The opinion of the court was delivered by: CURTIN; MAXWELL
JOHN T. CURTIN, United States District Judge
On May 16, 1985, the Honorable Edmund F. Maxwell, United States Magistrate, filed a report concerning the school budget dispute between the Mayor of the City of Buffalo and the City's Board of Education. Magistrate Maxwell's report came after a lengthy evidentiary hearing upon two motions filed by the Board. In these motions, the Board asked the court for orders compelling the City
to appropriate funds which the Board contended were necessary for it to comply with prior orders of this court concerning the desegregation of the Buffalo Public Schools. The disputed funds related to the 1983-84 and 1984-85 school years. The court designated Magistrate Maxwell to serve as a special master in connection with these motions pursuant to Fed.R.Civ.P. 53(a) and 28 U.S.C. § 636(b)(2).
See, Order of July 25, 1984. Today the court announces that it shall adopt the findings and recommendations set forth in Magistrate Maxwell's comprehensive and careful report.
The long history of this case can be gleaned from various orders of the court,
and there is no need for a detailed reiteration of it here. Only certain aspects of this lawsuit's recent history need be recounted.
In the summer of 1982, the court held in evidentiary hearing upon the plaintiffs' motion (joined by the Board) to compel the City to make an additional $7,400,000 available to the Board for the purpose of operating the Buffalo Public Schools during the 1982-83 school year. On August 27, 1982, the court issued its decision granting this motion. 547 F. Supp. 468. This order was the first of its kind in this case. There had been budget disputes between the Board and the City before, but these had been resolved without the court's intervention. It was with great reluctance that I issued that order. See, id., at 484 n.17.
The City appealed from the August 1982 order. While the appeal was pending, the Board filed another motion, this time asking for more money for the 1983-84 school year. The Court of Appeals affirmed this court's decision, but noted that the findings upon which my decision was based were only "marginally sufficient." 712 F.2d 809, 814 (2d Cir. 1983). This statement, and others made by the Second Circuit, heightened my already great reluctance to see the present budget battles left unresolved by the principles engaged in them.
Negotiations between the City and the Board continued from the time the Court of Appeals issued its decision affirming my order (i.e., July 22, 1983) until the following summer, when I referred the matter to Magistrate Maxwell. The court met several times with lawyers for the City and the Board. Staff members of the Mayor's office and the Board, along with members of the Common Council, attended and participated in some of the meetings with the court. Eventually, I became dissatisfied with the progress of these negotiations.
My determination to have this matter resolved without a hearing was expressed in an order creating a Budget Review Committee headed by the Honorable Charles S. Desmond, retired Chief Judge of the New York Court of Appeals. This order was issued on April 10, 1984. In addition to Judge Desmond, the Committee's members were attorney James L. Magavern, William D. Mahaney, C.P.A.; Randolph A. Marks, retired president of the Computer Task Group; and Robert H. Rossberg, professor of education at the State University of New York at Buffalo. The Committee's task was to mediate the dispute. It held several meetings with the Board and the City but was unable to bring about a settlement. Nonetheless, the Committee issued a most insightful report, discussing what it perceived as the central issues in this dispute.
The Committee's substantial contribution to the court's effort is discussed at pages 51 - 55 of Magistrate Maxwell's report. The court at this time takes the opportunity to express its most sincere gratitude to the members, who assumed their tasks as mediators voluntarily and performed them effectively. It is now known that the Board and the City have reached an agreement on the budget for the 1985-86 school year.
This, of course, is the most appropriate way to decide upon a school budget. This state of affairs has come about as a result of a long process, for which many persons deserve credit. The members of the Budget Review Committee were, in the court's mind, important factors in that process.
Magistrate Maxwell presided over the proceedings on these motions from the day he was designated as Special Master until he issued his report on May 16 of this year. Evidently, the Magistrate encouraged the parties not to abandon hopes of a settlement. The Magistrate's efforts in this regard were not very far wide of the mark: the Board, the Common Council, and the plaintiffs agreed upon a settlement which fell short of resolving the matter only because the Mayor did not concur in a settlement agreement reached by the Board and the Common Council on February 15, 1985. All parties except the Mayor agreed that $186.6 million was sufficient for operating the schools for the 1984-85 school year.
Magistrate Maxwell's report came at the conclusion of 50 days of hearing testimony. The 92-page report discusses the budget process in considerable detail. In an even-handed manner, the Magistrate discusses the Board's extremely deficient accounting and reporting proceedings and the City's persistent failure to educate itself on matters relating to developing the budget of a school district which must operate under a series of desegregation orders. The Board, the Common Council, and the plaintiffs have urged the court to adopt Magistrate Maxwell's report without modification. The Mayor has failed objections to the report and contends that these motions should be denied. Oral argument upon the Mayor's objections was held on July 8.
The City's principal argument is that the Board has failed to sustain its burden of proving that it needs more money to operate the schools than the City is willing to appropriate. The City also contends that the Magistrate erroneously "shifted" the burden of proof from the Board to the City.
This court's only previous decision resolving a school budget dispute made several references to the Board's burden on a motion of this sort. For example, the court stated that:
[B]efore this court can order the Mayor and the Common Council to provide additional funds to the Board of Education, the Board was the burden of showing that these funds are necessary to insure compliance with our orders and with the orders of the United States Court of Appeals for the Second Circuit.
It is interesting to note that the phrase "burden of proof" was not used at all by the Court of Appeals in its opinion affirming this court's order of August 1982. The statement in the panel's opinion which comes closest to discussing "burden of proof" is the following remark concerning the kind of evidence that is required for a court to decide a motion of this sort:
Should a dispute of this nature recur, we think it will normally be helpful if those who seek a court order for additional funding, and those who oppose such an order, supply the District Court with considerable detail reflecting the proposed expenditures in the absence of the additional funds claimed to be needed. Faced with such presentations, the District Court may find it useful to enlist the aid of a neutral auditor, experienced in school budgeting, to assist in analysis of the figures presented.
712 F.2d at 814 (emphasis added). It is clear that evidentiary burdens are imposed upon both the Board and the City.
In a typical lawsuit, the plaintiff has the burden of producing evidence sufficient to state a prima facie case for the claim it attempts to assert. This is sometimes referred to as the burden of production. Additionally, a plaintiff has the burden of persuasion. Normally, this burden is borne only when the plaintiff's evidence persuades the factfinder, by a preponderance of the evidence, that the plaintiff has proven the case it has stated. When a plaintiff fails even to state its case, the case can be dismissed summarily, without the defendant being required to submit any proof.
This case, especially in its present posture, is not a typical lawsuit. Both of the principal antagonists on these motions are defendants. Both the Board and the City were found to have intentionally maintained a segregated school system. See, Arthur v. Nyquist, 415 F. Supp. 904 (W.D.N.Y. 1976), aff'd in relevant part, 573 F.2d 134 (2d Cir.), cert. denied sub nom. Manch v. Arthur, 439 U.S. 860, 58 L. Ed. 2d 169, 99 S. Ct. 179 (1978). Subsequently, both of these defendants were obgligated to remedy their prior unconstitutional acts. The defendant-codefendant relationship between the Board and the City, with the obligation to desegregate the schools imposed upon both, supports the view that evidentiary burdens should be imposed upon the City as well as the Board.
The Court of Appeals and Magistrate Maxwell both have noted that Buffalo is a "dependent" school district. As such, it has no taxing power and is completely dependent upon the City for funding. See, 712 F.2d at 811; Magistrate's Report at 7. The normal budgetary process consists of the Board devising programs, determining the cost of implementing them, and then asking the City for the funds deemed necessary to operate the schools. The City and the Board then negotiate and agree upon a final figure. The City has the final word on how much money it will appropriate for education, but it has no power to dictate how the money will be spent. Thus, some conflict between the Board and the City is inevitable, even in the absence of complications inherent in a school desegregation program.
The relationship between the Board and the City and their status as codefendants make it difficult to apply burden of proof rules in the ordinary fashion. The task was made even more difficult by what Magistrate Maxwell found to be the Board's woefully inadequate management of budget information. Magistrate Maxwell also found that the Board's habits of transferring funds from one budget line to another and encumbering large amounts of money towards the end of a fiscal year raised suspicions about the Board's candor. See Magistrate's Report at 23-40. My own review of the evidence has brought me to the same conclusions. I would only add that upon reviewing the record, I do not believe that the Board's budgetary misfeasance is a deliberate attempt to undermine the City's attempts to review the budget. Nor do I find that the Board has invoked the aid of the court for funds it does not actually believe were necessary to implement the desegregation program.
Magistrate Maxwell also repeated a statement I made three years ago (547 F. Supp. at 478) concerning the City's lack of knowledge about the school budget. The City's task of learning the process is made more difficult by the Board's out-of-date reporting and poor management. However, I agree with Magistrate's Maxwell's conclusion that the City's continued lack of knowledge is inexcusable. See, Magistrate's Report at 47-50 and n.24. In my order resolving the 1982-83 dispute, I noted that the Mayor's Board of Education Review Committee had not performed its function of providing information to the Mayor. In fact, the Committee apparently has not even met since the summer of 1982. This state of affairs has persisted to the present day. The Mayor's efforts at understanding the requirements of the Board and the desegregation program are inadequate and must be upgraded.
Burden of proof principles can only be applied with the aforementioned background in mind. My review of the record leads me to the conclusion that Magistrate Maxwell applied appropriation burden of proof principles to the motion he was asked to resolve. The Board's burden was to produce substantial evidence showing that the additional funds it requested were necessary to continue the desegregation effort, as distinguished from funds which would enhance that effort only remotely or not at all. Ultimately, the Board also has the burden to persuade the court that extra funding is necessary. Once the Board sustained its burden of production, the City could not rest and obtain a summary denial of the motions. The City's burden was to produce a substantial evidence challenging the Board's case so that the court could, if proper, reach a reasoned conclusion in the City's favor.
The evidence before Magistrate Maxwell brought him to the conclusion that the Board has sustained the burden of stating its case for increased funding. My review of the record leads me to the same conclusion. However, I also share the Magistrate's view (see, Report at 46) that the Board's success at sustaining its burden was far from overwhelming. The analysis of William D. Mahaney, the court-appointed expert, was of considerable assistance to the Board in its effort to state its case. The Mahaney reports and the agreement reached between the Board, the plaintiffs, and the Common Council concerning 1984-85 are the major factors distinguishing the case made by the Board during these proceedings from the case it presented during the hearing before me in 1982.
The Mahaney reports, the testimony of Associate Superintendent Joseph Murray, and the agreement among all parties except the Mayor concerning the 1984-85 school year constitute a consistent and persuasive basis for the conclusions reached by Magistrate Maxwell. Accordingly, I accept and adopt the Magistrate's conclusions.
The City notes that the Board failed to provide it with a line-by-line hypothetical budget showing how the Board would spend the amount of money approved by the City. The Magistrate's report (pp. 43-46) explains the Board's unhelpful manner of explaining how it would spend a lesser amount of funds. The report also explains that the Board's record-keeping is so inadequate that providing more useful and complete detail to the City is not readily possible. This is a deficiency which cannot persist and which the court will not tolerate if the Board seeks judicial intervention in any subsequent year.
However, for the present dispute, I do not think it is appropriate to deny the requests for funds because of the Board's shortcomings on this point. The Court of Appeals stated that both the Board and the City must supply the court with considerable detail. 712 F.2d at 814. The Board's deficient showing should mean that a court would accept a somewhat less detailed showing by the City in rebuttal. Here, however, the Magistrate found that the City made virtually no showing at all. The Magistrate also found that the City's failure in this regard was not entirely attributable to the Board's deficiencies. Inexcusable unfamiliarity with the budget process and the desegregation program contributed greatly to the City's failure of proof. I find no basis in the record to reach a conclusion different from that reached by Magistrate Maxwell.
On factual issues, a district court must accept the findings of a special master unless the findings are clearly erroneous. Fed.R.Civ.P. 53(e)(2). I have reviewed the record on these motions, and I find no basis for rejecting any of Magistrate Maxwell's findings of fact. I have also considered the legal arguments presented by counsel for the Mayor, particularly those concerning burden of proof. I find no legal error in the Magistrate's report. Accordingly, the Magistrate's Report and Recommendation is approved and adopted by the court without modification.
The court's approval of the Magistrate's report specifically incorporates the recommendations offered by the Magistrate regarding the Board's budgetary processes and the City's efforts to become informed with the requirements of the schools and the desegregation program. See, Report at 80-01. The City is perhaps not obligated to familiarize itself with the Board's procedures under ordinary circumstances. But, these are not ordinary circumstances. The City's increased involvement is essential to avoid further disagreements resulting in petitions to the court. It is also essential in aiding the court if it is called upon to decide another motion of this sort.
In addition to announcing the court's approval of the Magistrate's report, today's order shall require the City (including the Mayor and the Common Council) and the Board to demonstrate to the court that actions will be taken in order to improve their respective performances regarding the budget problem. The court notes that shortly after the Magistrate's report was filed, the Board announced that it was going to undertake a program to update its budgetary and accounting equipment and procedures. The orderly funding of the schools is essential to carry out the letter and the spirit of the desegregation program. Therefore, it is essential that the court and the other parties be informed of the process which the Board is designing to carry out this important function.
On or before October 15, 1985, the Board is directed to submit a statement to the court setting forth its proposal in regard to this difficult and complicated problem. A meeting will then be upheld in my chambers on November 1, 1985, at 1:30 p.m. with counsel for the Board, the Mayor, and the Common Council. Attorneys for the Mayor, and the Common Council. Attorneys for the plaintiffs and the intervenors are encouraged to attend; however, their presence is not required.
If it is the intention of the Board to put into place a permanent plan to attend to the deficiencies described in the Magistrate's report about the budgetary system, immediate notice should be given to the court so that an earlier meeting may be held before the plan is formally adopted.
Finally, I note that the Board has stated its intention to ask this court to terminate this lawsuit. The Board means to make this application "as soon as possible." See, Court Exhibit K to these proceedings, dated February 19, 1985. As a codefendant in this lawsuit, the City would, perhaps, be inclined to join the Board in this endeavor.
Ending the court's involvement in this lawsuit has long been an objective of the court. I have stated this objective before. See, e.g., 547 F. Supp. at 484 n.17. ("It is obvious that the limited role of the court ought to and must come to an end.") The present status of the school funding issue may present an opportunity for the Board and the City to explore this path together.
However, I must note that termination is a difficult process which requires careful planning and preparation, as well as thorough knowledge of the legal principles that must be applied. A recent unsuccessful attempt at terminating a school desegregation case was made in Denver. See, Keyes v. School District No. 1, Denver, Colorado, 609 F. Supp. 1491 (D. Colorado 1985). If a unitary system is found to exist in Buffalo, this court's involvement must end. If and when the defendants in this case, including the Board of Education, believe that the facts and law entitle them to an order terminating this lawsuit, a careful, considered, and thorough presentation to the court should be considered.
The report of Magistrate Maxwell, acting as special master pursuant to Fed.R.Civ.P. 53 and 28 U.S.C. § 636(b)(2), is adopted and approved without modification. Counsel for the Board, the Mayor, and the Common Council shall meet with the court in chambers on November 1, 1985, at 1:30 p.m.
A copy of Magistrate Maxwell's Report and Recommendation is set forth in its entirety as an appendix to this order.
REPORT AND RECOMMENDATION OF HONORABLE EDMUND F. MAXWELL, UNITED STATES MAGISTRATE
On June 16, 1983, the defendant Buffalo Board of Education (Board) filed a motion requesting that the defendants Mayor and Common Council of the City of Buffalo (City)1a be directed to provide to the Board § 172,335,379 ($172.3M)2a of Operation and Maintenance (O&M) funds for the 1983-84 school year. The City had previously appropriated $158,840,503 ($158.8M) for that year.
One year later, on June 15, 1984, the Board filed a similar motion requesting that the Court direct the City to provide $192,853,446 ($192.8M)3a for the 1984-85 school year, approximately $16M more than the $176,145,147 ($176.1M) which the City had previously appropriated.
By order of the Hon. John T. Curtin dated July 25, 1984, these matters were referred to me to hold evidentiary hearings and prepare a report and recommendation as provided in 28 U.S.C. § 636(b)(2). The following constitutes my findings of fact, conclusions of law, and recommendations.
I. Background of the Buffalo Desegregation Case.
In April 1976 the Board and City were found to have engaged in deliberate and unconstitutional segregation of the Buffalo Public School System (BPSS). Arthur v. Nyquist, 415 F. Supp. 904 (WDNY 1976) aff'd in part, rev'd in part, remanded in part, 573 F.2d 134 (2nd Cir. 1978). As a result of the many hearings which were subsequently held, a final plan for desegregation of the BPSS, known as Phase IIIx, was put into effect in September 1981.4a
Over the next four school years,
the Board and City differed as to the amount necessary to fund the Board's O&M budget. As the figures in Table 1 illustrate, the magnitude of the difference between the Board's initial request and the City's initial appropriation has remained substantial.
Table 1. City's Appropriation vs. Board's Budget Request (O&M)
School Board's City's City's Actual
Year Initial Initial Final Expenditures
Request Approp. Approp.
81-81 $ 156.8M $ 138.1M $ 141.2M $ 139.3M
82-83 $ 160.2M $ 149.1M $ 156.5M $ 155.9M
83-84 $ 172.3M $ 158.8M1b /////-- $ 168.5M
83-85 $ 189.2M $ 179.7M1b /////--2b /////--
Source - Ct. Expert's Special Report #1: Court Exhibit B.
For the year 1981-82 the Board filed a motion similar to the two instant motions requesting that the Court direct the City to increase its initial appropriation. Eventually, the Board and City settled on an appropriation of $141.2M in O&M funds.
For the year 1982-83 the Board again sought Court intervention to increase its appropriation from the City. This time the parties could not agree on a compromise figure, so after conducting hearings, Judge Curtin ordered the City to appropriate an additional $7.4M which brought the total appropriation to $156.5M. Arthur v. Nyquist, 547 F. Supp. 468 (WDNY 1982).
For the year 1983-84, the by now familiar routine began again. This time, however, the motion was not resolved before the school year began, and the Board operated through the year on a spending plan which called for expenditures in the amount of its $172.3M request, in May 1984, one month before the end of the Board's 1983-84 fiscal year, the Board had exhausted the City's initial $158.8M appropriation and sought relief from the Court to permit it to complete the last month of school. As an interim solution, the parties agreed, and the Court ordered, that an additional amount of $8.7M be made available to the Board for the balance of that fiscal year. That order specifically did not determine the rights of the parties with respect to the original 1983-84 motion, which is presently before me.
Finally, the cycle repeated itself for the 1984-85 school year, with minor variations. The Board's initial budget request was for $192.8M, and the City's initial appropriation was $176.1M. After the hearings before me had begun, in August 1984 the parties agreed to a compromise measure in which the Board reduced its request to $189.2M and the City raised its initial appropriation to $179.7M. The Board advised, however, that it intended to spend at the rate of its request of $189.2M rather than at the rate of the appropriation. Short term fears that this practice would place the Board in a similar cash-short position at the end of 1984-85, as it faced the previous year. were expressed by some parties. However. it appears that the Board has established its accounting records such that the shortfall, if it appears, will occur after the close of the fiscal year, thus permitting the completion of the '84-85 school year.
B. Hearings Before the Magistrate.
Formal hearings began before me in August 1984. During these early sessions, the lack of information in a format which could be easily used by the parties became apparent. Despite suggestions from the Second Circuit, no party indicated any intention of calling its own expert witness to assist in interpreting the information. Accordingly, I appointed Mr. William Mahaney, a certified public accountant with broad experience in the area of public school financing, as an expert under Rule 706 of the Federal Rules of Evidence. Mr. Mahaney and his staff then began the lengthy process of evaluating the information needs of the parties and the court, and gathering the necessary information so it could be presented in a useful format. Through the autumn there were frequent recesses to accommodate settlement discussions and to await receipt of necessary information from Mr. Mahaney.
By mid-October, settlement discussions had essentially stalemated. Thereafter, a more rigid hearing schedule was established, and ultimately testimony was completed on February 19, 1985, after 50 days of hearings.
At the hearings, the Board presented its witnesses in support of its budget request, and the bulk of the testimony came from cross-examination of these witnesses. The City offered some evidence in support of its claim that the amount it had appropriated was sufficient. In addition, various persons appeared to testify on related matters such as the teachers' bargaining agreements and handicapped education. Finally, the court-appointed expert, Mr. Mahaney, testified at the conclusion of the hearing as to the substance of his findings.
A. Relationship of the Board and City.
Prior to a detailed analysis of the evidence in this case, I believe some observations are necessary to put the complexity of this issue in perspective.
1. Board's Fiscal Relationship to the City.
The Board of Education is a dependent school board under New York State law. As such, it has no independent taxing authority; it cannot generates its own revenues. The Board is completely dependent on the City for its funding.
From the City's perspective, the public school system administered by the Board requires a major portion of the City's revenues. While the Board is treated as any other department of the City for funding purposes, the Board is unique in its independence from any fiscal control or oversight by the City once the funds are appropriated. State law requires the City to appropriate funds for the Board, but also gives the Board exclusive control over the expenditure of those funds. This requirement, to appropriate funds over which it has no expenditure control, is a sore point with the City and plays a major role in these annual funding disputes. The City, which has ...