Can Maryland recover school-construction debt-service payments it made to a county by mistake?

Plain-English summary

In 1987, the State Superintendent of Schools asked the Attorney General to sort out several problems the Legislative Auditor had found in how Maryland reimbursed counties for school-construction debt service. Under the Education Article, the State paid counties' debt service on school-construction bonds outstanding as of June 30, 1967, and also picked up debt service on later debt if it stemmed from construction contracts awarded ("let") before that date. Over the years the Department of Education had paid several counties for costs that turned out not to qualify, either because the underlying construction contract was actually awarded on or after June 30, 1967, or because the money went to community-college rather than public-school construction. The Superintendent asked whether the Department had done enough to document three counties' eligibility, how to read the "contracts let before June 30, 1967" cutoff, whether community-college debt ever qualified, and who had authority to forgive the resulting repayment debts.

The Attorney General concluded that documentation adequacy was a practical judgment call for the Department rather than a fixed legal requirement, that "contracts let" meant the date a local school board or the Baltimore City Board of Estimates actually awarded the specific construction contract (so each contract on a project had to be checked individually), and that community-college construction was not "school construction" eligible for this program because the General Assembly had always funded community colleges through a separate aid program. On the resulting overpayments, the opinion concluded the State's Central Collection Unit had statutory authority to settle or abate the counties' repayment debts, and the Attorney General recommended abatement, either by the Collection Unit or by the General Assembly, because the counties had spent the money in good faith on legitimate education projects.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

How did Maryland decide which counties qualified for state-paid school construction debt service?
According to this 1987 opinion, the Education Article made the State responsible for a county's school-construction debt if the debt was outstanding as of June 30, 1967, or, for later debt, if it came from a construction contract actually awarded before that date; the Attorney General concluded each contract on a project had to be checked individually against that cutoff.

Did Maryland ever pay county debt for community college buildings under this program?
The opinion concluded no. It found that "school construction" in this particular debt-service statute meant elementary and secondary public schools, not community colleges, because the General Assembly had funded community-college construction through an entirely separate aid program since 1961.

What happened to counties that had already received ineligible school-construction payments?
The opinion concluded the amounts were debts owed to the State that the Central Collection Unit had authority to pursue or to settle and abate, and the Attorney General recommended the debts be forgiven, given that the counties had spent the funds in good faith on legitimate education projects.

Background and statutory framework

Maryland's program of state-paid county school-construction debt service traced to Chapter 142, Laws of Maryland 1967, and was expanded by Chapter 125, Laws of Maryland 1968, and Chapters 245 and 757, Laws of Maryland 1973, before being codified at ED §5-301(c) and (d). The Legislative Auditor's recommendation that the Department obtain bond indentures to document eligibility, rather than routinely accepting counties' own certifications, prompted the Department's review that surfaced roughly $5.7 million in payments the Department later concluded were ineligible, plus more than $1.4 million in payments the Department planned to withhold going forward.

On the "contracts let" question, the opinion relied on the Department's longstanding practice, a Black's Law Dictionary definition of "let," and Rofra, Inc. v. Board of Education for the proposition that a bid does not become a contract until the awarding authority accepts it. On the community-college question, the opinion reasoned from the statutory definitions of "public schools" and "elementary and secondary education" in ED §1-101, and from the parallel history of a separate community-college construction aid program dating to Chapter 373, Laws of Maryland 1961, to conclude the two programs were never meant to overlap. On abatement authority, the opinion concluded that the Central Collection Unit's specific statutory power to settle a debt, created by Chapter 355, Laws of Maryland 1973, controlled over the Board of Public Works' more general property-disposal authority, citing Lumberman's Mut. Cas. Ins. Co. v. Insurance Comm'r for the rule that a specific statute governs over a general one.

Citations

Statutes:

• ED §5-301(c) and §5-301(c)(2) (State payment of pre-June 30, 1967 school-construction debt)
• ED §5-301(d) (State payment of later debt from contracts let before June 30, 1967)
• ED §5-301(e)(1) (Board of Public Works rulemaking authority over the program)
• ED §1-101(c), (g), (k) (definitions of "county," "elementary and secondary education," and "public schools")
• ED §16-104(f)(2) (State Board for Community Colleges administration of the separate community-college aid program)
• SF §3-302(a)(1) (Central Collection Unit's general debt-collection responsibility)
• SF §3-304(a) (Central Collection Unit's authority to sue on or settle a debt without suit)
• SF §10-305(a) (Board of Public Works' authority to dispose of State property)
• Chapter 142, Laws of Maryland 1967, and Chapter 125, Laws of Maryland 1968 (origin of the State debt-service reimbursement program)
• Chapters 245 and 757, Laws of Maryland 1973 (phase-in of full State assumption of debt service)
• Chapter 405, Laws of Maryland 1969 (first statutory definition of "public schools")
• Chapter 373, Laws of Maryland 1961 (General Public Junior or Community College Construction Loan Act, the separate community-college aid program)
• Chapters 538 and 539, Laws of Maryland 1976 (division of higher education from elementary and secondary education)
• Chapter 355, Laws of Maryland 1973 (creation of the Central Collection Unit)
• COMAR 17.01.01.04.B (Central Collection Unit referral procedure)
• COMAR 17.01.01.05A and .06C (Central Collection Unit settlement and abatement procedure)

Cases:

• Rofra, Inc. v. Board of Education, 28 Md. App. 538 (1975)
• Lumberman's Mut. Cas. Ins. Co. v. Insurance Comm'r, 302 Md. 248, 268 (1985)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1987/Volume72_1987.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative. A numeric appendix table at the end of the original opinion was too badly degraded by scanning to transcribe and has been omitted; the same county-by-county totals appear in footnote 3 below.

EDUCATION

School Construction—Eligibility For State Payment Of Debt Service Costs—Abatement Of Debts To State.

May 21, 1987

Dr. David W. Hornbeck, Superintendent
Maryland State Department of Education

You have requested our opinion on several issues raised by the Legislative Auditor concerning the State's payment of debt service costs incurred by the local subdivisions as a result of public school construction projects. Specifically, your questions are:

1. Does the Department of Education have a legally sufficient basis to conclude that certain projects in Frederick, Somerset and Washington Counties are eligible for State funds?

2. What is the proper construction of the phrase "contracts let before June 30, 1967," which delimits the State's payment obligations under §5-301(d) of the Education Article ("ED" Article)?

3. Are community college projects eligible for State payment of debt service costs under ED §5-301(c) or (d)?

4. By what procedure may a local subdivision's obligation to reimburse the State for payment of ineligible costs be abated?

For the reasons stated below, we conclude as follows:

1. If the Department of Education, upon its review of available documentation and other pertinent factors, is satisfied that costs are eligible for State payment under ED §5-301(c) or (d), no further action is legally required.

2. A cost is not eligible for State payment under ED §5-301(d) unless the cost results from a contract that was awarded by a local board of education prior to June 30, 1967.

3. Debt service costs resulting from community college construction and improvements are not eligible for State payment under ED §5-301(c) or (d).

4. The Central Collection Unit of the Department of Budget and Fiscal Planning ("CCU") has authority to abate a local subdivision's repayment obligation. CCU may abate a debt if doing so is in the best interest of the State. In our view, the equities of the situation suggest that the debts discussed in this opinion should be abated, if not by CCU, then by the General Assembly.1

I
Background

Subtitle 3, Title 5 of the Education Article sets out a program of State aid for the counties' school construction projects.2 One component of this program involves State payment of the counties' debt service. Under ED §5-301(c)(2):

"Except for general public school construction loan debt outstanding or obligated as of June 30, 1967 for which repayment by a county is no longer required, the State shall reimburse each county for the full costs of principal and interest payments on any local debt for school construction outstanding or obligated as of June 30, 1967."

ED §5-301(d) further requires the State to pay the counties' debt service cost for school construction indebtedness even if it was incurred on or after June 30, 1967, provided that the debt resulted from "contracts let" prior to that date:

"The State shall pay all of the annual costs of debt service on school construction debt incurred by each county that was outstanding or obligated on or after June 30, 1967 for contracts let before June 30, 1967."

In 64 Opinions of the Attorney General 118, 119-20 (1979), this office summarized the history of this program:

"State responsibility for these costs originated in 1967 when, as part of its school construction aid program, the State assumed a share of the costs of local debt for school construction on school construction bonds outstanding or obligated as of June 30, 1967. Former Article 77, §222 of the Maryland Code, as enacted by Chapter 142, Laws of Maryland 1967, at 166-70. (In 1968, Article 77, §222 was amended to provide that the State assume a share in local debt incurred after June 30, 1967, for construction contracts let before July 1, 1967 (Chapter 125, Laws of Maryland 1968). . . .

Beginning July 1, 1973, the State began to pick up progressively larger shares of debt service on school construction debt incurred by local jurisdictions outstanding or obligated on or after June 30, 1967, for contracts let before June 30, 1967, until, as of July 1, 1976, the State assumed the full amount of this debt service. Former Article 77, §130A(i), as enacted by Chapters 245 and 757, Laws of Maryland 1973. Thus, by July 1, 1976, the State was paying the full amount of the payment obligations of the localities as to both the principal of and interest on all local debt if the indebtedness was outstanding or obligated on or before, or the contracts were let before, June 30, 1967."

As we understand the actual administration of ED §5-301(c) and (d), each county pays its own debt service and then requests reimbursement by the State Department of Education. For many years, the Department apparently routinely reimbursed the counties for the amounts that they certified as eligible for State payment, without detailed inquiry into the eligibility of component costs. However, in recent audits of the Department, the Legislative Auditor recommended that the Department tighten up the administration of this payment procedure. Specifically, the Legislative Auditor believed that the Department did not have on file sufficient documentation to support the payments made to the counties. The Auditor recommended that the Department obtain the actual bond indentures and base its payment schedules on the maturity dates reflected in the indentures.

As documentation was received, the Department conducted a review of project eligibility. With advice from this office, the Department concluded that certain debt service costs, for which the State had repaid several counties over the years, were not eligible under ED §5-301. Some costs were ineligible, the Department concluded, because they were incurred as a result of contracts let on or after June 30, 1967; others were ineligible because they were incurred as a result of community college construction, rather than public school construction. As a consequence, the Department decided to make no future payments of debt service for these ineligible costs. The Department also requested our advice about the recovery of past payments.

According to the latest information from the Department, the State has paid five counties more than $5.7 million for ineligible costs.3 The Department also intends to withhold from these counties future payments exceeding $1.4 million.

II
Required Documentation

As discussed in Part I above, the Legislative Auditor recommended that the Department obtain bond indentures to support its payments under this program. However, three counties, Frederick, Somerset, and Washington Counties, were unable to locate the indentures. Nevertheless, based on its review of audit reports and its evaluation of all of the circumstances, the Department was able to conclude that (with one exception) the State could properly continue to pay these counties' debt service costs.4

In our view, the question of what documentation suffices to demonstrate cost eligibility is more a practical question of program administration than a legal issue. The statute is silent about the documentation of project eligibility; the Board of Public Works, which has "plenary and supreme" power over the program, has issued no rule on the subject. See 64 Opinions of the Attorney General at 121.5 In these circumstances, the Department, the agency responsible for the actual administration of the debt service reimbursement program, must make the factual judgment about eligibility documentation. The Legislative Auditor might well be correct that bond indentures are the best supporting documentation, but we cannot conclude that the availability of a bond indenture is a legal prerequisite to State payment. If the Department is satisfied that the three counties in question have sufficiently documented the eligibility of the costs, no further legal action is required.6

III
"Contracts Let"

ED §5-301(d) requires State payment of county debt service costs "incurred by each county that was outstanding or obligated on or after June 30, 1967," but only "for contracts let before June 30, 1967." The Department has long taken the position that, "A contract is 'let' when the bids for construction have been officially accepted by the proper authority within the local school system, that is the Boards of Education in the twenty-three counties and the Board of Estimates in Baltimore City." Memorandum from State Superintendent of Schools James A. Sensenbaugh to Superintendents of Schools (July 23, 1970).

In our opinion, this longstanding construction is entirely consistent with the accepted meaning of the term "let." To "let" a contract is to "choos[e] one from among the number of bidders . . . . It is the act of awarding the contract to the proposer, after the proposals have been received and considered." Black's Law Dictionary 1048 (5th ed. 1979). The mere submission of a bid in response to an agency's invitation does not create a contract. See Rofra, Inc. v. Board of Education, 28 Md. App. 538 (1975).

For purposes of determining eligibility under ED §5-301(d), each contract must be considered individually. That is, the fact that one contract for work on a construction project was awarded before June 30, 1967, for example, for architectural services, does not mean that other contracts for work on that same project, awarded on or after that date, are automatically eligible too. Contracts awarded on June 30, 1967 or later simply do not come within the unambiguous statutory language.7

Accordingly, the Department correctly determined that future debt payments attributable to contracts let on or after June 30, 1967, should cease. Moreover, past State repayments for such contracts are a debt to the State. See Part V below.

IV
Community College Projects

ED §5-301(c) requires State reimbursement of debt costs "for school construction"; ED §5-301(d) similarly provides for State payment of debt service "on school construction debt." The Department has concluded that community college construction projects are not "school construction," within the meaning of these provisions, and therefore that the debt service costs arising from community college construction projects are ineligible for State payment.

In our opinion, the Department is correct. Although the term "school construction" is not separately defined, the term appears to be synonymous with "public school construction," which is used in both the introductory phrase in ED §5-301(c)(2) and elsewhere throughout the section. See ED §5-301(a)(1), (b), (h), (i) and (j). "'Public schools' means the schools in the public elementary and secondary education system of the State." ED §1-101(k). In turn, "'elementary and secondary education' means education and programs of education from and including preschool through the end of high school and of their equivalent." ED §1-101(g). Thus, the straightforward application of these definitions would exclude community college construction.

However, the text is not altogether dispositive, because the program of State payment of county debt for school construction, now codified in ED §5-301(c) and (d), was originally enacted at a time when the term "public schools" was not specifically defined.8 Moreover, at that time, the first public two year colleges in the State were housed in high school facilities and were under the jurisdiction of local boards of education. See Maryland State Department of Education, "The Development of Public Community Colleges in Maryland" (August 1, 1968). The division of educational facilities into a two-part system, one of higher education and one of elementary and secondary education, did not occur until 1976. See Chapters 538 and 539, Laws of Maryland 1976.

While this history introduces some ambiguity into an otherwise straightforward statutory text, other legislative history helps resolve the ambiguity. Since 1961, the General Assembly has provided a separate program of State aid to counties for construction of community colleges. See Chapter 373, Laws of Maryland 1961 (General Public Junior or Community College Construction Loan Act of 1961). See also Chapter 22, Laws of Maryland 1962; Chapter 27, Laws of Maryland 1964; Chapter 636, Laws of Maryland 1965; Chapter 656, Laws of Maryland 1967; and Chapter 588, Laws of Maryland 1968.9 In our view, the existence of this totally separate program of State financial assistance for community college construction strongly implies that, when the General Assembly contemporaneously initiated a program of State aid for "school construction," it did not intend to overlap the community college program. Rather, we think, the General Assembly intended the 1967 and 1968 enactments of State assumption of debt for "school construction" to benefit elementary and secondary schools, precisely as its subsequent codification in the Education Article indicates. If the General Assembly had intended to include community college construction projects under the program now codified at ED §5-301(c) and (d), it would have so indicated through the use of the terms "community college" or "junior college," as it had done in the aid program for community college construction projects.

Accordingly, we conclude that the Department has properly determined to cease further payments of debt service costs attributable to community college projects. Further, amounts already paid to the counties for these projects are debts owed to the State. See Part V below.

V
Abatement of Debts

Having determined that the State reimbursed several counties for ineligible project costs, the Department has made written demand for repayment of these debts to the State. The counties have declined to repay. Hence, the Department has referred the unpaid debts to the Central Collection Unit.10 With exceptions not pertinent here, "the Central Collection Unit is responsible for the collection of each delinquent account or other debt that is owed to the State or any of its officials or units." §3-302(a)(1) of the State Finance and Procurement Article ("SF" Article).

In demanding repayment of these debts and then referring the matter to CCU, the Department was properly carrying out its legal obligations. See COMAR 17.01.01.04.B. However, you have concluded that, although the projects were ineligible under the statute, nevertheless the funds in question were expended by the counties in good faith for education purposes. Accordingly, you believe that the debts ought to be abated, and you inquire as to the agency authorized to do so.

In addition to its general responsibility for debts owed to the State, as set out in SF §3-302(a)(1), CCU has the following specific grant of power:

"In carrying out its responsibilities, the Central Collection Unit may: (1) Institute, in its name, any action that is available under State law for collection of a debt or claim; or (2) Without suit, settle the debt or claim." SF §3-304(a).

"Settl[ing] the debt" undoubtedly includes abating it. See COMAR 17.01.01.05A and .06C.

In 62 Opinions of the Attorney General 743 (1977), this office was asked whether the Board of Public Works had the authority to abate certain overpayments of State aid to community colleges. The opinion concluded that the Board did have this power, flowing from the Board's statutory authority to dispose of State property.11 Because a debt is a species of property (a chose in action), the settling of a debt would be a disposition of property within the Board's authority. 62 Opinions of the Attorney General at 745. In reaching this conclusion, the opinion relied on an earlier opinion, 45 Opinions of the Attorney General 107 (1960), and did not mention CCU's express statutory authority to settle debts.12 This latter opinion was written before the creation of CCU, which was established by Chapter 355, Laws of Maryland 1973.

In our view, the specific grant of authority to CCU "to settle any debt or claim" should be given effect in these circumstances, rather than the much more general grant of authority to the Board of Public Works to dispose of property:

"It is an often repeated principle that a specific statutory provision governs over a general one. Thus where one statutory provision specifically addresses a matter, and another more general statutory provision also may arguably cover the same matter, the specific statutory provision is held to be applicable and the general provision is deemed inapplicable." Lumberman's Mut. Cas. Ins. Co. v. Insurance Comm'r, 302 Md. 248, 268 (1985) (citations omitted).

We conclude that CCU, to which the debts of the counties for State payment of ineligible project costs have been referred, has the authority to abate those debts.

The Attorney General's Office ordinarily refrains from comment on policy questions. Nevertheless, in this instance, we think that we should state our views on the abatement question, given that we would be responsible for conducting the litigation to recover these debts.13 We believe that, in fairness to the counties and their educational needs, the debts should be forgiven. Although the particular costs in question were ineligible for State payment, they are generally of the type that receive State aid, and there is no suggestion of any diversion of funds to projects not related to education. Moreover, although the equitable principle of estoppel may be inapplicable to the State, there is surely some unfairness when the State, after so many years of silent acquiescence, now demands from the counties funds already spent for education.

We recognize that CCU, though it has the authority to abate, will likely defer to legislative resolution of the question. Given the sums involved and the important policy considerations, this is far from the typical debt referred to CCU for collection or abatement.

To ensure that the General Assembly has time to consider the question, this office will not proceed with collection actions until the debtor counties have had an opportunity to present the matter to the next regular session of the General Assembly. However, if the General Assembly does not then relieve the counties of these debts through legislation, we will have no choice but to commence collection actions on behalf of CCU.

VI
Conclusion

In summary, it is our opinion that:

1. If the Department of Education, upon its review of available documentation and other pertinent factors, is satisfied that costs are eligible for State payment under ED §5-301(c) or (d), no further action is legally required.

2. A cost is not eligible for State payment under ED §5-301(d) unless the cost results from a contract that was awarded by a local board of education prior to June 30, 1967.

3. Debt service costs resulting from community college construction and improvements are not eligible for State payment under ED §5-301(c) or (d).

4. The Central Collection Unit has authority to abate a county's repayment obligation. CCU may abate a debt if doing so is in the best interest of the State. In our view, the equities of the situation suggest that the debts discussed in this opinion should be abated, if not by CCU, then by the General Assembly.

J. Joseph Curran, Jr., Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

1 These conclusions accord with those in a prior letter of advice on these matters. Letter from Assistant Attorneys General Ellen M. Heller and Susan J. Mathias to State Superintendent of Schools David W. Hornbeck (October 23, 1986).

2 In this opinion, as in the Education Article, "county" includes Baltimore City. ED §1-101(c).

3 The total overpayments are as follows: Prince George's County, $3,028,118; Montgomery County, $1,719,561; Harford County, $791,917; Frederick County, $169,203; and Baltimore City, $31,912. A more detailed breakdown is set out in the appendix.

4 The costs attributable to one project in Frederick County, relating to community college construction, were determined to be ineligible. In the case of Somerset County, the bonds in question, issued in 1956 and 1959, have been completely paid off. The Department has already made all payments due to Somerset County.

5 Under ED §5-301(e)(1), the Board of Public Works has rulemaking authority "for the administration of the programs provided by subsections (b) and (d) of this section." As the prior opinion observed: "The Board of Public Works, through its agent the Interagency Committee for State Public School Construction. . ., is empowered to adopt rules, regulations, and procedures for the administration of the public school construction and debt service reimbursement programs and for management of all State monies disbursed to or for the benefit of local school boards under the program. . . . [I]n the administration of the public school construction program, the power of the Board of Public Works is plenary and supreme . . . . [T]he Board may condition the acceptance of funds under the program in any manner that it considers necessary to assure the proper operation of the program and the prudent expenditure of State funds." 64 Opinions of the Attorney General at 121.

6 The Department is free to reconsider its decision in light of the Legislative Auditor's position. However, given the Department's current position, we have grave doubts that an action to recover the payments made to these counties would be legally feasible.

7 If local board minutes or other documentation does not reflect the date of the award, the Department may use the date that the contract was executed as the "contract let" date.

8 The State reimbursement program was initiated by Chapter 142, Laws of Maryland 1967 and Chapter 125, Laws of Maryland 1968. See Part I above. The term "public schools" was first defined in Chapter 405, Laws of Maryland 1969.

9 This State assistance program is now administered by the State Board for Community Colleges in accordance with procedures adopted by the Board of Public Works. ED §16-104(f)(2).

10 At this writing, the Department has not yet referred the relatively small debt owed by Baltimore City.

11 This authority is now codified in SF §10-305(a): "Any real or personal property of the State or a unit of the State government may be sold, leased, transferred, exchanged, granted or otherwise disposed of: (1) To any person, of the United States or any of its units, or to any unit of the State government, for a consideration that the Board decides is adequate; or (2) To any county or municipal corporation in the State subject to any condition the Board imposes."

12 At the time of the 1977 opinion, CCU's power to settle a debt was set out in former Article 41, §71(c-l)0).

13 The probability of success should the matter be litigated is hard to estimate, in light of the difficulties presented when the State, after making payments to the counties for many years without question, suddenly demands new proof of project eligibility. For instance, it may be that a county now cannot locate any copy of a contract entered 20 years ago that, if found, would establish eligibility.