IOWA ASSOCIATION OF SCHOOL BOARDS, Appellant, vs. IOWA DEPARTMENT OF EDUCATION and THE IOWA AUDITOR OF STATE, Appellees.
No. 51 / 05-1255
IN THE SUPREME COURT OF IOWA
Filed September 28, 2007
Nonprofit corporation representing interests of school districts appeals district court decision on judicial review affirming agency declaratory orders refusing school districts’ request to use special property tax levy to pay portion of districts’ fuel costs. AFFIRMED.
Dennis W. Johnson and Cristina F. Kuhn of Dorsey & Whitney LLP, Des Moines, for appellant.
Thomas J. Miller, Attorney General, and Christie J. Scase, Assistant Attorney General, for appellees.
School districts in Iowa want to use a special property tax levy to pay for a portion of their transportation fuel costs. The appellant, Iowa Association of School Boards, sought separate declaratory rulings from the appellees, Iowa Department of Education and the Iowa Auditor of State, that would authorize member school districts to expend property taxes levied under
I. Background Facts and Proceedings.
The facts in this case are undisputed. Every school district in Iowa is required to provide transportation to students living more than a specified distance from the student‘s designated school.
School districts operate on a fiscal year of July 1 through June 30.
Because budgets are finalized so far in advance, school districts face a constant uncertainty over the impact an increase in fuel prices will have on their operating budgets. The Iowa Association of School Boards, a nonprofit organization representing the interests of its public-school-district members, devised a way to assist school districts in reducing and managing unpredictable and rising fuel costs. Through a program administered by the association, Iowa Joint Utilities Management Program, Inc. (IJUMP), participating members are offered the opportunity to purchase fuel at a set price throughout the fiscal year. Under IJUMP‘s “fleet services program,”1 each participating district enters into a twelve-month, renewable participant agreement that designates IJUMP as the district‘s contracting agent for the purchase and delivery of vehicle fuel. The district is then permitted to purchase fuel throughout the fiscal year at a guaranteed price that is established on January 31 of the preceding fiscal year.
In addition to promising to pay for gasoline purchased pursuant to the agreement, the district agrees to pay an annual “risk management fee” determined on the basis of the price per gallon and the total number of gallons that the district “elects to insure” during the term of the
The present dispute arises from participating districts’ desire to pay the management fee required by the fleet services program through a special “district management levy” authorized by
In January 2005, the association, on behalf of its members, filed petitions for declaratory order with the Iowa Department of Education and the Iowa Auditor of State seeking declaratory rulings that the school districts had the authority to use district management levy funds to pay the management fee required for participation in IJUMP‘s fleet services program. The association contended this expenditure was authorized by
The association filed a petition for judicial review, asking the court to reverse the agencies’ decisions. Initially, the district court determined the Department of Education had authority to interpret chapters 296 and 298. Therefore, granting appropriate deference to the department‘s interpretation of the pertinent statutes, the district court reviewed the department‘s decision under
The association has appealed the district court‘s decision, raising two issues. First, the association contends the department‘s interpretation of section 298.4(3) and section 296.7(1) is not entitled to deference. Secondly, the association argues school districts have authority to use district management levy funds to pay the management fee required for participation in the IJUMP fleet services program. We address each issue separately.
II. Standard of Review.
A. General Principles.
We review district court decisions on judicial review of agency action under the standards of
In this case, the association‘s challenge is based on the agencies’ alleged erroneous interpretation of the controlling statutes. Consequently, one of two possible standards for review applies. Under section 17A.19(10), a court must reverse agency action when “substantial rights of the person seeking judicial review have been prejudiced because the agency action is any of the following“:
c. Based upon an erroneous interpretation of a provision of law whose interpretation has not clearly been vested by a provision of law in the discretion of the agency.
. . . .
l. Based upon an irrational, illogical, or wholly unjustifiable interpretation of a provision of law whose
interpretation has clearly been vested by a provision of law in the discretion of the agency.
When an agency has not clearly been vested with the discretion to interpret the pertinent statute, the court gives no deference to the agency‘s interpretation of the statute.
In deciding whether the interpretation of a statute has clearly been vested by a provision of law in the agency‘s discretion, we give no deference to the agency‘s view of this matter.
“[w]e have a firm conviction . . . that the legislature actually intended (or would have intended had it thought about the question) to delegate to the agency interpretive power with the binding force of law over the elaboration of the provision in question.”
Id. (quoting Bonfield at 63).
B. Discussion.2
In addition to the purpose and context of these laws, the practical considerations involved also support our conclusion. Because school financing is so complex, there are practical reasons the legislature would want all laws affecting school finances subject to the interpretive authority of the agency charged with oversight of those finances—the Department of Education. In an analogous situation, we held the Iowa Utilities Board had clearly been vested with discretion to interpret laws governing telecommunications companies based on the board‘s “broad authority . . . to regulate the rates and services of public utilities.” AT&T Commc‘ns of the Midwest, Inc. v. Iowa Utils. Bd., 687 N.W.2d 554, 561 (Iowa 2004). Similarly, in the present case, the department has broad authority over school budgeting and financing.
For the foregoing reasons, we are convinced the legislature intended to vest the department‘s director with the discretion to interpret sections 298.4 and 296.7. Accordingly, we give appropriate deference to the agency‘s interpretation of these statutes by reviewing its interpretation under the standard set forth in
III. Use of District Management Levy Fund For Fleet Services Program Management Fees.
A. Relevant Statutes.
As previously noted, a school district that establishes a district management levy fund under section 298.4 may use monies from this fund only for specified purposes. One such purpose is “the costs of insurance agreements under section 296.7.”
1. A school district . . . may . . . enter into insurance agreements obligating the school district . . . to make payments beyond its current budget year for one or more of the following mechanisms to protect the school district . . . from tort liability, loss of property, environmental hazards, or any other risk associated with the operation of the school district or corporation:
a. To procure or provide for a policy of insurance.
b. To provide a self-insurance program.
c. To establish and maintain a local government risk pool.
The department interpreted the term “insurance agreements” in a traditional sense, holding an agreement must at least transfer the risk of loss from one party to another to fall within the statute. The association criticizes this interpretation, arguing section 296.7 allows a school district to use the district management levy fund for any mechanism that protects the district from any risk associated with the operation of the school district. It argues the legislature‘s authorization of self-insurance programs and local government risk pools indicates section 296.7 “is not limited to only traditional insurance agreements or insurance policies.”
The department rejects the association‘s broad interpretation of the statute for several reasons. First, it asserts, the plain language of section 296.7 limits the included “mechanisms” to “insurance agreements” in the form of “a policy of insurance,” “a self-insurance program,” or “a local government risk pool,” none of which encompasses the fleet services program agreement. Second, it contends if the fund could be used for any expenditure that protects the district against any risk, there would be no limit to what expenses could be transferred out of the general budget and into the district management levy fund:
The purchase of a sprinkler system or rental of an off-site computer data back-up site reduces the risk of disruption to the delivery of educational programs which could result from fire or a computer system crash. Similarly, inoculation of teachers with flu shots or hepatitis vaccine offers protection against teacher illness and protects against the potential cost and disruption to the operation of a school caused by teacher absences and the hiring of substitutes.
Finally, the department points out the limitations on taxing and spending authority contained in the basic school finance formula,
C. Discussion.
We focus our discussion on the core requirement of section 296.7 that, regardless of what “mechanism” a district chooses to employ (a policy of insurance, a self-insurance program, or a local government risk pool), that mechanism must be “an insurance agreement” that “protect[s] the school district . . . from tort liability, loss of property, environmental hazards, or any other risk associated with the operation of the school district.”
The goal of statutory interpretation is to ascertain legislative intent, and that intent is determined by “the words chosen by the legislature.” Auen, 679 N.W.2d at 590. Consequently, to determine whether the contract between IJUMP and the districts is an “insurance agreement” that protects the school district from a “risk associated with the operation of the school district,” we must identify what the legislature meant by “insurance” and “risk.” Because these terms are not defined in the statute, “we look to prior decisions of this court and others, similar statutes, dictionary definitions, and common usage.” Gardin v. Long Beach Mortgage Co., 661 N.W.2d 193, 197 (Iowa 2003). In addition, “we consider the context of the provision[s] at issue and interpret the
We begin with the common meaning of the word “risk.” Black‘s Law Dictionary defines “risk” as “[t]he chance of injury, damage, or loss; danger or hazard . . . .” Black‘s Law Dictionary 1328 (7th ed. 1999). The general dictionary definition is similar: “possibility of loss or injury.” Merriam-Webster‘s Collegiate Dictionary 1008 (10th ed. 2002). Significantly, the common meaning of this term is consistent with its usage in the context of insurance. A leading treatise on insurance law suggests that the primary attribute of insurance is “the assumption of a risk of loss and the undertaking to indemnify the insured against such loss.” 1 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 1:9, at 1–16 (1995) (emphasis added); accord 1 Eric M. Holmes & Mark S. Rhodes, Holmes‘s Appleman on Insurance 2d § 1.3, at 16 (1996) (noting common-law definition of insurance describes insurer‘s obligation to pay ” ‘upon the destruction, loss or injury of something in which the [insured] has an interest’ ” (emphasis added) (quoting Mass. Gen. Laws ch. 175, § 2 (1935)) [hereinafter ”Appleman on Insurance 2d“]; 43 Am. Jur. 2d Insurance § 2, at 49 (2003) (“Insurance, therefore, is a means of distributing the risks of loss.” (Emphasis added.)). Another notable treatise in this field states: “In the insurance contract, the risk of an actual loss is distributed (socialized) among a large group of persons exposed to a comparable risk of loss.” 1 Appleman on Insurance 2d § 1.3, at 11 (emphasis added). “Loss” means “destruction,” “a person or thing or an amount that is lost,” or “the amount of an insured‘s financial detriment by death or damage that the insurer becomes liable for.” Merriam-Webster‘s Collegiate Dictionary 687. Finally, we note the other contingencies against which the school district may protect itself by
The participant agreement for the fleet services program does not protect the district against a risk of loss. As the department concluded, the fleet services program is a budget-billing plan that allows the district to defer payment of fuel costs in excess of the guaranteed price to the next fiscal year. Under the program, there is no loss incurred by the district, and the district remains liable for the full cost of its fuel purchases. The fleet services program does not provide loss protection.
The association argues the possibility of high fuel costs is not the only risk “insured” by the fleet services program:
School districts fund their fuel expenditures from their general fund. Therefore, unanticipated increases in fuel expenditures during the fiscal year may at times force school districts to reduce educational programs or services for the students. IJUMP is intended to protect school districts from this risk of disruption in the delivery of educational programs and services.
Although avoidance of a disruption in the delivery of educational programs and services may be the goal of districts participating in IJUMP‘s fleet services program, there is no provision in the contract between IJUMP and the districts that even remotely addresses the coverage of losses caused by a realization of the risk of such a disruption. The department‘s refusal to interpret section 296.7(1) as authorizing expenditures from the district management levy fund for any mechanism that assists a district in merely avoiding a loss was not
We also reject the association‘s argument that the legislature intended to give districts wide latitude in spending the district management levy funds because section 296.7(1) authorizes the use of noninsurance mechanisms—self-insurance plans and local government risk pools.
A review of pertinent authorities reveals that self-insurance and risk pools, while not “insurance,” are recognized alternatives to insurance that are designed to accomplish the same purpose as the purchase of an insurance policy: protection against risks of loss. As one treatise explains:
In self-insurance the company, governmental entity or individual chooses not to purchase insurance but rather retains the risk of loss. In order to protect against losses, the self-insured will often set aside funds on a regular basis to provide its own pool from which losses will be paid. This can be analogized to the situation where a party purchasing
traditional insurance pays premiums to the insurer on a regular basis. However, in a self-insurance situation there is no shifting of the risk from the individual person or company to a larger group.
1 Appleman on Insurance 2d § 1.3, at 10 (emphasis added); accord St. John‘s Reg‘l Health Ctr. v. Am. Cas. Co., 980 F.2d 1222, 1225 (8th Cir. 1992) (stating in a self-insurance program, “the risk of loss” is retained by the person who bears the risk (emphasis added)); State v. Continental Cas. Co., 879 P.2d 1111, 1116 (Idaho 1994) (“Self-insurance occurs when an entity, rather than purchasing insurance to cover potential losses, elects to pay off its losses as they arise, or to set aside fixed sums into a reserve account to pay off intermittent losses.” (Emphasis added.)); Cordova v. Wolfel, 90 P.2d 1390, 1392 (N.M. 1995) (stating “self-insurance is a process of risk retention whereby an entity ‘set[s] aside assets to meet foreseeable future losses’ ” (emphasis added) (quoting Robert E. Keeton & Alan I. Widiss, Insurance Law: A Guide to Fundamental Principles, Legal Doctrines and Commercial Practices § 1.3, at 14 (1988))); Physicians Ins. Co. v. Grandview Hosp. & Med. Ctr., 542 N.E.2d 706, 707 (Ohio Ct. App. 1988) (“Self-insurance is the retention of the risk of loss by the one upon whom it is directly imposed by law or contract.” (Emphasis added.)); Black‘s Law Dictionary 807 (defining “self-insurance” as “[a] plan under which a business sets aside money to cover any loss” (emphasis added)). Thus, self-insurance, like an insurance policy, contemplates protection against a risk of loss.
Local government risk pools commonly have the same purpose. In City of West Branch v. Miller, 546 N.W.2d 598 (Iowa 1996), this court discussed a risk pool that had been formed by county governments. The pool self-funded certain risks and purchased private insurance for other risks. City of West Branch, 546 N.W.2d at 599. We observed that, with
We conclude the inclusion of self-insurance and risk pools in section 296.7(1) does not indicate a legislative intent to broaden permissible expenditures from the district management levy fund beyond those associated with protecting against risks of loss traditionally covered by insurance policies. Given the commonly understood meaning of risk in relation to insurance, self-insurance, and risk pooling, the department was not irrational, illogical, or wholly unjustified in refusing to expand the definition of “risk” to include an arrangement that does not involve an actual loss.
IV. Summary.
Because the department has clearly been vested with discretion to interpret sections 298.4 and 296.7, we give deference to the department‘s interpretation of these statutes and will reverse that interpretation only if irrational, illogical, or wholly unjustifiable. We conclude the department‘s interpretation of these statutes does not meet this standard for reversal. Accordingly, we affirm the declaratory rulings of the department and the auditor that school districts may not use district
AFFIRMED.