IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 80,000
BOARD OF EDUCATION OF UNIFIED SCHOOL DISTRICT NO. 443,
FORD COUNTY, KANSAS,
Appellant,
v.
KANSAS STATE BOARD OF EDUCATION, et al.,
Appellees.
SYLLABUS BY THE COURT
1. When an administrative agency decision is appealed to the district court pursuant to K.S.A. 77-601 et seq., and then appealed from the district court to this court, we review the administrative agency's decision as though the appeal has been made directly to us and we are subject to the same limitations of review as the district court.
2. Administrative boards and agencies may not rule on constitutional questions. Therefore, the issue of constitutionality must be raised when the case is on appeal before a court of law. This court reviews de novo the district court's findings involving issues of constitutionality.
3. The legislature shall provide for intellectual, educational, vocational and scientific improvement by establishing and maintaining public schools, educational institutions, and related activities which may be organized and changed in such manner as may be provided by law.
4. The legislature shall provide for a state board of education which shall have general supervision of public schools, educational institutions, and all the educational interests of the state, except educational functions delegated by law to the state board of regents. The state board of education shall perform such other duties as may be provided by law.
5. Local public schools under the general supervision of the state board of education shall be maintained, developed, and operated by locally elected boards. When authorized by law, such boards may make and carry out agreements for cooperative operation and administration of educational programs under the general supervision of the state board of education, but such agreements shall be subject to limitation, change, or termination by the legislature.
6. The test for determining whether a state law violates the Contract Clause of the United States Constitution is: (1) whether the state law has, in fact, operated as a substantial impairment of a contractual relationship; (2) whether there is a significant and legitimate public purpose behind the legislation; and (3) whether the adjustment of the contracting parties' rights and responsibilities is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption.
7. Legislation may still be upheld as constitutional, despite a substantial impairment finding, if there is a significant and legitimate public purpose behind the legislation, and if the impairments to the contracting parties' rights and responsibilities are based upon reasonable conditions and are of a character appropriate to the public purpose to justify the legislation's adoption.
8. The Contract Clause of the United States Constitution does not operate to obliterate the police power of the states. The interdiction of statutes impairing the obligation of contracts does not prevent the State from exercising such powers as are necessary for the general good of the public, though contracts previously entered into between individuals may thereby be affected. This power, which in its various ramifications is known as the police power, is an exercise of the sovereign right of the government to protect the lives, health, morals, comfort, and general welfare of the people, and is paramount to any rights under contracts between individuals.
9. The constitutionality of a statute should be considered in any action where it is necessary in order to determine the merits of the action or where the issues cannot be intelligently decided without doing so, notwithstanding the failure of the parties to raise the constitutional question, failure to plead the question, or failure to present the question to the trial court.
10. A statute is presumed constitutional and all doubts must be resolved in favor of its validity. If there is any reasonable way to construe a statute as constitutionally valid, the court must do so. A statute must clearly violate the constitution before it may be struck down. This court not only has the authority, but also the duty, to construe a statute in such a manner that it is constitutional if the same can be done within the apparent intent of the legislature in passing the statute.
11. Where a constitutional provision is self-executing, the legislature may enact legislation to facilitate or assist in its operation, but whatever legislation is adopted must be in harmony with and not in derogation of the provisions of the constitution.
Appeal from Shawnee district court; FRANKLIN R. THEIS, judge. Opinion filed October 30, 1998. Affirmed.
Ken W. Strobel, of Williams, Strobel, Malone, Mason & Ralph, P.A., of Dodge City, argued the cause and was on the brief for appellant.
Ward Loyd, of Ward Loyd Law Offices, L.L.C., of Garden City, argued the cause, and Bradley W. Maudlin, of the same firm, was with him on the brief for appellees Southwest Kansas Area Cooperative District No. 613 and Identified Member School Districts.
Dan Biles, of Gates, Biles, Shields & Ryan, P.A., of Overland Park, argued the cause, and Rodney J. Bieker, general counsel for the Kansas Department of Education, was with him on the brief for appellee Kansas State Board of Education.
The opinion of the court was delivered by
ABBOTT, J.: This is an appeal by Unified School District No. 443 (USD 443), Ford County, Kansas. USD 443 asserts that the 1987 amendment to K.S.A. 72-8230 unlawfully impairs its right to unilaterally terminate its participation in an interlocal cooperative agreement with 15 other school districts. The statute at issue extended an interlocal agreement between the districts that terminated by its own terms in 1989. USD 443 argues that the amended statute violates both the United States and Kansas Constitutions.
I. BACKGROUND
Both Kansas and federal law require that school districts provide certain special education services to "exceptional children" or other qualifying students enrolled in their respective districts, i.e., K.S.A. 72-966(a) and 20 U.S.C. 1400 et seq. The term "exceptional children" encompasses a wide spectrum of children from those who have severe physical or mental challenges to gifted children.
School districts in Kansas may provide the education services for exceptional children in one of three ways (or a combination of the three):
1. By a "stand alone" program, i.e., where the district provides the educational programs and services to only its own students;
2. Through a cooperative, i.e., one district serves as a sponsoring district and other districts share the cost;
3. Through an interlocal agreement (also a cooperative but referred to as an "interlocal"), i.e., an independent legal entity known as an "interlocal" provides the special education services to all member districts. Both the "cooperative" and "interlocal" are created by contractual agreements among the member districts which are participating in the programs.
USD 443 appears to be the only district in Kansas with a full-time equivalent enrollment of over 3,000 students that does not have a "stand alone" or "cooperative" program to provide the required education services.
USD 443 and some of the districts involved in this case formed an interlocal. The interlocal entity formed is Southwest Kansas Area Cooperative District No. 613 (SKACD). SKACD was a successor to a cooperative district in which Dodge City had been the sponsoring district. In the late 1970's the interlocal was formed. As required by the law in effect at that time, the agreement was limited to a term of years (not less than 3 nor more than 5). After several successor agreements, the 16 school districts involved in this case signed an interlocal agreement in 1986, which by its express terms was to expire June 30, 1989.
In 1987, the legislature amended K.S.A. 72-8230(a) in pertinent part as follows:
"(5)(A) The duration of a school district interlocal cooperation agreement for joint or cooperative action in providing special education services shall be perpetual unless the agreement is partially or completely terminated in accordance with this provision. This provision applies to every school district interlocal cooperation agreement for the provision of special education services entered into under authority of this section after the effective date of this act and to every such agreement entered into under this section prior to the effective date of this act, and extant on the effective date of this act, regardless of any provisions in such an agreement to the contrary." (Emphasis added.) L. 1987, ch. 276, § 1.
Thus, by such amendment, the 1986 interlocal agreement to which USD 443 was a party became, by operation of law, a perpetual agreement and could be terminated only by approval of the State Board of Education (State Board) in accordance with the procedures as set forth in the statute. Consequently, USD 443 was statutorily prohibited from unilaterally withdrawing from the interlocal agreement effective June 30, 1989 (the expiration date), by virtue of the above statutory amendments.
The legislative history shows that when the committees were considering the 1987 amendment, Gary Bishop, Director of SKACD, appeared before a legislative committee and spoke in favor of the amendment in question. He testified that additional units "may be responsible for additional costs" and that "coop break-up may not always be for sound educational reasons." He also testified that since the State pays about one-half of the total cost, it should have some control over the make-up of the special education administrative units.
SKACD apparently functioned well until sometime in the 1990's. Although it is of no import to this opinion, SKACD's relations with USD 443 did not improve when SKACD responded to USD 443's demand for rent for some 5,000 square feet of space owned by USD 443 and used as SKACD's administrative offices by moving the office to Ensign, Kansas. As a result of this move, the three administrators, office staff, and educational materials were no longer available in Dodge City, where 50% of the students who were served by SKACD lived.
USD 443 attempted to negotiate some changes in the interlocal agreement (discussed later), and when negotiations were unsuccessful, it attempted to withdraw from SKACD. USD 443 attempted to withdraw in 1995, some 8 years after the amendment to K.S.A. 72-8230(a) took effect, and after operating under the interlocal agreement for some 6 years after the legislature had statutorily extended it.
SKACD denied the request of USD 443 to withdraw by a vote of 13 to 1, with USD 443's vote being the only one in favor of the withdrawal. As authorized by K.S.A. 72-8230(a)(6)(B), USD 443 appealed SKACD's denial to the State Board. The State Board appointed a three-person panel to hear the appeal. Only two issues were presented: whether the statutory mandates that the State Board in approving or disapproving a complete or partial termination must find was in (1) the best interests of the involved school districts, and (2) in the best interests of the state as a whole in providing special education services for exceptional children. See K.S.A. 72-8230(a)(6)(D).
Before the hearing panel, USD 443 raised the issue that the amendment was contrary to both the federal and state Constitutions because the amendment interfered with contractual rights. All parties recognized that the State Board, as an administrative agency, could not raise or rule upon this.
Although largely irrelevant to this appeal, USD 443 asserted three main reasons for its withdrawal from SKACD. First, USD 443 wanted to run its own program or have weighted voting. It is about seven times larger than the next largest participating district in SKACD and 66 times larger than the smallest participating district. SKACD has a 16-member board and USD 443 has only 1 member on the board. Thus, USD 443 has only one vote, although it has 50% of the students and pays almost 50% of SKACD's budget that is paid by the members. (The state and federal governments appear to pay over 50% of the budget and that percentage does not include the sum paid by the State to each district for each full-time student.) Apparently, one-half of the staff is employed in Dodge City, but the three administrators, office staff, and educational materials are in Ensign. No special education services are provided by SKACD in Ensign.
The second argument of USD 443 centers around the concept of weighted funding. The smaller districts receive a larger sum per pupil than USD 443. In fact, the districts, due to the size of qualifying enrollment, do not all receive the same amount per pupil. USD 443 wanted each district's assessment to SKACD to be based on weighted funding received by each district.
Finally, USD 443 wanted one administrator assigned exclusively to USD 443 and located at USD 443 offices. USD 443 also presented other evidence as to the best interests of the involved school districts and of the State as a whole, as did SKACD.
The hearing panel filed its written report with the State Board, recommending denial of USD 443's request to withdraw from SKACD. The State Board adopted the panel's recommendation verbatim and denied the appeal filed by USD 443 to withdraw as a member of SKACD. The State Board thus found it would not be in the best interests of the involved school districts or of the State as a whole to grant the requested withdrawal.
USD 443 appealed to the District Court of Shawnee County, and it upheld the State Board's decision. A review of the findings of fact to support the findings of the State Board is not necessary because USD 443 is not appealing based on grounds involving the facts.
II. ISSUES
USD 443 raises three issues on appeal.
1. Was USD 443's 1986 contract with the other interlocal districts impaired within the meaning of and in violation of the provisions of Article I, § 10 of the United States Constitution?
2. Did the 1987 amendment to K.S.A. 72-8230 violate USD 443's rights under the Fifth and Fourteenth Amendments to the United States Constitution and § 1 of the Kansas Constitution Bill of Rights?
3. Did the district court err in refusing to address and decide the state constitutional issue in its judicial review of the state agency action?
USD 443 appealed the State Board's decision to the district court pursuant to the Act for Judicial Review and Civil Enforcement of Agency Actions (KJRA), K.S.A. 77-601 et seq. Where a district court's decision is appealed under this Act, "we review the Board's decision as though the appeal has been made directly to us, and we are subject to the same limitations of review as the district court." Butler v. U.S.D. No. 440, 244 Kan. 458, 464, 769 P.2d 651 (1989). Constitutional issues present a unique situation, however, because administrative boards and agencies may not rule on constitutional questions. Therefore, "the issue of constitutionality must be raised when the case is on appeal before a court of law." In re Residency Application of Bybee, 236 Kan. 443, Syl. ¶ 4, 691 P.2d 37 (1984). Thus, the district court had de novo review of the constitutionality of the 1987 amendment to K.S.A. 72-8230. Consequently, we review de novo the district court's findings involving issues of constitutionality. An issue of whether a statute violates a constitutional provision is a question of law, and an appellate court's scope of review of questions of law is unlimited. Injured Workers of Kansas v. Franklin, 262 Kan. 840, Syl. ¶ 1, 942 P.2d 591 (1997).
The issues in this case, with the exception of the issue of whether the district court abused its discretion in refusing to rule on the state constitutional issue, challenge the constitutionality of legislation on various grounds. Accordingly, the judiciary's role is very limited in its scope.
Art. 6, § 1 of the Kansas Constitution states that "[t]he legislature shall provide for intellectual, educational, vocational and scientific improvement by establishing and maintaining public schools, educational institutions and related activities which may be organized and changed in such manner as may be provided by law." Art. 6, § 2(a) mandates:
"The legislature shall provide for a state board of education which shall have general supervision of public schools, educational institutions and all the educational interests of the state, except educational functions delegated by law to the state board of regents. The state board of education shall perform such other duties as may be provided by law."
Art. 6, § 5 expresses the power of the local school boards:
"Local public schools under the general supervision of the state board of education shall be maintained, developed and operated by locally elected boards. When authorized by law, such boards may make and carry out agreements for cooperative operation and administration of educational programs under the general supervision of the state board of education, but such agreements shall be subject to limitation, change or termination by the legislature."
K.S.A. 72-8230(a)(4) states that "[a] school district interlocal cooperation agreement shall be subject to change or termination by the legislature." The original enabling statute, K.S.A. 1975 Supp. 72-8230(e), also provided that "[a]ny such agreement shall be subject to change or termination by the legislature." Likewise, K.S.A. 1975 Supp. 72-8230(d) mandated that "[a]ny such agreement shall be effective only after approval by the state board of education."
At the outset, we question whether we should consider the appeal. Here, USD 443 was a member of SKACD, and SKACD, with no apparent objection by USD 443, appeared before a legislative committee and urged passage of the amendment in question. Then, for 2 years before the interlocal agreement terminated on its own terms, USD 443 made no effort to challenge the statute. After that amendment went into effect and extended the contract, subject to modification or termination in whole or in part by agreement of the parties or by action of the State Board, USD 443 did nothing to challenge the constitutionality of the statute for 6 more years. It was not until 8 years after the statute was amended that USD 443 challenged the statute. In the interim, it operated according to the statute and the interlocal agreement extended by the statute, met its obligations, and accepted the benefits of that interlocal agreement.
Generally, such conduct and failure to act will result in the issue being considered as waived. See Owen v. Mutual Ben. Health & Acc. Ass'n, 171 Kan. 457, 233 P.2d 706 (1951), and Leavenworth-Jefferson Electric Co-op v. Kansas Corp. Comm'n, 247 Kan. 268, 797 P.2d 874 (1990). The parties have not had an opportunity to brief that issue; thus, we exercise our discretion to decide the matter on its merits.
Here, the State Board contends that USD 443 has no standing, since it is created by the legislature as a political subdivision of the State, to challenge whether the State impaired a contract with USD 443. U.S.D. No. 380 v. McMillen, 252 Kan. 451, 845 P.2d 676 (1993), however, permitted U.S.D. 380 to challenge whether it was denied the protection of the Kansas Constitution even though it was a political subdivision of the State. Therefore, although a school district's duties are not self-executing, but dependent upon statutory enactment of the legislature, this does not mean that the school district is stripped of the right to challenge the statute's constitutionality, nor is it removed from the protection of the constitution.
Kansas case law does not mandate a rule that a school district is removed from a claim of contractual impairment; thus, the district court correctly held, on the facts unique to this case, that a school board's freedom of choice and power to enter an interlocal agreement bestowed upon it by Art. 6, § 5 of the Kansas Constitution, makes it subject to a claim of contractual impairment.
USD 443 claims that it has a vested right, by virtue of the state constitution, to enter into cooperative agreements with other districts to provide educational services, including the provision of special education service. Because the language of Art. 6, § 5 of the Kansas Constitution is permissive rather than mandatory, USD 443 reasons that implicit in the permissive right to enter into such contracts is the permissive right to withdraw.
In Federal Land Bank of Wichita v. Bott, 240 Kan. 624, 732 P.2d 710 (1987), the court relied on Home Bldg. & L. Assn. v. Blaisdell, 290 U.S. 398, 78 L. Ed. 413, 54 S. Ct. 231 (1934), and Energy Reserves Group v. Kansas Power & Light, 459 U.S. 400, 74 L. Ed. 2d 569, 103 S. Ct. 697 (1983), and set out the criteria for determining whether a state law violates the contract clause. The Bott court stated:
"The test for determining whether a state law violates the contract clause of the United States Constitution is whether: (1) The state law has, in fact, operated as a substantial impairment of a contractual relationship; (2) whether there is a significant and legitimate public purpose behind the legislation; and (3) whether the adjustment of the contracting parties' rights and responsibilities is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption." 240 Kan. 624, Syl. ¶ 4.
The Bott court noted that although Art. I, § 10 of the United States Constitution "appears facially absolute, it must be considered in conjunction with the reserved power of the state to protect the vital interests of the community." 240 Kan. 624, Syl. ¶ 3. Further, the Bott court explained:
"Historically, the contract clause of the United States Constitution was adopted to prohibit the states from enacting laws which 'impair the obligation of contracts.' This prohibition has been construed as preventing the states from passing any statute which will alleviate the commitment of one party to a contract or which interferes with the enforcement of the contract." 240 Kan. at 629.
The Bott court stated that the Family Farm Rehabilitation Act (Act) is a debtor relief law and the "motive for adoption of the contract clause was to prohibit states from retroactively interfering with contracts between private parties." 240 Kan. at 629. The Act authorized the stay of enforcement of certain judgments relating to land and property used in farming operations and provided for redemption of that land in certain cases.
The Bott court stated that the legislation may still be upheld as constitutional, despite a substantial impairment finding, if "there is a significant and legitimate public purpose behind the legislation," and if "the impairments to the contracting parties' rights and responsibilities are based upon 'reasonable conditions' and are of a 'character appropriate to the public purpose' to justify the legislation's adoption." 240 Kan. at 636. Bott ultimately held that although the legislature's attempt to stabilize economic conditions and to assist a troubled agricultural industry was a significant and legitimate public purpose, "[t]he impairments to the contracting parties' rights and responsibilities resulting from the [Act] . . . are not based upon 'reasonable conditions' nor are they of a character appropriate to the public purpose justifying the legislation's adoption." 240 Kan. 625, Syl. ¶¶ 6 and 7.
In Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 57 L. Ed. 2d 727, 98 S. Ct. 2716, reh. denied 439 U.S. 886 (1978), the United States Supreme Court analyzed whether the Minnesota Private Pension Benefits Protection Act required private companies that stopped operation or terminated their pension plans to nevertheless pay a pension to employees who had worked for a company for 10 or more years. The Minnesota Act required companies to pay a pension to an employee even if an employee's right to receive a pension had not yet vested according to the requirements of an individual company's pension plan. 438 U.S. at 239. The Court first stated that Minnesota's legislation substantially altered the contractual relations of Allied Structural Steel (the company) with its employees "by superimposing pension obligations upon the company conspicuously beyond those that it had voluntarily agreed to undertake. But it does not inexorably follow that the Act, as applied to the company, violates the Contract Clause of the Constitution." 438 U.S. at 240. The Spannaus Court pronounced:
"First of all, it is to be accepted as a commonplace that the Contract Clause does not operate to obliterate the police power of the States. 'It is the settled law of this court that the interdiction of statutes impairing the obligation of contracts does not prevent the State from exercising such powers as are vested in it for the promotion of the common weal, or are necessary for the general good of the public, though contracts previously entered into between individuals may thereby be affected. This power, which in its various ramifications is known as the police power, is an exercise of the sovereign right of the Government to protect the lives, health, morals, comfort and general welfare of the people, and is paramount to any rights under contracts between individuals.' Manigault v. Springs, 199 U.S. 473, 480." 483 U.S. at 241.
The Spannaus court ultimately held that the Act violated the Contract Clause because it was not enacted to deal with a broad, generalized economic or social problem; it operated in an area that was not subject to state regulation when the company's contractual obligations were originally undertaken, but invaded an area that had never before been subject to state regulation; it created irrevocable and retroactive changes in the company's contractual relationships; and it was not aimed "at every Minnesota employer, not even every Minnesota employer who left the state, but only at those who had in the past been sufficiently enlightened as voluntarily to agree to establish pension plans for their employees." 438 U.S. at 250.
USD 443 argues that the district court decided that there was no Contract Clause violation solely because there was no economic impairment, and economic impairment is not a necessary element for a Contract Clause violation. The district court provided an extensive analysis of the Contract Clause and ruled that there was no economic impairment, but it cannot be said that this was the only reason for the district court finding that there was no Contract Clause violation. The constitutionality of the 1987 amendment passes the test set out in Bott.
If an impairment is not significant, our analysis ends and there is no violation of the Contract Clause. Assuming a significant impairment, the statute here is nonetheless saved from a declaration of unconstitutionality because a valid public purpose exists for restricting school districts from withdrawing from interlocal agreements. Further, in accordance with the Bott test, the statute, as amended in 1987, is reasonable because it does not unequivocally prohibit a school district's withdrawal. Rather, the 1987 amendment mandates that the State Board must approve the withdrawal, after considering the adverse impact on all school districts and the State as a whole.
The legislature's grant of power to the State Board, by virtue of the 1987 amendment, to approve or disapprove a withdrawal based on the criteria set out in the same statute, is also reasonable, given that the Kansas Constitution specifically provides for a State Board with broad authority. The legislative history of the 1966 amendments to Art. 6 of the Kansas Constitution shows that the creation of a powerful State Board was one of the intentions of the 1966 changes. In a detailed report, Implementation of the Education Amendment-A Report of the Education Advisory Committee to the Committee on Education on Proposal No. 45 (Publication No. 260, November 1966), the committee characterized the functions conferred on the State Board as of "such magnitude and importance that people of outstanding ability and experience will be needed as members." The committee also noted that the State Board would "exercise some quasi-legislative and quasi-judicial powers in adopting rules and regulations and reviewing disagreements or conflicts between local educational agencies or interests." Report of the Education Advisory Committee, p. 8.
In the present case, USD 443's interlocal agreement with the 15 other school districts provided that the agreement would terminate on June 30, 1989. Here, the school districts knew before the 1987 amendment was promulgated that statutory provisions for interlocal agreements were subject to legislative change or termination. Also, the language of the school districts' contract states as a condition that "[t]his agreement is subject to change or termination by the Legislature." Thus, the parties expressly provided for the legislature's actions in their own contract. Therefore, no impairment of contract is created simply because the legislature indeed took the action of changing the agreement.
Gragg v. U.S.D. No. 287, 6 Kan. App. 2d 152, 627 P.2d 335 (1981), dealt with a teacher's claim that an unlawful modification to his teaching contract occurred when the legislature changed the date for automatic renewal under K.S.A. 72-5412, the continuing contract law. The Gragg court stated:
"'One who makes a contract with a municipal corporation is bound to take notice of limitations on its power to contract and also of the power of the particular officer or agency to make the contract. The municipal corporation cannot in any manner bind itself by any contract which is beyond the scope of its powers, and all persons contracting with the corporation are deemed to know its limitations in this respect.'" 6 Kan. App. 2d at 155 (quoting Weil & Associates v. Urban Renewal Agency, 206 Kan. 405, Syl. ¶ 8, 479 P.2d 875 [1971]).
This rule would apply to multiple "municipal corporations" contracting with each other, such that they cannot bind themselves by a contract in a manner that is beyond the scope of their powers. In the case before us, the Kansas Constitution and K.S.A. 72-8230 limit USD 443's ability to enter into an interlocal agreement because both the Kansas Constitution and the statute provide for continuous legislative modification or termination. Thus, the legislature no