The Federal Impact Aid Act provides federal funding to school districts located on Indian Reservations, military bases, or land with federal presence. Under the Act, the Secretary of Education can divert federal aid from the district back to the state if it determines that the state's school district operational funding is “equalized.” After determining that New Mexico's funding for the year 1999-2000 was equalized, the Secretary allowed the state to withhold federal subsidies from certain districts. The Zuni Public School District claims that the Secretary's formula for determining whether a school district receives federal subsidies conflicts with the plain meaning of the Act. In resolving this issue, the Supreme Court will clarify the scope of Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), the seminal case governing agency interpretations of enabling legislation.
Questions as Framed for the Court by the Parties
Whether the Secretary has the authority to create and impose his formula over the one prescribed by Congress and through this process certify New Mexico's operational funding for fiscal year 1999–2000 as “equalized,” thereby diverting the Impact Aid subsidies to the State and whether this is one of the rare cases where this Court should exercise its supervisory jurisdiction to correct a plain error that affects all State school districts that educate federally connected children.
The Zuni Public School District (“Zuni”) is located almost entirely within Zuni and Navajo Reservation lands in New Mexico. Brief for Petitioner at 2. The Federal Impact Aid Act provides subsidies to Zuni as well as other school districts located on Indian Reservations, military bases, or land with other types of federal presence. 20 U.S.C. § 7709 et seq. (2000). The Act permits a state to offset its operational funding to school districts by the amount of the federal aid if it can prove that the districts are “equalized.” Brief for Petitioner at 2–3. The rationale is that if all districts are receiving the same amount of funds, “federally-impacted” districts are no worse off due to their special status than other districts. Pursuant to statutory authorization, the Secretary of Education initially determined equalization according to a standard contained in a 1976 regulation. 41 Fed.Reg. 26320, 26327 (June 25, 1976); see Zuni Public School District No. 89 v. U.S. Dep't of Education, 393 F.3d 1158, 1163 (10th Cir. 2004). Under this regulation, a state is equalized if there is no more than a 25 percent difference in per-pupil revenue between the district with the highest per-pupil revenue and the district with the lowest per-pupil revenue. To ensure accuracy and fairness, the formula excludes outliers: districts are ranked according to per-pupil expenditure, and then districts with pupil attendance at or above the 95th percentile and at or below the 5th percentile, are excluded. Id. at 1163.
The Secretary used this standard for almost twenty years, until Congress altered the statutory language in 1994. Brief for Petitioner at 3. The new language proposed a different method for excluding outliers: to determine whether funding was equalized, the new statute focused on per-pupil expenditure, not pupil attendance, instructing the Secretary to disregard districts “with per-pupil expenditures or revenues above the 95th percentile or below the 5th percentile of such expenditures or revenues.” 20 U.S.C. § 7709 (2000).
The Secretary promulgated a regulation in 1995 to enable, i.e., implement the statute. See 34 C.F.R. Part 222 (2006). The regulation recited the 1976 enabling statutory language, but revived the pupil-attendance method of determining disparity in the appendix. Brief for Petitioner at 3. Using the pupil-attendance method for the 1999–2000 fiscal year, the Secretary found that New Mexico was equalized and allowed the State to reduce operational funding by $50 million, or approximately 2.7 percent of the state's expenditures on public education. Id. at 4. If the per-pupil expenditure formula had been applied, the State would not have been deemed equalized, and districts like Zuni would have continued to receive the $50 million subsidy. Id.
Zuni objected to the use of the pupil-attendance formula and sought relief from an administrative law judge in the Department of Education. Id. When the administrative law judge found that he lacked jurisdiction to question the Secretary's method and the Secretary refused to hear an appeal, Zuni successfully appealed to the U.S. Federal Court of Appeals for the Tenth District. Id. at 5. The three-judge panel upheld the Secretary's method. Zuni, 393 F.3d at 1161. On review, an en banc panel of the Court was evenly divided and therefore left the decision standing. Zuni Public School District No. 89 v. U.S. Dep't of Education, 437 F.3d 1158 (10th Cir. 2006). On September 26, 2006, the U.S. Supreme Court granted certiorari.
THE COMPETING STANDARDS
This case involves two competing standards for determining whether a state has equalized its school district funding. Equalization exists if there is not more than a 25 percent difference between the district that receives the most per student and the district that receives the least. Both approaches consult an initial list which ranks the school districts by the amount they receive per student. The districts at the top and the bottom of the list are then removed, leaving a final list where the districts receiving the most and least are then compared. Zuni, 393 F.3d at 1163, 1166. The dispute is over the formula used to remove the districts from the top and bottom of the initial ranking. The Secretary of Education's formula would disregard the districts at the top and bottom of the list until 5 percent of the student population of the state is removed from both ends. Id at 1163. This would leave a list that includes roughly 90 percent of the student population. Zuni's standard would determine where the 95th and 5th percentiles of money per student fall on the ranked list of districts and disregard districts above and below those numbers. Id at 1166; Brief for Petitioner at 12. Zuni's standard uses a basic statistical formula which looks only at the list and not at the overall student population of the state. Zuni, 393 F.3d at 1170; Brief for Petitioner at 14–22.
THE STATUTORY AND REGULATORY LANGUAGE
The debate between these standards focuses on 20 U.S.C. § 7709 (b)(2)(B)(i), which states that, in making the redacted list, one should “disregard [school districts] with per-pupil expenditures or revenues above the 95th percentile or below the 5th percentile of such expenditures or revenues in the State[.]”
The Secretary of Education's regulation, 34 C.F.R. pt. 222, subpt. K, app (2006), implements the statute. The appendix of the regulation dictates that the list should be redacted in a way that “[identifies] those [school districts] in each ranking that fall at the 95th and 5th percentiles of the total number of pupils in attendance in the schools of those [districts].” Id (emphasis added).
Zuni argues that the Secretary's regulation is invalid because the language of the Secretary's standard directly conflicts with the standard enunciated in the statute. Brief for Petitioner at 5–6.
Under Chevron, a regulation created by an administrative agency should be given deference if the statute that authorized the regulation was ambiguous and the interpretation in the regulation is a permissible one. 467 U.S. at 843. But if Congress's intent was clear and conflicts with the regulation, the regulation is invalid. Id. Therefore, the first step in the analysis is to determine whether the statute is ambiguous. Id.
AMBIGUITY IN THE STATUTE
Zuni argues that the procedure for eliminating districts is specific and requires determining the 95th and 5th percentiles based on the expenditure figures only. In particular, the placement of the phrase “of such expenditures” after “5th percentile” appears to eliminate ambiguity by specifying how the percentiles are to be determined. Zuni argues that if the plain meaning of percentiles is applied to the statute, then the method is obvious. Brief for Petitioner at 31. The Secretary's response is that the method is not so abundantly clear, and that this is, in part, evidenced by the two alternative interpretations offered by Zuni in earlier proceedings. Zuni, 393 F.3d at 1167.
Zuni's strongest argument is that the Secretary's pupil attendance method is in no way contemplated or suggested by the statute, which would mean that the method is outside the range of reasonable interpretations. Brief for Petitioner at 18. The Secretary's interpretation appears to require that ‘percentile’ in the statute be broad enough to imply ‘percentile based on pupil attendance.’ Zuni argues that this strays inexcusably beyond the presumption that Congress intends the ordinary meaning of its words. Id. at 31, 38. The Secretary could argue that his method is shorthand for creating a data array representing every student with his or her corresponding per-pupil expenditure, then finding the 95th and 5th percentiles on the list of all students in the state. This interpretation more closely tracts the statute while giving the same results as the pupil attendance method. However, the Secretary's claim of ambiguity seems to stem simply from the alternate interpretation, regardless of whether the statute is specific enough on its own. In fact, the Secretary's arguments appear to advocate a different method of statutory interpretation which would go beyond the text to determine ambiguity. Arguments for the Secretary's method all emphasize the history and purpose as integral to the ambiguity inquiry, injecting intent into what is normally simply a textual exercise. Id. at 25.
Assuming that ambiguity exists, a clear congressional intent, if shown, will settle the interpretation in favor of what Congress intended. Both sides argue that intent is clear, but each argues that the intent supports their side. In the Secretary of Education's view, Congress clearly wished to adopt the formula that was used by the Secretary from 1976 onward because Congress never explicitly stated that it wished to diverge from it when it crafted the 1994 statute. Zuni, 393 F.3d at 1166–67. In opposition, Zuni argues that the language of the 1994 statute clearly indicates intent to modify the standard. Brief for Petitioner at 8. Zuni observes that the 1974 statute specifically directed the Secretary of Education to create a test for determining whether a state had equalized its funding of school districts; the 1974 statute did not dictate the standard or the formula to be used. Id. In contrast, the 1994 statute removed the language authorizing the Secretary to create a standard and included a “Computation” section which specifies the 25 percent disparity standard and the basis for determining which school districts should be included on the list that determines the disparity. Id. at 11–12. Most importantly, the 1994 statute does not have any language indicating that the percentiles should be based on pupil attendance. Id.
Zuni appears to have the stronger position, as Chevron and its progeny point to the text of the relevant statute as the starting point. See Yellow Transp., Inc. v. Michigan, 537 U.S. 36, 45 (2002). The Secretary's attorney at the original administrative hearing in this case conceded that the language of the statute and the regulation were in conflict, but the argument advanced by the attorney and later by the Tenth Circuit panel is that the purpose of Congress is clear despite any difference in language. Brief for Petitioner at 25. This is an argument to either ignore the language or interpret the language with reference to the history of the Secretary's prior regulation. As the administrative judge noted, the analysis would end with the 1994 statute's text because there is no accompanying legislative history. Joint Appendix at 29–30. In addition, ignoring the text would break one of the cardinal rules of statutory interpretation which is that the Court must assume that Congress chose its words purposefully and as an indication of its intent. See Zuni, 393 F.3d at 1172.
APPLICATION OF CHEVRON DEFERENCE
In essence, the Secretary's interpretation does not appear to be a permissible one because there is insufficient ambiguity, and the interpretation should therefore not be afforded Chevron deference. Brief for Petitioner at 44. Regardless, the regulation appears to be outside the scope of Chevron deference due to statements by the Secretary that the regulation was not meant as a substantive change to the statute, along with the fact that the regulation did not go through the rule-making procedure Chevron and Mead require. Id. at 43. Under those facts, the Court will have to cede greater deference than it did in Chevron, if it wishes to side with the Secretary. The Court will likely have to alter or overrule an earlier case to find for the Secretary, unless it reaches the conclusion that the statute was ambiguous and the Secretary's method was permissible. Alternatively, the Court might be swayed by the Secretary's argument that his method achieves a result more in tune with the Congress's purpose, thereby continuing to erode its Chevron jurisprudence.
UNCERTAIN CERTIORARI, UNCERTAIN DIRECTION
The uncertainty of what issues the Court will focus on is in part linked to the procedural history of the case. The decision to hear this case seems to be based on the supervisory power enunciated in Supreme Court Rule 10. If that is the case, some members of the Court might have anticipated a major error in the application of federal law. The difficulty is in determining what the error might be, in part because the appeal is not from a reasoned opinion, but from a split en banc decision which simply affirms the Secretary of Education's refusal to hear an appeal. Zuni, 437 F.3d 1158 (10th Cir. 2006). If the Justices agreed with the result, there is seemingly no reason to hear the case other than to simply provide guidance in light of the split decision. If the Court sees an error, the error could lie in anything from improper statutory interpretation to a need to alter the Chevron deference rules.
Bernard Schwartz, a former investigator for the House Committee on Legislative Oversight, once famously degraded administrative agencies as the “headless fourth branch of government.” ‘Headless Fourth Branch’ Denounced by FCC Prober, Harvard Law Record, Apr. 3, 1958. The administrative agency, as the fighting arm of the executive branch, plays a critical role in adding meat to the bare bones of statutory law. However, agency exercise of rule-making power raises questions about whether the agency has overstepped its scope of authority. In Zuni Public School District No. 89 v. Dep't of Education, the Supreme Court must determine whether the Department of Education has acted beyond the limits of its granted power. The Court will also determine what the proper role of a reviewing court should be with respect to agency interpretations.
The battle-lines for the confrontation between the three branches of government were sharply drawn with the Supreme Court's ruling in Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). In Chevron, the court expounded what is now the well-settled formula for determining the appropriate judicial stance in reviewing an agency's interpretation of its enabling statute. As a threshold matter, a court must determine whether the statute clearly expresses Congress's intent. Chevron, at 843. If Congress has directly spoken to the matter at hand, then the court's inquiry is at an end. If the statute is silent or ambiguous as to Congressional intent, then the agency interpretation will stand, provided it is a permissible construction of the statute. Id.
Lower courts promptly adopted the Chevron two-step analysis, also known as “Chevron deference,” in reviewing agency constructions. See, e.g., Nat'l Resources Defense Council v. Env'l Protection Agency, 907 F.2d 1146,1160 (D.C. Cir. 1991) (holding that courts can take into account whether an agency interpretation leads to a sensible result in deciding permissibility). In the last few years, however, the Supreme Court has begun to whittle down Chevron deference. See, e.g., U.S. v. Mead Corp., 533 U.S. 218 (2001) (denying Chevron deference to agency opinion letters not promulgated after a public notice and comment period as part of a formal rule-making process); Food and Drug Admin'n v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000) (denying FDA interpretation of Food, Drug, and Cosmetic Act as granting jurisdiction over tobacco products). This trend suggests that the Court might be reconsidering the scope of Chevron. See Brown & Williamson, at 133 (denying deference because issue involved important public policy questions that Congress could not have intended FDA to address unilaterally).
A decision in this case will clarify the Supreme Court's position on Chevron deference. The Secretary of Education argues that the Court should defer to the agency's interpretation of the Federal Impact Aid Act, 20 U.S.C. § 7709, because the Act is ambiguous. Brief for the Federal Respondent in Opposition at 9. Even if the Act is unambiguous, the Secretary continues, the Court should let the agency construction stand because it results in a sensible outcome. An exclusion method that is sensitive to pupil attendance, the Secretary argues, is more even-handed among states than a method that does not take pupil attendance into account. Using the Secretary's method, the remaining field in every state will include ninety percent of all students whereas using the method preferred by the school district will create differences among states. For example, in states with few large districts, the remaining field might only be, say, seventy percent of students, and in states with many small districts, the remaining field could be ninety-five percent of students. Id. at 11.
Zuni, however, urges the Court to refrain from according Chevron deference to the Secretary's formula. Brief for Petitioners at 37. According to Zuni, Congress did not give the Secretary express or implied authority to override its formula. Id. at 39, 41. Furthermore, because the Secretary's formula conflicts with the explicitly stated statutory method, it cannot be a permissible rendition of the statute. Id. at 44.
An outcome for the Secretary will almost immediately impact all districts that currently receive Federal Impact Aid. School districts like Zuni that serve children on Native-American reservations would be subject to a formula that might rob them of substantial funding. Ebonne Ruffins, Medill—On the Docket: Zuni Public School District No. 89 v. U.S. Dep't of Education (citing John Dossett, General Counsel for the National Congress of American Indians). Furthermore, this change in policy would affect not only school districts located on Indian Reservations but also others on any federally-impacted land. A finding for the School District, however, would maintain the status quo.
More significantly, though, a finding for the Secretary could signal that the Court is re-affirming Chevron deference after Mead and Brown & Williamson. Conversely, an outcome for the School District will continue the erosion of Chevron. Given that the decision falls squarely within Chevron's structure—as it involves an agency interpreting a legislative directive—and given that the Secretary's interpretation arguably leads to a sensible result, denying deference would be a serious blow to Chevron.
A decision either way has potential political implications. Conservatives on the Court have been the unlikely champions of Chevron deference. See U.S. v. Mead, 533 U.S. 218 (Scalia, J., dissenting). With Justices Roberts and Alito on the Court, there might be a movement to resuscitate Chevron.
In this case, the Supreme Court will have to decide whether the Secretary of Education's formula for qualifying a school district for federal funding should stand despite allegedly clash with a statutorily-prescribed method. The Zuni Public School District argues that the Secretary's process directly conflicts with the statute and thus should not be accorded deference. The Secretary argues that the statue is ambiguous and that its own interpretation is reasonable. In addressing this issue, the Court will clarify the scope of “Chevron deference.”
Written by: Ferve Ozturk & Dylan Letrich
The authors would like to thank for Professor Jonathan Siegel for his insight into this case.