Frederick Classical Charter School, Inc. v. Frederick County Board of Education

Frederick Classical Charter School, Inc. v. Frederick County Board of Education, No. 25,

September Term, 2016. Opinion by Getty, J.

EDUCATION LAW — STANDARD OF REVIEW APPLIED BY THE STATE

BOARD OF EDUCATION TO DECISIONS OF A LOCAL SCHOOL BOARD

State Board of Education was required to apply an “independent judgment” standard of

review to a decision of a local school board that transportation funding should not be

included in a per-pupil commensurate funding allocation to a public charter school when

the local school board decision involved only the “explanation and interpretation of the

public school laws and State Board regulations” and not a local policy or a local dispute.

EDUCATION LAW — STATUTORY CONSTRUCTION — MARYLAND CODE,

EDUCATION ARTICLE § 9-109 — CHARTER SCHOOL FUNDING

State Board of Education erred in ruling that a public charter school was not entitled to

transportation funding in a per-pupil commensurate funding allocation. Although the

controlling statute for public charter school funding, Maryland Code, Education Article §

9-109, was ambiguous, and the legislature had intended for the State Board to interpret the

statute, the State Board’s conclusion was contrary both to its own precedent, on which it

expressly relied in reaching its conclusion, as well as the statutory purpose and legislative

history of the Maryland Public Charter School Program statute, Maryland Code, Education

Article §§ 9-101 et seq.

EDUCATION LAW — STATUTORY CONSTRUCTION — MARYLAND CODE,

EDUCATION ARTICLE § 9-109 — CHARTER SCHOOL FUNDING

State Board of Education is not required to adhere to its previous interpretation of Maryland

Code, Education Article § 9-109 expressed in its prior adjudicatory rulings resolving

funding disputes between charter schools and local school boards, as clarified by the Court

of Appeals in the instant case and in Baltimore City Board of School Commissioners v. City

Neighbors Charter School, 400 Md. 324 (2007). The State Board may change its

interpretation either in an adjudicatory proceeding or through formal notice-and-comment

rulemaking.

However, because the State Board’s statements in its prior adjudicatory rulings interpreting

Maryland Code, Education Article § 9-109 are the only publicly available interpretation of

the statute, and charter school operators and staff, children attending charter schools and

their parents, and local school boards all have substantial reliance interests in the existing

State Board interpretation, if the State Board elects to apply a new interpretation of the

statute through an adjudicatory approach, it must offer a rational explanation for such a

change in its written decision. That rational explanation must include how its new

interpretation or approach is in keeping with the plain language and, where ambiguous, the

legislative history and statutory purpose of Maryland Code, Education Article § 9-109 and

the Maryland Public Charter Schools Program statute as a whole, Maryland Code,

Education Article §§ 9-101 et seq., and account for the substantial reliance interests of

charter school operators, staff and students, prospective charter school applicants, and local

school boards.

CONTRACTS — CONTRACT INTERPRETATION

Charter agreement contract between charter school and local school board plainly did not

include an agreement that charter school would forego or waive transportation funding.

Consequently, State Board of Education erred in concluding that charter school was not

entitled to the inclusion of transportation funds in its per-pupil commensurate funding

allocation based upon the charter agreement.

Circuit Court for Frederick County

Case No. 10-C-14-001818

Argued: November 3, 2016

IN THE COURT OF APPEALS

OF MARYLAND

No. 25

September Term, 2016

FREDERICK CLASSICAL CHARTER

SCHOOL, INC.

v.

FREDERICK COUNTY BOARD OF

EDUCATION

Barbera, C.J.

Greene,

Adkins,

McDonald,

Watts,

Hotten,

Getty,

JJ.

Opinion by Getty, J.

Watts and Hotten, JJ., dissent.

Filed: July 14, 2017

How many times have you heard someone say

“If I had his money, I could do things my way?”

But little they know that it’s so hard to find

One rich man in ten with a satisfied mind

Porter Wagoner, Satisfied Mind (RCA Records 1955).

When the Maryland General Assembly passed a state enabling statute in 2003 to

create a charter school program, it expressed its intent for the program in the statutory

findings that charter schools “provide innovative learning opportunities and creative

educational approaches to improve the education of students.” 2003 Md. Laws, ch. 358.

See also Md. Code, Educ. (“ED”) 9-101. However, the enabling statute created a statutory

scheme under which such schools would be “public” schools overseen by the school board

of the local jurisdiction. See ED § 9-102. Moreover, the General Assembly did not create

a separate funding stream for these public charter schools but instead provided that charter

funding would come from other people’s money, i.e., the local school board’s budget. See

ED § 9-109. The autonomy of a public charter school is further limited by the statute’s

other provisions that give local school boards the “chartering authority” to approve

applications to form a public charter school, and by a requirement that, for those counties

that have entered into a collective bargaining agreement with a teacher’s union, only

members of the union that is a party to that agreement can be assigned as staff for a public

charter school. See ED §§ 9-103; 9-104; 9-108(b).

Under this statutory organization, there is a natural and inherent conflict with the

local school board’s role in supervising charter schools and approving charter school

applications and its own self-interest; to the extent that the local school board authorizes

the creation or expansion of a charter school, there is a concomitant reduction in funds

available for the education of the non-charter students in the local public system. This

tension in the funding stream for public charter schools has left dissatisfied minds on both

sides and has led to appeals from local school board funding decisions that have come

before Maryland’s appellate courts. See, e.g., Balt. City Bd. of Sch. Comm’rs v. City

Neighbors Charter Sch., 400 Md. 324 (2007); Frederick Classical Charter Sch., Inc. v.

Frederick Cty. Bd. of Educ., 227 Md. App. 439 (2016); Monarch Acad. Balt. Campus, Inc.

v. Balt. City Bd. of Sch. Comm’rs, 231 Md. App. 594, cert. granted sub nom., Monarch

Acad. Balt. Campus v. Balt. City Bd. of Sch. Comm’rs, 452 Md. 523 (2017).

This case involves a dispute between Frederick Classical Charter School, Inc.

(“Frederick Classical”), the Petitioner, a charter school located in Frederick, Maryland and

the Frederick County Board of Education (“the Local Board”), the Respondent. The

parties’ dispute focuses on whether the Local Board’s annual funding allocation to

Frederick Classical in its first year of operation satisfied ED § 9-109. Under that statute, a

local school board is required to disburse to a public charter school “an amount of county,

State, and federal money for elementary, middle, and secondary students that is

commensurate with the amount disbursed to other public schools in the local jurisdiction.”

ED § 9-109.

In this case, Frederick Classical was not satisfied with its annual commensurate

funding allocation as determined by the Local Board because it did not include a

proportional share of funds which the Local Board had budgeted for student transportation.

The funds withheld amounted to $544.26 per-pupil and $135,926.22 in the first year of the

2

school’s operation, and more in subsequent years. Frederick Classical challenged the

allocation, first in a letter to the Local Board and, when the Local Board summarily refused

to amend the allocation, in an appeal to the State Board.

In reviewing Frederick Classical’s appeal, the State Board regarded the issue as one

of local policy, and thus applied a deferential standard of review, in which it assumed that

the Local Board’s decision to withhold transportation funds was “prima facie correct”

unless proven to be “arbitrary, unreasonable, or illegal.” See Md. Code Regs. (“COMAR”)

13A.01.05.05(A)-(C). On the merits, the State Board determined that “it does not appear

that [Frederick Classical] provides any transportation services” to its students. The State

Board concluded that, under ED § 9-109 and its own precedent, “a charter school is not

automatically entitled to funds for services it does not provide,” and that “if [Frederick

Classical] received funds for services it did not provide, it would be receiving more than

its commensurate share of [ ] funds.”

The State Board also focused on language in the charter agreement between

Frederick Classical and the Local Board, which stated that transportation of students “shall

be the responsibility of [Frederick Classical] families,” with certain narrowly defined

exceptions. The State Board interpreted that provision to mean that Frederick Classical

had “agreed it is not entitled to [transportation] funds by virtue of having parents take on

the responsibility for transportation.” For those reasons, the State Board upheld the Local

Board’s decision to withhold transportation funding from Frederick Classical’s annual

funding allocation.

3

Frederick Classical petitioned for judicial review of the State Board’s declaratory

ruling before the Circuit Court for Frederick County, which upheld the State Board’s

ruling. Then, Frederick Classical appealed to the Court of Special Appeals which, in a

reported opinion, likewise affirmed the State Board’s decision. Frederick Classical

Charter Sch., Inc. v. Frederick Cty. Bd. of Educ., 227 Md. App. 439 (2016). Frederick

Classical thereafter petitioned this Court for a writ of certiorari, which we granted on July

11, 2016. 448 Md. 724 (2016).

We hold that the State Board erred by applying the deferential standard of review

for decisions of a local school board on a matter involving a local policy or a local dispute,

as defined in COMAR 13A.01.05.05(A)-(C), instead of the “independent judgment”

standard for the “explanation and interpretation of the public school laws and State Board

regulations” defined in COMAR 13A.01.05.05(E). We further hold that the State Board’s

conclusion that Frederick Classical was not entitled to transportation funds when it did not

provide transportation services is contrary to its own precedent as well as the statutory

purpose and legislative history of the statute. Hence, the State Board’s decision to deny

transportation funds to Frederick Classical on that basis was arbitrary and capricious and

an abuse of discretion. And, we hold that the State Board erroneously determined that

Frederick Classical agreed, in its charter agreement, that it was not entitled to transportation

funds. Therefore, we shall reverse the judgment of the Court of Special Appeals, and

remand the case to the intermediate appellate court with instructions to remand to the

circuit court, and with further instructions for the circuit court to remand the case to the

State Board, for further proceedings before the State Board consistent with this opinion.

4

I.

BACKGROUND

A. Charter Schools and Commensurate Funding

Charter Schools

Charter schools are a statutorily created alternative to traditional public schools that

are “in the nature of semi-autonomous public schools,” operating “under a contract with a

State or local school board.” Balt. City Bd. of Sch. Comm’rs v. City Neighbors Charter

Sch., 400 Md. 324, 328 (2007). “The contract, or charter [agreement], defines how the

school will be structured, staffed, managed, and funded, what programs will be offered,

and how the school will operate and account for its activities.” Id. The first charter school

law was passed in Minnesota in 1991, and currently forty-two states and the District of

Columbia have public charter school laws, with more than 6900 charter schools currently

in operation, enrolling an estimated 3.1 million students.1

Maryland’s Charter School Statute

The legislative struggle to establish a publicly funded charter school program in

Maryland was a long and arduous one, lasting over six years. City Neighbors, 400 Md. at

348-54. Ultimately, in 2003, the Maryland General Assembly passed the Maryland Public

1

National Alliance for Public Charter Schools, The Health of the Charter Public

School Movement: A State-by-State Analysis (Mar. 2016),

http://www.publiccharters.org/wp-content/uploads/2016/03/Health-of-the-

Movement_2016.pdf?x87663 [https://perma.cc/8CCL-63F5]; National Alliance for Public

Charter Schools, Estimated Charter Public School Enrollment, 2016-17 (Feb. 2017),

http://www.publiccharters.org/wp-content/uploads/2017/01/EER_Report_V5.pdf

[https://perma.cc/9TAY-B6RK].

5

Charter School Program (“Charter School Program”). See ED §§ 9-101 et seq.; see

generally City Neighbors, 400 Md. 329-31 (summarizing the provisions of the Charter

School Program). The General Assembly subsequently significantly revised the Charter

Schools Program in 2015, with the passage of the Public Charter School Improvement Act.

2015 Md. Laws, ch. 311. More than a decade after the enactment of the program, there are

an estimated forty-nine public charter schools in Maryland, with 19,370 students enrolled

in those schools.2

The Charter School Program statute sets forth a process for establishing new charter

schools as well as monitoring, oversight, and accountability standards for charter schools

once they are established. Section 9-101(b) states that the purpose of the Charter School

Program is to “establish an alternative means within the existing public school system in

order to provide innovative learning opportunities and creative educational approaches to

improve the education of students.” Section 9-102 defines a public charter school as one

that meets the thirteen conditions set forth in the section, including that a charter school

must operate “in accordance with its charter.”

The public chartering authority, or the charter school authorizer, is “the county

board of education.” ED § 9-103. Thus, charter school advocates must submit applications

to establish a new charter school to the local school board. For a new charter school, that

2

National Alliance for Public Charter Schools, The Health of the Charter Public

School Movement: A State-by-State Analysis 80, (Mar. 2016),

http://www.publiccharters.org/wp-content/uploads/2016/03/Health-of-the-

Movement_2016.pdf?x87663 [https://perma.cc/8CCL-63F5]

6

application must be in compliance with the requirements of § 9-104, whereas existing

charter schools may seek to renew their charter school agreements under a process set out

in § 9-104.1.

At issue in this appeal is § 9-109, which provides a mandate for public funding of

public charter schools:

A county board shall disburse to a public charter school an amount of county,

State, and federal money for elementary, middle, and secondary students that

is commensurate with the amount disbursed to other public schools in the

local jurisdiction.

The statutory interpretation of this provision and deciphering the meaning of

“commensurate” in this context has required extensive administrative deliberations and left

most parties dissatisfied.

City Neighbors Charter School

The first case in which this Court addressed a dispute between a charter school and

a local school board over the meaning of the funding provision of ED § 9-109 was

Baltimore City Board of School Commissioners v. City Neighbors Charter School, 400 Md.

324 (2007). Judge Alan M. Wilner, writing for the majority, provided an extensive analysis

of the General Assembly’s passage of the Charter Schools Program and, in particular, the

legislative history of the “commensurate” funding provision in ED § 9-109.

At issue in City Neighbors were three cases before the State Board—two appeals

from local board actions, and one request for a declaratory ruling—all stemming from

charter school disputes with local county boards of education over the allocation of

“commensurate” funds pursuant to ED § 9-109. Id. at 334. The disputed local school

7

board actions included “excluding certain categories of its system-wide spending when

calculating the charter school allocation,” and “requiring the charter schools to accept other

categories of [funds] in the form of services rather than cash.” Id. at 332.

The State Board proceeded to issue three declaratory rulings based on those cases,

in which it “addressed three basic subjects—the standard of review to be applied by [the

State Board], the application process,3 and the proper interpretation of ED § 9-109(a).”4

Id. at 335. “The three opinions obviously attracted considerable comment, some of it

critical, in the news media and among the educational establishment,” which prompted the

State Board to hold an open meeting and thereafter issue revised opinions in each of the

three cases on May 26, 2005 (hereinafter, “the City Neighbors declaratory rulings”). Id.

“Those opinions, which were both clarifying and substantive in nature, constitute[d] the

final decisions of the [State] Board.” Id.

As to the appropriate standard of review in cases involving funding disputes for a

charter school under ED § 9-109, the State Board determined that, under ED § 2-205(e),

“it was empowered to ‘explain the true intent and meaning’ of the provisions of the

Education Article that were under its jurisdiction and to decide ‘all controversies and

3

The State Board’s rulings as to the application process are not relevant to the

parties’ dispute in the instant action, and therefore are not further discussed.

4

A prior version of ED 9-109 contained two subsections, (a) and (b). Subsection

(a) is identical to the current text of the statute. Subsection (b) authorized local school

boards or the State Board to donate “surplus educational materials, supplies, furniture, and

other equipment” to charter schools. In the 2015 amendments to the Charter Schools

Program, subsection (b) was deleted, but subsection (a) was not changed. See 2015 Md.

Laws, ch. 311.

8

disputes under [those] provisions.’” Id. Furthermore, the State Board determined that

“COMAR 13A.01.05.05[(E)] directed that the [State] Board ‘exercise its independent

judgment on the record before it in the explanation and interpretation of the public school

laws and State Board regulations.’” Id.

The “main issue” in the City Neighbors declaratory rulings was “funding and the

meaning of ED § 9-109(a), in particular the phrase ‘commensurate with the amount

disbursed to other schools in the local jurisdiction.’” Id. at 336. The State Board concluded

that ED § 9-109(a) “expressed a legislative intent that a charter school ‘receive federal,

State, and local funding in an amount proportionate to the amount of funds expended for

elementary, middle, and secondary level students in the other public schools in the same

system.’” Id. Furthermore, the State Board determined that the calculation of

commensurate funds must include “‘funding for services for which students in the public

charter schools are eligible such as free and reduced price meals, pre-kindergarten, special

education, English-language learners, Perkins, Title I, and transportation.’”5 Id.

(emphasis added). The Board further specified that the commensurate funding was to be

calculated by starting with the local school system’s total annual operating budget that

includes all federal, State, and local funding,6 and dividing by enrollment for the previous

5

“Perkins” refers to the Federal Carl D. Perkins Vocational Education Act. See 20

U.S.C. §§ 2301 et seq. “Title I” refers to Title I of the Federal Elementary and Secondary

Education Act of 1965, as amended from time to time. See 20 U.S.C. §§ 6301 et seq.

6

The State Board noted that for the purposes of this calculation, “the total annual

school system operating budget amount shall exclude appropriations for debt service and

9

year7 to reach an average per-pupil figure, overall and for each major category of spending.

Id. at 336-37. Then, after deducting two percent for central office administrative costs, the

State Board directed that local boards multiply the average per-pupil figure “by the student

enrollment of the charter school to determine the total funding amount for the charter

school.” Id. at 337.

The State Board determined that “[b]ecause the total school system operating budget

encompassed all funds,” including funds for specific services, “the average per[-]pupil

amount derived from [the total operating budget] figure would be sufficient for the charter

school to deliver the services for which its students were eligible.” Id. The State Board

noted, however, that charter schools “would have to make budgetary allocations in light of

the students’ eligibility requirements” under federal or state law “and in doing so must

comply with all applicable Federal and State requirements.” Id. “For the special services

that must be provided to eligible students,” the State Board determined that “[a] charter

school could elect either to provide the services directly or have them provided by the

school system, but if it opted for the latter, it would be required to reimburse the school

for adult education[.]” City Neighbors Charter School v. Balt. City Bd. of Sch. Comm’rs,

MSBE Op. No. 05-17 (May 26, 2005), at 4 n.2.

7

The State Board explained that in calculating the per-pupil allocation, school

systems “shall use the approved school system annual operating budget for the year in

which the charter school application is filed.” City Neighbors Charter Sch. v. Balt. City

Bd. of Sch. Comm’rs, MSBE Op. No. 05-17 (May 26, 2005), at 4 n.3. However, because

the enrollment count for each school year is not finalized until November, “the school

system enrollment count for the previous school year shall be used for the calculation.” Id.

10

system for the proportionate cost of those services.” Id. at 337-38. A charter school would

also need to reimburse the local school board “‘for salary, local retirement, and other fringe

benefit costs for the public school employees working in the charter school as well as for

regular services and supplies that the charter school requests the local school system to

provide.’” Id. at 338.

“As ‘further guidance’ on the implementation of that funding methodology, [the

State Board] adopted and incorporated by reference ‘guidance documents’ . . . that had

been discussed at the Board’s open meeting[.]” Id. at 338. One of those documents,

Exhibit 2, “Use of Average Per Pupil Funding and Central Support,” noted that “[t]he

calculation of average of cost does not mean that the funding mix of each fund source” in

a local county board’s budget “must be duplicated at the [c]harter [s]chool level,” and that

“[t]here is reason neither to assume nor expect that [a local county board] would create a

mirror image of itself within the [c]harter [s]chool.” City Neighbors Charter Sch. v. Balt.

City Bd. of Sch. Comm’rs, MSBE Op. No. 05-17 (May 26, 2005). That document also

stated that “[t]he actual funding sources that would be provided to [a charter] school would

be dependent on the specific school’s eligibility for those restricted funds.” Id. Another

document, Exhibit 4, “Charter Schools and Special Education,” stated the following

regarding transportation:

As a part of the contract agreement between the [local school system] and

Charter School, transportation should be addressed for all students including

students with disabilities attending the charter schools. This may include the

Charter School returning to the [local school system] the portion of funds

provided for transportation or the Charter School providing the transportation

service for the student. . . .

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Id.

Notably, the State Board also stated that “its opinions should be used as ‘guidance

and direction’ to [ ] other charter school applicants and local school systems ‘for the

refinement of their working relationships on behalf of the public school children

throughout this State.’” City Neighbors, 400 Md. at 339.

This Court began our analysis in City Neighbors by considering whether the State

Board’s rulings amounted to a “regulation” as defined in the State Administrative

Procedure Act, codified in Maryland Code, State Government Article § 10-101 et seq., and

were thus invalid because they were not issued in conformance with the requirements of

that statute for formal rulemaking through regulations. Id. at 344. We noted that

“administrative agencies have discretion to establish policy either through the adoption of

regulations or through ad hoc contested case adjudications and that it would [be] patently

unreasonable to conclude that every time an agency explains the standards through which

it applies a statute in a contested proceeding it is promulgating rules.” Id. at 345 (citations

and internal quotation marks omitted). We therefore concluded that the State Board “was

well within its discretion to proceed in the manner it did—adjudicating the cases before it

and offering ‘guidance’ to other applicants, rather than proceeding with more formal and

binding regulations.” Id. at 346.

Turning to the principal question of whether the State Board “had properly

construed and applied ED § 9-109,” we discussed the text of the statute, concluding that it

was “patently ambiguous,” explaining that,

12

[Local] school boards do not disburse funds to the other public schools in the

local jurisdiction. The school boards do not send checks, wire funds, or

deliver wads of cash to the principals for the payment of teachers’ salaries or

the salaries of anyone else, or for the purchase of textbooks, other

instructional materials, or incidental supplies and equipment, or for the

maintenance of their respective facilities, or to provide transportation, lunch,

or health or guidance services for the students. The phrase “disbursed to

other public schools in the local jurisdiction” [in the statute] therefore cannot

be read literally. No one can calculate a precise dollar amount disbursed to

the X Middle School in order to determine a “commensurate” amount that

should be disbursed to the Y Public Charter Middle School, because there is

no such disbursement. The whole comparative framework, therefore—what

the disbursement to the public charter schools should be commensurate

with—requires interpretation. It is not even close to being clear on its face.

Id. at 346-47. We therefore discussed in detail the legislative history of the

“commensurate” funding requirement in § 9-109(a). Id. at 348-54. We concluded from

our review of the legislative history that the General Assembly had clearly intended “that

the determination of commensurate funding would necessarily be on a per[-]pupil basis.”

Id. at 355. However, we also concluded that the General Assembly had also “left some

room for interpretation” as to “what was commensurate and how [ ] the amount disbursed

to other public schools [was] to be determined[.]” Id. Furthermore, we concluded that the

General Assembly “must have envisioned” that the primary authority to interpret that

provision would rest in the State Board, “the body [the General Assembly] has consistently

vested with the ultimate administrative authority to interpret, explain, and apply the public

education laws.” Id.

We determined that the State Board’s interpretation of ED § 9-109 and the

“commensurate” funding requirement was well within its discretion. We found “no legal

error in the [State] Board’s use of the average per[-]pupil funding approach.” Id. at 356.

13

And, we determined that the State Board did not err in interpreting the provision to require

local school boards to disburse money, as opposed to services, unless a charter school elects

to “negotiate for the provision of services, if they would rather have the services, for which

[it] would be required to reimburse the county board[ ].” Id. We concluded that under the

statute, services “cannot be forced on the charter schools at the whim of the county boards.”

Id. Furthermore, we held that the State Board was “clearly entitled” to conclude that

“commensurate” funding to charter schools must include funding for Title I and special

education funds “to the extent that students in the charter school are eligible for those

services.” Id.

Monocacy Montessori Communities, Inc.

In Monocacy Montessori Communities, Inc. v. Frederick County Board of

Education, MSBE Op. No. 06-17 (May 24, 2006) (hereinafter, “Monocacy”), the State

Board decided an appeal by a public charter school, Monocacy Montesori Communities,

Inc. (“MMCI”) from a “commensurate funding” decision of the Frederick County Board

of Education that, according to MMCI, deprived it of funding to which it was entitled by

statute. Monocacy is thus very similar to Frederick Classical’s appeal to the State Board

from a “commensurate funding” decision of the same local school board.

In Monocacy, the State Board noted that the Local Board used a formula in

calculating MMCI’s per-pupil allocation that differed from the one the State Board had

endorsed in the City Neighbors declaratory rulings. Id. at 3. The State Board described

the formula used by the Local Board as follows:

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The formula used by the local board had three steps. First, it subtracted from

the total budget all restricted budget amounts targeted for specific programs

and services. That resulted in the “unrestricted budget.” Second, it adjusted

the total unrestricted budget proportionally [by] subtracting the value of the

services it provided in-kind and directly to MMCI. It divided that amount by

the number of students enrolled. . . . Finally, the local board would add on

to that per[-]pupil amount any restricted funds for which [the] charter school

or its students were eligible.

Id. The State Board determined that the Local Board’s formula was “not consistent with

the State Board’s formula” set forth in the City Neighbors declaratory rulings. Id. at 4.

Nonetheless, the State Board did not deem that an error of law, stating that it had not

intended to require that the formula for per-pupil funding stated in the City Neighbors

declaratory rulings must be used “without deviation[ ] by every local school system in

calculating a charter school’s funding allocation, no matter what the circumstances.” Id.

at 5.

However, the State Board did not stray far from the formula put forth in the City

Neighbors declaratory rulings. It stated that the City Neighbors formula “results in a

bottom line amount of money that this Board considers proportionate/commensurate

funding.” Id. Although a local school board may apply a different formula, “that formula

must result” in the same “bottom line amount of money” so that the State Board could

“conclude that the school system was providing proportionate/commensurate funds to the

charter school.” Id.

Applying that standard, the State Board determined that, after taking into account

the value of the in-kind services that the Local Board was providing to MMCI, the per-

pupil allocation figure reached under the Local Board’s formula was $932 lower than that

15

under the State Board’s formula. Id. at 8. However, one of the main reasons for that

difference was that “[the Local Board] put no money into the charter school budget for

transportation.” Id.

The State Board determined that the withholding of transportation funding was

justified by the charter agreement between MMCI and the Local Board. That agreement

was entered into on January 14, 2005—after the General Assembly had enacted the Charter

Schools Program statute and ED § 9-109, but before the State Board had clarified the

meaning of “commensurate” funding in the City Neighbors declaratory rulings. Id. The

MMCI charter agreement contained a provision stating that “transportation shall be the

responsibility of MMCI except for students who live along [an] established [bus] route and

for special education students.” Id. The State Board interpreted that language to mean that

that “MMCI essentially has agreed that it is not entitled to the transportation dollars

contained in [the Local Board’s] Total Operating Budget,” and consequently, that “the cost

of transportation services per[-]pupil should be deducted” from MMCI’s per-pupil

allocation. Id. at 9. The State Board therefore reduced its “bottom line” per-pupil figure

by $420 “to reflect the transportation agreement.” Id. at 10.

With little discussion, the State Board also made a final adjustment to its “bottom

line” per-pupil amount, by following the lead of the Local Board and subtracting all

restricted budget amounts targeted to specific programs and services from the total

operating budget figure. Id. at 11. Consequently, the State Board further reduced its

“bottom line” per-pupil figure by an additional $500. Id. After making the adjustments

for transportation funding and restricted funds, the difference between the State Board and

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the Local Board’s figures was $12. Id. The State Board therefore found that “to provide

commensurate funding . . . [the Local Board] must provide an additional $12 per[-]pupil to

MMCI.” Id. at 12. And, although it had approved removing restricted funds from the per-

pupil allocation formula, it also found that the Local Board must also add to the per-pupil

amount “any restricted funds to which MMCI is entitled.” Id.

B. Current Proceedings

Frederick Classical Charter School

Frederick Classical is an educational nonprofit corporation created to establish,

organize, and operate a charter school. On April 6, 2011, the Local Board approved

Frederick Classical’s application to form and operate a charter school with amendments

and conditions. On February 3, 2012, Frederick Classical and the Local Board executed a

charter agreement, which commenced on July 1, 2013. The charter agreement authorizes

Frederick Classical to operate a charter school for four school years, from July 1, 2013

until June 30, 2017, but permits Frederick Classical to request an extension of the term of

the agreement at any time. Prior to the expiration of the term of the charter agreement on

June 30, 2017, Frederick Classical may also request a renewal of the agreement.

The charter agreement outlines the relationship, rights, and obligations between

Frederick Classical and the Local Board. The pertinent provisions relevant for this appeal

are the funding and transportation provisions. The funding provision of the agreement

states, in pertinent part

In accordance with ED § 9-109 and further clarified in corresponding State

Board rulings, the [Local] Board shall disburse to [Frederick Classical] an

amount of county, state, and federal money for elementary, middle, and

17

secondary students that is commensurate with the amount disbursed to other

public schools in the local jurisdiction. [Frederick Classical] may seek and

receive other funds through local, state or federal government sources and/or

from private sources without a reduction in its annual commensurate

allocation.

The student transportation provision states:

Transportation shall be the responsibility of [Frederick Classical] families

with the following exceptions:

1. Students who live along an established bus route that passes the School

facility; and

2. Special education students with transportation on their [Individualized

Education Plans].

If [Frederick Classical] subsequently determines to provide transportation

during the term of this Charter, it may contract with an approved provider for

transportation services within provisions allowable under the negotiated

agreement.

Frederick Classical 2014 Fiscal Year Funding Allocation

On June 26, 2013, Leslie Pellegrino, the Executive Director of Fiscal Services for

the Local Board, sent an email to representatives of Frederick Classical advising them of

their financial information for the 2013-2014 school year (“2014 Fiscal Year”), which was

Frederick Classical’s first year of operation. The email stated that Frederick Classical’s

2014 Fiscal Year per-pupil allocation would be $8818.54, resulting in the school receiving

approximately $2.4 million in total funds based on an enrollment of 280 students. Attached

to that email were several charts, including a chart showing how the Local Board had

reached the per-pupil allocation for the 2014 Fiscal Year:8

8

The following chart has been slightly modified from its original appearance in the

record for page formatting purposes.

18

[LOCAL BOARD] STATE BOARD

TOTAL OPERATING BUDGET $532,697,886 $532,697,886

RESTRICTED BUDGET ($75,454,769) ($75,454,769)

TOTAL UNRESTRICTED BUDGET $457,243,117 $457,243,117

FURTHER ADJUSTMENTS FOR ($99,192,999) $0

IN-KIND SERVICES

TOTAL BUDGET AFTER $358,050,118 $457,243,117

ADJUSTMENTS

ESTIMATED ENROLLMENT 40,668 40,668

PER[-]PUPIL AMOUNT $8,804.22 $11,243.31

2% ADMINISTRATIVE COSTS $0 ($224.87)

INITIAL PER[-]PUPIL AMOUNT $8,804.22 $11,018.44

(CASH)

IN-KIND ADD-INS $1,655.64 $0.00

TRANSPORTATION DEDUCTION $0.00 ($544.26)

AVERAGE PER PUPIL[-]AMOUNT $10,459.86 ($10,474.18)

ADJUSTED

[DIFFERENCE BETWEEN LOCAL ($14.32)

BOARD AND STATE BOARD]

In the first column of that chart, the Local Board broke down how it had calculated

the per-pupil allocation under its own preferred approach. The Local Board started with

the county’s total education operating budget for the 2014 Fiscal Year ($532,697,886).

The first step in its calculation process was to deduct all funds targeted for specific

programs and services that it placed in a “restricted budget” ($75,454,769) to reach a “total

unrestricted budget” figure ($457,243,117). Then, the Local Board further deducted

19

additional funds for “further adjustments for in-kind services” ($99,192,999).9 The “total

budget after adjustments” ($358,050,118) was then divided by the estimated enrollment of

all students in the system (40,668), reflecting both students in traditional public schools as

well as charter schools. This resulted in an initial per-pupil amount of $8804.22.

The second column of the chart, according to the Local Board, showed its

calculations applying a different formula, which it regarded as approved by the State Board

in Monocacy.10 Applying that alternate formula, the Local Board employed the same first

step as in its own formula: taking the county’s total education operating budget for the

2014 Fiscal Year ($532,697,886) and deducting all funds targeted for specific programs

and services placed in a “restricted budget” ($75,454,769) to reach a “total unrestricted

budget” figure ($457,243,117). However, instead of deducting for in-kind services, the

Local Board divided the total unrestricted budget figure ($457,243,117) by total estimated

enrollment (40,668) to reach a figure of $11,243.31. Then, it deducted two percent for

9

A separate chart attached to the email showed that the Local Board had included

$934,097 in transportation funds in its “restricted budget” and $19,742,312 in other

transportation funds excluded from charter schools as part of the funds for “further

adjustments for in-kind services.”

10

Ms. Pellegrino, the Local Board’s Executive Director of Fiscal Services, later

stated in an affidavit that,

When making the calculation for [Frederick Classical’s] Per[-]Pupil

Allocation, my office uses the same approach and formula that was

[previously] used by the [Local Board] and approved in the State Board

Opinion issued in Monocacy Montessori Communities, Inc. v. Frederick

County Board of Educ., MSBE Op. No. 06-17 (2006) and the chart prepared

by my office utilizes the same formula shown [ ] at page 12 of that State

Board Opinion.

20

administrative costs from that figure to reach an “initial per[-]pupil amount” of $11,018.44.

As a final step, the Local Board further reduced the “initial per[-]pupil amount” by a

“transportation deduction” ($544.26) to reach an “average per[-]pupil amount adjusted” of

$10,474.18. Although not clearly stated in the chart, the “transportation deduction”

appears to be a per-pupil figure for transportation costs.11

Even after deducting restricted funds and the “transportation deduction,” the

$10,474.18 figure reached under the alternate formula based on Monocacy was

substantially greater than the $8804.22 per-pupil figure reached under the Local Board’s

own preferred approach. But, in a final adjustment, the Local Board increased its own

figure by $1655.64, to reflect “in-kind add ins,” apparently meaning the average per-pupil

cost of the in-kind services it provided to Frederick Classical. Thus the Local Board’s final

figure under its own formula was $10,459.86, which was $14.32 less than the $10,474.18

figure it reached applying the alternate formula drawn from Monocacy.

Because the Local Board’s average per-pupil amount reached under its own formula

was $14.32 less than that reached under the formula based upon Monocacy, it increased

the initial per-pupil amount reached under its own figure ($8804.22) by $14.32 in order to

reach Frederick Classical’s 2014 Fiscal Year per-pupil allocation of $8818.54.

11

When applying its own formula, the Local Board included transportation funds

of $934,097 in its “restricted budget” and $19,742,312 in other transportation funds, which

totals $20,676,409. But, strangely, the Local Board appears to have employed a separate

“Transportation & Benefits” figure of $22,134,072 to calculate the per-pupil transportation

figure of $544.26. This discrepancy between the transportation figures is not explained by

anything in the record before this Court.

21

A separate funding calculation document was also included that divided all of the

major categories in the Local Board’s budget into smaller categories of funding, which

were then designated as one of the following:

In-Kind Services are services provided to the Charter School based on

specific service related determinates;

Buy Backs are services purchased back from the Charter School after the

distribution of the allocation; and

Per[-]Pupil Allocation (PPA) indicates funds distributed to the [Charter

[S]chool.

That document listed the following as “in-kind services:” the costs of employing a

superintendent, a deputy superintendent, a Chief Operating Officer, other mid-level

management, and the Local Board members; the costs for the Human Resources, Legal,

Communication Services, Budget, Finance, Purchasing, Technology Services, and

Curriculum Instruction, Assessment & Innovation departments; special education services;

non-public placement for disabled students; a pupil personnel worker; the CASS

program;12 a school therapist; student health, including health room technicians and

workers; and, food services.

Transportation was a category in the funding calculation document. Transportation

was divided into two subcategories—student transportation and athletic transportation.

12

“Community Agency School Services (CASS) is a department within the Student

Services Division of Frederick County Public Schools” that provides social work services

to local schools. Frederick County Public Schools, Community Assisted School Services,

http://www.fcps.org/academics/community-agency-school-services-programs

[https://perma.cc/B7NS-5GA3].

22

Student transportation was explained as “[b]us services for students to and from schools,

field trips, extracurricular activities[,] and state approved nonpublic and state institutions

and schools.” The Local Board did not include a designation of in-kind services, buy backs,

or per-pupil allocation for student transportation, but rather stated that student

transportation was “[n]ot included in [Frederick Classical’s] allocation, except In-Kind for

[Individualized Education Plan] identified students and budgeted curricular field trips.”

Athletic transportation was explained as “[b]us services for athletic events[.]” Similarly,

athletic transportation was “[n]ot included in [the] allocation” to Frederick Classical.

Funding Dispute

In the June 26, 2013 email that provided Frederick Classical’s 2014 Fiscal Year per-

pupil allocation figure and supporting documents, Ms. Pellegrino requested that Frederick

Classical use the documents to submit a detailed operating budget by August 15, 2013. In

response, Frederick Classical submitted to the Local Board a budget based on the Local

Board’s funding calculation and the $8818.54 per-pupil allocation figure.13 However, in

correspondence accompanying that budget proposal, Frederick Classical stated that “our

submission of this budget does not constitute our assent to the per[-]pupil allocation

formula [the Local Board] uses.” Frederick Classical claimed that the Local Board’s

allocation formula was not consistent with Maryland law because it did not include

transportation funding. And, Frederick Classical contended that the formula applied by the

13

Frederick Classical was required to timely submit a budget to the Local Board

under the terms of the charter agreement it had signed with the Local Board.

23

Local Board based on Monocacy “should not apply to charter schools generally.” Finally,

Frederick Classical asserted that based upon the Local Board’s funding formula, “our

charter school is being denied over $135,926.22 in real dollars over our first year, and

increasing amounts in the second and third years.”

For those reasons, Frederick Classical requested that the Local Board provide

funding “in accordance with the law and include, at least, the Transportation category of

funding in the calculation of [the 2014 Fiscal Year] per-pupil allocation and every year

thereafter.” Frederick Classical also requested that, if the Local Board did not agree to

provide the funding, that it “state its reasoning in writing.”

On September 25, 2013, the Local Board responded to Frederick Classical’s request

for additional funding. The Local Board stated that the “allocation [of funds was] based

on the formula that has been previously accepted and approved by the Maryland State

Board of Education as being consistent with Maryland law and the [Local] Board has

determined that it is the formula that will be applied here.” The denial letter did not provide

any further explanation.

Appeal to the State Board of Education

On October 25, 2013, Frederick Classical appealed the Local Board’s decision to

the State Board, pursuant to ED § 2-205 and ED § 4-20514 and COMAR 13A.01.05.02

14

ED § 2-205(e)(2) states, “[e]xcept as provided in paragraph (4) of this subsection

and in Title 6, Subtitles 4 and 5 of [the Education] [A]rticle, the [State] Board shall decide

all controversies and disputes under these provisions.” Pursuant to ED § 4-205(c)(3) a

decision of a local school board involving the intent and meaning of public school laws

24

(describing the required contents of an appeal to the State Board, and a deadline to file the

appeal “within 30 calendar days of the decision of the local board”). In its appeal filing,

Frederick Classical asserted that the Local Board’s decision to withhold the transportation

funds when calculating its allocation denied it commensurate funding for the 2014 Fiscal

Year to operate the charter school, as required by ED § 9-109. In support of that contention,

Frederick Classical noted that its charter agreement with the Local Board “specifically

invoke[d] and incorporate[d] [ED] § 9-109,” by stating that “the [Local] Board shall

disburse to [Frederick Classical] an amount of county, state, and federal money for

elementary, middle, and secondary students that is commensurate with the amounts

distributed to other public schools in the local jurisdictions.” And, Frederick Classical

cited the City Neighbors declaratory rulings, where the State Board had interpreted the ED

§ 9-109 “commensurate” funding provision to mean a county board was required to provide

a charter school with a proportional per-pupil allocation of funds, including funds budgeted

for services such as transportation. Frederick Classical also attempted to distinguish the

State Board’s ruling in Monocacy, asserting that in that opinion the State Board upheld an

exclusion of transportation funds “only because [MMCI] had freely and expressly agreed

to forego those funds it was otherwise eligible to receive,” which it asserted was

“emphatically not the case here.” Frederick Classical requested that the State Board

reverse the Local Board’s decision and direct the Local Board to provide the appropriate

may be appealed to the State Board if the appeal is “taken in writing within 30 days after

the decision of the [local school] board.”

25

level of funding. In the alternative, Frederick Classical petitioned the State Board for a

declaratory ruling directing that the Local Board revise its funding allocation to Frederick

Classical.

The Local Board filed a response to Frederick Classical’s appeal and a motion for

summary affirmance, with a memorandum in support. The Local Board’s supporting

memorandum stated that the current method of calculating the per-pupil allocation was

“correct and proper” as it was based on the formula that the State Board applied in its

decision in Monocacy, which it asserted was “fully dispositive of the issues raised” in the

appeal. The Local Board contended—inaccurately—that the charter agreement

transportation provision in Monocacy was “exactly the same” as the similar provision in

Frederick Classical’s charter agreement.15 Lastly, the Local Board contended that “it

would be irrational and unreasonable for the [Local] Board to pay Frederick Classical an

amount of money that would represent the per-pupil amount of its Transportation budget

in a circumstance where the Charter Agreement expressly provides that the [Local] Board

has no general responsibility for transportation.”

Frederick Classical filed a Reply to the Local Board’s Response, claiming that the

Local Board mischaracterized the Monocacy opinion and that the only relevant ruling in

15

In fact, the provision in Monocacy stated that “transportation shall be the

responsibility of [the Charter School] except for students who live along an established

route and for special education students,” with certain narrow exceptions. Monocacy,

MSBE Op. No. 06-17 at 8. In contrast, the relevant provision in Frederick Classical’s

charter agreement was that “transportation shall be the responsibility of [Frederick

Classical] families” with certain exceptions.

26

Monocacy was “that a charter school may agree that it is ‘not entitled to transportation

dollars contained in the [local board’s] [Total] Operating Budget.’” See Monocacy, MSBE

Op. No. 06-17 at 9. Frederick Classical contended that Monocacy was not dispositive

because, unlike the charter school in that case, it had never agreed that it was not entitled

to transportation dollars. Frederick Classical also noted the discrepancy described above

between the transportation provision in its charter compared with the provision at issue

Monocacy. It claimed that the language in its charter that Frederick Classical families

would be responsible for transportation did not reflect a voluntary agreement to surrender

transportation funding, because those parents were not parties to the contract. And, it also

highlighted additional language in its charter agreement that provides that “[i]f [Frederick

Classical] subsequently determines to provide transportation during the term of this

Charter, it may contract with an approved provider for transportation services . . .”

Frederick Classical maintained that language indicates that it “clearly [had] contractually

retained the right to provide transportation to its students.” Finally, Frederick Classical

asserted that because it had not contractually surrendered the transportation funding, it was

entitled to that funding even if it was not providing transportation, as in its view “[c]harter

schools are entitled to funding commensurate with other public schools, which they may

allocate as they see fit.”

On May 20, 2014, the State Board issued its opinion in this matter, without holding

a hearing. Frederick Classical Charter Sch., Inc. v. Frederick Cty. Bd. of Educ., MSBE

Opinion No. 14-21 (May 20, 2014). The State Board’s opinion summarized the standard

of review that it was applying:

27

This appeal concerns a controversy or dispute regarding the rules and policies

of a local board. Accordingly, the local board’s decision “must be considered

prima facie correct” and upheld unless [Frederick Classical] proves that the

local board’s decision was arbitrary, unreasonable, or illegal. See COMAR

13A.01.05.05; Kitzmiller Charter [Sch.] Initiative, Inc. v. Garrett County Bd.

of Educ., MSBE Op. No. 13-52 (2013).

Id. at 2. The State Board began its legal analysis by summarizing its previous rulings on

the commensurate funding requirement of ED § 9-109 in the City Neighbors declaratory

rulings and in Monocacy, as well as the claims raised by the parties in their appeal filings.

Id. at 2-4.

Applying its prior decisions to the facts of the case, the State Board concluded that

Frederick Classical was not entitled to transportation funds as part of its per-pupil

allocation. The State Board’s explanation as to how it reached that conclusion, though at

times muddled, made two distinct points. First, the State Board determined that because

Frederick Classical did not provide transportation services, Frederick Classical was not

entitled to the transportation funding under ED § 9-109 and the State Board’s prior ruling

in Monocacy. The State Board found that requiring county school boards to “provide

charter schools with a lump sum without regard to the services provided” would be contrary

to its previous ruling in Monocacy, and that “a charter school is not automatically entitled

to funds for services it does not provide.” Id. at 4. Rather, it stated that whether

transportation costs are among the funds included in calculating a per-pupil allocation “will

depend on the nature of the arrangement between the local school system and the charter

school” as to those services. Id. Applying that standard to the facts, the State Board found

that “if [Frederick Classical] received funds for services [that] it did not provide, it would

28

be receiving more than its commensurate share of county funds,” and that it was “not

arbitrary, unreasonable, or illegal for [the Local Board] to consider the actual services

provided by [Frederick Classical] to reach a commensurate level of funding.” Id. at 4-5.

The State Board thus concluded that withholding transportation funds from the per-pupil

allocation was “not contrary to state law” and that the formula employed by the Local

Board “is consistent with our past rulings.” Id. at 5.

Second, the State Board found that Frederick Classical was not entitled to the

transportation funding because of language in its charter agreement with the Local Board.

As noted above, the charter agreement provided that transportation “shall be the

responsibility of [Frederick Classical] families” with certain limited exceptions. The State

Board concluded that, “[i]n our view, a plain reading of the Charter language indicates that

[Frederick Classical] is not responsible for providing transportation.” Id. at 4. And, the

State Board interpreted its decision in Monocacy as standing for a broad proposition that if

a charter school “agreed to cover transportation (except for certain students)” then the cost

of transportation services per-pupil should be deducted from its per-pupil allocation. Id. at

5. The State Board acknowledged that the language in the Frederick Classical charter

agreement differed from the language of the agreement at issue in Monocacy, which

provided that transportation generally “shall be the responsibility of [the charter school].”

Id. at 4-5 (quoting Monocacy, MSBE Op. No. 06-17 at 9). Nevertheless, the State Board

concluded that the charter language at issue meant that “[Frederick Classical] has [ ] agreed

that it is not entitled to [transportation] funds by virtue of having parents take on the

responsibility for transportation.” Id. at 5.

29

For those reasons, the State Board denied Frederick Classical’s request that it

reverse the Local Board’s funding decision, and likewise denied its alternative request that

it issue a declaratory ruling that the Local Board’s ruling was contrary to Maryland law

and must be revised. Id. at 5.

Circuit Court for Frederick County

On June 18, 2014, Frederick Classical petitioned the Circuit Court for Frederick

County for judicial review. On December 8, 2014 the circuit court held a hearing and

thereafter took the matter sub curia. On February 5, 2015, the circuit court filed a written

opinion affirming the decision of the State Board. The circuit court held that the State

Board was correct to have cited and applied the deferential standard of review described in

COMAR 13A.01.05.05(A)-(C). As to the merits of the State Board’s decision, the circuit

court held that, under ED § 9-109 and Monocacy, the formula stated in the City Neighbors

declaratory rulings “is not mandatory,” and therefore the Local Board was not required to

apply it. And, the circuit court found that, pursuant to Monocacy, “a local board is not

required to provide [funds] for transportation when [a] charter school does not provide

[that] service.” Therefore, as Frederick Classical did not provide transportation services,

the circuit court found that the State Board had correctly upheld the Local Board’s decision

to withhold the transportation funds.

Court of Special Appeals

On March 6, 2015, Frederick Classical appealed the judgment of the circuit court to

the Court of Special Appeals of Maryland. On March 31, 2016, the Court of Special

Appeals issued a reported opinion, in which it affirmed the holding of the circuit court and

30

the State Board. Frederick Classical Charter Sch., Inc. v. Frederick Cty. Bd. of Educ., 227

Md. App. 439 (2016). The Court of Special Appeals stated that the appeal presented a

single issue for its review, which it had rephrased: “Did the State Board err in finding that

the Local Board provided full funding despite the fact that it did not include transportation

funding in Frederick Classical’s funding allocation?” Id. at 443.

The Court of Special Appeals considered whether the State Board had erred by

applying the deferential standard of review under COMAR 13A.01.05.05(A)-(C). The

Court of Special Appeals determined that “[i]n view of the heavy deference that must be

accorded to State Board of Education interpretations of the public school laws and its own

regulations,” the State Board did not err in applying the deferential standard of review. Id.

at 451 n.5.

The Court of Special Appeals then addressed the State Board’s interpretation of the

transportation language in Frederick Classical’s charter agreement. The intermediate

appellate court agreed with the State Board that “the plain language of the charter

[agreement] clearly shifts the responsibility for transportation from [the Local Board] to

Frederick Classical families.” Id. at 454. Therefore, the intermediate appellate court found

no error as to the State Board’s additional interpretation of that provision as meaning that

Frederick Classical was not entitled to transportation funds. Id.

Then, turning to the issue of whether the State Board had correctly determined that

the Local Board could withhold transportation funds from its calculation of Frederick

Classical’s per-pupil allocation, the Court of Special Appeals determined that the State

Board’s ruling was consistent with its prior decisions in the City Neighbors declaratory

31

rulings and Monocacy, as well as this Court’s holding in City Neighbors. Id. at 454-58.

Citing to the guidance documents attached to the City Neighbors declaratory rulings, the

Court of Special Appeals stated that the State Board in the City Neighbors declaratory

rulings “appreciated that transportation [funds] may, but [do] not have to be, included in

the funds provided to a charter school.” Id. at 455. Therefore, it determined that the State

Board’s decision in the instant case “is not inconsistent with its City Neighbors [declaratory

rulings decision].” Id. And, the Court of Special Appeals construed this Court’s decision

in City Neighbors, 400 Md. 324, as standing for the proposition that a county school board

could not require “the mandatory exclusion of transportation funds from [a] per[-]pupil

allocation amount,” but that this Court did not make an “affirmative holding that

transportation funds can never be excluded from the funds disbursed to a charter school.”

Id. at 455-56 (emphasis in original). In support of its construction of City Neighbors, the

Court of Special Appeals cited a 1997 State Department of Education guideline document

that stated that “[o]ther fiscal support such as transportation may be part of the negotiations

between the charter requestor and the local education authority.” Id. at 456 (quoting City

Neighbors, 400 Md. at 350 (citing Maryland State Department of Education, Guidelines

for Use by Local School Systems in Considering Charter School Applications (July, 1997),

at 8)).

The Court of Special Appeals also determined that the State Board’s ruling was in

accordance with the State Board’s prior decision in Monocacy. The Court of Special

Appeals regarded Monocacy as having clarified that the “language [the State Board] used

in [the City Neighbors declaratory rulings] should not be strictly construed, and that the

32

formula it announced there was not the only way a local school board could distribute

funding to a charter school.” Id. at 456. And, the Court of Special Appeals determined

that the State Board’s position “that if [Frederick Classical] received funds for services it

did not provide, it would be receiving more than its commensurate share of county funds”

was announced in Monocacy, “albeit using different words.” Id. at 457. Specifically, the

Court of Special Appeals noted that the State Board had stated in Monocacy that “[i]f

MMCI were entitled to the full per[-]pupil amount, however, MMCI would receive an

amount greater than an ‘equal amount of funds.’” Id. (quoting Monocacy, MSBE Op. No

06-17 at 9).

Finally, the Court of Special Appeals agreed with the State Board that, even though

“Frederick Classical’s charter places the responsibility for transportation on Frederick

Classical families,” as opposed to the provision at issue in Monocacy that placed

responsibility on the charter school itself, “the outcome is the same.” Id. In the Court of

Special Appeals’ view, if a charter agreement “provides that either the charter school or

families have a duty to transport the students, the result is that the local school system is

not responsible for the transportation or for including funds for transportation in a

per[-]pupil allocation.” Id. (emphasis in original).

The Court of Special Appeals also dismissed additional contract interpretation and

policy arguments raised by Frederick Classical. In terms of contract interpretation, the

Court of Special Appeals was not persuaded that “the families of [Frederick Classical] are

not parties to the [charter], and so cannot be deemed to have voluntarily contracted to

surrender portions of [Frederick Classical’s] funding,” or that the contract should be

33

construed against the Local Board “because the [L]ocal [B]oard prepared the document.”

Id. at 458-59. The Court of Special Appeals also discounted Frederick Classical’s claim

that “by failing to disburse transportation funding, [the Local Board] retained that money

in the system-wide budget, ‘inevitably redistributing and spending those funds on other

students in the school district.’” Id. at 458. Instead, the Court of Special Appeals agreed

with the Local Board’s assertion that its transportation budget represented a fixed “total

cost to actually transport students living in the transportable areas and for special education

students needing specialized transportation,” a population that, aside from certain special

education students, did not include any charter school students “who are not entitled to

transportation.” Id.

Frederick Classical thereafter petitioned this Court for writ of certiorari, which was

granted on July 11, 2016. Frederick Classical Charter Sch. v. Frederick Cty. Bd. of Educ.,

448 Md. 724 (2016).

Frederick Classical presents three questions for our review, which we have

reordered and restated as follows:

1. Did the State Board err by applying a deferential standard of review to

the Local Board’s decision to exclude transportation funds when

calculating Frederick Classical’s per-pupil allocation?

2. Did the State Board err in affirming the Local Board’s decision to exclude

transportation funds when calculating Frederick Classical’s per-pupil

allocation on the ground that, pursuant to ED § 9-109 and its own

precedent, Frederick Classical was not entitled to those funds when it did

not provide transportation services?

3. Did the State Board err in affirming the Local Board’s decision to exclude

transportation funds when calculating Frederick Classical’s per-pupil

34

allocation on the basis of its finding that Frederick Classical had

contractually agreed that it was not entitled to transportation funds?16

II.

STANDARD OF REVIEW

“When this Court sits in review of an administrative agency decision, we reevaluate

the decision of the agency under the same statutory standards as would the circuit court;

we do not employ those standards to reevaluate the decision of the circuit or intermediate

appellate court.” Spencer v. Md. State Bd. of Pharmacy, 380 Md. 515, 523, (2004). Thus,

our inquiry “is not whether the Court of Special Appeals erred, but whether the

administrative agency erred.” Id.

16

Frederick Classical included two questions presented in its petition for writ of

certiorari:

1. Did the State Board err in finding that Frederick Classical contractually agreed

in the [charter agreement] to forego funding proportionate to the Local Board’s

transportation spending because Frederick Classical students would not

necessarily receive transportation from Frederick Classical?

2. Did the State Board err by deferring to the Local Board’s interpretation of the

[charter agreement] and application of State law, and misstating its own

precedent?

We have reordered and restated the second part of the second question presented referring

to whether the State Board erred by “misstating its own precedent,” into a standalone

question presented (the second of our three reordered questions presented). The reference

to the State Board “misstating its own precedent” is somewhat ambiguous in isolation.

However, in the context of the overall petition it is clear that Frederick Classical was

referring to its claim that the State Board’s conclusion that Frederick Classical was not

entitled to transportation funding when it did not provide transportation services was

contrary to the State Board’s own precedent interpreting the commensurate funding

requirement of ED § 9-109 in the City Neighbors declaratory rulings and Monocacy. That

issue was raised before the State Board and addressed in its decision, was likewise raised

before the circuit court and the Court of Special Appeals, and was fully briefed to this Court

by the parties. Therefore it is clearly properly before this Court. See Md. Rule 8-131(a).

35

In this case we are reviewing the decision of the State Board. Section 2-205 of the

Education Article enumerates the powers and duties of the State Board including, in §

2-205(e), the State Board’s authority to explain the intent and meaning of the Education

Article and Maryland education policy. In pertinent part, that section provides,

(1) Without charge and with the advice of the Attorney General, the State

Board shall explain the true intent and meaning of the provisions of:

(i) This article that are within its jurisdiction; and

(ii) The bylaws, rules, and regulations adopted by the Board.

(2) . . . [T]he Board shall decide all controversies and disputes under these

provisions.

(3) The decision of the Board is final.

...

Pursuant to § 2-205, the State Board “has very broad statutory authority over the

administration of the public school system in this State, [and] that the totality of its statutory

authority constitutes a visitatorial power of such comprehensive character as to invest the

State Board with the last word on any matter concerning educational policy or the

administration of the system of public education.” City Neighbors, 400 Md. at 342-43

(2007) (quoting Bd. of Educ. of Prince George’s Cty. v. Waeldner, 298 Md. 354, 359-62

(1984)). We have previously explained the scope and purpose of this “visitatorial” power:

We think it beyond question that the power of visitation vested in the State

Board is one of general control and supervision; it authorizes the State Board

to superintend the activities of the local boards of education to keep them

within the legitimate sphere of their operations, and whenever a controversy

or dispute arises involving the educational policy or proper administration of

the public school system of the State, the State Board’s visit[atorial] power

authorizes it to correct all abuses of authority and to nullify all irregular

proceedings.

36

Bd. of Educ. of Talbot Cty. v. Heister, 392 Md. 140, 153-54 (2006) (footnote omitted)

(quoting Zeitschel v. Bd. of Educ., 274 Md. 69, 81 (1975)).

“[T]he broad statutory mandate given to [the State Board] requires that special

deference be given to its interpretation of statutes that it administers.” City Neighbors, 400

Md. at 343. That deference is over and above that generally afforded to other

administrative agencies; “[w]hile administrative agencies generally may interpret statutes,

as well as rule upon other legal issues, and while an agency’s interpretation of a statute

which it administers is entitled to weight, the paramount role of the State Board of

Education in interpreting the public education law sets it apart from most administrative

agencies.” Id. (quoting Bd. of Educ. for Dorchester Cty. v. Hubbard, 305 Md. 774, 790-

91 (1986) (footnote omitted)).

However, the discretion that courts afford to the State Board “is not unlimited.” Id.

We have recognized that there are at least “four instances where judicial review may be

more expansive in its inquiry:

(1) the matter involves a purely legal question;

(2) the State Board has contravened state statute;

(3) the State Board exercised its power in bad faith, fraudulently, or in breach

of trust; or

(4) the State Board exercised its power arbitrarily or capriciously.

Bd. of Educ. of Talbot Cty. v. Heister, 392 Md. 140, 154 n.13 (2006) (quoting Hurl v. Bd.

of Educ. of Howard Cty., 107 Md. App. 286, 299 (1995) (additional citations and internal

quotations marks omitted).

37

III.

DISCUSSION

A. The Standard of Review in the State Board’s Opinion

Frederick Classical contends that the State Board incorrectly viewed the Local

Board’s decision as one that involves “a controversy or dispute regarding the rules and

policies of a local [school] board,” and consequently erred in applying the standard of

review for such local school board decisions that they “must be considered prima facie

correct and upheld” by the State Board unless deemed “arbitrary, unreasonable, or illegal.”

See COMAR 13A.01.05.05(A)-(C). Frederick Classical asserts that the State Board not

only failed to identify any local policy that was at issue in the parties’ dispute, but expressly

stated in its decision that the “appeal concern[ed] the allocation of money to public charter

schools and the State Board’s interpretation of commensurate funding.” See Frederick

Classical Charter Sch., Inc., MSBE Op. No. 14-21 at 2. According to Frederick Classical,

the State Board should have instead applied a de novo standard of review defined in

COMAR 13A.01.05.05(E) because the Local Board’s decision, and Frederick Classical’s

appeal from that decision, “presented the State Board [with] questions regarding the

explanation and interpretation of a contract, State public school laws, and the State Board’s

prior opinions.”

The Local Board responds by stating that the State Board utilized the appropriate

standard of review because the issue before the State Board concerned “the formulation

and calculation of the amount of funding a [local school] board disbursed to a charter

school,” which, according to the Local Board, is a controversy or dispute regarding the

38

rules and policies of a local board. In the alternative, the Local Board contends that even

if the State Board incorrectly stated the standard of review, the State Board’s decision

shows that it actually applied the correct standard of review and exercised its independent

judgment. Finally, the Local Board claims that even if the State Board both cited and

applied the incorrect standard of review, this error was “irrelevant in a case like this one,

which turns not on factual disputes, but rather on statutory interpretation, [and] where the

standard of review specifically includes ‘illegal’ as one of the grounds for reversal.”

COMAR 13A.01.05.05(A)-(C) describes the standard of review that the State Board

applies to local school board decisions on matters involving a local policy or a local

dispute:

A. General. Decisions of a local board involving local policy or a

controversy and dispute regarding the rules and regulations of the local board

shall be considered prima facie correct, and the State Board may not

substitute its judgment for that of the local board unless the decision is

arbitrary, unreasonable, or illegal.

B. A decision may be arbitrary or unreasonable if it is one or more of the

following:

(1) It is contrary to sound educational policy; or

(2) A reasoning mind could not have reasonably reached the

conclusion the local board or local superintendent reached.

C. A decision may be illegal if it is one or more of the following:

(1) Unconstitutional;

(2) Exceeds the statutory authority or jurisdiction of the local board;

(3) Misconstrues the law;

(4) Results from an unlawful procedure;

(5) Is an abuse of discretionary powers; or

(6) Is affected by any other error of law.

39

COMAR 13A.01.05.05(E) describes the standard of review that the State Board

applies to local board decisions involving the interpretation of state public school laws or

of State Board policies:

E. State School Laws and Regulations. The State Board shall exercise its

independent judgment on the record before it in the explanation and

interpretation of the public school laws and State Board regulations.

Thus, pursuant to COMAR 13A.01.05.05(A)-(C), the State Board applies a

deferential standard of review to purely local policies or disputes, regarding the local

school board decision as “prima facie correct” and narrowing its review only to whether

the decision was “arbitrary, unreasonable, or illegal.” But, pursuant to COMAR

13A.01.05.05(E), the State Board does not defer to local school board determinations when

the issue presented for its review involves the explanation and interpretation of the public

school laws and State Board regulations,” but instead must “exercise its independent

judgment” in a de novo review.

As we noted in City Neighbors, these separate and distinct standards of review are

also supported by case law precedent:

[An] unbroken and consistent line of cases supports the precepts embodied

in COMAR 13A.01.05.05.—that (1) decisions of a local board involving

a local policy or a dispute regarding rules or regulations of the local

board shall be considered by [the State Board] as prima [facie] correct, and

[the State Board] will not substitute its judgment for that of the local board

in such cases unless the local decision is arbitrary, unreasonable, or illegal,

but (2) [the State Board] shall exercise its independent judgment on the

record before it in the explanation and interpretation of the State public

school laws and State Board regulations.

400 Md. at 343-44.

40

As described above, City Neighbors involved a set of cases in which the State Board

considered whether funding decisions of local boards, including to exclude certain

categories of funds from its calculation of a per-pupil allocation to a charter school, was

permissible under ED § 9-109. Id. at 331-35. We held that in that situation, “[the] State

Board was construing a State statute, not a local [school] board policy or regulation,” and

therefore “owed little deference to the city and [local school] board decisions, but was

required to exercise its own independent judgment as to the proper interpretation of ED §

9-109[.]” Id. at 344.

Similarly, in the instant case, the primary issue presented by Frederick Classical’s

appeal centered on the “proper interpretation of ED § 9-109,” as clarified in the State

Board’s own prior precedent and this Court’s holding in City Neighbors. Frederick

Classical’s main contention on appeal to the State Board was that the Local Board’s

decision to exclude the transportation funds when calculating its allocation denied it

commensurate funding under ED § 9-109. And, in their respective appeal filings, the

parties focused on whether the Local Board’s decision to exclude those transportation

funds was consistent with State Board precedent interpreting ED § 9-109, namely in the

City Neighbors declaratory rulings and Monocacy.

The State Board opinion reflects that the issues it was deciding involved the

commensurate funding requirement of ED § 9-109 and its precedent interpreting that

requirement. The State Board began its legal analysis in the opinion by summarizing its

previous rulings interpreting ED § 9-109 in the City Neighbors declaratory rulings and in

Monocacy. Frederick Classical Charter Sch., Inc., MSBE Op. No. 14-21 at 2-4. Then,

41

when evaluating the parties’ claims, the State Board interpreted the “commensurate”

funding requirement of ED § 9-109 and its own precedent. It determined that “if [Frederick

Classical] received funds for services [that] it did not provide, it would be receiving more

than its commensurate share of county funds” and that it was “not arbitrary, unreasonable,

or illegal for a county to consider the actual services provided by [Frederick Classical] to

reach a commensurate level of funding.” Id. at 4-5. And, it denied Frederick Classical’s

request for a declaratory ruling because it found that withholding transportation funds from

the per-pupil allocation was “not contrary to state law” and that the formula employed by

the Local Board “is consistent with [its] past rulings.” Id. at 5.

The appeal to the State Board also presented a separate contract interpretation issue,

but one that likewise centered on ED § 9-109 and the commensurate funds requirement.

Frederick Classical contended before the State Board that it was entitled to the inclusion of

the transportation funds in the per-pupil allocation because its charter agreement with the

Local Board “specifically invoke[d] and incorporate[d] [ED] § 9-109,” by stating that “[the

Local Board] shall disburse to [Frederick Classical] an amount of county, state, and federal

money for elementary, middle, and secondary students that is commensurate with the

amounts distributed to other public schools in the local jurisdictions.” Furthermore, in

resolving the parties’ dispute as to the meaning and significance of the charter agreement

language, the State Board relied primarily upon its decision in Monocacy. The State Board

interpreted its decision in Monocacy as standing for a broad proposition that if a charter

school “agreed to cover transportation (except for certain students)” then the cost of

transportation services per-pupil should be deducted from its per-pupil allocation.

42

Frederick Classical Charter Sch., Inc., MSBE Op. No. 14-21 at 4-5. On that basis, the

State Board found that “[Frederick Classical] has [ ] agreed that it is not entitled to

[transportation] funds by virtue of having parents take on the responsibility for

transportation.” Id. at 5.

Thus, the only issues that were before the State Board and decided in its opinion

were: (1) whether transportation funds must be included in Frederick Classical’s per-pupil

allocation pursuant to the commensurate funds requirement contained in ED § 9-109; and,

(2) whether Frederick Classical had contractually waived its right to the inclusion of

transportation funds in its commensurate funding allocation through its charter agreement.

Both of those issues involve an interpretation of ED § 9-109 and prior State Board

precedent. Moreover, the State Board did not consider or address any local policy or rules

of the Local Board.17 As we stated in City Neighbors, to permit local school boards to

determine “what funding is commensurate with the amounts disbursed to the other public

schools” pursuant to ED § 9-109 “by methodologies of their choosing” is impermissible

because it “raises the specter of 24 disparate methods of implementing a uniform State law

17

As noted in Frederick Classical’s brief, the Local Board did have a policy

“applicable to charter school funding,” which provides

[A]n approved public charter school shall receive funding as determined by

Maryland law which may be comprised of discretionary funding and in-kind

services. Annual funding will be based on a contractually agreed upon

enrollment and provided on a “per[-]pupil” basis.

Board of Education of Frederick County, Maryland, Policy 440.3(I). However, not only

did the State Board not refer to that policy in its decision, the policy merely reflects the

Local Board’s incorporation of controlling Maryland law into its own policies.

43

and would denigrate the [State Board’s] long-established authority to explain the true intent

and meaning of the public education laws that it is charged with enforcing.” 400 Md. at

346-47.

We therefore hold that the State Board erred by incorrectly articulating and applying

the standard of review set forth in COMAR 13A.01.05.05(A)-(C) for local policy or

disputes,18 and that the State Board should have applied the standard of review set forth in

COMAR 13A.01.05.05(E), and “exercise[d] its independent judgment on the record.”

We cannot say, as the Local Board urges, that even if the State Board cited the

incorrect standard of review that was deferential to the Local Board’s decision, its opinion

shows that it actually applied the correct standard and “exercise[d] its independent

judgment.” First, we note that the State Board made its determination without a hearing,

and therefore the record is devoid of evidence that the State Board actually examined and

18

In support of its application of the more deferential standard of review in COMAR

13A.01.05.05(A)-(C), the State Board cited Kitzmiller Charter School Initiative, Inc. v.

Garrett County Board of Education, MSBE Op. No. 13-52 (2013). In Kitzmiller, a charter

school appealed a local school board’s decision denying the charter school’s application.

Id. at 1. The State Board acknowledged that the appeal involved both local policies and

the public charter school law, which required the State Board in that case to give deference

to the local policy decisions and to exercise its independent judgment to the extent that the

Board explained and interpreted the public charter school law. Id. at 2-3. Kitzmiller is

dissimilar from the instant case, where the State Board only cited to and applied the more

deferential standard of review for local decisions, and thus does not support the State

Board’s complete failure to apply the proper “independent judgment” standard of review

for decisions involving the public school laws.

44

reviewed the positions and arguments of each side and made an independent review of the

record.

Second, the State Board’s decision indicates that it did not apply such an

independent review but instead deferred to the position advanced by the Local Board. The

State Board’s legal conclusions were strikingly similar to those of the Local Board in its

denial letter to Frederick Classical and filings to the State Board in the appeal. In the denial

letter, the Local Board stated that “[its] allocation [of funds was] based on the formula that

has been previously accepted and approved by the Maryland Stated Board of Education as

being consistent with Maryland law and the [Local] Board has determined that it is the

formula that will be applied here.” And, in its response and supporting memorandum to

Frederick Classical’s appeal, the Local Board stated that the current method of calculating

the per-pupil allocation was “correct and proper” as it was based on the formula which the

State Board applied in its decision in Monocacy, which it asserted was “fully dispositive

of the issues raised” in the appeal. The State Board’s decision to affirm the funding formula

mirrored the Local Board’s view and concluded that the Local Board’s decision to exclude

transportation funds while calculating the per-pupil allocation “was not contrary to State

law and the formula used by the [L]ocal [B]oard is consistent with our past rulings.” And,

the State Board likewise relied almost exclusively upon its Monocacy ruling to reach that

result.

In contrast, in its evaluation of the parties’ claims the State Board did not rely upon

the City Neighbors declaratory rulings, which was the precedent upon which Frederick

45

Classical primarily relied in its filings to the State Board.19 Thus, the record reflects that

the State Board did not apply a thorough, independent judgment as to whether the Local

Board’s allocation was consistent with its prior decisions and the underlying statute.

Instead, it appears that the State Board deferred to the decision of the Local Board, and the

Local Board’s reasoning in support of that decision.

Nor can we say that the State Board’s error in stating the incorrect standard of

review was “irrelevant” to its decision. The Local Board correctly points out that even the

more deferential standard of review in COMAR 13A.01.05.05(A)-(C) requires the State

Board to reverse local school board decisions that are “arbitrary, unreasonable, or illegal.”

And, it notes that COMAR 13A.01.05.05(C) states that a local school board’s “decision

may be illegal if,” among other things, it “misconstrues the law,” “is an abuse of

discretionary powers,” or “is affected by any other error of law.” Thus, the Local Board

urges us to conclude that “if the State Board [had] agreed with Frederick Classical’s [claim]

that the [Local] Board’s allocation formula misconstrued the law, was an abuse of its

powers, or was affected by any other error of law, it would have reversed the [Local]

Board’s funding formula, whatever standard it applied.”

However, the Local Board ignores the other half of the more deferential standard of

review for purely local policies and disputes in COMAR 13A.01.05.05(A), namely, that

the State Board must view the Local Board decision as “prima facie correct.” An

19

Prior to its analysis of the parties’ claims, the State Board did briefly discuss the

City Neighbors declaratory rulings in its opinion as part of its summary of its previous

rulings as to ED § 9-109 and the commensurate funds requirement.

46

administrative agency decision that is prima facie correct carries with it “the presumption

of validity,” and a court or other reviewing body must therefore view the decision “in the

light most favorable to the agency.” See Giant Food, Inc. v. Dep’t of Lab., Licensing &

Reg. et al., 356 Md. 180, 185 (1999) (citing Catonsville Nursing Home, Inc. v. Loveman,

349 Md. 560, 569 (1998)). Thus, in this case, the State Board may have been predisposed

to accept the Local Board’s claim that its allocation formula was merely an application of

State Board precedent from Monocacy, and to distinguish or discount the claims raised by

Frederick Classical that suggest that the Local Board’s decision was incorrect.

Our view that the Local Board erred in applying the more deferential standard of

review stated in COMAR 13A.01.05.05(A)-(C) is at odds with the Court of Special

Appeals, below, which determined that, “[i]n view of the heavy deference that must be

accorded to State Board [ ] interpretations of the public school laws and its own

regulations,” the State Board did not err in applying that standard. Frederick Classical

Charter Sch., Inc., 227 Md. App. at 451 n.5. We agree with the Court of Special Appeals

that the State Board is accorded a significant amount of judicial deference in the

interpretation of its own regulations, including its decision as to which of the standards of

review in COMAR 13A.01.05.05 apply to a given situation. However, that deference does

not extend to upholding the State Board’s decision to apply the more deferential standard

of review when the issue before the State Board did not involve any local policy or local

dispute, and the record indicates that the State Board improperly deferred to the decision

or arguments of a local school board instead of applying the much more stringent

“independent judgment” standard of review.

47

B. The State Board’s Ruling That Frederick Classical Was Not Entitled to the

Inclusion of Transportation Funds in Its Per-Pupil Allocation When It Did Not

Provide Transportation Services

Frederick Classical contends that the State Board erred in affirming the Local

Board’s decision to exclude transportation funds from its per-pupil allocation on the basis

that, under ED § 9-109 and its own precedent, Frederick Classical was not entitled to those

funds when it did not provide transportation services. Frederick Classical claims that the

State Board’s decision was contrary to its own City Neighbors declaratory rulings, affirmed

by this Court in City Neighbors, 400 Md. 324. According to Frederick Classical, those

decisions “demonstrate that a charter school operator is to receive funding even if the

charter school is not providing a ‘service’ that the local board generally provides [ ] so long

as the charter school does not request the local school system [ ] provide [ ]the service.”

Frederick Classical thus asserts that it is entitled to the full per-pupil allocation under the

formula in City Neighbors and “which it can use to prioritize and fund its innovative

programs.”

Frederick Classical also insists that the State Board’s decision in Monocacy does

not support that proposition that “a charter school operator does not receive funding

associated with categories of services it does not provide.” Frederick Classical notes that

the charter school operator in that case was, in fact, providing transportation services.

Moreover, Frederick Classical maintains that the statement in Monocacy which the Court

of Special Appeals determined supports the State Board’s decision here—that if the charter

school in Monocacy “were entitled to the full per[-]pupil amount” that it had claimed, it

would “receive an amount greater than an ‘equal’ amount of funds”—is “concerned an

48

entirely different and distinct subject matter” than at issue in this case. According to

Frederick Classical, that statement in Monocacy refers only to a situation where a charter

school requested certain in-kind services from a local board, in which case the charter

school must “buy back” the costs of those services through a deduction from its per-pupil

allocation, so that the charter school “does not get both the cash and the [services].”

However, Frederick Classical insists that the costs of transportation should not be deducted

in its case, because “it is not purchasing a service from the local board with the $544.26

per student” withheld from its per-pupil allocation.

Frederick Classical also raises a policy argument against the State Board’s decision,

contending that permitting the Local Board to withhold funds from its per-pupil allocation

to which it is entitled under ED § 9-109 and State Board precedent, while providing no

service in exchange, results in “retaining that money instead in the school system budget,

inevitably redistributing and spending those funds” on students in traditional public

schools. Frederick Classical insists that this amounts to it “being compelled to subsidize

the rest of the [local school] system at great cost to Frederick Classical and little benefit to

the rest of the system.”

In response, the Local Board claims that the State Board “appropriately determined

that the funding formula used by the [Local] Board here, which did not include a share of

its transportation budget, does not violate provisions of Maryland law regarding

‘commensurate funding’ for charter schools and was consistent with City Neighbors.” The

Local Board contends that in City Neighbors, this Court recognized that certain local school

board funds, including transportation, “are dependent upon whether or not [ ] students [at

49

the charter school] ‘are eligible’ for such services.” Apparently regarding students’

‘eligibility’ for a service as synonymous with students ‘actually receiving’ that service, the

Local Board asserts that because the students at Frederick Classical were not actually

receiving transportation services from the school, Frederick Classical was “not entitled to

funding.”

The Local Board also claims that its funding allocation was “based on the same

approach and formula” that was approved in Monocacy. It further insists that the

Monocacy approach and formula applies broadly and “was not based on any agreement by

the charter school there that it would waive, forfeit, or forego transportation funding.”

Finally, the Local Board disputes Frederick Classical’s policy argument that the exclusion

of transportation funds from its funding allocation resulted in Frederick Classical

subsidizing the costs of transportation services to students in traditional public schools. As

to that point, the Local Board reiterates the same argument that it raised before the Court

of Special Appeals, that its transportation budget represented a fixed “total cost to actually

transport students living in [ ] transportable areas and for special education students

needing specialized transportation,” a population which, aside from certain special

education students, did not include any charter school students “who are not entitled to

transportation.” The Local Board insists that “it would be an absolute windfall” for

Frederick Classical to receive a proportionate share of those costs.

In its Reply Brief, Frederick Classical asserts that, as to the Local Board’s position

that Frederick Classical students are ineligible for transportation services, the State Board

in the City Neighbors declaratory rulings clearly stated that per-pupil allocations are only

50

reduced when students are ineligible for those funds based upon explicit restrictions in state

or federal law. Here, Frederick Classical asserts, there are no such restrictions on

transportation funds. Frederick Classical also contends that, in addition to the reasons it

provided in its initial brief, the exclusion of transportation funds in Monocacy does not

control the outcome of this case because that exclusion was based on a contractual

agreement between the charter school and the local county board that the State Board

interpreted to mean that the charter school had agreed to “forego transportation funds.”

Finally, relying upon this Court’s holding in CBS, Inc. v. Comptroller of the Treasury, 319

Md. 687 (1990), Frederick Classical maintains that “to the extent that the [State Board’s

decision] represents a change in the State Board’s interpretation of the statute, it could not

be adopted through a contested case proceeding at all; it would have required there first to

be a rulemaking.”

As discussed above, the State Board determined that under ED § 9-109 and its own

precedent interpreting that statute, “a charter school is not automatically entitled to funds

for services it does not provide.” Frederick Classical Charter Sch., Inc., MSBE Op No.

14-21 at 4. Applying that standard to the parties’ dispute, the State Board found that “if

[Frederick Classical] received funds for services [that] it did not provide, it would be

receiving more than its commensurate share of county funds.” Id. The State Board

therefore affirmed the Local Board’s exclusion of transportation funds from the per-pupil

51

allocation, concluding that it was “not contrary to state law” and was “consistent with [its]

past rulings.”20 Id. at 5.

The State Board’s conclusion that a charter school is not entitled to funds for

services it does not provide was not squarely addressed in our City Neighbors opinion. The

City Neighbors declaratory rulings that we reviewed in that opinion did set forth a formula

for local school boards to use to calculate a charter school’s per-pupil allocation that

included transportation services and funding, but we did not discuss the State Board’s

treatment of transportation in our holding.21 Nor did we address whether the charter

schools involved in that case were providing transportation services to their students.

Nonetheless, just as in City Neighbors, in this appeal we must evaluate a State Board

decision that involves ED § 9-109 and the “commensurate” funding requirement. In that

opinion, we determined that the “commensurate” funding requirement in ED § 9-109 is

20

The State Board also affirmed the Local Board’s per-pupil allocation on the

separate basis that Frederick Classical had agreed not to receive transportation funds in its

charter agreement. That separate basis for the State Board’s ruling is analyzed in Part III.C

of this opinion, infra.

21

The Court of Special Appeals construed our decision in City Neighbors, 400 Md.

324, as standing for the proposition that a county school board could not require “the

mandatory exclusion of transportation funds from [a] per[-]pupil allocation amount,” but

not an “affirmative holding that transportation funds can never be excluded from the funds

disbursed to a charter school.” Frederick Classical Charter School, Inc., 227 Md. App at

455-56 (emphasis in original). However, the only references to transportation in our City

Neighbors decision were a brief summary of the State Board’s treatment of transportation

in its declaratory rulings, and a legislative report and State Board guideline discussing

transportation in funding of charter schools. 400 Md. at 336, 349-50. The report and

guideline to which we cited in City Neighbors both predated the adoption of the Charter

Schools Program statute and ED § 9-109 by several years and were not directly relevant to

our holdings.

52

“patently ambiguous.” 400 Md. at 347. Consequently, we held that we must give “heavy

deference” to the State Board’s interpretation of that statute, and defer to its interpretation

unless it is “patently wrong.” Id. at 347-48. We also stated that “[t]o the extent that we

desire to look further, we would apply the most relevant rules of statutory construction to

determine the legislative intent, and, in that regard, may consider legislative history and

the statutory purpose.” Id. at 348.

Applying a similar analytical approach to ascertain whether the State Board’s legal

determination that Frederick Classical was not entitled to transportation funding when it

did not provide transportation was legally correct, we shall assess whether those

determinations are consistent with the State Board’s own interpretation of ED § 9-109, set

forth in the City Neighbors declaratory rulings and Monocacy. And, “[t]o the extent that

we desire to look further,” we shall consider whether the State Board’s legal determinations

in those opinions regarding transportation funds are consistent with the legislative intent

behind ED § 9-109, as extensively described by this Court in City Neighbors, 400 Md. 324.

Transportation in the City Neighbors Declaratory Rulings

In the City Neighbors declaratory rulings, the State Board provided its first broadly

applicable interpretation of ED § 9-109. That statute provides,

A county board shall disburse to a public charter school an amount of county,

State, and federal money for elementary, middle, and secondary students that

is commensurate with the amount disbursed to other public schools in the

local jurisdiction.

The State Board interpreted that statute to mean “that a public charter school ‘receive

federal, State, and local funding in an amount proportionate to the amount of funds

53

expended for elementary, middle, and secondary level students in the other public schools

in the same system.’” 400 Md. at 336 (emphasis added).

Most significantly to this appeal, the State Board specified in the City Neighbors

declaratory rulings that “commensurate” funding provided to a charter school must include

“‘funding for services for which students in the public charter schools are eligible such

as free and reduced price meals, pre-kindergarten, special education, English-language

learners, Perkins, Title I, and transportation.’” Id. (emphasis added). Thus, the State

Board plainly determined that a proportional share of the funding budgeted by a local

school board for those specified services, including transportation, must be included in the

funds provided to a charter school to the extent that students at the charter school are

“eligible” to receive those services. See City Neighbors, 400 Md. at 356 (noting that the

State Board had concluded in the City Neighbors declaratory rulings that the

“commensurate” funding provided to a charter school “must include Title I and special

education funds, to the extent that students in the charter schools are eligible for those

services,” and holding that the State Board was “clearly entitled” to draw that conclusion

under its authority to “explain the true intent and meaning” of ED § 9-109).

The Local Board contends that by stating in the City Neighbors declaratory rulings

that charter school students must be “eligible” for a service in order for the charter school

to be entitled to a proportionate per-pupil share of the funds expended for that service, the

State Board meant that a charter school must actually provide the same services budgeted

for and provided by a local school board in order to be entitled to a proportionate per-pupil

54

share of funding for that service. But that interpretation is entirely contrary to the overall

approach the State Board endorsed in the City Neighbors declaratory rulings.

In the City Neighbors declaratory rulings, the State Board specified that the

commensurate funding was to be calculated on a per-pupil basis. Id. at 336-37. That

calculation begins with a local school system’s total annual operating budget, including all

federal, State, and local funding, except for appropriations for adult education and debt

servicing. Id. That figure is then divided by enrollment to reach an average per-pupil

figure. Id. at 337. A local county board may then deduct two percent from the per-pupil

figure to account for central office administrative costs. Id. Finally, the average per-pupil

figure is multiplied “by the student enrollment of the charter school to determine the total

funding amount for the charter school.” Id.

Thus, the State Board explicitly rejected a “mirror image” approach under which a

charter school would have to design its budget to mirror each category of funding employed

by the local county board, and then receive a proportionate share of funding or services in

that category. See City Neighbors, MSBE Op. No. 05-17, Ex. 2b (noting that “the

calculation of average cost does not mean that the funding mix of each fund source to the

[local school board] must be duplicated at the Charter School level,” and that “there is

reason neither to assume nor expect that the [local school board] would create a mirror

image of itself within the Charter School”). Instead, a charter school receives a lump sum

cash disbursement that reflects the average costs expended on students in traditional public

schools, multiplied by the enrollment of the charter school. The approach affords charter

55

schools a high degree of flexibility in how they choose to spend that lump sum to provide

their preferred educational programs and services.

Furthermore, in contrast to the Local Board’s position, the City Neighbors

declaratory rulings clearly indicate that the State Board had a much narrower intent in

stating that students at a charter school must be “eligible” for transportation or one of the

other specified services in order for the charter school to be entitled to a proportional, per-

pupil share of funds budgeted for that service. The State Board noted that charter schools

“would have to make budgetary allocations in light of the students’ eligibility

requirements” under federal or state law “and in doing so must comply with all applicable

Federal and State requirements.” City Neighbors, 400 Md. at 337 (emphasis added).

Specifically, the State Board “recognized the prospect that not every student attending a

charter school would be entitled to Title I or special education funds or services and,

indeed, that in some charter schools none of the students might be eligible, that funding

restrictions applicable to those programs would require the public charter schools to adjust

their budgets ‘to be in compliance with programmatic laws and regulations.’” Id. at

338 (emphasis added). An attached guidance document further specified that “[t]he actual

funding sources that would be provided to [a charter] school would be dependent upon the

specific school’s eligibility for those restricted funds.” City Neighbors, MSBE Op. No.

05-17, Ex. 2b (emphasis added).

The City Neighbors declaratory rulings thus merely acknowledged that some

specific services provided by local school boards, particularly Title I and special education

services, may have detailed eligibility requirements under federal or state law or

56

regulations. For funding associated with those services, the State Board determined that a

charter school must meet those federal or state eligibility requirements, or else forfeit the

proportional share of the local school board’s spending on those services to which it would

otherwise be entitled under the per-pupil allocation formula.

Although not specifically detailed in the City Neighbors declaratory rulings, there

are no such detailed federal or state eligibility requirements or programmatic restrictions

that apply to either local school boards or individual schools with respect to student

transportation funds. Funding for public school transportation in Maryland is paid for

through a combination of state and local county government funding. Section 5-205 of the

Education Article provides that “[t]he State shall distribute grants as provided under this

section to the [local school] boards to provide transportation services for public school

students and disabled children for whom transportation is to be provided under § 8-410 of

[the Education Article].” The statute provides a “base grant” amount and a statutory

formula that allows for an increase in the base amount within certain limits each year. ED

§ 5-205(b)-(c). The statute also includes a separate disabled student transportation grant.

ED § 5-205(d). Local county governments may also provide additional transportation

funding.22

For the funding that it provides, the General Assembly imposes certain purely

budgetary restrictions on local school boards. Section 5-205(a) also requires that

22

For example, in Fiscal Year 2014, the “base grant” funding for Frederick County

under ED § 5-205 was $6,620,447, but the total expenditure under the “Transportation”

category in the Local Board’s budget was $20,676,409.

57

“[a]ppropriations for student transportation shall be budgeted in a separate budget

category,” and that “[a] [local school] board may not transfer State revenues from the

student transportation category to any other category as a result of this section.” The funds

provided by the State also may not “be paid to or claimed by any subdivision,” or “reverted

to any subdivision.” Id. However, the General Assembly has not imposed detailed

programmatic restrictions on how those funds must be used.

Indeed, with the exception of certain disabled students, local school boards are not

required by law to provide transportation services to individual public school students.

Section 4-120(b) of the Education Article provides that “each [local school] board shall

arrange for the transportation of students to and from consolidated schools” (emphasis

added).23 However, requiring a local school board to “arrange” for transportation of

students is distinct from requiring that a local school board “provide” such transportation.

A local school board may “arrange” for transportation to be provided by others, such as a

student’s parents, without needing to directly provide transportation services through a

school bus service or other means. The fact that the General Assembly has recognized this

distinction is easily seen in § 8-410(a) of the Education Article, which provides that “[e]ach

local school system shall provide or arrange for the transportation during the regular

school year of each child with a disability who is in a placement approved in conformity

with this subtitle and applicable regulations of the State Board” (emphasis added). As a

23

In Prince George’s County, this authority is vested in the Chief Executive Officer.

ED § 4-120(c).

58

local school board must either provide or arrange transportation for qualified special

education students, it must provide transportation if an arrangement is not reached with the

child’s parents or others that they will transport the child.

Other statutes also reinforce that a local school board is not required by state law to

provide transportation to any particular public school student, aside from those disabled

students covered under ED § 8-410(a). Section 7-801(b)(1) of the Education Article states

that “[a]t its own expense, a county governing body may provide transportation for public

school students in addition to the transportation provided by the State” (emphasis added).

And, § 7-805(a) of the Education Article states that “[a] school bus may be used to

transport any student who lives within the mileage limit, if a mileage limit has been

established by a local board of education” (emphasis added).

Local school board policies regarding transportation similarly reflect that they are

not required to provide transportation to and from school for any given student. For

example, the Local Board’s “transportation of students” policy states that transportation is

not the responsibility of the Local Board, but rather “a partnership between the home and

the school.” Board of Education of Frederick County, Maryland, Policy 441.1(A).

Furthermore, the policy provides that, generally, “elementary students are not eligible for

school bus transportation to school unless the most practical, direct walking route is longer

than 1¼ miles,” and “middle and high school students are not eligible for school bus

transportation to school unless the most practical, direct walking route is longer than 1¾

miles.” Id. at 441.2(A)-(B).

59

As transportation funding is not restricted under state law, under the formula set

forth in the City Neighbors declaratory rulings, funds for transportation services must be

included in the formula for calculating a charter school’s per-pupil funding allocation. And

because there are no eligibility requirements in federal or state law that mandate that

students attending public schools must receive those services, aside from the requirement

that qualified special education students must be provided with transportation, a charter

school does not have to provide transportation services or take any other actions in order

to qualify for its proportional share of the average per-pupil transportation funding spent

on its general student population (i.e., for those students other than disabled students who

qualify for transportation under ED § 8-410).

The City Neighbors declaratory rulings did state one important exception under

which transportation services could nonetheless be deducted from a charter school’s per-

pupil funding allocation. The State Board determined that “[f]or the special services that

must be provided to eligible students, the charter school could elect either to provide the

services directly or have them provided by the school system, but if it opted for the latter,

it would be required to reimburse the school system for the proportionate cost of those

services.” City Neighbors, 400 Md. at 337-38. As noted previously, transportation is not

a service that must be provided to general education students. But, for disabled students

who are entitled to transportation pursuant to ED § 8-410, a charter school must elect to

actually provide transportation services to disabled students in order to receive its

proportional share of county funding for the transportation of disabled students. In

60

contrast, if the charter school elects to have transportation for special education students

provided by the local school board, it must reimburse the cost of those services.

Similarly, the State Board also determined that a charter school would be required

to reimburse a local county board for “‘regular services and supplies that the charter school

requests the local school system to provide.’” Id. at 338. Thus, if a charter school requests

that the local board provide transportation to all of its students, and the local school board

agrees to provide that service, the charter school must reimburse transportation funding to

the local school board.

The “guidance documents” attached to the City Neighbors declaratory rulings

provide further support that, under the approach endorsed by the State Board in that case,

a charter school is generally entitled to transportation funds unless it requests that a local

school board provide transportation. One of those documents, Exhibit 4, “Charter Schools

and Special Education,” states the following regarding transportation:

As a part of the contract agreement between the [local school system] and

Charter School, transportation should be addressed for all students including

students with disabilities attending the charter schools. This may include the

Charter School returning to the [local school system] the portion of funds

provided for transportation or the Charter School providing the transportation

service for the student. . . .

City Neighbors, MSBE Op. No. 05-17, ex. 4. The exhibit reflects that the State Board

expected that local school boards and charter schools would state how transportation

services would be provided to children attending a charter school in the school’s charter

agreement. If a local school board agreed to a charter school’s request that it provide

transportation, and that agreement was memorialized in the charter agreement, the charter

61

would be required to “return[ ] to the [local school system] the portion of funds.”

Alternatively, the charter agreement could contain an agreement that the charter school

would provide transportation, in which case—by operation of the charter agreement and

not by state law—the charter school would be required to provide those services.

In summary, pursuant to the precedent stated in the City Neighbors declaratory

rulings, when calculating a charter school’s per-pupil allocation of commensurate funds, a

local school board generally must include in that calculation funds budgeted for any of the

services expressly identified in the declaratory rulings—including funds for transportation

services. However, a local school board is not required to include funds for services that

have detailed eligibility requirements under state and federal law when the charter school

does not meet those eligibility requirements. For transportation, there are no such

eligibility requirements for general education students, and a local school board must

therefore include the funds budgeted for that service when calculating a charter school’s

per-pupil allocation, regardless of whether a charter school provides transportation services

to its general student population. For special education students, a charter school must

actually provide transportation for special education students in order to qualify for a

proportional share of the local school board budget for those services. Finally, a charter

school may elect, but is not required, to request that a local school board provide

transportation for some or all of its students. If a local school board agrees to provide

transportation, the charter school must reimburse the local school board for the cost of

those services.

62

The State Board’s Decision in the Instant Case Is Not Consistent with the

City Neighbors Declaratory Rulings

The State Board’s decision in this appeal is plainly contrary to its own precedent in

the City Neighbors declaratory rulings. In this case, the State Board determined that “a

charter school is not automatically entitled to funds for services it does not provide” and

that “if [Frederick Classical] received funds for services [that] it did not provide, it would

be receiving more than its commensurate share of county funds.” However, under the City

Neighbors declaratory rulings, a charter school is automatically entitled to a proportional

share of all of the federal, state, and local funds that the local school board expends on

elementary, middle, and secondary students, including funding for transportation and the

other specified services, unless the charter school fails to meet specific eligibility

requirements for a service or elects to have the local board provide the service.24

Under state and federal law, there are no specific eligibility requirements that

require Frederick Classical to provide transportation services to its students, aside from

special education students. And, Frederick Classical had not requested that the Local

Board provide transportation to general education students. Thus, Frederick Classical does

not need to actually provide transportation in order to be entitled to a proportional share of

transportation funding budgeted for the general student population in its per-pupil

allocation. Consequently, under the City Neighbors declaratory rulings, Frederick

24

That proportional share is, however, subject to a two percent reduction for central

administrative functions and does not include funding for adult education or debt servicing.

City Neighbors, 400 Md. at 337.

63

Classical was entitled to transportation funds, and the State Board erred in affirming the

Local Board’s decision denying those funds.

Nor does it appear that the exclusion of transportation funds while calculating

Frederick Classical’s per-pupil allocation was the only substantial deviation from the City

Neighbors declaratory rulings formula by the Local Board. The Local Board’s chart

describing its calculation of the 2014 Fiscal Year allocation to Frederick Classical shows

that it withheld $1655.64 in per-pupil funds and provided that amount in “in-kind” services.

The Local Board listed several services as “in-kind services” that a charter school may well

desire that a local school board provide, including: special education services; non-public

placement for disabled students; a pupil personnel worker; the CASS program; a school

therapist; student health, including health room technicians and workers; and, food

services. However, it is not clear from the record if Frederick Classical did in fact desire

any of those services, or whether the Local Board intended to actually provide any of those

services to Frederick Classical. And, the Local Board listed several services as “in-kind

services” that appear to be purely administrative costs for the Local Board with no direct

benefit to Frederick Classical, including the costs of employing a superintendent, a deputy

superintendent, a Chief Operating Officer, other mid-level management, and the Local

Board members; and the costs for the Human Resources, Legal, Communication Services,

Budget, Finance, Purchasing, Technology Services, and Curriculum Instruction,

Assessment & Innovation departments.

But, as the State Board made explicitly clear in the City Neighbors declaratory

rulings, all such “in-kind services” should be provided only if explicitly requested by a

64

charter school. And, the overall deduction for all central administrative costs should be

capped at two percent of a charter school’s funding allocation. As we recognized in our

own City Neighbors opinion, those limitations were both critical to the formula’s approach

of ensuring that a charter school was provided with a proportional share of funding in the

form it could actually use to implement its programs—cash. In City Neighbors, we stated

that in-kind services should not be “forced on [ ] charter schools at the whim of [local

school] boards.” 400 Md. at 356. And, as to the two percent cap, we similarly stated that

“the [State] Board was simply unwilling to allow the [local school] boards to deduct

amounts for the entire range of administrative expenses they choose to incur.” Id. We

further noted that implicit in the two percent cap, the State Board had determined that

“charter schools, being somewhat autonomous, would not need and should not be subject

to the full range of control exercised by the central administration over the regular public

schools, and that they therefore should not be charged with a share of that total expense.”

Id. at 356-57.

Frederick Classical did not raise a dispute regarding the provision of in-kind

services in its appeal to the State Board from the Local Board’s funding allocation, and in-

kind services were tangential to the State Board’s decision below. Consequently, the issue

whether the in-kind services in Frederick Classical’s funding allocation were proper under

the City Neighbors declaratory rulings is not before us in this appeal. However, to the

extent that the State Board chooses to adhere to the formula and approach set forth in its

City Neighbors declaratory rulings in the future, it should closely review local school board

allocations to charter schools to determine whether withholdings for “in-kind” services are

65

solely for those services that the charter school has, in fact, requested that the local school

board provide and that the local school board is in fact providing those services to the

charter school. A local school board should not be permitted to flout the standards set by

the State Board as to how funding is calculated for a charter school, and lower that school’s

per-pupil allocation, simply by declaring that it has “provided” a charter school with

“services” that provide no direct benefit to students and that the charter school neither

needs nor desires.

The State Board’s Decision in the Instant Case Is Not Consistent with Its

Ruling in Monocacy

We must also consider whether the State Board changed its position on the funding

of public charter schools in Monocacy, and if that case supports the State Board’s decision

to reject Frederick Classical’s appeal. In Monocacy, the State Board considered whether a

formula used by the Frederick County Board of Education, the same Local Board in this

case, to calculate the per-pupil allocation for a charter school, MMCI, was consistent with

ED § 9-109 and the commensurate funding requirement. The Local Board’s formula had

three steps:

First, [the Local Board] subtracted from the total budget all restricted budget

amounts targeted for specific programs and services. That resulted in the

“unrestricted budget.” Second, it adjusted the total unrestricted budget

proportionally [by] subtracting the value of the services it provided in-kind

and directly to MMCI. It divided that amount by the number of students

enrolled. . . . Finally, the local board would add on to that per[-]pupil amount

any restricted funds for which charter school or its students were eligible.

66

Monocacy, MSBE Op. No. 06-17 at 3. In the instant appeal, the Local Board applied the

same three-step approach to calculate Frederick Classical’s 2014 Fiscal year per-pupil

allocation. See supra Part I, 18-21.

However, the State Board in Monocacy did not endorse or approve the Local

Board’s formula. Indeed, in Monocacy the State Board explicitly stated that the Local

Board’s formula was “not consistent with the State Board’s formula” set forth in its City

Neighbors declaratory rulings. Id. at 4. And, the State Board reaffirmed the importance

of the City Neighbors formula, explaining that it “results in a bottom line amount of money

that this Board considers [to be] proportionate/commensurate funding.” Id. at 5. Although

the State Board did not entirely rule out a local school board’s use of a different approach,

it stated that if a local school board uses a different formula it must result in the same

“bottom line amount of money” so that the State Board could “conclude that the school

system was providing proportionate/commensurate funds to the charter school.” Id.

In Monocacy, the State Board began its analysis by calculating MMCI’s per-pupil

allocation using the same approach as the City Neighbors declaratory rulings. After it

credited the Local Board for the provision of in-kind services to MMCI, and subtracted

out funds to which MMCI was not entitled,25 it determined that the Local Board’s

25

In Monocacy, the State Board did not conduct a detailed examination as to

whether MMCI was, in fact, entitled to any of the funds that the Local Board had

determined were “restricted” funds. It is not clear if MMCI raised that issue before the

State Board. In any event, the State Board appears to have presumed that MMCI was not

entitled to any of the “restricted” funds and therefore deducted a proportional share of those

funds from its own figure, amounting to $500. Monocacy, MSBE Op 06-17 at 11. But the

State Board also made a point of stating that in addition to the $12 per pupil, the Local

Board would also have to provide MMCI with “any restricted funds to which MMCI is

67

allocation was $12 less than the correct figure reached under its own formula. Therefore,

it directed that “[the Local Board] must provide an additional $12.00 per pupil to MMCI”

in order to ensure that MMCI received commensurate funding. Id. at 12. Thus, Monocacy

both applied and, in effect, fully upheld the formula adopted in the City Neighbors

declaratory rulings, permitting a local school board to use its own approach only so long

as that local school board ultimately adjusted its own per-pupil allocation figure to be

dollar-for-dollar exactly the same as that reached under the State Board formula.26

Although Monocacy was consistent with the State Board’s precedent in the City

Neighbors declaratory rulings—under which, as we have explained, transportation funding

for general education students must be included in a charter school’s funding allocation—

the State Board and Court of Special Appeals below, and the Local Board on appeal, have

all misinterpreted Monocacy as standing for a broader proposition that a local school board

may exclude transportation services from a charter school’s allocation.

entitled.” Id. at 12. The State Board in Monocacy thus implicitly recognized that a local

school board may only exclude funds from a per-pupil allocation if the charter school is

not entitled to those funds under State Board precedent interpreting ED § 9-109. In

contrast, the Monocacy decision does not imply that a charter school is not entitled to

certain funds merely because a local school board has labeled those funds as “restricted.”

26

Given the State Board’s decision in Monocacy, it is unclear to this Court why the

Local Board would continue to spend the bureaucratic time and effort to calculate a charter

school’s per-pupil allocation under its own formula, only to ultimately be required to spend

additional time and effort to make a separate calculation using the State Board approach

and adjust its own sums to reflect the State Board’s preferred method. However, we must

admit that such an approach, albeit convoluted and seemingly unnecessary, is consistent

with the State Board’s decision in Monocacy.

68

In denying relief to Frederick Classical in its initial appeal from the Local Board,

the State Board indicated that it viewed Monocacy as supporting its determination, stating

that “[a]s we noted in Monocacy, if [a charter school] received funds for services it did not

provide, it would be receiving more than its commensurate share of county funds.”

Frederick Classical, MSBE Op. No. 14-21 at 4. However, Frederick Classical is correct

that Monocacy does not support that statement. MMCI, the charter school at issue in

Monocacy, agreed in its charter agreement that it would undertake the responsibility of

providing transportation to all of its students, except special education students or those

who live along an established bus route. Monocacy, MSBE Op. No. 06-17 at 8. Thus, the

issue of whether it was appropriate to exclude transportation funding to a charter school

that did not provide transportation or other services was not raised in Monocacy, and the

State Board did not discuss that issue.

The Court of Special Appeals held that the State Board’s statement that “if [a charter

school] received funds for services it did not provide, it would be receiving more than its

commensurate share of county funds” was supported by Monocacy, citing to a statement

in Monocacy that “if MMCI were entitled to the full per[-]pupil amount” that it had

claimed, “MMCI would receive an amount greater than an ‘equal’ amount of funds.”

Frederick Classical Charter School, Inc., 227 Md. App. at 457 (quoting Monocacy, MSBE

Op. No. 06-17 at 9). However, in the section of Monocacy relied upon by the Court of

Special Appeals, the State Board was discussing MMCI’s contention that it was entitled to

a per-pupil allocation calculated by dividing the Local Board’s total operating budget by

total enrollment, with no exclusions or deductions of any kind. Monocacy, MSBE Op. No.

69

06-17 at 9. But, as the State Board noted in that case, MMCI was in fact receiving certain

in-kind services from the State Board. Id.

Thus, in the statement relied upon by the intermediate appellate court, the State

Board in Monocacy was merely clarifying that if a charter school received both funding

that a local school board allocated to a certain service and the service itself for free from

the local school board, it would be receiving more than a commensurate or roughly equal

share of funds. In such circumstances, the State Board in Monocacy determined that “if

MMCI accepts in-kind services from [the Local Board] it would have to buy back those

services.” Id. That determination, which is entirely consistent with the State Board’s

precedent in the City Neighbors declaratory rulings, does not support the State Board’s

ruling in the instant case, as Frederick Classical was not seeking or being offered any

transportation services for its general student population from the Local Board.

Finally, the Local Board suggests that Monocacy supports the State Board’s

decision to affirm its exclusion of transportation funding from Frederick Classical’s per-

pupil allocation because the State Board in Monocacy affirmed its exclusion of $420 in

per-pupil transportation funding when calculating MMCI’s per-pupil allocation. The Local

Board views the Monocacy ruling as a broadly applicable one that transportation funds may

be excluded when calculating a charter school’s per-pupil allocation, and contends that it

“was not based on any agreement by [MMCI] that it would waive, forfeit, or forego

transportation funding.”

But, the State Board was clear that its exclusion of transportation funds in Monocacy

was based solely on a clause in the charter agreement between MMCI and the Local Board,

70

which stated that “transportation shall be the responsibility of MMCI except for students

who live along [an] established [bus] route and for special education students.” Id. at 8.

The State Board interpreted that provision to mean that “MMCI essentially has agreed that

it is not entitled to the transportation dollars contained in [the Local Board’s] Total

Operating Budget.”27 Id. at 9. Thus, contrary to the Local Board’s view, the State Board’s

ruling in Monocacy that transportation funds may be excluded was based on a contractual

agreement, which the State Board interpreted to mean that the charter school had agreed to

forego transportation funds.

Thus, Monocacy stands for, at most, the proposition that a charter agreement

between a charter school and a local school board may operate to waive or forego

transportation funds to which the charter school is otherwise entitled. We address whether

the State Board was correct to affirm the Local Board’s exclusion of transportation funds

based on language in Frederick Classical’s charter agreement that it regarded as similar to

27

In Monocacy, the State Board did not expressly state why MMCI would have

agreed to forego transportation funds, when it could have used those funds to pay for the

transportation that it was providing to students. But, the State Board did note that the

charter agreement was entered into on January 14, 2015, which was prior to the issuance

of its City Neighbors declaratory rulings. Monocacy, MSBE Op. 06-17 at 8. And, the State

Board referred to the transportation provision in MMCI’s charter as a “pre-existing

agreement that MMCI would absorb the cost of transportation,” presumably meaning that

the agreement pre-dated the City Neighbors declaratory rulings. Id. at 10 (emphasis

added). Until the issuance of the City Neighbors declaratory rulings, charter schools and

local boards were entirely in the dark as to what was meant by the “commensurate” funds

provision in ED § 9-109. Consequently, MMCI may well have agreed to provide

transportation solely out of its own resources as part of a negotiation with the Local Board

that took place prior to the existence of the formula and guidance of the City Neighbors

declaratory rulings.

71

that in Monocacy in the next section of this opinion. See infra, Part II.C. However,

Monocacy clearly does not stand for the broader proposition that a local school board may

always exclude transportation funding or may exclude funding when a charter school does

not provide transportation services. Therefore, it does not support the State Board’s

conclusion that Frederick Classical is not entitled to transportation funding when it did not

provide transportation services.

The State Board’s Decision in the Instant Case Is Not Consistent with the

Legislative Intent of ED § 9-109 and the Charter School Program

The State Board’s ruling in the instant case that Frederick Classical was not entitled

to transportation funds when it did not provide transportation is thus plainly contrary to its

own precedent in the City Neighbors declaratory rulings and Monocacy. Nevertheless, on

its face, the State Board’s ruling has a certain intuitive appeal; it might seem unfair that

Frederick Classical should receive transportation funds without needing to provide

transportation services to its students. That is certainly the position of the Local Board,

which asserts that permitting Frederick Classical to receive transportation funds would

result in an unearned “absolute windfall” for the school. Therefore, we shall “look further”

to determine whether that ruling is consistent with ED § 9-109 and the overall Charter

School Program statute, in light of our explanation in City Neighbors of the legislative

history and the statutory purpose of those provisions. 400 Md. at 348-54.

As we stated in our City Neighbors decision, “[c]harter schools are in the nature of

semi-autonomous public schools that operate under a contract with a State or local school

board.” 400 Md. at 328 (emphasis added). “The principal objective” of the “parents,

72

educators, community groups, [and] private entities” who desired to create charter schools

“was to develop and implement innovative and more effective educational programs.” 400

Md. at 329. Similarly, § 9-101 of the Education Article states that “[t]he general purpose

of the [Charter School] Program is to establish an alternative means within the existing

public school system in order to provide innovative learning opportunities and creative

educational approaches to improve the education of students.” In order to accomplish that

aim, we explained in City Neighbors that charter school advocates “needed and demanded

freedom from some of the structural, operational, fiscal, and pedagogical controls that

governed the traditional public school system.” 400 Md. at 329 (emphasis added).

Thus, the statutory purpose of the Charter School Program was to establish and fund

charter schools as an “alternative means” of providing innovative, creative and more

effective teaching programs “to improve the education of students.” Id. And, as we

recognized in City Neighbors, charter schools are “semi-autonomous” and must operate

with a certain degree of independence and flexibility in order to meet that purpose,

including some freedom from the close supervision that local school boards may employ

over how traditional public schools budget and spend their funding. Id. at 328.

The approach taken by the State Board in the City Neighbors declaratory rulings,

under which a charter school is entitled to funding without strings attached unless there are

specific eligibility requirements in state or federal law that it must meet to secure that

funding, enhances the flexibility that charter schools need in order to accomplish their

statutory purpose. A charter school may well elect to use funding that a local school board

devotes to transportation, or other specific services, to fund an additional teacher in a

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specialty area, or provide a new classroom program, or offer more afterschool services, or

in a variety of other innovative ways that could improve the education of charter school

students. And, parents who choose to send their children to a charter school may well

prefer that the school devote more funding to those other services that benefit their children,

leaving transportation of children to and from the school to the parents.

In contrast, the conclusion of the State Board in the instant case—that Frederick

Classical is not entitled to a commensurate share of transportation funds when it does not

provide transportation services—restricts Frederick Classical’s flexibility and freedom to

decide how to best use its funds to provide innovative services that the school believes will

improve the education of its students. We note that Frederick Classical may yet seek to

use those funds to provide transportation—its charter agreement provides that “[i]f

[Frederick Classical] subsequently determines to provide transportation during the term of

this Charter, it may contract with an approved provider for transportation services within

provisions allowable under the negotiated agreement.” Or, it may determine that there is

a better use of those funds under its chosen educational program.

Turning to the statute and its legislative history, ED § 9-109(a) states that “[a]

county board shall disburse to a public charter school an amount of county, State, and

federal money for elementary, middle, and secondary students that is commensurate with

the amount disbursed to other public schools in the local jurisdiction.” In City Neighbors,

we noted that the statute is “patently ambiguous” and that “the whole comparative

framework [ ]—what the disbursement to the public charter schools should be

commensurate with—requires interpretation.” Id. at 347. However, in our detailed

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description of the legislative history of that provision,28 we did not identify any materials

indicating a legislative intent that the commensurate funding of a charter school be

contingent upon the charter school providing the same services provided by a local school

board.29 Nor do we find any upon reexamination of the relevant legislative history.

Under the Charter Schools Program statute, charter schools certainly do not have

the freedom to use public funds entirely without constraint or supervision. To the contrary,

a charter school must “comply with the provisions of law and regulation governing other

public schools” unless it obtains a waiver to the contrary from a local school board or the

State Board. ED § 9-106. Furthermore, a charter school must operate “under the

28

Although significant amendments were made to the Charter School Program in

the Public Charter School Improvement Act of 2015, including an amendment to ED §

9-109 that deleted a previously extant subsection (b), the current text of ED § 9-109 was

not otherwise altered or amended. See 2015 Md. Laws, ch. 311. Therefore, our previous

description of the legislative history in City Neighbors retains its full force for our analysis

in this case.

29

We noted in our discussion of the legislative history in City Neighbors that in July

1997 “the State Department of Education [ ] adopted Guidelines for local boards to use

when considering charter school applications.” 400 Md. at 350. Those guidelines

indicated that a charter school’s “per-pupil calculation should include eligible local, state,

and federal funds in the calculation[,]” but also that “[o]ther fiscal support such as

transportation may be part of the negotiations between the charter requestor and the local

education authority.” Id. (quoting Guidelines for Use by Local School Systems in

Considering Charter School Applications, Maryland State Department of Education (July,

1997) at 8). The Court of Special Appeals in this case determined that the guideline

supported the State Board’s decision to uphold the withholding of transportation funding

from Frederick Classical. Frederick Classical Charter Sch., Inc., 227 Md. App. at 456.

However, given that the guideline was issued in July 1997—six years prior to the passage

of the Charter School Program and ED § 9-109—we do not believe that it sheds any light

on the legislative intent behind the commensurate funds requirement. We discussed the

guideline in City Neighbors only as part of tracing the background of the push for charter

schools in Maryland that ultimately led to the enactment of the Charter Schools Program.

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supervision of the public chartering authority from which its charter is granted,” meaning

the local school board, and “in accordance with its charter.” ED § 9-102(11). However,

we do not find any evidence of a legislative intent that a charter school’s funding be tied

to a requirement that it provide specific services or programs to its students. Therefore,

the State Board’s conclusion that Frederick Classical is not entitled to a commensurate

share of transportation funds when it does not provide transportation is inconsistent with

the legislative intent of ED § 9-109.

Seen in light of the statutory purpose and legislative history of the Charter Schools

Program, it was not unfair or an “absolute windfall” for Frederick Classical to seek a

proportional share of transportation funds with the intent of using those funds to provide

other innovative services to its students. Instead, the withholding of transportation funds

from Frederick Classical’s funding allocation was a windfall for the Local Board. The

Local Board did not use any portion of that funding to provide transportation services to

Frederick Classical aside from the special education services it was statutorily mandated

to provide. Instead, the Local Board’s allocation removed $544.26 in funding per student

that it would otherwise have had to pay to Frederick Classical, and retained that amount in

its budget to be spent in providing transportation to children in traditional public schools.

The Local Board maintains that its transportation budget represents a fixed cost that

does not vary to any significant extent depending on the number of students being

transported. Therefore, according to the Local Board, it is “not profiting by not including

a portion of its transportation budget in the allocation to [Frederick Classical].” Accepting

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that position as accurate for the purposes of this appeal,30 the Local Board has still decided

to use funds withheld from Frederick Classical to pay for transportation services only to

students at traditional public schools, and for which, under its own policy, charter

students generally “are not eligible.” 31 Thus, the funds withheld from Frederick Classical

are, in fact, subsidizing services for other public school students—even if that subsidy is

devoted to paying for the fixed costs of providing buses, drivers, and gas for the county’s

existing school transportation system.

The State Board’s Discretion to Revisit Its Determinations as to the

“Commensurate” Funding Requirement of ED § 9-109 on Remand

Even under the deferential judicial standard of review for State Board decisions, we

may determine that a decision of the State Board was erroneous and must be reversed if it

was arbitrary and capricious or in contravention of the statute. Bd. of Educ. of Talbot Cty.

v. Heister, 392 Md. 140, 158 n.13 (2006) (noting that a decision of the State Board is not

entitled to judicial deference if, among other situations, “the State Board has contravened

state statute” or “the State Board exercised its power arbitrarily or capriciously” (quoting

Hurl v. Bd. of Educ. of Howard Cty., 107 Md. App. 286, 299 (1995)) (additional citations

and internal quotations marks omitted)). Here, the State Board acted arbitrarily and

capriciously when it stated that its ruling that Frederick Classical is not entitled to a

30

We note that the State Board made no factual findings as to this issue.

31

As discussed earlier, by statute the Local Board is also required to provide or

arrange transportation to all qualified special education students, including those attending

charter schools.

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commensurate share of transportation funds because it did not provide transportation

services was “consistent with [its] prior rulings” because, as we have shown above, that

ruling was in fact directly contrary to its own precedent in the City Neighbors declaratory

rulings and Monocacy. See Bereano v. State Ethics Comm’n, 403 Md. 716, 755 (2008)

(noting that when this Court reviews an administrative action, “we may uphold the agency

order only if it is sustainable on the agency’s findings and for the reasons stated by the

agency” (quoting Motor Vehicle Admin. v. Mohler, 318 Md. 219 (1990))); F.C.C. v. Fox

Television Stations, Inc., 556 U.S. 502, 515 (2009) (noting that an agency must “display

awareness that it is changing position” and may not “depart from a prior policy sub

silentio”) (emphasis in original). Therefore, we hold that the State Board’s ruling was

erroneous and an abuse of its discretion.

However, our holding leaves open whether, on remand from this appeal, the State

Board has the discretion to devise a new interpretation or approach to determining a charter

school’s “commensurate” funding allocation, so long as it openly acknowledges that it is

departing from its precedent in the City Neighbors declaratory rulings and Monocacy.

Moreover, we must address Frederick Classical’s contention that if the State Board changes

its interpretation of ED § 9-109, it must do so through formal, notice-and-comment

rulemaking and not through a contested adjudicatory proceeding.

Generally, administrative agencies are afforded “ample latitude to adapt their rules

and policies to the demands of changing circumstances.” Montgomery Cty. v. Anastasi, 77

Md. App. 126, 137 (1988) (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm

Mut. Auto. Ins. Co., 463 U.S. 29, 42 (1983)). However, an administrative agency decision

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“may be deemed ‘arbitrary or capricious’ if it is contrary to or inconsistent with an enabling

statute’s language or policy goals” or “if it is irrationally inconsistent with previous agency

decisions.” Harvey v. Marshall, 389 Md. 243, 302-303 (2005); see also Mesbahi v. Md.

State Bd. of Physicians, 201 Md. App. 315, 331-32 (2011) (holding that an administrative

agency “was not free to ignore its prior policy statement[ ]” in a prior declaratory ruling

that “laser hair removal constitutes the practice of medicine,” and concluding that the

agency “gave the appropriate weight” to its prior ruling by treating it as “akin to a

precedential adjudicatory ruling”); Dillmon v. Nat’l Transp. Safety Bd., 588 F.3d 1085,

1090-91 (D.C. Cir. 2009) (holding that when Federal Aviation Administration precedent

“unambiguously require[d] it to defer to its [Administrative Law Judges’] credibility

determinations” but the agency had “deviated from that precedent” by refusing to credit

such a credibility determination in a particular case, “its decision reversing the

[Administrative Law Judge] without overturning his credibility determination [was]

arbitrary and capricious”). Thus, when an agency changes a position clearly established in

its own prior precedent it “must supply a reasoned analysis indicating that prior policies

and standards are being deliberately changed, not casually ignored.” Anastasi, 77 Md.

App. at 137 (quoting Local 32, Am. Fed’n of Gov’t Employees, AFL-CIO v. Fed. Labor

Relations Auth., 774 F.2d 498, 502 (D.C. Cir. 1985)).

Likewise, the general rule is that agencies have discretion to announce new policies

or standards in an adjudicatory proceeding. In Consumer Protection Division Office of

Attorney General v. Consumer Public Co., we held that agen

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