Why The Office of Administrative Hearings Needs Additional Funding

By Gary S. Qualls⁽¹⁾

The North Carolina Office of Administrative Hearings ("OAH")⁽²⁾ is substantially underfunded, and the problem is rapidly growing more acute. This article focuses on: (1) some of the reasons why inadequately funding OAH can have serious deleterious consequences; and (2) why OAH's current budget requests are quite modest and should be approved.

I. Background On OAH's Duties and Funding.

OAH has three main functions:

1. OAH operates a Hearings Division, which contains a "central panel" of Administrative Law Judges and their support staff.⁽³⁾
   These ALJs adjudicate the vast majority of controversies under the North Carolina Administrative Procedure Act ("APA") between aggrieved persons (individuals or organizations) and North Carolina governmental agencies;⁽⁴⁾

2. OAH administers Article 2A of the APA to provide for a fair and uniform procedure for the adoption of rules, notice of agency rulemaking through the North Carolina Register, and publication of adopted rules in the North Carolina Administrative Code;⁽⁵⁾ and

3. OAH is designated as a deferral agency of the Equal Employment Opportunity Commission ("EEOC") charged with the investigation of alleged acts of unlawful employment practice for all charges filed by the state and local government employees covered under the State Personnel Act.⁽⁶⁾

In recent years, the level of activity within all three OAH divisions has risen with the increased complexity and specialization of administrative law, and breadth of the jurisdiction of state agencies. In the national context, OAH's broad-based responsibilities are unique. Only one other central panel administrative adjudicatory system in the country (New Jersey) is responsible for administering divisions other than a hearings division.

OAH's Hearings Division is currently comprised of the following ALJs:

1. Chief Judge Julian Mann, III
2. Senior Judge Fred G. Morrison, Jr.
3. Judge Beecher R. Gray
4. Judge James L. Conner
5. Judge Butch Elkins
6. Judge Melissa Owens Lassiter
7. Judge Beryl E. Wade
8. Judge Sammie Chess, Jr.

Julian Mann, III is now serving his fourth four-year term as OAH's Director and Chief ALJ. He has been appointed and re-appointed by three different North Carolina Supreme Court Chief Justices.⁽⁷⁾ Chief Judge Mann is widely recognized as an innovative leader and jurist who helped to transform OAH into the well-respected tribunal it is today. However, Chief Judge Mann is also quick to confer due credit to the many hard working public servants who have helped shape OAH over the years.⁽⁸⁾ Figuring prominently among such public servants are Senior Judge Fred Morrison and Judge Beecher Gray, both ALJs since OAH's inception in the mid-1980's, who have accumulated a wealth of experience adjudicating administrative law cases and serving in other OAH leadership functions over the past 17 years. Other countless OAH employees (past and present) have served, and continue to serve, distinguished roles in OAH's establishment and development.

What many people do not realize is that OAH is substantially underfunded, given its legislative mandate and the nature of its work. Although the nature of OAH's work is different in each area of responsibility, the main focus of this article will be on inadequate funding in OAH's Hearings Division, which is where some of the most immediate and critical funding needs exist.

The North Carolina Bar Association's Administrative Law Section Council recently adopted a resolution supporting adequate funding for OAH. Among the Council's findings were these:⁽⁹⁾

WHEREAS, under the leadership of its current Director and Chief Administrative Law Judge [Julian Mann, III], OAH has performed all of its functions extremely efficiently and with minimal staffing levels; and

WHEREAS, recent budget cuts have resulted in staff and resource reductions which, if not reversed, will jeopardize the operational capability of OAH; and

WHEREAS, any further funding reductions would result in delays in deciding contested case hearings, less responsiveness to inquiries, and decreased resources to review and consider agency rules, employee grievances and contested case issues; these results would be detrimental to North Carolina citizens; and

THEREFORE, BE IT RESOLVED that the North Carolina Bar Association recognizes: (1) the need to ensure that sufficient resources are committed to OAH to enable OAH to fulfill its statutory duties; and (2) the inadequacy of OAH's current funding levels; and

BE IT FURTHER RESOLVED that the North Carolina Bar Association strongly supports full and adequate funding for OAH.

As the Council has correctly recognized, Chief Judge Mann and his colleagues have streamlined OAH into an extremely effective and efficient agency. However, OAH is now cut to the bone (and beyond). The public would undoubtedly suffer from further OAH budget cuts and will also be prejudiced if OAH's current budget requests to simply restore former OAH positions are not granted.

Those of us who have matters before OAH understand the grave consequences of not properly funding this agency. OAH has been legislatively assigned very serious and extremely challenging tasks. Moreover, the recent APA amendments which took effect January 1, 2001 (House Bill 968)⁽¹⁰⁾ conferred more direct authority upon ALJs and made the judicial review standards more deferential to ALJ decisions. These amendments are positive, but bring additional responsibilities and enhanced judicial import to the ALJs' tasks.

The General Assembly should recognize that the serious and difficult quasi-judicial responsibilities it has conferred upon OAH must be accompanied by adequate funding in order for those responsibilities to be properly administered. This includes, at the very least, staffing OAH with adequate numbers of well qualified personnel and addressing the inadequacy of OAH's current facilities.

II. OAH's Current Budget Requests.

OAH's current funding requests are modest by any standard. In OAH's 2003 - 2005 Biennial Budget, Chief Judge Mann has asked that the General Assembly merely: (1) fund four positions (two of which were lost in prior budget cuts); and (2) address some modest physical space and equipment needs.

The discussion in Part III below details certain aspects of OAH's duties to provide context for these funding issues. Anyone who understands the judicial system can immediately place into context the negative consequences of inadequately funding the State's trial and appellate courts within the General Courts of Justice. What everyone should understand is that the consequences of underfunding OAH are just as dire. As the following discussion illustrates, the duties imposed on OAH's Hearings Division are time and labor intensive, and include decisions of great import to this State.

III. The Demands On OAH Which Make Current Funding Inadequate.

Even though not constitutionally part of the judicial branch, OAH's ALJs are judges just the same. They function as judges in every substantive sense. Any lawyer who has litigated an OAH case knows that OAH contested cases are analogous to civil bench trials in the General Courts of Justice.⁽¹¹⁾ There are many features of the Hearings Division's work which makes the dangers of OAH underfunding quite analogous to the dangers of underfunding the General Court of Justice. It is therefore helpful to think about OAH underfunding in the same framework as judicial underfunding.

A. Increasing Case Loads And Decreasing Manpower.

Ironically, while the number of ALJ positions funded by the Legislature has decreased, the caseload has increased. In 1989, OAH had nine (9) permanent ALJs; during that same year, 1286 contested cases were initiated in OAH and 325 required some type of hearing. By 2001, OAH's contested case load had increased dramatically such that 2,200 contested cases were initiated in OAH and 1,100 required some type of hearing. Thus, since 1989, the number of cases requiring some type of hearing has more than tripled. Despite this dramatic increase in substantive hearings requiring Hearings Division resources, OAH currently has only eight (8) permanent ALJs, one fewer than in 1989. This makes no sense.

This reduction in the number of ALJs between 1989 and 2003 stands in stark contrast to the marked increase in District and Superior Court Judges assigned to the General Courts of Justice during the same time frame. During that time frame, the number of Superior Court Judges has increased by 35% and the number of District Court Judges has increased by 50%. There is no doubt that these judicial increases were critical; however, OAH's staffing needs are equally critical.

OAH dockets are often quite demanding. OAH's ALJs hear cases in all 100 counties so that citizens can seek redress in their home county without having to travel to Raleigh in each case.⁽¹²⁾ Although ALJs sometimes preside over hearings lasting only a day or two, some hearings require a week or more. It is not unusual for a Special Education case (discussed below) to last two weeks, and one such case recently took a month to hear. Multi-party health care and environmental cases before OAH can easily average more than a week. When hearing such cases, ALJs can easily fall behind in their other responsibilities - whether that be other evidentiary hearings, motion hearings, writing decisions, or other judicial tasks.

B. Time Deadlines for OAH Decisions.

Time deadlines applicable to ALJ decisions further complicate the scenario (described above) where an ALJ presides over a lengthy hearing. Several types of cases regularly handled by OAH have statutory deadlines. For example, Special Education cases must be heard within 45 days after the petition is filed. In Certificate of Need ("CON") health care cases, the ALJ's decision must be entered within 270 days after the petition is filed. This latter example may sound like a considerable amount of time. However, CON cases involve extensive discovery and therefore cannot often be heard until a few short weeks before the deadline. Therefore, the ALJs are often under intense time pressures to enter a decision shortly after the contested case hearing (which itself can involve one to two weeks of testimony).

Because of these and other similar deadlines, OAH cannot simply push hearings and decisions further into the future as the number of contested cases filed outstrip OAH judicial resources. These situations can create crises for OAH, the litigants, or both.

C. Extensive Nature of ALJ Decisions.

The inverse relationship, referenced in Part III(A) above, between OAH case loads and OAH resources is unconscionable on its face. However, it is even more disturbing when one realizes that ALJs endure some additional pressures unfamiliar even to State Superior Court or District Court Judges. Unlike many cases in the General Courts of Justice, contested cases cannot be dispensed with by a jury verdict. Rather, except in limited instances, the APA requires each contested case to be dispensed with by a written decision, with specific findings of fact and conclusions of law addressing why the agency at issue did or did not satisfy the contested case review standards and, in some instances, whether the rules at issue are void as applied.⁽¹³⁾

Although counsel for the parties may submit proposed decisions which require little or no modification, that is the exception rather than the norm. Even when a proposed decision is well written stylistically, it may be so biased in favor of the offering party so as not to be very objectively accurate in light of the evidence actually presented (a fact most of us submitting proposed decisions do not wish to admit).

Moreover, ALJs must adjudicate many cases involving pro se petitioners against the State. Any time a pro se petitioner prevails, it is a foregone conclusion that the petitioner will not be in a position to submit a well-drafted proposed decision to the ALJ for consideration - if such a petitioner submits a proposed decision at all. Rather, ALJs must write such decisions from scratch.

Thus, in terms of written work product demands, an ALJ's role is quite analogous to a federal judge or a State appellate court judge, with one very significant difference. Such judges have lawyer clerks to draft written decisions and opinions for them. ALJs have no such assistance. If OAH is inadequately staffed - fewer ALJs and support staff than necessary - the quality and timeliness of these very important decisions will certainly suffer.

D. Gravity of OAH Decisions.

OAH's cases are just as important to North Carolina jurisprudence as many cases arising in Superior and District Courts. In fact, by jurisdictional definition, several categories of cases heard by OAH entail more money at stake than District Court cases. Some examples of "high stakes" OAH cases are set forth below.

a. Health Care: OAH hears decisions to grant or deny health care privileges - called a Certificate of Need ("CON"). A CON entitles a hospital, nursing home, or other health care provider to initially develop or expand services (e.g., develop new beds or acquire new equipment). Often, these cases are competitive between or among providers. Millions of revenue dollars are often at issue.

b. Environmental: Another high stakes litigation area within OAH jurisdiction involves State agency environmental decisions. ALJs routinely decide cases interpreting State statutes, rules and policies affecting air quality, water quality, and land use. Such cases not only involve important civil money penalties and permitting issues, but can often involve decisions about whether a company can continue its core business.

c. Special Education: The subject matter of litigation - regardless of forum - does not get any more important than Special Education cases. OAH has jurisdiction over these cases, which often involve a determination of: (1) how to educate children with special needs; and (2) what resources will be devoted to such educational endeavors. It is self-evident that the consequences of a careless decision in this context can be disastrous.

Thus, not only are the written work product demands heavy in OAH, ALJs are routinely confronted with momentous decisions which shape North Carolina jurisprudence and administrative policy. The citizens of this State cannot afford for these ALJs to be understaffed and spread too thin.

E. ALJs Must Create A Record For Further Administrative Or Judicial Review With Every Decision.

An often overlooked point which adds to OAH's workload is the fact that all decisions entered by ALJs are, by definition, reviewable by either a final agency decision-maker or a court.⁽¹⁴⁾ By contrast, any given Superior or District Court Judge will have a relatively small percentage of their cases reviewed by the appellate courts. This guaranteed reviewability encourages ALJs to craft meticulous, "appeal-proof" findings and conclusions in each decision. This takes time and careful attention. Moreover, for every decision, the presiding ALJ and OAH staff must compile and forward a record for further administrative or judicial review.⁽¹⁵⁾

F. Due Process Concerns Arising From Delay.

Quite apart from the very pragmatic points addressed above, it should not be forgotten that a core purpose of OAH - to ensure due process rights to administrative litigants⁽¹⁶⁾ - could be thwarted if justice is sufficiently delayed. If OAH's Hearings Division continues to be understaffed and otherwise underfunded while its docket continues to grow, litigants will experience more delay in disposition of their cases. To a terminated State employee fighting for reinstatement, or an or environmental or health care petitioner appealing the denial of a permit or Certificate of Need which will dictate whether they continue in business, justice delayed can be tantamount to justice denied. This is a systemic problem of constitutional magnitude and can only be remedied through approval of, at the very least, the additional staffing requested in OAH's 2003 - 2005 Biennial Budget.

IV. OAH's Personnel Needs.

Being cognizant of budget constraints, Chief Judge Mann is clearly and understandably conservative in his budget requests. In fact, even a casual observation of OAH's true needs underscores the restrained nature of Chief Judge Mann's requests. In its 2003 - 2005 Biennial Budget, OAH has requested the following four positions:

1. One Additional ALJ. OAH is merely asking to restore the ALJ position lost in prior budget cuts. Because it hears over three times the cases it heard in 1989 (see Part III(A) above), OAH should have a substantially greater number of ALJ's to cover those hearings, not the one fewer it now has. This budget request merely seeks to restore 1989 ALJ staffing levels. This extremely conservative request should be granted.

2. One Agency Legal Specialist. OAH critically needs the services of an Agency Legal Specialist to be available for various OAH Divisions. This specialist could service immediate needs in the Civil Rights Division, where help is needed evaluating investigative results, formulating findings and recommendations, and working with the complex web of State and federal laws applied and interpreted by this Division. The individual in this position could also assist the Rules Division in evaluating temporary rules submitted to OAH by other State agencies. The APA provides OAH only 24 hours to evaluate whether proposed temporary rules pass muster under the statutory standards. The Agency Legal Specialist position could help ease the strain of this extremely time sensitive review process.

3. One Assistant for Chief Judge Mann. Chief Judge Mann lost an assistant in prior budget cuts. This position should be reinstated, particularly in light of the duties within the Chief Judge/Director's bailiwick. Chief Judge Mann has the responsibilities of an active ALJ docket and the administrative functions associated with the Director of a State agency. Moreover, he is the primary judge responsible for the lengthy, time-sensitive Special Education cases discussed in Part III above. The combination of these tasks imposes enormous responsibilities. This assistant position is obviously critical to help ease the strain on Chief Judge Mann as he carries out his myriad of functions.

4. One Computer Programmer. This is an essential support position which would facilitate the efficiency of ALJs and others within the agency. This need is particularly acute given the ALJs' responsibility for so many written opinions, the significant publication-oriented duties imposed on OAH's Rules Division, and other agency technology-oriented responsibilities. If OAH is to continue to strive for efficiencies, it must stay current with at least the technological know-how that the private sector takes for granted.

In addition to the formal budget requests, OAH's Trial Court Administrator position clearly should be restored, a position lost in prior budget cuts. With well over 2000 contested cases initiated last year, it stands to reason that a Trial Court Administrator is needed. In the General Courts of Justice, each county has: (a) an overall Trial Court Administrator; and (b) further administrator positions beneath that to manage the divisions, such as Superior Court and District Court. It is certainly a spartan request to merely ask for one Trial Court Administrator to manage the entire Statewide OAH docket.

V. Physical Space Requirements.

Other OAH budget requests address modest physical space and equipment requirements, which are comprised of:

1. a request to lease adequate office space;

2. a request to renovate space for hearing facilities; and

3. computer equipment needs.

One request entails leasing office space for OAH's 39-person staff. Currently, OAH's staff is housed in four separate locations, two of which are the current offices in small historic Raleigh buildings: the Lee House and the Capehart-Crocker House. The two historic buildings are very inefficient, with extremely cramped hearing rooms. Even though this office lease proposal calls for outlays in the short run, it could actually work out to be a less expensive long-term solution when compared to the status quo.

OAH has requested $512,900 in its 2003-05 Biennial Budget to renovate the old Murphey School auditorium in downtown Raleigh, next to the Lee and Capehart-Crocker Houses. This renovation project would provide for badly needed, enlarged courtrooms. Litigants are often shocked at the small size of OAH's two courtrooms. Each courtroom: (a) comfortably seats only four lawyers, two at each lawyers table; and (b) four observers (witnesses and clients, etc.). It is a nightmare to try to fit attorneys in the courtrooms in a case involving three or more parties if there is more than one attorney per party.⁽¹⁷⁾ Nor do the courtrooms have sufficient space for flip charts or oversized exhibits. Using any type of computer-driven audiovisual evidence is next to impossible. Anyone who has seen OAH's courtrooms knows that new, larger courtroom space is long overdue.

OAH has also made a minor budget request to replace computer equipment on a pre-established schedule. This request does not call for expansion of OAH computer equipment. Rather, it simply contemplates a pre-approved process to acquire computer equipment as immediate replacement needs arise.

VI. The Negative Impact of Further Budget Cuts.

If the OAH budget is cut further, not only will the badly needed requests described in Part V above be denied, but OAH will need to resort to additional cost cutting or revenue generating measures which will impinge on the public's economic and geographic access to OAH. For example, if further budget cuts are imposed, OAH will be forced to consider: (1) imposing a filing fee on all petitioners; and (2) only hearing cases in Raleigh and High Point (the two locations where OAH has full-time hearing space.

Many persons aggrieved by State agency decisions - particularly individual petitioners - may be dissuaded from appealing agency decisions if the appeal process involves a filing fee, significant travel (and resulting time away from work), or both. Because of diminished geographic and economic access, these measures could impair one of OAH's fundamental purposes - protecting the due process appeal rights of citizens who challenge administrative actions.⁽¹⁸⁾

VII. Funding Issues For Future Consideration.

We have seen the parameters of OAH's current budget requests. The austere nature of them is evident. This raises the question of what additional funding considerations OAH deserves to receive, but is not asking for in its current budget. Obviously, OAH is asking only for the number of personnel who are critical to OAH's immediate survival. Moreover, no pay increases are requested.

From an outsider's perspective, it seems timely to raise at least two OAH funding issues which have been the source of consternation in years past. First, ALJs in OAH are not part of the judicial retirement system. This is a significant point. The judicial retirement system provides for a percentage of a judge's salary in retirement. In part, this system is intended to compensate judges for, on average, receiving less pay than they could obtain in private law practice. However, ALJs face the very same dilemma. To a lawyer who is weighing an ALJ position versus a private practice position, the compensation trade-off can be significant over time. Assuming the attorney is expecting (or has already obtained) partnership status in a private firm, the attorney who elects to be an ALJ will forego substantial income over the course of a career. Placing ALJs in North Carolina's judicial retirement system would soften that impact and have the positive byproduct of making ALJ positions more attractive to experienced administrative lawyers in private practice.

The judicial retirement issue also begs the threshold question of whether ALJ salaries are adequate. The author believes they are not. We have already seen how ALJs' workloads are at least as intensive and complex as the workloads of Superior Court Judges. Placing ALJ compensation in line with Superior Court Judges' compensation seems only logical in light of the analogous functions and responsibilities.⁽¹⁹⁾

VIII. Conclusion.

In the last 14 years, OAH contested cases have increased in gravity, length, and complexity, while the OAH budget and number of ALJs has decreased. This is merely one example of a continuing trend of inadequate OAH funding. Alarmed by this trend, the Administrative Law Section Council has moved to place this crisis on the North Carolina Bar Association's legislative agenda. Given OAH's central role in the development of North Carolina administrative law jurisprudence, it would be folly to ignore OAH's increasingly urgent funding needs. Any further OAH budget cuts could be catastrophic. In Part VII above, I have scratched the surface of funding issues beyond OAH's current budget requests and immediate funding needs. At the very least, OAH's 2003-2005 Biennial Budget requests and other immediate funding needs addressed herein should be approved in order to satisfy OAH's exigent needs.

1. ¹ Mr. Qualls is a partner in the law firm of Kennedy Covington Lobdell & Hickman, LLP, practicing health law, administrative law, and litigation.

2. ² OAH is "an independent quasi-judicial agency under Article III, § 11 of the [North Carolina] Constitution and, in accordance with Article IV, § 3 of the Constitution, has such judicial powers as may be reasonably necessary as an incident to the accomplishment of the purposes for which it is created. N.C.G.S. § 7A-750.

3. ³ N.C.G.S. § 7A-750.

4.

⁴ Empire Power Co. v. North Carolina Dept. of Environment, Health and Natural Resources, Division of Environmental Management, 337 N.C. 569, 447 S.E. 2d 768, rehearing denied, 338 N.C. 314, 451 S.E.2d 634 (1994).

5. ⁵ N.C.G.S. § 7A-750.

6.

⁶ N.C.G.S. § 7A-759.

7. ⁷ Article: Mann Appointed Again To Chief Administrative Law Judge; and link to Address: Address of Julian Mann, III Upon the Administration of the Oath of Office as Chief Administrative Law Judge by the Honorable Chief Justice I. Beverly Lake, Jr. in the Supreme Court, July 9, 2001. See http://www.aoc.state.nc/www/public/aoc/pr/admin-mann.htm.

8. ⁸ Id.

9. ⁹ NCBA Administrative Law Section Council Resolution dated November 14, 2002.

10. ¹⁰ S.L. 2000-190, §§ 6, 7 and 11, amending N.C.G.S. §§ 150B-34, 150B-36, and 150B-51.

11. ¹¹ N.C.G.S. § 150B-28(a) incorporates the North Carolina Rules of Civil Procedure and N.C.G.S. § 150B-29(a) incorporates the North Carolina Rules of Evidence.

12.

¹² N.C.G.S. §150B-24 mandates that contested case hearings be conducted in the county "in which any person whose property or rights are the subject matter of the hearing maintains his residence." This geographic access right could be impaired if OAH funding is further cut. See Part VI below.

13.

¹³ See N.C.G.S. §§150B-23(a), 150B-33(b)(9), 150B-34, and 150B-36(c).

14. ¹⁴ N.C.G.S. § 150B-34 dictates that ALJ decisions are reviewed by final agency decision-makers and N.C.G.S. § 150B-36 provides that certain jurisdictional ALJ decisions are immediately reviewable by the Superior Court on judicial review.

15. ¹⁵ N.C.G.S. § 150B-37.

16. ¹⁶ N.C.G.S. § 7A-750.

17.

¹⁷ Many complex OAH cases have three parties: petitioner, agency, and intervenor. Some cases have multiple intervenors.

18. ¹⁸ N.C.G.S. § 7A-750.

19.

¹⁹ Currently, the Chief ALJ's salary is equivalent to a State District Court Judge's salary. One Senior ALJ receives 95% of the Chief Judge's pay. Other ALJs receive 90% of the Chief Judge's pay. See N.C.G.S. § 7A-751.