.
F. The Hearing Officer Correctly Rejected The Borough's Equitable
Estoppel Claim, Which Would Have Forced The Department To Take
Unlawful Action.
The Borough argues that even if the bonds at issue do not strictly or
substantially comply with the statutory requirements, equitable estoppel should prevent
the Department from denying its reimbursement requests. The Borough claims that it
reasonably relied on the Department's past practice of reimbursing bonds that did not
comply with the statute and that the Department's denial caused the Borough harm.
We will enforce the doctrine of equitable estoppel against the State when:
"(1) the [State] asserts a position by conduct or words; (2) the private party acts in
reasonable reliance thereon; (3) the private party suffers resulting prejudice; and (4) the
estoppel serves the interest of justice so as to limit public injury."70 Although a party
69 See Adamson v. Municipality of Anchorage , 333 P.3d 5, 13 (Alaska 2014)
(rejecting municipality's argument that "would circumvent the legislature's intent").
70 Municipality of Anchorage v. Stenseth, 361 P.3d 898, 909 (Alaska 2015)
(continued...)
-26- 7511
----------------------- Page 27-----------------------
may meet the first three requirements, we will not enforce the doctrine "when a party's
request for estoppel would require the government to take unlawful or otherwise
unauthorized action." 71
Even assuming the first three requirements for equitable estoppel are met,
we will not enforce the doctrine because doing so would require the State to violate
AS 14.11.100(j)(3). If the Department were equitably estopped from correcting its
former employee's failure to apply AS 14.11.100(j)(3), it would be prevented - now
and arguably in the future - from denying reimbursement requests that contravened the
statute and the legislativeintent behind thestatute. The hearing officer rightfully rejected
the Borough's equitable estoppel claim.
V. CONCLUSION
We AFFIRM the superior court's denial of a trial de novo and AFFIRM the
superior court's affirmance of the Department's denial of reimbursement for the bonds
that do not comply with the statutory requirements specified in AS 14.11.100(j)(3).
70 (...continued)
(quoting Pfeifer v. State, Dep't of Health &Soc. Servs., Div. of Pub. Assistance, 260 P.3d
1072, 1082 (Alaska 2011)).
71 Alaska Trademark Shellfish, LLC v. State, Dep't of Fish & Game, 91 P.3d
953, 960 (Alaska 2004).
-27- 7511
 |
| Case Law Statutes, Regs & Rules Constitutions Miscellaneous |
|
