author: Justice O’Connor

text:
    BENNETT, SECRETARY OF EDUCATION v. NEW JERSEY
    No. 83-2064.
    Argued January 8, 1985
    Decided March 19, 1985

      O’Connor, J., delivered the opinion of the Court, in which Burger, C. J., and Brennan, White, Blackmun, and Rehnquist, JJ., joined. Stevens, J., filed a dissenting opinion, in which Marshall, J., joined, post, p. 646. Powell, J., took no part in the consideration or decision of the case.

      Michael W. McConnell argued the cause for petitioner. With him on the briefs were Solicitor General Lee and Deputy Solicitor General Getter.

      Mary Ann Burgess, Assistant Attorney General of New Jersey, argued the cause for respondent. With her on the brief were Irwin I. Kimmelman, Attorney General, Michael R. Cole, First Assistant Attorney General, and Regina A. Murray and Michael J. Haas, Deputy Attorneys General.

        Fred N. Fishman, Robert H. Kapp, Norman Redlich, William L. Robinson, and Norman J. Chachkin filed a brief for the Lawyers’ Committee for Civil Rights Under Law as amicus curiae urging reversal.

   Justice O’Connor

delivered the opinion of the Court.

The issue presented is whether substantive provisions of the 1978 Amendments to Title I of the Elementary and Secondary Education Act apply retroactively for determining if Title I funds were misused during the years 1970-1972. This case was previously before the Court, and we then held that the Federal Government may recover misused funds from States that provided assurances that federal grants would be spent only on eligible programs. Bell v. New Jersey, 461 U. S. 773 (1983). We expressly declined, however, to address the retroactive effect of substantive provisions of the 1978 Amendments. Id., at 781, n. 6, 782, and n. 7. On remand from our decision, the Court of Appeals for the Third Circuit held that the standards of the 1978 Amendments should apply to determine if funds were improperly expended in previous years. State of New Jersey, Dept. of Ed. v. Hufstedler, 724 F. 2d 34 (1983). We granted certiorari, 469 U. S. 815 (1984), and we now reverse.

Title I of the Elementary and Secondary Education Act of 1965, Pub. L. 89-10, 79 Stat. 27, as amended, 20 U. S. C. §241a et seq. (1976 ed.), provided federal grants-in-aid to support compensatory education for disadvantaged children in low-income areas. Based on the theory that poverty and low scholastic achievement are closely related, Title I allocated funds to local school districts based on their numbers of impoverished children and the State’s average per-pupil expenditures. H. R. Rep. No. 95-1137, pp. 4, 8 (1978); S. Rep. No. 95-856, p. 5 (1978); see 20 U. S. C. §§241a, 241c(a)(2) (1976 ed.); S. Rep. No. 146, 89th Cong., 1st Sess., 5-6 (1965). Within particular school districts, Title I funds were in turn directed to schools that had high concentrations of children from low-income families. § 241e(a)(l)(A). Once Title I funds reached the level of targeted schools, however, all children in those schools who needed compensatory education services were eligible for the program regardless of family income. H. R. Rep. No. 95-1137, at 4; 45 CFR § 116a.21(e) (1977); 45 CFR § 116.17(f) (1972). Respecting the deeply rooted tradition of state and local control over education, Congress left to local officials the development of particular programs to meet the needs of educationally disadvantaged children. Federal restrictions on the use of funds at the local level sought only to assure that Title I moneys were properly used “to provide specific types of children in specific areas with special services above and beyond those normally provided as part of the district’s regular educational program.” H. R. Rep. No. 95-1137, at 4.

The goal of providing assistance for compensatory programs for certain disadvantaged children while respecting the tradition of state and local control over education was implemented by statutory provisions that governed the distribution of Title I funds. Local school districts determined the content of particular programs, and the appropriate state education agency approved the applications for Title I assistance submitted by local education agencies. 20 U. S. C. § 241e(a) (1976 ed.). After determining that the applications complied with the requirements of federal law, the state education agencies distributed Title I funds to the school districts. §§241e(a), 241g. The state education agencies in turn received grants from the Department of Education upon providing assurances to the Secretary that the local educational agencies would spend the funds only on programs which satisfied the requirements of Title I. Bell v. New Jersey, supra, at 776; 20 U. S. C. §241f(a)(1) (1976 ed.). As noted swpra, we previously held that if Title I funds were expended in violation of the provided assurances, the Federal Government may recover the misused funds from the States.

This case arises from a determination by the Department of Education that respondent New Jersey must repay $1,031,304 in Title I funds that were improperly spent during the years 1970-1972 in Newark, N. J. 461 U. S., at 777. There is no contention that the Newark School District received an incorrect allocation of Title I funds or that funds were not used for compensatory education programs. Instead, the Secretary’s demand for repayment rests on the finding that Title I funds were not directed to the proper schools within the Newark School District. Regulations in effect when the moneys were expended provided that school attendance areas within a school district could receive Title I funds if either the percentage or number of children from low-income families residing in the area was at least as high as the districtwide average. 45 CFR § 116.17(d) (1972). Alternatively, the entire school district could be designated as eligible for Title I services, but only if there were no wide variances in the concentrations of children from low-income families among school attendance areas in the district. Ibid. A federal audit completed in 1975 determined that the New Jersey Department of Education had incorrectly approved grant applications allowing 13 Newark schools to receive Title I funds in violation of these requirements. App. 9-51.

The auditors found that during the 1971-1972 school year, the percentage of children from low-income families for the 13 schools ranged from 13% to 33.5%, while the districtwide average for Newark was 33.9%. Id., at 23-24. Consequently, for that school year the auditors disallowed Title I expenditures totaling $1,029,630. The auditors also found that funds were misused during the 1970-1971 school year, but because of the statute of limitations, only $1,674 remains at issue for that year. App. to Pet. for Cert. 36a-37a. In June 1976, the Department issued a final determination letter to New Jersey demanding repayment of the misused funds. App. 52-58. New Jersey sought further administrative review, and hearings were held before the Education Appeal Board (Board). In those proceedings, New Jersey argued that the Department was not authorized to compel repayment, that the auditors had miscalculated the percentages of children from low-income families, and that the entire Newark School District qualified as a Title I project area under the regulations. App. to Pet. for Cert. 35a-58a. The Board rejected each of these arguments, id., at 37a-58a, and ordered repayment. The Secretary declined to review the Board’s order, which thereby became final. Id., at 59a.

New Jersey then sought judicial review, and the Court of Appeals for the Third Circuit held that the Department did not have authority to issue the order demanding repayment. State of New Jersey, Dept. of Ed. v. Hufstedler, 662 F. 2d 208 (1981). Accordingly, the Court of Appeals did not address arguments made by New Jersey challenging the Department’s determination that funds were misused. Id., at 209. After remand from our decision in Bell v. New Jersey, the State argued for the first time that the 1978 Amendments to Title I, Pub. L. 95-561, 92 Stat. 2143, 20 U. S. C. §2701 et seq., should determine whether the funds were misused during the years 1970-1972. 724 F. 2d, at 36, n. 1. The

Court of Appeals agreed and remanded the case to the Secretary to determine whether the disputed expenditures conformed to the 1978 standards. Id., at 37. We hold that the substantive standards of the 1978 Amendments do not affect obligations under previously made grants, and we reverse. Our holding does not address whether the Secretary correctly determined that Title I funds were misused under the law in effect during the years 1970-1972, and New Jersey may renew its contentions in this regard on remand.

The Court of Appeals based its holding on a presumption that statutory amendments apply retroactively to pending cases. Relying on language from Bradley v. Richmond School Board, 416 U. S. 696 (1974), the Court of Appeals observed that “[a] federal court or administrative agency must ‘apply the law in effect at the time it renders its decision, unless doing so would result in manifest injustice or there is statutory direction or legislative history to the contrary.’” 724 F. 2d, at 36, quoting416 U. S., at 711. We conclude, however, that reliance on such a presumption in this context is inappropriate. Both the nature of the obligations that arose under the Title I program and Bradley itself suggest that changes in substantive requirements for federal grants should not be presumed to operate retroactively. Moreover, practical considerations related to the administration of federal grant programs imply that obligations generally should be determined by reference to the law in effect when the grants were made.

As we explained in our first decision in this case, “the pre-1978 version [of Title I] contemplated that States misusing federal funds would incur a debt to the Federal Government for the amount misused.” 461 U. S., at 782. Although our conclusion was based on the statutory provisions, id., at 782-790, we also acknowledged that Title I, like many other federal grant programs, was “much in the nature of a contract.” Pennhurst State School and Hospital v. Halderman, 451 U. S. 1, 17 (1981). “The State chose to participate in the Title I program and, as a condition of receiving the grant, freely gave its assurances that it would abide by the conditions of Title I.” 461 U. S., at 790. A State that failed to fulfill its assurances has no right to retain the federal funds, and the Federal Government is entitled to recover amounts spent contrary to terms of the grant agreement. Id., at 791; see id., at 794 (White, J., concurring). In order to obtain the Title I funds involved here, New Jersey gave assurances that the money would be distributed to local education agencies for programs that qualified under the existing statute and regulations. See 20 U. S. C. §241f(a) (1976 ed.); 45 CFR § 116.31(c) (1972). Assuming that these assurances were not met for the years 1970-1972, see 461 U. S., at 791, the State became hable for the improper expenditures; as a correlative, the Federal Government had, before the 1978 Amendments, a pre-existing right of recovery. Id., at 782, and n. 7.

The fact that the Government’s right to recover any misused funds preceded the 1978 Amendments indicates that the presumption announced in Bradley does not apply here. Bradley held that a statutory provision for attorney’s fees applied retroactively to a fee request that was pending when the statute was enacted. This holding rested on the general principle that a court must apply the law in effect at the time of its decision, see United States v. Schooner Peggy, 1 Cranch 103 (1801), which Bradley concluded holds true even if the intervening law does not expressly state that it applies to pending cases. 416 U. S., at 715. Bradley, however, expressly acknowledged limits to this principle. “The Court has refused to apply an intervening change to a pending action where it has concluded that to do so would infringe upon or deprive a person of a right that had matured or become unconditional.” Id., at 720. This limitation comports with another venerable rule of statutory interpretation, i. e., that statutes affecting substantive rights and liabilities are presumed to have only prospective effect. See, e. g., United States v. Security Industrial Bank, 459 U. S. 70, 79 (1982); Greene v. United States, 376 U. S. 149, 160 (1964). Cf. Bradley, supra, at 721 (noting that statutory change did not affect substantive obligations).

Practical considerations related to the enforcement of the requirements of grant-in-aid programs also suggest that expenditures must presumptively be evaluated by the law in effect when the grants were made. The federal auditors who completed their review of the disputed expenditures in 1975 could scarcely base their findings on the substantive standards adopted in the 1978 Amendments. Similarly, New Jersey when it applied for and received Title I funds for the years 1970-1972 had no basis to believe that the propriety of the expenditures would be judged by any standards other than the ones in effect at the time. Cf. Pennhurst State School and Hospital, supra, at 17, 24-25. Retroactive application of changes in the substantive requirements of a federal grant program would deny both federal auditors and grant recipients fixed, predictable standards for determining if expenditures are proper.

Requiring audits to be redetermined in response to every statutory change that occurs while review is pending would be unworkable and would unfairly make obligations depend on the fortuitous timing of completion of the review process. Moreover, the practical difficulties associated with retroactive application of substantive provisions in the 1978 Amendments would be particularly objectionable, because Congress

expressly intended those Amendments to strengthen the auditing process by clarifying the Department’s responsibilities and specifying the procedures to be followed. See Bell v. New Jersey, 461 U. S., at 789; S. Rep. No. 95-856, at 37,131; H. R. Rep. No. 95-1137, at 53, 161. We conclude that absent a clear indication to the contrary in the relevant statutes or legislative history, changes in the substantive standards governing federal grant programs do not alter obligations and liabilities arising under earlier grants.

I — I I — I h*H

Neither the statutory language nor the legislative history indicates that Congress intended the substantive standards of the 1978 Amendments to apply retroactively. Congress adopted the amendments as part of a general reauthorization of Title I that did not depart from the program’s basic philosophy, but instead sought to clarify and simplify provisions concerning implementation. H. R. Rep. No. 95-1137, at 2, 8; S. Rep. No. 95-586, at 2, 8, 130. The substantive provisions of the .1978 Amendments to Title I were expressly made applicable for grants between October 1, 1978, and September 30, 1983. 20 U. S. C. §2702. See also Pub. L. 95-561, § 1530, 92 Stat. 2380 (provisions shall take effect on October 1, 1978, “[ejxcept as otherwise specifically provided in this Act”). The House Report similarly stated that the changed requirements were intended to clarify “the manner in which school districts are to distribute Title I funds among eligible schools and children.” H. R. Rep. No. 95-1137, at 21 (emphasis added). Thus, both the general purpose of the 1978 Amendments and the more specific references in the statute and legislative history suggest that the new requirements were intended to apply prospectively.

The Court of Appeals did not rely on evidence from the legislative history to conclude that the 1978 Amendments in general have retroactive effect. Instead, the court below observed that the amendments to the school attendance area

eligibility requirements “were designed to correct regulations that frustrated the basic objectives of the Title I program.” 724 F. 2d, at 36-37. This observation mischarac-terizes both the regulations in effect prior to 1976 and the provisions adopted by Congress in 1978. Regulations adopted in 1967, see 32 Fed. Reg. 2742, and in effect for nearly 10 years, generally restricted Title I assistance to school attendance areas having a percentage of low-income children at least as high as the districtwide average. Supra, at 636; see also Office of Education, Title I Program Guide No. 44, ¶ 1.1 (1968) (explaining eligibility requirements). This requirement deliberately channeled funds to the poorest areas within any particular school district. One consequence of this comparative approach, however, was that a school located in a disadvantaged district might be ineligible for assistance even though it would have qualified if it were located in a wealthier district. Although later changes in the eligibility standards attempted to mitigate this incidental effect, they do not indicate that the earlier regulations conflicted with the policies of Title I.

During consideration of 1974 Amendments to Title I, a House Committee observed that inflexible application of the existing regulations might make schools with high proportions of low-income children ineligible. H. R. Rep. No. 93-805, p. 17 (1974) (“[I]t was never intended by the Act to render any school with a 30% concentration ineligible”). Although the 1974 Amendments made changes in the school eligibility requirements, they did not specifically address this situation. Apparently prompted by the concerns of Congress, the Department modified its regulations in 1976 to permit a school attendance area to qualify for funds if more than 30% of its children were from low-income families, even though the districtwide average might exceed 30%. See 42 Fed. Reg. 42914, 42917 (1976), codified in 45 CFR § 116a.20 (b)(2) (1977); National Institute of Education, Title I Funds Allocation: The Current Formula 57, 109 (1977). The 1978 Amendments refined this alternative by lowering the percentage to 25% and requiring the school district to guarantee that state and federal funding for compensatory education would not be reduced for any other school attendance area that received Title I funds in the preceding year. 20 U. S. C. § 2732(a)(1).

The evolution of the school eligibility requirements no doubt reflects a reassessment of the proper means to implement the goals of Title I. Nonetheless, the changes made since 1976 simply do not support the conclusion of the Court of Appeals and the contention of New Jersey that the earlier regulations were inconsistent with Title I’s policies. The regulations in place from 1967 to 1976 targeted assistance to the neediest areas within each school district in conformance with the statutory directive that funds should go to school attendance areas having high concentrations of children from low-income families. See 20 U. S. C. §241e(a) (1976 ed.). Moreover, available funds never were sufficient to provide services to all eligible students, H. R. Rep. No. 95-1137, at 7, and Title I required funds to be concentrated on particular projects rather than diffused among all eligible school attendance areas. See 20 U. S. C. § 241e(a)(l)(B) (1976 ed.); 45 CFR § 116.17(c) (1972). Thus, the school eligibility requirements helped to assure that funds would not be spread so thinly as to impair the effectiveness of particular Title I projects. Cf. H. R. Rep. No. 1814, 89th Cong., 2d Sess., 3 (1966) (suggesting that limited funds should be directed to schools with highest concentrations of children from low-income families); S. Rep. No. 95-856, at 7 (“[TJitle I is successful in directing substantial federal aid to those areas which have the highest proportions of children from low-income families”).

Congress did not abandon the concerns underlying the earlier regulations when it enacted the 1978 Amendments. Legislative Reports spoke approvingly of the longstanding policy to direct funds to school attendance areas “having the highest concentrations of low-income families.” Id., at 11; H. R. Rep. No. 95-1137, at 21. Although the 1978 Amendments relaxed the eligibility requirements for school attendance areas, the intent was “to give districts more flexibility without watering down the targeting features intended to give the programs a focus when funds are limited.” Ibid. The 25% eligibility standard was itself the product of a compromise at Conference. The House bill, see id., at 22, 211, but not the Senate amendment, provided that any school attendance area having a 20% concentration of poor children must be designated as eligible for Title I. H. R. Conf. Rep. No. 95-1753, p. 255 (1978). The Conference agreed to an amendment that made the designation of these areas optional, increased the required percentage to 25%, and provided that other areas must retain the same amount of funds they received the preceding year. Ibid. Although it is fair to infer that Congress determined that the targeting features of Title I would not be unduly compromised by adoption of the 25% standard, the background to the 1978 Amendments does not suggest the earlier regulations frustrated the program or that Congress intended the Amendments to apply to prior grants.

IV

New Jersey urges that we affirm the holding below on the ground that the Court of Appeals reached an equitable result. The determination by the Secretary does not question the good faith of New Jersey or the Newark School District with respect to the disputed expenditures, which we acknowledge might be permissible under standards enacted in 1978 or currently in effect. Nonetheless, we find no inequity in requiring repayment of funds that were spent contrary to the assurances provided by the State in obtaining the grants. Particular cases might appear to present exceptions to this rule, but given the statutory and administrative framework for assuring compliance with the requirements of Title I, we do not think recognizing such exceptions is within the province of the courts. Congress has already accommodated equitable concerns in the statutory provisions governing recovery of misused funds. Those provisions limit liability for repayment to funds received during the five years preceding the final written notice of liability, 20 U. S. C. §884 (1976 ed.), repealed and replaced by 20 U. S. C. § 1234a(g), and authorize the Secretary, under certain conditions, to return to the State up to 75% of any amount recovered. § 1234e(a). Of course, if Congress believes that the equities so warrant, it may relax the requirements applicable to prior grants or forgive liability entirely. The role of a court in reviewing a determination by the Secretary that funds have been misused is to judge whether the findings are supported by substantial evidence and reflect application of the proper legal standards. Bell v. New Jersey, 461 U. S., at 792. Where the Secretary has properly concluded that funds were misused under the legal standards in effect when the grants were made, a reviewing court has no independent authority to excuse repayment based on its view of what would be the most equitable outcome. Cf. Bennett v. Kentucky Dept. of Education, post, at 662-663.

Because the Court of Appeals has not yet addressed New Jersey’s arguments that the demanded repayment does not reflect proper application of the standards in effect during 1970-1972, the State may renew these contentions on remand. Accordingly, the decision of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice Powell took no part in the consideration or decision of this case.

Justice Stevens,

with whom Justice Marshall joins,

dissenting.

The Elementary and Secondary Education Act of 1965, 79 Stat. 27, was a part of the broader program that President Johnson characterized as the “war on poverty.” Title I of the Act authorized the expenditure of large sums of federal money to improve the education of children in low-income areas. The statute, however, did not contain a specific definition of the schools that would qualify for assistance under the program. It merely stated that “payments under this subchapter will be used for programs and projects . . . (A) which are designed to meet the special educational needs of educationally deprived children in school attendance areas having high concentrations of children from low-income families_” 20 U. S. C. §241e(a)(l) (1976 ed.).

As the case comes to us, the underlying issue is whether 10 of the public schools in Newark, New Jersey, that received federal assistance in the 1971-1972 school year were located “in school attendance areas having high concentrations of children from low-income families” within the meaning of the Act as it was enacted and as it was clarified by subsequent amendments. If funds were incorrectly allocated to those schools, the total federal grant was not increased; instead, the consequence was a lower distribution to other Newark schools that admittedly qualified for federal aid. There is no dispute about the fact that the money that was allocated to these schools — like that allotted to over 60 other schools in Newark — was used in programs and projects properly designed to meet the special educational needs of educationally deprived children. The only “misuse” of federal funds that is at issue is the suggestion that the money should have been spent in different school-attendance areas. The remedy for this misuse is not a redistribution to the more needy areas, but is a recapture of the funds by the Federal Government.

The Court agrees that the areas in dispute would have qualified for federal assistance under the statute as amended in 1978, and under the Secretary’s regulations that are now in effect. Ante, at 645. I think the Court would also agree that the Secretary had authority under the original Act to issue the regulations that are in effect today; indeed, in 1976 the Secretary did issue regulations that would have qualified seven of the attendance areas that are now in dispute. As the case comes to us it is also clear that we must assume that none of the disputed areas qualified under the Secretary’s regulations that were in effect in 1971-1972. Thus, the question for decision is whether the legal standard that should govern the disposition of this controversy is to be derived from the Secretary’s regulations in effect during the 1971-1972 school year — which admittedly were violated — or from the statutory language, which plainly was broad enough to authorize these expenditures when the statute was first enacted in 1965 as well as after its amendment in 1978. The Court holds that the now repudiated regulations must be strictly enforced. I agree with the Court’s view that the fact that its holding produces an inequitable outcome does not authorize a reviewing court to depart from the controlling legal standard, but I am convinced that the Court has seriously misread the intent of Congress.

h — (

In order to understand the impact of the regulations that must be strictly enforced under the Court’s holding — and which I submit Congress later repudiated — it is useful to set forth the relevant facts concerning one of the school-attendance areas where federal money was allegedly “misused.” The federal auditors disallowed expenditures of $104,842 for special programs at Newark’s South 17th Street Elementary School. The disallowance was based on a determination that only 33.5% of the 1,549 children in the school were from low-income families. Because the average percentage of children from low-income families in the entire Newark School District was slightly higher — 33.9%—the South 17th Street Elementary School did not satisfy one of the eligibility criteria in the Secretary’s regulations. Under those regulations, unless the entire Newark School District qualified for assistance, only those school-attendance areas in which the percentage exceeded the districtwide average could qualify. Thus, even though South 17th Street’s percentage of 33.5 would have qualified for federal aid in any other school district in New Jersey and, indeed, in almost any school district in the entire United States, it did not meet the Secretary’s rigid standard.

When the anomalous consequences of this regulation came to the attention of Congress during its consideration of amendments to the Act in 1974, the House Committee on Labor and Education issued a Report that expressed the opinion that “it was never intended by the Act to render any school with a 30% concentration ineligible.” Presumably it was that Report that prompted the Secretary to modify the regulations in 1976 to permit school-attendance areas with more than 30% of the children from low-income families to qualify even though the districtwide percentage was even higher. Regardless of whether that is a correct explanation of the regulatory change in 1976, it is significant that the Secretary then interpreted the 1965 Act as allowing a school in a 30% area to qualify even though its attendance area had a lower percentage than the districtwide average.

In its consideration of the 1978 Amendments, Congress plainly expressed its disapproval of the kind of interpretation of the 1965 Act that is reflected in the regulations involved in this case. One example, described in the hearings before the Subcommittee on Elementary, Secondary and Vocational Education, provides a precise analogue to this case:

“In Baltimore City any school district which has less than 30.3% Title I children was not eligible to receive Title I funds. This minimum is higher than the maximum incidence in schools receiving Title I funds in 11 other counties. This means there are schools in relatively affluent counties receiving Title I assistance with no more than 5% Title I children while schools in Baltimore City with 25-30% Title I children are excluded from the program.”

In response to testimony of that kind, Congress amended the statute to make it clear that a local school district could designate any attendance area with a 25% incidence of poverty as eligible for Title I funds. The House Report explained the purpose of the change (which originally proposed a reduction to 20%):

“[C]urrent OE regulations [45 CFR § 116a — 20(b)(2)] provide that any school attendance area with 30 percent or more children from low-income families (based on eligibility for free lunch) may be designated a target area. . . . The Committee bill reduces this minimum to 20 percent out of a concern that inflexible targeting requirement could force some school districts with very high incidences of poverty to declare schools] with 20 percent low-income enrollment ineligible, while schools with only 10 percent low-income enrollment or less might be eligible in wealthier neighboring districts.”

When Congress amended the Act in 1978 to provide that any school-attendance area would be eligible for federal assistance if at least 25% of its children were from low-income families, it did not change the basic eligibility standard that had been adopted in 1965. Thus, the statute as amended in 1978, like the statute prior to those Amendments, provides that a “local educational agency shall use funds received under this subchapter in school attendance areas having high concentrations of children from low-income families (hereinafter referred to as ‘eligible school attendance areas’).” 92 Stat. 2161, 20 U. S. C. § 2732(a)(1). In adding the specific provision that a local educational agency may designate any school-attendance area in which at least 25% of the children are from low-income families, Congress did not broaden that standard, but merely ensured that the Secretary would not improperly narrow it. Thus, the only practical effect of the 1978 Amendments was to deny the Secretary the legal authority to promulgate the kind of rigid regulation that is being strictly enforced today.

J-H HH

In my opinion this is plainly a case for application of the normal rule that a reviewing court must apply the law in effect at the time of its decision. As Justice White correctly noted when this litigation was before the Court two Terms ago:

“A federal court or administrative agency must ‘apply the law in effect at the time it renders its decision, unless doing so would result in manifest injustice or there is statutory direction or legislative history to the contrary.’ Bradley v. Richmond School Board, 416 U. S. 696, 711 (1974). Accord, Gulf Offshore Co. v. Mobil Oil Corp., 453 U. S. 473, 486, n. 16 (1981). Here, nothing in the 1978 Amendments or the legislative history suggests that the Amendments were not intended to be applied retroactively, and their application to this case would not result in manifest injustice.” Bell v. New Jersey, 461 U. S. 773, 793-794 (1983).

In my view, it is the Court’s holding, rather than an application of the 1978 Amendments to this case, that results in manifest injustice.

Ever since the statute was enacted in 1965 Congress has expressed a strong preference for allowing broad discretion to local governmental units in the administration of these federally funded programs. We should therefore adopt a strong presumption supportive of a local school board’s decision concerning the proper allocation of money among different school-attendance areas subject to its jurisdiction. Finally, it is appropriate to note that, just as the 1978 Amendments themselves protected local school districts from overly prescriptive federal regulations, Congress in 1981 again identified the same interest in further amendatory legislation. Thus, the Education Consolidation and Improvement Act in 1981 directed that federal assistance be provided “in a manner which will eliminate burdensome, unnecessary and unproductive paperwork and free the schools of unnecessary federal supervision, direction and control,” 95 Stat. 464, and specifically indicated that federal assistance of the kind involved in this case would be most effective “if educational officials, principals, teachers,, and supporting personnel are freed from overly prescriptive regulations and administrative burdens which are not necessary for fiscal accountability and make no contribution to the instructional program.” Ibid.

In sum, I simply cannot understand how the Court reaches the conclusion that its disposition of this case accords with the intent of Congress.

Accordingly, I respectfully dissent.

       The Education Amendments of 1978, Pub. L. 95-561, 92 Stat. 2143, 20 U. S. C. §2701 et seq., reauthorized the Title I program and generally amended the Elementary and Secondary Education Act. The Title I program was subsequently succeeded by Chapter 1 of the Education Consolidation and Improvement Act of 1981, Pub. L. 97-35, 95 Stat. 464, 20 U. S. C. §3801 et seq. Chapter 1 retains Title I’s focus upon assisting educationally deprived children who live in low-income areas.

       In 1980, the Department of Education replaced the former Office of Education as the federal agency responsible for administering Title I. See Bell v. New Jersey, 461 U. S. 773, 776, n. 1 (1983). For simplicity, unless the distinction is significant, we will refer to both the Office of Education and the Department of Education as the Department and to both the former Commissioner of Education and the Secretary of Education as the Secretary. See ibid.

       In determining compliance with federal grant programs, other Courts of Appeals have consistently applied the legal requirements in effect when the grants were made. See, e. g., Indiana v. Bell, 728 F. 2d 938, 941, n. 6 (CA7 1984); North Carolina Comm’n of Indian Affairs v. Department of Labor, 725 F. 2d 238, 239 (CA4 1984); Woods v. United States, 724 F. 2d 1444, 1446 (CA9 1984); West Virginia v. Secretary of Education, 667 F. 2d 417, 420 (CA4 1981).

       The eligibility requirements for school attendance areas have been altered many times since the years 1970-1972. Changes were made by 1974 Amendments to Title I, and the requirements were modified by regulation in 1976 and again amended in 1978. Infra, at 643, and n. 6. The Department issued regulations in 1981 clarifying the requirements of the 1978 Amendments. 34 CFR § 201.51(d)(ii) (1981). Later in 1981, the enactment of Chapter 1, see n. 1, supra, superseded the provisions of Title I. Chapter 1 has its own provisions governing eligibility for attendance areas within school districts, see 20 U. S. C. § 3805(b), and these provisions were amended in 1983. See Pub. L. 98-211, § 3, 97 Stat. 1413, 20 U. S. C. § 3805(d) (1982 ed., Supp. I).

       Of course, relatively poor school districts would receive a greater districtwide allocation of Title I funds because this amount was determined by the number of poor children within the district. This fact is illustrated by the present case: for the period from September 1, 1970, to August 31, 1973, Newark was allocated more than $28 million in Title I funds, or 18.4% of New Jersey’s total allocation. App. 14.
      Moreover, from the outset of the Title I program, the regulations provided that in certain circumstances an entire school district could qualify as a Title I project. 45 CFR § 116.17(b) (1966). This alternative responded to indications by Congress that districtwide eligibility might be appropriate for particularly impoverished areas. See S. Rep. No. 146, 89th Cong., 1st Sess., 9 (1965) (“There may be circumstances where a whole school system is basically a low-income area and the best approach in meeting the needs of educationally deprived children would be to upgrade the regular program”); H. R. Rep. No. 1814, 89th Cong., 2d Sess., 3 (1966) (“[W]hen 30 or 40 percent of the children in the school district are from low-income families, all of the children in the district could be considered disadvantaged and the whole school system could be upgraded”).
      We do not address whether the Secretary correctly determined that Newark did not qualify for districtwide eligibility under the legal provisions in effect during the years 1970-1972. See supra, at 637.

       The 1974 Amendments liberalized the eligibility standards by providing that an otherwise ineligible school attendance area would be deemed eligible if it had qualified and received Title I funds in either of the two preceding fiscal years. Pub. L. 93-380, § 101(a)(5)(D), 88 Stat. 500, 20 U. S. C. §241e(a)(13) (1976 ed.). Furthermore, the 1974 Amendments allowed a local education agency to deem a school attendance area eligible for Title I assistance based on the actual attendance, rather than the residency, of children from low-income families. § 101(a)(5)(B), 88 Stat. 500, 20 U. S. C. § 241e(a)(l)(A) (1976 ed.). See S. Rep. No. 93-763, p. 30 (1974); H. R. Rep. No. 93-805, pp. 16-17 (1974); S. Conf. Rep. No. 93-1026, p. 144 (1974).

       New Jersey contends that 10 of the disputed attendance areas had concentrations of low-income children exceeding 25%, and under the 1978 standards, the State is liable for a minimum of $249,607. As the Court of Appeals noted, 724 F. 2d, at 37, the 1978 standards would not be satisfied if compensatory funding was not maintained at prior-year levels in other schools receiving Title I aid. Ibid. The present record leaves unclear whether this requirement was satisfied, ibid., and the possibility that the necessary information is no longer available merely underscores the practical problems resulting from retroactive application of changes in the eligibility requirements. Brief for Petitioner 46, and n. 37.

       Cf. S. Rep. No. 146, 89th Cong., 1st Sess., 4 (1965) (‘“Poverty will no longer be a bar to learning, and learning shall offer an escape from poverty. We will neither dissipate the skills of our people, nor deny them the fullness of a life informed by knowledge. And we will liberate each young mind — in every part of this land — to reach the furthest limits of thought and imagination’ ”) (statement of President Johnson).

       The original dispute between the parties involved 10 elementary schools and 3 high schools. If the Court of Appeals’ disposition were accepted, the determination of ineligibility for two elementary schools and for one high school would no longer be at issue. See State of New Jersey, Dept. of Education v. Hufstedler, 724 F. 2d 34 (CA3 1983); Brief for Respondent 15-16, n. 12 (acknowledging that, under the Third Circuit’s decision, it would have to repay “to the Secretary a minimum of $249,607”); id., at 16-17, n. 13.

       The Title I funds allotted to the New Jersey State Department of Education for the 3-year period between September 1, 1970, and August 31, 1973, aggregated $156,166,574. Of this total, $28,709,198 was suballotted to the Newark School District. There was no question about the total amount of money that either New Jersey or Newark was entitled to receive. The only question at issue in this case is whether Newark distributed some of that money to the wrong schools. Ante, at 636; Brief for Petitioner 4, n. 1 (“[T]he Newark school district received its correct allocation of Title I funds”); Brief for Respondent 5; App. 14.

       Brief for Petitioner 9 (“[T]he principal issue in the audit was the method of calculating eligibility of school attendance areas in 1971-1972”).

       The “low-income percentage” as determined by the federal auditors for the 10 disputed school-attendance areas ranged from a low of 27.9% to a high of 33.5%. In seven of these areas the figure was in excess of 30%. The auditors also disqualified two elementary-school-attendance areas with percentages of 22.9% and 20.6% and one high-school-attendance area with a percentage of 13%. App. 23-24. The determinations for those three areas would apparently no longer be in dispute if the Court of Appeals’ decision were affirmed. See Brief for Respondent 15-16, n. 12, 16-17, n. 13. See also n. 3, supra.

       New Jersey argued that, if the children who were not attending school and those who were attending special schools in the area were counted, the correct percentage of the low-income children in most of the attendance areas would be increased. Thus, for example, in the attendance area ' of the South 17th Street Elementary School, the low-income percentage would be 40.3%. See App. to Pet. for Cert. 53a; for purposes of decision, I assume that argument was correctly rejected by the auditors. However, I note that New Jersey has represented that the poverty level in the attendance area of the South 17th Street Elementary School had risen to 73.91% in 1984-1985. See Brief for Respondent 8, n. 5.

         Ante, at 646; cf. Trans World Airlines, Inc. v. Franklin Mint Corp., 466 U. S. 243, 277 (1984) (Stevens, J., dissenting).

       App. 23, 25.

       Title 45 CFR § 116.17(d) (1972) then provided:
      “A school attendance area for either a public elementary or a public secondary school may be designated as a project area if the estimated percentage of children from low-income families residing in that attendance area is as high as the percentage of such children residing in the whole of the school district, or if the estimated number of children from low-income families residing in that attendance area is as large as the average number of such children residing in the several school attendance areas in the school district. In certain cases, the whole of a school district may be regarded as an area having a high concentration of such children and be approved as a project area, but only if there are no wide variances in the concentrations of such children among the several school attendance areas in the school district.”

       It is undisputed that Newark’s poverty level was one of the highest in the Nation. New Jersey offers the following description:
      “The Newark School District for the years 1970 through 1973, the period covered by the federal audit before this Court, could readily be characterized as the prototypic Title I district. The application for Title I funds for the year 1971-72 school year, the primary focus of the audit, showed that 33.9% of the children in the Newark School District were from low-income families (J. A. 108). The narrative portion of this application clearly demonstrated that Newark was uniformly disadvantaged in other ways. Statistics showed a jobless rate in 1970 of 14%; a rate which was double that needed to qualify under the Economic Development Act. Another 35,000 residents were earning $3,000 per year or less. In 1971, the Model Cities program in Newark was expanded to include the entire city. At the time the 1971-72 application was submitted, Newark had a black population of 54.2% with another 11% of its population of hispanic background. The City also had the highest percentage of slum housing in the nation, the highest incidence of crime per 10,000 population, the highest population density, a high rate of maternal mortality and the second highest birth rate. Of particular significance to the Title I program, and exacerbating the inherent difficulties of obtaining precise statistics for Newark’s low-income population, was the fact that in 1970-71 Newark had the highest population turnover in the nation. Indeed, Model Cities data indicated that mobility rates reached as high as 80% for schools in the Title I area (J. A. 113 to J. A. 114; J. A. 69).” Brief for Respondent 3-4 (footnote omitted).

       The quoted statement appears in the following paragraph from H. R. Rep. No. 93-805, p. 17 (1974):
      “As originally conceived and as extended, Title I authority is basically centered in the local educational agency (the school district). The special needs of the educationally disadvantaged child and programs to meet those needs must be locally devised. This is consistent with the Congress’ historical concern that local communities should, not in conflict with constitutional and legal prescriptions, formulate educational policy. . . . This is not consistent with strict Federal administration regulations which so narrowly define ‘target school’ that a school in one local educational agency with 10% of its enrollment of ‘educationally deprived’ is an eligible ‘target school,’ whereas a school in another local educational agency with 30% or more is not eligible as a target school. While it is clearly the expressed objective to serve children in schools with high concentrations, it was never intended by the Act to render any school with a 30% concentration ineligible.”

       See 45 CFR § 116a.20(b)(2) (1977), which stated, in pertinent part:
      “An attendance area may be designated under paragraph (b)(1) on a percentage basis if the percentage of children from low-income families in that attendance area is at least as high as the percentage of such children residing in the whole of the school district. In addition, upon specific request by the local educational agency, the State educational agency may approve the designation of attendance areas in which at least 30 percent of the children are from low-income families.”

       Education Amendments of 1977: Hearings on H. R. 15 before the Subcommittee on Elementary, Secondary and Vocational Education of the House Committee on Education and Labor, 95th Cong., 1st Sess., pt. 12, p. 392 (1978) (testimony of Ruth Mancuso, vice president of the National Association of State Boards of Education).

       H. R. Rep. No. 95-1137, p. 22 (1978).

       See, e. g., S. Rep. No. 146, 89th Cong., 1st Sess., 9 (1965), which stated:
      “It is the intention of the proposed legislation not to prescribe the specific type of programs or projects that will be required in school districts. Rather such matters are left to the discretion and judgment of the local public educational agencies. . . . What may be an acceptable and effective program in a school district serving a rural area may be entirely inappropriate for a school district serving an urban area, and vice versa. There may be circumstances where a school system is basically a low-income area and the best approach in meeting the needs of educationally deprived children would be to upgrade the regular program. On the other hand, in many areas the needs of educationally deprived children will not be satisfied by such an approach.”

       There is, of course, an important distinction between the broad 'power of Congress to control certain actions of state governmental units, see,
        e. g., EEOC v. Wyoming, 460 U. S. 226, 244-248 (1983) (Stevens, J., concurring), and the proper interpretation of congressional action which presumptively should accord state governmental units the broadest measure of respect. See, e. g., New York Telephone Co. v. New York Dept. of Labor, 440 U. S. 519, 539-540, 545-546 (1979) (opinion of STEVENS, J.).

       This thought was echoed in a recent study, which noted that one “Title I administrator compared the current federal Title I role to ‘the people who hide in the mountains until the war is over and then come down to kill the dead.’ ” L. McDonnell & M. McLaughlin, Education Policy and the Role of the States 105 (1982).


source: Caselaw Access Project

license: Public Domain

text:
    BENNETT, SECRETARY OF EDUCATION v. KENTUCKY DEPARTMENT OF EDUCATION
    No. 83-1798.
    Argued January 8, 1985
    Decided March 19, 1985

      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.

      Deputy Solicitor General Getter argued the cause for petitioner. With him on the briefs were Solicitor General Lee and Harriet S. Shapiro.

      Robert L. Chenoweth, Assistant Deputy Attorney General of Kentucky, argued the cause for respondent. With him on the brief was David L. Armstrong, Attorney General.

        FredH. Fishman, Robert H. Kapp, Norman Redlich, William L. Robinson, and Norman J. Chachkin filed a brief for the Lawyers’ Committee for Civil Rights Under Law as amicus curiae urging reversal.
      Briefs of amici curiae urging affirmance were filed for the State of Texas et al. by Richard L. Arnett, Jim Mattox, Attorney General of Texas, David Richards, Executive Assistant Attorney General, J. Patrick Wiseman, Assistant Attorney General, Thomas J. Miller, Attorney General of Iowa, Stephen H. Sachs, Attorney General of Maryland, PaulL. Douglas, Attorney General of Nebraska, Brian McKay, Attorney General of Nevada, William E. Isaeff, Chief Deputy Attorney General, andL. DuaneWoodard, Attorney General of Colorado; and for the National Association of Counties et al. by Joyce Holmes Benjamin and Stewart A. Baker.

   Justice O’Connor

delivered the opinion of the Court.

This case, like Bennett v. New Jersey, ante, p. 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 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.

H-1

As explained more fully in Bennett v. New Jersey, ante, at 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, ¶¶ 4.1, 7.1 (1968). Despite the regulations, the Office of Education received public complaints that Title I funds were being used to replace state and local funds that otherwise would have been spent for participating children. See S. Rep. No. 91-634, pp. 9-10 (1970). Congress responded by amending Title I in 1970 to add a provision that specifically prohibited supplanting. Id., at 9-10, 14-15. That provision, in effect when the grants involved in this case were made, required that Title I funds be used

“(i) as to supplement and, to the extent practical, increase the level of funds that would, in the absence of such Federal funds, be made available from non-Federal sources for the education of pupils participating in programs and projects assisted under this subchapter, and (ii) in no case, as to supplant such funds from non-Federal sources.” 20 U. S. C. § 241e(a)(3)(B) (1970 ed.).

Title I regulations elaborated upon the statutory prohibition on the use of federal funds to supplant state and local funds:

“Each application for a grant . . . shall contain an assurance that the use of the grant funds will not result in a decrease in the use for educationally deprived children residing in that project area of State or local funds, which, in the absence of funds under Title I of the Act, would be made available for that project area and that neither the project area nor the educationally deprived children residing therein will otherwise be penalized in the application of State and local funds because of such a use of funds under Title I of the Act. . . . Federal funds made available ... (1) will be used to supplement, and to the extent practical increase, the level of State and local funds that would, in the absence of such Federal funds, be made available for the education of pupils participating in that project; (2) will not be used to supplant State and local funds available for the education of such pupils.” 45 CFR § 116.17(h) (1974).

In 1976, federal auditors found that Kentucky had approved Title I programs for fiscal year 1974 that violated the prohibitions on supplanting. App. 11-21. The disputed programs involved “readiness classes” offered by 50 local education agencies for educationally disadvantaged children in place of regular first- and second-grade classes. App. to Pet. for Cert. 22a. Participating students received their entire academic instruction in the readiness classes, and a substantial number of the students were expected to be promoted to the next higher grade level the following year. App. 16-17. Title I funds were used to pay all the instructional salaries and a portion of the administrative support costs for the readiness classes. App. to Pet. for Cert. 22a. Students in these classes did receive locally funded “enrichment services,” i. e., art, physical education, music, and library, that were available to students enrolled in regular classes. Ibid. It is not disputed, however, that Title I funds defrayed substantially all the costs of educating students in the readiness classes. App. 15, 17. The auditors concluded that supplanting of state and local expenditures had occurred for children in readiness classes who were promoted to the next higher regular grade. Id., at 17, 19; App. to Pet. for Cert. 30a. Based on this finding, the auditors estimated that $704,237 in Title I funds had been misused, and the Department issued a final determination letter demanding repayment. App. 22-23.

Kentucky sought further administrative review. The Education Appeal Board (Board), after extensive proceedings, issued an initial decision in 1981 sustaining the auditors’ findings. App. to Pet. for Cert. 17a-32a. The Board rejected the State’s argument that the supplanting provisions were satisfied because state and local funding was not reduced for the school districts, schools, or grade levels involved. Id., at 24a. The statutory and regulatory provisions, the Board concluded, clearly required that state and local expenditures be maintained for pupils participating in programs supported by Title I. Id., at 24a-25a. On remand from the Secretary, id., at 33a-35a, the Board reaffirmed its initial decision. Id., at 36a-37a. The Secretary subsequently affirmed the Board’s finding that supplanting had occurred, but reduced the demanded repayment to $338,034 to reflect the benefits presumed to result from smaller pupil-teacher ratios in the readiness classes. Id., at 38a-42a.

In reviewing the final order demanding repayment, the Court of Appeals acknowledged that the Secretary’s interpretation of the supplanting prohibition was reasonable and would govern subsequent grants. 717 F. 2d, at 946-947, 948. Nonetheless, the court concluded that Kentucky was not liable for misusing Title I funds during fiscal year 1974. The Court of Appeals viewed the issue to be “the fairness of imposing sanctions upon the Commonwealth of Kentucky for its ‘failure to substantially comply’ with the requirements [of Title I].” Id., at 947, quoting 20 U. S. C. §§1234b(a), 1234c(a). The statute and regulations concerning supplanting, the court maintained, were not “unambiguous.” 717 F. 2d, at 948. Moreover, Congress specifically gave state and local officials discretion to develop particular programs to be supported by Title I funds. Ibid. In these circumstances, the Court of Appeals concluded that it would be unfair to assess a penalty against Kentucky where there was no evidence of bad faith and the disputed programs complied with a reasonable interpretation of the law. Ibid. Relying on Pennhurst State School and Hospital v. Halderman, 451 U. S. 1, 17 (1981), the court further reasoned that the State did not accept Title I funds with “knowing acceptance” of the condition the Secretary now seeks to impose, and therefore the Federal Government was not justified in demanding repayment. 717 F. 2d, at 950.

II

We note initially that 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 the requirements of Title I. Although recovery of misused Title I 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. See Bell v. New Jersey, 461 U. S. 773, 782 (1983). The State gave certain assurances as a condition for receiving the federal funds, and if those assurances were not complied with, the Federal Government is entitled to recover amounts spent contrary to the terms of the grant agreement. Id., at 791. More specifically, the State gave assurances that Title I funds would be used only for programs which had been reviewed and approved by the state education agency and which met applicable statutory and regulatory requirements. 20 U. S. C. §241f(a)(l) (1976 ed.). The issue in this case is not the fairness of imposing punitive measures, but instead whether the Secretary properly determined that Kentucky failed to fulfill its assurances by approving programs that violated the requirements of Title I.

Because of the nature of the obligation to repay misused funds, we also disagree with the suggestion by the court below that substantial compliance with applicable legal requirements affects liability. The Court of Appeals relied on provisions which authorize the Secretary, pursuant to specified procedures, to withhold funds or to issue cease-and-desist orders if a recipient fails to comply substantially with the law. 20 U. S. C. §§ 1234b(a), 1234c(a). Cf. §2836 (specific authority to withhold Title I funds). These references to substantial compliance in provisions governing prospective relief do not by their own terms apply to the recovery of misused funds. Cf. § 1234a(c) (filing of application by recipient for review of audit determination does not affect authority of Secretary to take other adverse actions); 124 Cong. Rec. 20612 (1978) (remarks of Rep. Corrada) (noting that post-audit recovery and withholding are distinct enforcement mechanisms). Other provisions that address the Secretary’s authority to demand repayment do not limit liability to instances where there is failure to comply substantially with grant obligations. See §§1226a-l, 1234a, 2835(b). This silence cannot be ascribed to legislative inattention to the details concerning recovery of misused funds. Congress specifically limited liability for repayment to expenditures made in the five years preceding the final written notice of liability and also authorized the Secretary, in certain circumstances, to settle claims involving less than $50,000. §§1234a(f), 1234a(g). Given the detailed provisions concerning audit determinations contained in § 1234a, we do not believe that Congress intended impliedly to engraft upon that section the “substantial compliance” standard expressly stated in §§ 1234b and 1234c for prospective relief.

Nor do we think that the absence of bad faith absolves a State from liability if funds were in fact spent contrary to the terms of the grant agreement. In Bell v. New Jersey we explained that where a State obtains grants by providing assurances that the funds will be used on programs that comply with Title I, the State has no right to retain funds that are in fact misused, 461 U. S., at 787, 790-791. See also S. Rep. No. 91-634, at 10,. 84 (assurances must be enforced and misused funds recovered). Our discussion in no way suggested that the “misuse” of Title I funds depended on any subjective intent attributable to grant recipients. Instead, Bell v. New Jersey indicates that funds were misused if the State did not fulfill its assurances that it would abide by the conditions of Title I. 461 U. S., at 790-791. Provisions of the 1978 Amendments clarifying the Secretary’s right to recover misused funds also do not condition that right on a recipient’s bad faith. Indeed, Congress expressly placed on the grantees the burden of “demonstrat[ing] the allowability of [disputed] expenditures” in proceedings before the Education Appeal Board. 20 U. S. C. § 1234a(b). There is no indication that grantees may avoid repayment by showing that improper expenditures were made in good faith.

Finally, we do not agree that Pennhurst State School and Hospital v. Halderman, 451 U. S. 1 (1981), bars recovery of misused Title I funds because the State did not accept the grant with “knowing acceptance” of its terms. In Pennhurst, we rejected the argument that acceptance of federal grants under the Developmentally Disabled Assistance and Bill of Rights Act, 42 U. S. C. §6000 et seq., required States to provide mentally handicapped persons with appropriate treatment in the least restrictive environment. Such a requirement, we noted, would have imposed a “massive” and “largely indeterminate” financial obligation on the States. 451 U. S., at 24. We observed: “Congress must express clearly its intent to impose conditions on the grant of federal funds so that the States can knowingly decide whether or not to accept those funds.” Ibid. The requisite clarity in this case is provided by Title I; States that chose to participate in the program agreed to abide by the requirements of Title I as a condition for receiving funds. Bell v. New Jersey, 461 U. S., at 790, and n. 17. There was no ambiguity with respect to this condition, and Pennhurst does not suggest that the Federal Government may recover misused federal funds only if every improper expenditure has been specifically identified and proscribed in advance.

J — I I — I I — (

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. Bennett v. New Jersey, ante, at 646; Bell v. New Jersey, supra, at 792. The disagreement in this case concerns whether the Secretary properly determined that the readiness programs approved by Kentucky violated assurances that Title I funds would be used to supplement state and local expenditures. The Government argues that a reviewing court should simply defer to the Secretary’s interpretation of the requirements of Title I so long as it is reasonable. Without disputing the reasonableness of the interpretation advanced by the Secretary, Kentucky contends that because the grant program was in the nature of a contract, any ambiguities with respect to the obligations of the State must be resolved against the party who drafted the agreement, i. e., the Federal Government. Thus, the parties dispute the fundamental nature of the obligations assumed under Title I: the Government suggests that the State guaranteed that the use of the funds would satisfy whatever interpretation of the program requirements the Secretary might reasonably adopt; the State argues that liability for the misuse of funds results only if grants were spent in violation of an unambiguous requirement.

The contentions of the parties can be properly evaluated only against the background of the actual operation of Title I. The grant program provided federal aid for compensatory education for disadvantaged children, but expressly left the selection and development of particular projects to local control. State education agencies approved program applications and monitored compliance by local school districts, obtained funds from the Federal Government, and subsequently channeled the money back to the local level. Thus, the States essentially served as conduits for what became a massive flow of federal funds. Title I grew from an annual appropriation of $959 million in 1966 to more than $3 billion by 1981, and assisted compensatory education programs in every State and in more than 14,000 school districts. See 2 U. S. Dept, of Education, Fiscal Year 1981 Annual Evaluation Report 3 (1981); National Institute of Education, Administration of Compensatory Education xiii (1977) (hereinafter NIE Report). During the period involved in this case, fiscal year 1974, Kentucky received more than $32 million in Title I funds. App. 11.

Although Congress in 1965 articulated the general goals of Title I, the statute and the initial regulations did not precisely outline the permissible means for implementing those goals. Uncertainty in this regard was compounded by the fact that during the first years following the passage of Title I, the Office of Education did not vigorously enforce the requirements of the program. See L. McDonnell & M. McLaughlin, Education Policy and the Role of the States 13, 90-91 (1982); Murphy, Title I of ESEA: The Politics of Implementing Federal Education Reform, 41 Harv. Ed. Rev. 35, 41-45 (1971). In 1970, Congress acknowledged that funds had been misused because of weaknesses in administration, and directed the Office of Education to strengthen its monitoring of the program requirements. S. Rep. No. 91-634, at 8-10. Management of Title I by the Office of Education improved during the 1970’s, but problems in clarifying the program requirements remained. See J. Berke & M. Kirst, Federal Aid to Education: Who Benefits? Who Governs? 377-378 (1972). Congress in 1974 directed the NIE to conduct a comprehensive 3-year study of federal compensatory education programs, including Title I. Pub. L. 93-380, §821, 88 Stat. 599.

The NIE study was the primary impetus for the Education Amendments of 1978. In considering those Amendments, Congress noted evidence that the Office of Education was “implementing administrative requirements in a manner which is neither clear nor consistent, and that this inconsistency is confusing States and local education agencies about their obligations.” H. R. Rep. No. 95-1137, p. 49, (1978); S. Rep. No. 95-856, p. 27 (1978). This confusion, Congress observed, resulted in part from the diffuse legal framework for Title I. In addition to the statutory provisions and the regulations, the Office of Education sent program guides to state education agencies explaining the requirements and their application to particular situations. Id., at 34; H. R. Rep. No. 95-1137, at 55. Office of Education Program Review teams visited local Title I projects and provided advice, and the Office also sent interpretative letters in response to state and local inquiries. NIE Report 18, 27; Office of Education, Title I Program Guide No. 24 (1968) (compilation of interpretative letters).

Congress accepted the NIE’s conclusion that many of the questions concerning the requirements of Title I would be resolved if the various materials prepared by the Office of Education were “assembled, summarized, and interrelated.” S. Rep. No. 95-856, at 34; H. R. Rep. No. 95-1137, at 55. Accordingly, the 1978 Amendments directed the agency to prepare a policy manual compiling the applicable statutes, regulations, advisory opinions, and other materials. 20 U. S. C. §2837. Congress indicated that such a manual would help to “ensure that federal officials uniformly interpret, apply, and enforce Title I requirements throughout the country.” S. Rep. No. 95-856, at 138; H. R. Rep. No. 95-1137, at 161. The NIE study and the extensive review of Title I’s administration by Congress indicate that the requirements of the program, while not always clear, evolved and became more specific over time and were explained in materials beyond the statute and its implementing regulations.

Although we agree with the State that Title I grant agreements had a contractual aspect, see Bennett v. New Jersey, ante, at 638, the program cannot be viewed in the same manner as a bilateral contract governing a discrete transaction. Cf. United States v. Seckinger, 397 U. S. 203, 210 (1970) (“[A] contract should be construed most strongly against the drafter, which in this case was the United States”). Unlike normal contractual undertakings, federal grant programs originate in and remain governed by statutory provisions expressing the judgment of Congress concerning desirable public policy. See R. Cappalli, Rights and Remedies Under Federal Grants 53-55 (1979). Title I, for example, involved multiple levels of government in a cooperative effort to use federal funds to support compensatory education for disadvantaged children. The Federal Government established general guidelines for the allocation and use of funds, and the States agreed to follow those guidelines in approving and monitoring specific projects developed and operated at the local level. Given the structure of the grant program, the Federal Government simply could not prospectively resolve every possible ambiguity concerning particular applications of the requirements of Title I. Cf. Heckler v. Community Health Services of Crawford County, Inc., 467 U. S. 51, 64 (1984). Moreover, the fact that Title I was an ongoing, cooperative program meant that grant recipients had an opportunity to seek clarification of the program requirements. Accordingly, we do not believe that ambiguities in the requirements should invariably be resolved against the Federal Government as the drafter of the grant agreement.

We find it unnecessary here to adopt the Government’s suggestion that the Secretary may rely on any reasonable interpretation of the requirements of Title I to determine that previous expenditures violated the grant conditions. Our review of the operation of Title I explains how the States assumed an intermediary role in monitoring compliance with requirements that were not always clear. In this particular context, we are reluctant to conclude that the States guaranteed that their performance under the grant agreements would satisfy whatever interpretation of the terms might later be adopted by the Secretary, so long as that interpretation is not “arbitrary, capricious, or manifestly contrary to [Title I].” Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 844 (1984). As we noted in Bennett v. New Jersey, ante, at 639, 646, the State agreed to comply with, and its liability is determined by, the legal requirements in place when the grants were made. Consequently, in evaluating past expenditures, the Secretary’s interpretation of the requirements of Title I should be informed by the statutory provisions, regulations, and other guidelines provided by the Department at that time. As explained infra, we have no occasion in this case to address the circumstances, if any, in which the Secretary could impose liability for expenditures made in reliance upon an earlier interpretation provided by the Department, cf. Bell v. New Jersey, 461 U. S., at 794 (White, J., concurring), or to decide if a State may be held liable where its interpretation of an ambiguous requirement is more reasonable than an interpretation advanced by the Secretary after the grants were made.

We agree with the Secretary that the readiness classes approved by Kentucky clearly violated existing statutory and regulatory provisions that prohibited supplanting. It is undisputed that Title I funds were used to pay substantially all

I — I <1 the costs for the basic education of students in the readiness classes. Absent these classes funded by Title I, the participating students would have received instruction in regular classes supported by state and local funds. Both the statutory provision and the implementing regulations expressly required that Title I funds not be used to supplant state and local funds for the pupils participating in Title I programs. The statute declared that Title I funds must be used “to supplement. . . the level of funds that would, in the absence of such Federal funds, be made available from non-Federal sources for the education of pupils participating in programs and projects assisted under this subchapter, and ... in no case, ... to supplant such funds from non-Federal sources.” 20 U. S. C. § 241e(a)(3)(B) (1970 ed.). The applicable regulation similarly provided: “Federal funds made available . . . will be used to supplement, and to the extent practical increase, the level of State and local funds that would ... be made available for the education of pupils participating in that project [and] will not be used to supplant State and local funds available for the education of such pupils.” 45 CFR § 116.17(h) (1974).

Based on the language of the statute and the regulation, we cannot agree that there was an ambiguity whether the supplanting prohibition would be satisfied if state and local funding was maintained at the level of the school district, school, or grade. Separate statutory provisions required that state and local spending not be reduced at the level of school districts, 20 U. S. C. §241g(c)(2) (1970 ed.); 45 CFR § 116.45 (1974), or individual schools. 20 U. S. C. §241e(a)(3)(C) (1970 ed.); 45 CFR § 116.26 (1974). See generally NIE Report 9-10 (explaining relationship of various provisions). Although 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 this result comports with the prohibitions on supplanting. As noted by the Board, if the State was uncertain on this point, it could have sought clarification from the Office of Education. App. to Pet. for Cert. 27a. In fact, the grant applications approved by the State expressly required the local school districts to explain:

“How will you organize the program to assure that children participating in the component activity will receive this Title I service in addition to services to which they are ordinarily entitled from state and local school funds?” Ibid.

Kentucky, moreover, has not shown that the position now taken by the Secretary is inconsistent with earlier guidelines provided by the Department. The State notes that Office of Education Program Review teams visited schools in Kentucky in which the readiness classes were offered and made no objection to the classes. Nonetheless, Kentucky does not challenge the finding by the Education Appeal Board, see id., at 23a, that there is no evidence in the record that the teams reviewed the financing of the readiness classes. Kentucky further contends that the ambiguity of the supplanting provisions is demonstrated by the fact that the Secretary modified the Board’s order to reduce the demanded repayment. This argument is unpersuasive. The modification reflects the Secretary’s determination that Title I funds provided some additional benefits to the students in the readiness classes because the classes had smaller pupil-teacher ratios, but it does not cast any doubt on the Board’s finding that supplanting occurred.

We note, finally, that the possibility that application of the supplanting provisions might be unclear-in other contexts does not affect our resolution of this case. Congress, in considering the 1978 Amendments, observed that the supplanting regulations had been applied in an unclear and inconsistent manner. See H. R. Rep. No. 95-1137, at 29, 49; S. Rep. No. 95-856, at 15, 27. This situation resulted in part from debate within the Office of Education concerning the desirability and practicality of measuring supplanting at the level of expenditures upon individual students. See NIE Report 29-38. Difficult questions of interpretation may well arise in determining if a particular program violated the supplanting provisions, and we do not suggest that the prior position of the Department is irrelevant in this regard. We conclude, however, that the programs approved by Kentucky for fiscal year 1974 clearly violated then-existing requirements for Title I, and therefore neither ambiguity in the application of those requirements to other situations nor the policy debates that later arose within the Office of Education avail the State here.

V

We hold that the Secretary properly determined that Kentucky violated its assurances by approving the readiness classes and thereby misused funds received under Title I. Before the Court of Appeals, Kentucky also challenged the calculation of the amount to be repaid. The Court of Appeals did not address this argument, 717 F. 2d, at 950, and the State may renew its contentions in this regard on remand. Accordingly, the judgment below is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice Powell took no part in the consideration or decision of this case.

      Justice White and Justice Blackmun join only Parts I, II, IV, and V of this opinion.

       The Office of Education was the predecessor to the present Department of Education and was responsible for the administration of Title I until 1980. See Bell v. New Jersey, 461 U. S. 773, 776, n. 1 (1983). Unless the distinction is significant, we will refer to both the Office of Education and the Department of Education as the Department. Ibid.

       In Bell v. New Jersey we held that provisions in the 1978 Amendments expressly authorizing judicial review of final decisions by the Secretary or the Board applied retroactively. 461 U. S., at 777-778, and n. 3. We declined to decide, however, whether the provisions allowing the Secretary to recover misused funds were also retroactive, id., at 782, because we held that § 415 of the General Education Provisions Act, Pub. L. 91-230, 84 Stat. 170, 20 U. S. C. § 1226a-1, created a right to impose liability on the States. 461 U. S., at 784, 791. Neither the language of § 415 nor Bell v. New Jersey suggests that the Secretary’s right to recover is affected by a recipient’s substantial compliance with the law. Given our conclusion that the references to substantial compliance in §§ 1234b and 1234c do not limit the right to repayment provided in § 1234a, we need not decide whether the latter section is remedial, rather than substantive, and thus retroactive. Cf. Bennett v. New Jersey, ante, at 637 (substantive standards of 1978 Amendments are not retroactive).

       Although the view of a later Congress does not definitively establish the meaning of an earlier enactment, it does have some persuasive value. Bell v. New Jersey, 461 U. S., at 784-785. Accordingly, we note that Congress has rejected a proposal to amend the audit provisions to add a substantial compliance standard. See 130 Cong. Rec. H7902-H7903 (July 26, 1984) (§ 808(a) of H. R. 11); id., at H10756 (Oct. 2, 1984) (deletion of § 808(a) in conference). Similarly, when a proposal to excuse liability for funds misused before 1978 was debated and ultimately defeated on a point of order, Members of Congress noted that the Department had sought repayment notwithstanding the absence of bad faith or fraud on the part of recipients. See 127 Cong. Rec. 10644 (1981) (remarks of Sen. Thurmond); id., at 10646 (remarks of Sen. Stennis). These actions suggest that later Congresses understood that liability is not conditioned on substantial compliance or bad faith.

       At oral argument before the Board, the State argued that some “measure of estoppel” should operate against the Department and moved to reopen the record to present additional evidence. The Board ruled that estoppel would not apply absent affirmative misconduct by the Government, and because Kentucky had not alleged such misconduct, it declined to reopen the record. App. to Pet. for Cert. 28a. The Court of Appeals did not discuss estoppel arguments, and Kentucky acknowledged before this Court that it was not making any estoppel claim. Tr. of Oral Arg. 39, 43. Accordingly, we do not address the application of the defense of estoppel. Cf. Heckler v. Community Health Services of Crawford County, Inc., 467 U. S. 51, 60 (1984) (reserving issue of assertion by private party of estoppel against Government).

       Because the disputed expenditures violated a substantive requirement concerning the use of Title I funds, we do not address in this case whether the Secretary could demand repayment for no more than a technical violation of a grant agreement. Cf. Bell v. New Jersey, 461 U. S., at 794 (White, J., concurring).