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RSU 1 chairman sees flaws behind decision in cost-sharing lawsuit

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RSU 1 chairman sees flaws behind decision in cost-sharing lawsuit

BATH — After a Sagadahoc County Superior Court justice ruled that Regional School Unit 1 overcharged West Bath more than $1.9 million over four years, the School Board chairman is arguing that the cost-sharing formula applied in that case would be unfair to the member communities.

Justice Andrew Horton stopped short of awarding repayment to West Bath for the overcharges, opting to leave that issue and others to be decided at trial.

West Bath is suing RSU 1  – which also includes Bath, Arrowsic, Phippsburg and Woolwich – to recover $1.9 million the town believes it overpaid in the first four years of the school district's existence.

West Bath's lawsuit, filed in October 2012, claims it should have been assessed a total of $8.2 million in fiscal years 2008, 2009, 2010 and 2011, but instead paid $10.1 million.

The suit claims RSU 1 owes West Bath $1.9 million, plus interest.

Horton acknowledged in his June 17 decision that the cost-sharing mistake resulted in larger education bills for West Bath and smaller ones for Bath, Arrowsic and Woolwich. Phippsburg is not named in the lawsuit.

The local contribution from the five RSU 1 communities – the funds raised through taxes – had originally been divided into two elements: a minimum amount that the state requires, and a portion over and above that amount. State subsidy to the district had been presented on a form based on the essential programs and services model.

The other local contribution piece was the additional amount each community must raise, beyond the EPS model. That contribution stipulated a cost-sharing formula based on equal thirds: student population, state valuation of a community and the community's population in the most recent census.

Tim Harkins, chairman of the RSU 1 Board of Directors, said Monday that the original formula was explained to the member communities each year it was applied.

That formula was relatively equitable on a per-student basis among the member communities, he said. Comparing West Bath to Phippsburg – with similar student and total populations – he said West Bath paid $8,774, $10,104, $11,081 and $10,630 per student in fiscal years 2009-2012, while Phippsburg paid $9,527, $10,580, $10,784 and $10,466.

But several residents questioned the use of two formulas, arguing that the law should have always applied to all of the local calculation. That prompted the board in April 2012 to change the formula, so that the law that created the school district would apply to its entire local tax calculation.

As a result of the change, residents of Bath, Arrowsic and Phippsburg stood to shoulder a greater share of costs, while West Bath and Woolwich taxpayers faced substantial decreases in their share of the fiscal 2013 costs. Harkins noted that in fiscal 2013, Phippsburg paid $12,522, while West Bath paid $9,342.

"The only way that you can look at what's equitable between what one town pays versus another, is to look at what they're paying on a cost-per-student basis," Harkins said. "And if you take those numbers, and break it down, those first four years the numbers were really close. Everybody was paying about the same per student.

"That one year that we applied (the law creating RSU 1) to the whole budget, which the judge is saying was the right formula, it was hugely inequitable," he added, noting that had it been applied the first year, it would likely have been changed the second year to bring about greater equity.

Horton wrote that the RSU used the wrong formula in its first four years.

"Although the other defendants have not formally conceded RSU 1's error and West Bath's overpayment, the summary judgment record fully supports West Bath's contention that the wrong formula was applied, and that West Bath was assessed and paid $1,919,380 more than it should have been assessed and should have paid over four fiscal years," the judge wrote, in part.

While West Bath officials said that declaratory judgment would provide them significant leverage in any forthcoming trial, Horton did not order RSU 1 to repay the town.

The entire basis of the lawsuit, and Horton's potential ruling, would cause the first four years to be inequitable, Harkins said.

"If the judge rules in favor of West Bath, and awards them the ($1.9 million), the other communities that are disadvantaged because of that formula, there's nothing they can do," he explained. "And the RSU can't go back and redistribute subsidy so that it was fair to all the communities."

Per-student formula

While some members of the public supported the change, the decision drew criticism from some municipal officials, prompting a committee to seek a cost-sharing plan that would be equitable to RSU 1 communities.

The committee recommended a per-pupil formula, which voters approved 580-138 in March 2013. The formula was defeated in West Bath and Woolwich.

In calculating at the time what the cost-per-pupil assessment would have been for this fiscal year, miscellaneous revenues and debt service payments received by the state were subtracted from the then-$26 million budget, to reduce that amount to $23.4 million. That number was divided by the total number of RSU 1 students (2,092) to get an average cost per student of $11,189.

Although subsidies and special education reimbursements had been spread between all five communities, this third and current formula directs those funds to the actual communities generating the revenues. Bath and Woolwich receive subsidies, while Arrowsic and Phippsburg get a special education reimbursement; West Bath receives neither.

West Bath is meanwhile negotiating an agreement for withdrawal from the RSU; the plan must be approved by voters, who supported the beginning of the withdrawal investigation process in January.

Were subsidy applied to the RSU as a whole, the per-pupil cost would be about $8,600 for each community, compared to the nearly $12,000 West Bath had been paying in fiscal 2014, according to the withdrawal committee. Arrowsic and Phippsburg were each paying about $11,400, Woolwich nearly $8,800 and Bath nearly $7,400, the committee stated.

West Bath Town Administrator Jonathan Davis said in a June 20 statement that Horton "denied almost all of the Defendants' motions for summary judgment and even went so far as to grant a Declaratory Judgment in favor of the Town of West Bath that it was inappropriately overcharged a total of almost Two Million Dollars for its share of the RSU annual budgets for the 2008/09, 2009/10, 2010/11 and 2011/12 fiscal years.

"Unless settled, the matter is now set for trial against that factual determination," Davis added, noting that West Bath "is pleased with the Superior Court's decision as it largely vindicates the Town's positions, both factually and legally; however, it is still regrettable that the Town has had to sue the Board and its members to force them to do what is obviously the right thing."

Attorney David Ray, who represents Bath in the case, acknowledged his client is "a little concerned" by the declaratory judgment.

But he noted that Horton also ruled in Bath's favor on the point that West Bath filed its lawsuit beyond the 30-day limit to challenge government actions, such as the assessment of education costs, although the justice did not use that finding to completely disqualify West Bath’s complaint.

Ray also pointed out that the issue of whether RSU 1 and Bath will be forced to repay West Bath remain unresolved. The school budgets – and their cost allocations – were approved each year by a board that included representatives of West Bath, as well as in public votes in which West Bath taxpayers weighed in, he said.

"There were at least two lawyers who looked at that statute and reached different conclusions," Ray said. "We think the statute itself lacked clarity, which is part of why we believe there is no basis for relief.

"You have a number of governmental elected officials and employees all in good faith doing their jobs. Whether it's a mistake or not a mistake, we don’t believe there is any basis for relief," he continued. "West Bath will not be able to argue that anyone was hiding the ball on them. This was all done out in the open. This is a case of someone saying, 'We played ball with you for four years, and now, all of a sudden, we want to change the rules.'"

Seth Koenig of the Bangor Daily News contributed to this story. Alex Lear can be reached at 781-3661 ext. 113 or alear@theforecaster.net. Follow him on Twitter: @learics.