470 U.S.

632
105 S.Ct. 1555
84 L.Ed.2d 572

William J. BENNETT, Secretary of Education, Petitioner

v.
NEW JERSEY.
No. 83-2064.
Argued Jan. 8, 1985.
Decided March 19, 1985.

Syllabus
In earlier proceedings in this litigation, this Court, reversing the Court of
Appeals' judgment, held that the Federal Government may recover
misused funds from States that provided assurances that federal grants
would be spent only on eligible programs under Title I of the Elementary
and Secondary Education Act of 1965, which provided for grants to
support compensatory education for disadvantaged children in low-income
areas. Bell v. New Jersey, 461 U.S. 773, 103 S.Ct. 2187, 76 L.Ed.2d 312
(1983). However, the Court expressly declined to address the issue
whether substantive provisions of the 1978 Amendments to the Act apply
retroactively for determining if Title I funds were misused in earlier years.
On remand, New Jersey argued that the 1978 Amendments, which relaxed
the eligibility requirements for local schools to receive Title I funds,
should be applied in determining whether funds were misused during the
years 1970-1972. The Court of Appeals agreed and remanded the case to
petitioner Secretary of Education to determine whether the disputed
expenditures conformed to the 1978 standards.
Held: The substantive standards of the 1978 Amendments do not apply
retroactively for determining if Title I funds were misused under
previously made grants. Pp. 638-646.
(a) The Court of Appeals' reliancebased on language from Bradley v.
Richmond School Board, 416 U.S. 696, 94 S.Ct. 2006, 40 L.Ed.2d 476
(1974)on a presumption that statutory amendments apply retroactively
to pending cases is inappropriate in this context. 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. Retroactive application of changes in
the substantive requirements of a federal grant program would deny both
federal auditors and grant recipients fixed, predictable standards to
determine if expenditures are proper. Pp. 638-641.
(b) Neither the statutory language nor the legislative history indicates that
Congress intended the substantive standards of the 1978 Amendments to
apply retroactively. Both the general purpose of the 1978 Amendments to
clarify and simplify provisions concerning implementation of Title I, and
specific references in the statute and legislative history suggest that the
new requirements were intended to apply prospectively. Nor do changes
in the Act and administrative regulations, made since 1976, support the
Court of Appeals' conclusion that earlier regulations were inconsistent
with Title I's policies. Pp. 641-645.
(c) There is no inequity here in requiring repayment of funds that were
spent contrary to the assurances provided by the State in obtaining the
federal grants. Moreover, the role of a court in reviewing a determination
by the Secretary of Education that funds have been misused is to judge
whether the findings are supported by substantial evidence and reflect
application of the proper legal standards. 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. Pp. 645-646.
724 F.2d 34, reversed and remanded.
Michael W. McConnell, Washington, D.C., for petitioner.
Mary Ann Burgess, Asst. Atty. Gen., Trenton, N.J., for respondent.
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, 103 S.Ct. 2187, 76 L.Ed.2d 312 (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, 103 S.Ct., at 2192, n. 6,
2193, 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, 105 S.Ct. 79, 83 L.Ed.2d 27 (1984), and we now reverse.
2

* Title I of the Elementary and Secondary Education Act of 1965, Pub.L. 8910, 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.1 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),
U.S.Code Cong. & Admin.News 1978, p. 4971; 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), U.S.Code Cong. & Admin.News 1965, p. 1446.
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)(1)
(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, U.S.Code Cong. & Admin.News 1978,
p. 4974.

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.2
Bell v. New Jersey, supra, 461 U.S., at 776, 103 S.Ct., at 2189; 20 U.S.C.
241f(a)(1) (1976 ed.). As noted supra, 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.
4

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,
103 S.Ct., at 2190. 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 district-wide 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.
6

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. 95561, 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.

II
7

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, 94 S.Ct. 2006, 40 L.Ed.2d
476 (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, quoting 416
U.S., at 711, 94 S.Ct., at 2016. 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.3

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, 103 S.Ct.,
at 2192. Although our conclusion was based on the statutory provisions, id., at
782-790, 103 S.Ct., at 2192-2197, 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, 101 S.Ct. 1531, 1540,
67 L.Ed.2d 694 (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, 103 S.Ct., at 2197.
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, 103 S.Ct., at 2197; see id.,
at 794, 103 S.Ct., at 2199 (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, 103 S.Ct., at 2197, the State became liable 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, 103 S.Ct., 1294 at 2193, and n. 7.
9

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, 2 L.Ed. 49 (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, 94 S.Ct., at 2018. 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, 94 S.Ct., at 2020. 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, 103 S.Ct. 407, 412, 74 L.Ed.2d
235 (1982); Greene v. United States, 376 U.S. 149, 160, 84 S.Ct. 615, 621, 11
L.Ed.2d 576 (1964). Cf. Bradley, supra, 416 U.S., at 721, 94 S.Ct., at 2021
(noting that statutory change did not affect substantive obligations).

10

Practical considerations related to the enforcement of the requirements of grantin-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.4 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, 451 U.S., at 17, 2425, 101 S.Ct., at 1539, 1543-1544. 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.

11

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, 103 S.Ct., at 2196; 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.

III
12

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, "[e]xcept 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, U.S.Code Cong. & Admin.News 1978, p. 4991
(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.
13

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
mischaracterizes 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. 5 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.

14

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), U.S.Code Cong. & Admin.News 1974, pp. 4093, 4108 ("
[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.6 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).

15

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 lowincome 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)(1)(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 ("[T]itle I is successful in
directing substantial federal aid to those areas which have the highest
proportions of children from low-income families").

16

Congress did not abandon the concerns underlying the earlier regulations when
it enacted the 1978 Amendments. Legislative Reports spoke approvingly of the
long-standing policy to direct funds to school attendance areas "having the
highest concentrations of low-income families." Id., at 11; H.R.Rep. No. 951137, 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

17

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.7
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, 103 S.Ct., at 2197. 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, 470
U.S. 656, 662-663, 105 S.Ct. 1544, 1549, 84 L.Ed.2d 590.

18

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.

19

It is so ordered.

20

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

21

Justice STEVENS, with whom Justice MARSHALL joins, dissenting.

22

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."1 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 lowincome families. . . ." 20 U.S.C. 241e(a)(1) (1976 ed.).
23

As the case comes to us, the underlying issue is whether 10 of the public
schools in Newark, New Jersey,2 that received federal assistance in the 19711972 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.3 There is no dispute about the
fact that the money that was allocated to these schoolslike that allotted to
over 60 other schools in Newarkwas used in programs and projects properly
designed to meet the special educational needs of educationally deprived
children.4 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.

24

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 1563. 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.5 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 1971-1972.6 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 violatedor 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.

25

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,7 but I am convinced that the Court has seriously misread the
intent of Congress.
26

* In order to understand the impact of the regulations that must be strictly

enforced under the Court's holdingand which I submit Congress later
repudiatedit 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.8 Because the average percentage of children from lowincome 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.9 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,10 it did not
meet the Secretary's rigid standard.

27

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."11 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.12 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.

28

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:

29

"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."13

30

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%):

31

"[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 school[s] 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."14

32

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 lowincome 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.

II
33

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 [94 S.Ct.
2006, 2016, 40 L.Ed.2d 476] (1974). Accord, Gulf Offshore Co. v. Mobil Oil
Corp., 453 U.S. 473, 486, n. 16 [101 S.Ct. 2870, 2879 n. 16, 69 L.Ed.2d 784]
(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, 103 S.Ct. 2187, 2198-2199, 76 L.Ed.2d
312 (1983).
34

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.

35

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.15 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.16 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.17

36

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

37

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.
2

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, 103 S.Ct. 2187, 2190, n. 1, 76 L.Ed.2d 312
(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 district-wide 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 lowincome 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), U.S.Code Cong. & Admin.News 1966,
pp. 3844, 3846 ("[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.
6

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)(1)(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 mindin every part
of this landto 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.
3

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, 104 S.Ct. 1776, 1795, 80 L.Ed.2d 273 (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."

10

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).

11

The quoted statement appears in the following paragraph from H.R.Rep. No.
93-805, p. 17 (1974), U.S.Code Cong. & Admin.News 1974, p. 4108:
"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."
12

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 lowincome families."

13

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).

14

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

15

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."

16

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, 103 S.Ct. 1054, 1064-1067, 75 L.Ed.2d 18
(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, 99 S.Ct. 1328,
1340-1341, 1343-1344, 59 L.Ed.2d 553 (1979) (opinion of STEVENS, J.).

17

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).