Heard in the Court of Appeals December 2, 2014
Appeal by defendant from judgment entered 10 October 2013 by Judge W. Erwin Spainhour in Union County Superior Court. Union County, No. 13 CVS 2063.
Schwartz & Shaw, P.L.L.C., by Richard Schwartz and Brian C. Shaw, for plaintiff-appellee.
Wyrick Robbins Yates & Ponton LLP, by K. Edward Greene and Tobias S. Hampson; and Perry, Bundy, Plyler, Long & Cox, LLP, by H. Ligon Bundy and Christopher Cox, for defendant-appellant.
Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Jill R. Wilson and Julia C. Ambrose; and the North Carolina School Boards Association, by Allison B. Schafer and Christine T. Scheef, on behalf of the North Carolina School Boards Association, amicus curiae.
Smith Moore Leatherwood LLP, by Elizabeth Brooks Scherer, Matthew Nis Leerberg, and Thomas E. Terrell, Jr., on behalf of the North Carolina Association of County Commissioners, amicus curiae.
Judges CALABRIA and STROUD concur.
The Union County Board of Commissioners (" defendant" ) appeals from a judgment ordering it to appropriate additional funds to the Union County Board of Education's (" plaintiff" ) local current expense and capital outlay funds for the 2013-2014 fiscal year. For the following reasons, we grant a new trial.
This case concerns funding provided by defendant to plaintiff for the 2013-2014 fiscal year. The School Budget and Fiscal Control Act (the " Act" ), N.C. Gen. Stat. § 115C-422 et seq., governs such funding.
In general, the Act requires that " [e]ach local school administrative unit shall operate under an annual balanced budget resolution[,]" N.C. Gen. Stat. § 115C-425(a) (2013), which shall include at least the following funds: the State Public School Fund; the local current expense fund; and the capital outlay fund. N.C. Gen. Stat. § 115C-426(c) (2013). Pertinent to this case,
The local current expense fund shall include appropriations sufficient, when added to appropriations from the State Public School Fund, for the current operating expense of the public school system in conformity with the educational goals and policies of the State and the local board of education, within the financial resources and consistent with the fiscal policies of the board of county commissioners. These appropriations shall be funded by revenues accruing to the local school administrative unit by virtue of Article IX, Sec. 7 of the Constitution, moneys made available to the local school administrative unit by the board of county commissioners, supplemental taxes levied by or on behalf of the local school administrative unit pursuant to a local act or [N.C. Gen. Stat. § § ] 115C-501 to 115C-511, State money disbursed directly to the local school administrative unit, and other moneys made available or accruing to the local school administrative unit for the current operating expenses of the public school system.
N.C. Gen. Stat. § 115C-426(e).
The capital outlay fund shall include appropriations for:
(1) The acquisition of real property for school purposes, including but not limited to school sites, playgrounds, athletic fields, administrative headquarters, and garages.
(2) The acquisition, construction, reconstruction, enlargement, renovation, or replacement of buildings and other structures, including but not limited to
buildings for classrooms and laboratories, physical and vocational educational purposes, libraries, auditoriums, gymnasiums, administrative offices, storage, and vehicle maintenance.
(3) The acquisition or replacement of furniture and furnishings, instructional apparatus, data-processing equipment, business machines, and similar items of furnishings and equipment.
(4) The acquisition of school buses as additions to the fleet.
(5) The acquisition of activity buses and other motor vehicles.
(6) Such other objects of expenditure as may be assigned to the capital outlay fund by the uniform budget format.
. . . .
Appropriations in the capital outlay fund shall be funded by revenues made available for capital outlay purposes by the State Board of Education and the board of county commissioners, supplemental taxes levied by or on behalf of the local school administrative unit pursuant to a local act or [N.C. Gen. Stat. § § ] 115C-501 to 115C-511, the proceeds of the sale of capital assets, the proceeds of claims against fire and casualty insurance policies, and other sources.
N.C. Gen. Stat. § 115C-426(f).
Furthermore, plaintiff and defendant are encouraged under the Act " to conduct periodic joint meetings during each fiscal year" " [i]n order to promote greater mutual understanding of immediate and long-term budgetary issues and constraints[.]" N.C. Gen. Stat. § 115C-426.2 (2013). " In particular, the boards are encouraged to assess the school capital outlay needs, to develop and update a joint five-year plan for meeting those needs, and to consider this plan in the preparation and approval of each year's budget under [the Act]." Id. Concerning budgets, the Act outlines a process and timeline for the preparation, proposal, approval, and submission by plaintiff to defendant of each year's budget; as well as defendant's action on plaintiff's proposed budget. See N.C. Gen. Stat. § § 115C-427 to -429.
In the present case, on 15 April 2013, plaintiff submitted its proposed budget for the 2013-2014 fiscal year to defendant in accordance with the requirements of N.C. Gen. Stat. § 115C-429(a). In the budget, plaintiff requested $86,180,152 in local current expense funding and $8,357,859 in capital outlay funding. Upon review of plaintiff's proposed budget, on 17 June 2013, defendant adopted the county 2013-2014 budget ordinance. The budget ordinance included appropriations to plaintiff in the amount of $82,260,408 for local current expense and $3,000,000 for capital outlay, resulting in shortfalls of $3,919,744 for local current expense and $5,357,859 for capital outlay.
In response to the county 2013-2014 budget ordinance, on 18 June 2013, plaintiff adopted a resolution in which it determined " the amounts of money appropriated by [defendant] for the 2013-2014 school year to [plaintiff's] local current expense fund and capital outlay fund [were] not sufficient . . . to support a system of free public schools[.]" Thus, plaintiff directed its Chairman, superintendent, and attorneys to take the appropriate steps under N.C. Gen. Stat. § 115C-431 to resolve the budget dispute. In reaching the determination that the appropriations by defendant were inadequate, plaintiff indicated that, in addition to considering the amount of funds appropriated by defendant and defendant's ability to provide additional funding, it " considered the cumulative effect of the County of Union's inadequate appropriations for current expense and capital outlay in the preceding fiscal years[.]"
In accordance with the procedures set forth in N.C. Gen. Stat. § 115C-431(a) and (b), plaintiff and defendant participated in a joint meeting on 24 June 2013 in an attempt to resolve the budget dispute. When the parties failed to reach an agreement at the joint meeting, the parties participated in mediation sessions on 24 June, 28 June, and 31 July 2013. The mediation efforts concluded
on 31 July 2013 with the mediator declaring an impasse.
The following day, 1 August 2013, plaintiff initiated this action against defendant pursuant to N.C. Gen. Stat. § 115C-431(c). In plaintiff's complaint, plaintiff sought " a determination of (i) the amount of money legally necessary from all sources and (ii) the amount of money legally necessary from [defendant], in order to maintain a system of free public schools as defined by State law and State Board of Education policy."
Defendant responded to plaintiff's complaint by answer filed 12 August 2013, the same day the case came on for trial in Union County Superior Court ...