Bennett v. Kentucky DOE
470 U.S. 656 (1985)

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U.S. Supreme Court

Bennett v. Kentucky DOE, 470 U.S. 656 (1985)

Bennett v. Kentucky Department of Education

No. 83-1798

Argued January 8, 1985

Decided March 19, 1985

470 U.S. 656




Title I of the Elementary and Secondary Education Act of 1965, as amended, provided for federal grants to States to support compensatory education programs for disadvantaged children upon the States' assurances that the grants would be used only for eligible programs under Title I. At the time of the grants involved in this case, both the statute and its implementing regulations required that Title I funds be used to supplement, not to supplant, state and local expenditures for education. Federal auditors found that Kentucky had approved Title I programs for fiscal year 1974 -- involving "readiness classes" offered by some local education agencies for educationally disadvantaged children in place of regular first- and second-grade classes -- that violated the prohibitions on supplanting state and local expenditures. Administrative proceedings ultimately resulted in a determination by the Secretary of Education (Secretary) that supplanting had occurred, and the Secretary demanded repayment from the State of the misused Title I funds. In reviewing the administrative order, the Court of Appeals acknowledged that the Secretary's interpretation of the supplanting prohibitions was reasonable, and would govern subsequent grants, but concluded that it would be unfair to assess a penalty against Kentucky, since there was no evidence of bad faith and the disputed programs complied with a reasonable interpretation of the law.

Held: The Secretary properly determined that Kentucky violated its assurances of compliance with Title I requirements by approving the "readiness classes," and thereby misused Title I funds. Pp. 470 U. S. 662-674.

(a) The Court of Appeals erred in characterizing the issue to be the fairness of imposing sanctions against the State for its failure to comply substantially with Title I requirements. Although recovery of misused funds clearly is intended to promote compliance with the requirements of the grant program, a demand for repayment is more in the nature of an effort to collect upon a debt than a penal sanction. Because of the nature of the obligation to repay misused funds, "substantial compliance" with applicable legal requirements does not affect liability. Nor does the absence of bad faith absolve a State from liability if funds were in fact spent contrary to the terms of the grant agreement. And recovery of

Page 470 U. S. 657

the misused funds was not barred on the asserted ground that the State did not accept the grant with "knowing acceptance" of its terms. Title I clearly provided that States that chose to participate in the program agreed to abide by Title I's requirements as a condition for receiving funds. Pennhurst State School and Hospital v. Halderman,451 U. S. 1, distinguished. Pp. 470 U. S. 662-666.

(b) In reviewing a determination by the Secretary that a State has misused Title I funds, a court should consider whether the findings are supported by substantial evidence and reflect an application of the proper legal standards. Although, as asserted by Kentucky, Title I grant agreements have a contractual aspect, the program cannot be viewed in the same manner as a bilateral contract governing a discrete transaction, so as to require that any ambiguities with respect to the State's obligations invariably be resolved against the Federal Government as the party who drafted the grant agreement. Given the structure of the grant program, the Federal Government simply cannot prospectively resolve every possible ambiguity concerning particular applications of Title I's requirements. However, it is unnecessary here to adopt the Government's suggestion that the Secretary may rely on any reasonable interpretation of Title I's requirements to determine that previous expenditures violated the grant conditions. Since the State agreed to comply with, and its liability is determined by, the legal requirements in place when the grants were made, the Secretary's interpretation of the requirements should be informed by the statutory provisions, regulations, and other administrative guidelines provided at the time of the grants. Pp. 470 U. S. 666-670.

(c) The "readiness classes" approved by Kentucky clearly violated existing statutory and regulatory provisions that prohibited supplanting. Title I funds were used to pay substantially all the costs for the basic education of students in the readiness classes, and, absent these classes, the participating students would have received instruction in regular classes supported by state and local funds. Although state and local funding was maintained at the level of particular grades, because Title I students were placed in separate classes supported by federal funds, the consequence was to increase per-pupil state and local expenditures for students who remained in regular first- and second-grade classes. No plausible reading of the statute or regulations suggests that such result comported with the prohibitions on supplanting. Moreover, Kentucky has not shown that the Secretary's present position is inconsistent with earlier administrative guidelines. And the possibility that application of the supplanting provisions might be unclear in other contexts does not affect resolution of this case. Pp. 470 U. S. 670-673.

717 F.2d 943, reversed and remanded.

Page 470 U. S. 658

O'CONNOR, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, MARSHALL, REHNQUIST, and STEVENS, JJ., joined, and in Parts I, II, IV, and V of which WHITE and BLACKMUN, JJ., joined. POWELL, J., took no part in the consideration or decision of the case.

JUSTICE O'CONNOR delivered the opinion of the Court. *

This case, like Bennett v. New Jersey, ante p. 470 U. S. 632, concerns an effort by the Federal Government to recover Title I funds that were allegedly misused by a State. There is no contention here that changes in statutory provisions should apply to previous grants. Instead, the dispute is whether the Secretary correctly demanded repayment based on a determination that Kentucky violated requirements that Title I funds be used to supplement, and not to supplant, state and local expenditures for education. Although the Court of Appeals for the Sixth Circuit found that the Secretary's determination was based on a reasonable interpretation

Page 470 U. S. 659

of Title I and its implementing regulations, the court nonetheless excused the State from repayment on the grounds that there was no evidence of bad faith and the State's programs complied with a reasonable interpretation of the law. Kentucky v. Secretary of Education, 717 F.2d 943, 948 (1983). We granted certiorari, 469 U.S. 814 (1984), and because we disagree with the standard adopted by the Court of Appeals, we reverse.


As explained more fully in Bennett v. New Jersey, ante at 470 U. S. 634-636, Title I of the Elementary and Secondary Education Act of 1965, Pub.L. 89-10, 79 Stat. 27, as amended, 20 U.S.C. § 2701 et seq., provided federal grants to support compensatory education programs for disadvantaged children. In order to assure that federal funds would be used to support additional services that would not otherwise be available, the Title I program from the outset prohibited the use of federal grants merely to replace state and local expenditures. This prohibition initially was contained in regulations, see 45 CFR § 116.17(f) (1966); 45 CFR § 116.17(h) (1968), and explained in a program guide distributed to state education agencies. Office of Education, Title I Program Guide No. 44,

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