Title: Spitznagel v. State Bd. of Edn.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Spitznagel v. State Bd. of Edn., Slip Opinion No. 2010-Ohio-2715.] 
 
 
NOTICE 
This slip opinion is subject to formal revision before it is published in 
an advance sheet of the Ohio Official Reports.  Readers are requested 
to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 
65 South Front Street, Columbus, Ohio 43215, of any typographical or 
other formal errors in the opinion, in order that corrections may be 
made before the opinion is published. 
 
SLIP OPINION NO. 2010-OHIO-2715 
SPITZNAGEL ET AL., APPELLANTS, v. STATE BOARD OF  
EDUCATION ET AL., APPELLEES. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Spitznagel v. State Bd. of Edn.,  
Slip Opinion No. 2010-Ohio-2715.] 
Public schools — Territory transfers pursuant to R.C. 3311.24 — State Board of 
Education may consider a loss of revenue to be a sufficient demonstration 
of a financial or educational detriment to the transferring school district 
to prevent transfer — Judgment affirmed. 
(No. 2009-0015 — Submitted December 15, 2009 — Decided June 17, 2010.) 
APPEAL from the Court of Appeals for Franklin County, No. 07AP-757,  
2008-Ohio-5059 and 2008-Ohio-6080. 
__________________ 
LUNDBERG STRATTON, J. 
I 
{¶ 1} This case presents two questions for our review: (1) is it error to 
find that a territory transfer would cause significant detriment to the fiscal or 
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educational operation of the transferring school district under Ohio Adm.Code 
3301-89-02(B)(9) based only upon a showing of a potential loss of revenue; and 
(2) is it error to rely upon racial factors in a denial of a school transfer petition 
when the racial impact is found to be de minimis? 
{¶ 2} We hold that evidence of a loss of revenue is a legally sufficient 
basis for the State Board of Education to determine that a territory transfer would 
cause some detriment to the fiscal or educational operation of a school district.  
As the determination of the first question is sufficient to decide the outcome of 
this case, we will not answer the second.  Because we hold that the State Board of 
Education did not commit a legal error regarding the revenue loss and because the 
factual determinations are not challenged in this appeal, we affirm the decision of 
the court of appeals. 
II 
{¶ 3} The Bedford City School District serves four communities, 
including the village of Walton Hills.  In 2004, more than 75 percent of the 
registered voters in the village of Walton Hills, including appellant Brian 
Spitznagel, signed a petition requesting that the State Board of Education, an 
appellee, transfer Walton Hills from the Bedford City School District to the 
Cuyahoga Heights Local School District.  See R.C. 3311.24.  Both school districts 
submitted the required answers to questions from the Ohio Department of 
Education, and the board appointed a referee to conduct a hearing.  See Ohio 
Adm.Code 3301-89-02(F).  After the hearing, the referee issued his first Report 
and Recommendation, in which he recommended denying the transfer. 
{¶ 4} In his report and recommendation, the referee considered the 
school districts’ answers to the 17 questions posed to them and ten additional 
factors required under Ohio Adm.Code 3301-89-03(B).  Of these factors, he 
found that four favored the transfer, seven disfavored the transfer, and 16 were 
either neutral or inapplicable. 
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3 
 
{¶ 5} The factors found to disfavor the transfer were (1) the racial 
isolation implications, (2) Bedford’s loss of property valuation, which would be 
detrimental to its fiscal or educational operation, (3) Walton Hills’s lack of 
isolation from Bedford, (4) the resulting slight percentage increase in the Bedford 
school district’s black population, (5) the substantial upheaval that the transfer 
would cause due to Walton Hills’s longstanding loyalties to Bedford, (6) the 
transfer of nearly $8,000,000 to Cuyahoga Heights from Bedford for only 45 
students, which would not be commensurate with educational responsibilities 
assumed, and (7) the ineffective utilization of Bedford’s facilities resulting from 
the transfer. 
{¶ 6} The referee focused on the financial detriment to the Bedford 
school district as the main factor against the transfer.  After the first hearing, he 
found that the transfer would deprive Bedford of at least $4,000,000 annually 
from real estate taxes in Walton Hills, even after a state-subsidy increase of over 
$3,500,000.  The referee found it foreseeable that Bedford would “be immediately 
forced into enacting some * * * extreme fiscal measures to address the expected 
loss” as well as “make significantly detrimental modifications to the educational 
programming” already in place.  He found it “wholly foreseeable that the loss of 
the Walton Hills tax monies would cause the closing of facilities, reduced 
educational programming, and staff and faculty cutbacks, and other curtailments.” 
{¶ 7} The factors found to favor the transfer were that (1) both districts 
would have remaining pupil population and property valuation sufficient to 
maintain high school centers, (2) the transfer would not create a district with 
noncontiguous territory, (3) the district territories would be contiguous after 
transfer, and (4) the educational program of Bedford would not be impaired by the 
loss of 45 students. 
{¶ 8} After receiving the report, the state board remanded the matter to 
the referee to consider what effect 2006 Am.Sub.H.B. No. 66 (“H.B. 66”), a 
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personal property tax measure, would have on the transfer.  Following a hearing, 
and post-hearing briefing on the effects of 2006 Sub.S.B. No. 321, a bill designed 
in part to mitigate losses that school districts in a territory transfer would suffer as 
a result of H.B. 66, the referee produced a second Report and Recommendation, 
again recommending a denial of the transfer. 
{¶ 9} The referee’s second report explicitly adopted and incorporated the 
first report.  After considering the effect that the two tax law modifications would 
have, the referee found that the parties disagreed as to the degree of financial loss 
Bedford would suffer.  The petitioners’ expert testified that the smallest amount 
of revenue Bedford would lose over the first five years after the transfer was 
approximately $7,000,000.  The petitioners had suggested five methods of 
revenue recovery, such as levying available millage, to mitigate some of the 
financial loss, but the referee found that all but two of the methods were 
uncertain.  After considering the two mitigation techniques that were certain to 
take effect, the referee found that the transfer would “impose a significant 
detrimental financial impact” on Bedford. 
{¶ 10} In December 2006, the board accepted the referee’s second report 
and recommendation and denied the transfer.  Appellants appealed this decision to 
the Franklin County Court of Common Pleas pursuant to R.C. 119.12.  The trial 
court affirmed the decision, finding that the board’s action was supported by 
reliable, probative, and substantive evidence. 
{¶ 11} On appeal, the Franklin County Court of Appeals reversed and 
remanded, holding that a loss of funding without a specific finding as to how the 
loss of funds would be a significant detriment to the transferring school district is 
a legally insufficient basis to deny the transfer.  Spitznagel v. State Bd. of Edn., 
Franklin App. No. 07AP-757, 2008-Ohio-5059, ¶ 53-56.  The court held that a 
loss of revenue alone is legally insufficient to show that a school’s facilities 
would be ineffectively utilized.  Id. at ¶ 68-70.  The court based this holding 
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partially on its decision in Bartchy v. State Bd. of Edn., 170 Ohio App.3d 349, 
2007-Ohio-300, 867 N.E.2d 440.  The court of appeals also held that the board 
erred when it determined that a showing of a de minimis change in racial 
composition constituted racial isolation and applied that finding as a factor against 
the transfer. 
{¶ 12} On the day the court of appeals decided this case, we announced 
our decision reversing the court of appeals’ decision in Bartchy.  Bartchy v. State 
Bd. of Edn., 120 Ohio St.3d 205, 2008-Ohio-4826, 897 N.E.2d 1096.  In view of 
our decision, the state board and the Bedford school district applied for 
reconsideration.  Upon reconsideration, the court of appeals held that our Bartchy 
opinion articulated a policy of deference to the board’s decisions, allowing 
consideration of revenue loss as a factor against transfer without specific findings 
quantifying the harm.  Spitznagel v. State Bd. of Edn., Franklin App. No. 07AP-
757, 2008-Ohio-6080, ¶ 7-8.  The court of appeals also held that while it did not 
change its reasoning regarding the racial considerations, that error itself was not 
enough to merit reversal of the board’s decision.  Id. at ¶ 9.  The court reversed its 
earlier decision and affirmed the trial court’s affirmation of the board’s decision.  
Id. at ¶ 11.  We accepted appellants’ discretionary appeal.  Spitznagel v. State Bd. 
of Edn., 121 Ohio St.3d 1449, 2009-Ohio-1820, 904 N.E.2d 900.  
III 
{¶ 13} Ohio Adm.Code Chapter 3301-89 dictates the process by which 
the State Board of Education considers an application to transfer territory from 
one school district to another.  The “primary consideration” in school territory 
transfer cases is “the present and ultimate good of the pupils concerned.”  Ohio 
Adm.Code 3301-89-01(F).  Before rendering its decision, the board is to ask, 
“Will the loss of either pupils or valuation be detrimental to the fiscal or 
educational operation of the relinquishing school district?” Ohio Adm.Code 3301-
89-02(B)(9). Appellants would have us hold that evidence of a potential loss of 
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revenue caused by a territory transfer, without more, is legally insufficient to 
show that the transfer would be detrimental to the fiscal or educational operation 
of the transferring school district.  They cite Crowe v. State Bd. of Edn. (Oct. 26, 
1999), Franklin App. No. 99AP-78, 1999 WL 969708, for that proposition.  We 
hold that the state board may consider a loss of revenue to be a sufficient 
demonstration of a financial or educational detriment to the transferring school 
district.  The question of whether, or how much, it should weigh against the 
transfer is dependent upon the facts and evidence in each case. 
{¶ 14} Under R.C. 119.12, when a decision of a state board is appealed, a 
court of common pleas must decide whether the board’s order was “supported by 
reliable, probative, and substantial evidence and is in accordance with law.”  The 
court of appeals is even more limited in its review and can overturn findings of 
fact “ ‘only if the trial court has abused its discretion.’ ”  Rossford Exempted 
Village School Dist. Bd. of Edn. v. State Bd. of Edn. (1992), 63 Ohio St.3d 705, 
707, 590 N.E.2d 1240, quoting Lorain Cty. Bd. of Edn. v. State Emp. Relations 
Bd. (1988), 40 Ohio St.3d 257, 260-261, 533 N.E.2d 264.  A court of appeals has 
plenary review when deciding whether the decision is in accordance with the law.  
Bartchy, 120 Ohio St.3d 205, 2008-Ohio-4826, 897 N.E.2d 1096, at ¶ 43.  A 
majority of justices in Bartchy reinforced this standard of deference.  The 
plurality opinion stated that “the standards of review in the common pleas court 
and the court of appeals are meant to ensure proper deference to the state board,” 
id. at ¶ 95, while the concurring opinion found error because “the court of appeals 
substituted its judgment for that of the trial court on issues of fact.”  Id. at ¶ 98 
(Lanzinger, J., concurring in syllabus and judgment only). 
{¶ 15} In Bartchy, we affirmed the decision of the board in which a 
revenue loss was considered a factor against a territory transfer without specific 
findings regarding the nature of the detriment.  Id. at ¶ 84.  In Bartchy, the 
transferring district would have lost assessed property valuation worth potentially 
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7 
 
$373,840.  Id. at ¶ 58.  We agreed that the financial loss to the transferring district 
would “not be significant,” and while the referee in Bartchy found only that the 
revenue loss would be detrimental to the school district in “some way,” the 
plurality opinion held that he “was within his authority” when he did so and that 
he “was not required to ignore these concerns.” Id. at ¶ 82-83. 
{¶ 16} The referee in this case was also within his authority to consider 
the financial loss to be detrimental to the fiscal or educational operation of 
Bedford, especially when the loss in this case is significantly higher than the loss 
in Bartchy and the evidence of the impact of the loss is stronger.  In Bartchy, 
while the loss in valuation was assessed at $373,840, here the loss of actual 
revenue was potentially in the millions.  And whereas the school districts in cases 
cited by appellant did not specifically describe the harm possibly resulting from a 
loss of revenue, see, e.g., Crowe, Franklin App. No. 99AP-78, 1999 WL 969708, 
* 2, the record here includes evidence tending to prove the harm that could occur 
if the district lost revenue.  In his reports, the referee found it “wholly 
foreseeable” that the revenue loss would result in “the closing of facilities, 
reduced educational programming, and staff and faculty cutbacks, and other 
curtailments damaging the district students.”  This conclusion was supported by 
the testimony of the treasurer of the Bedford district, who explained the school’s 
financial reports at the hearing and discussed the impact that a loss of revenue 
would have on programs such as summer school, extracurricular activities, 
transportation, special education, and teacher retention.  Although the expected 
revenue loss was viewed as less after the legislative changes, the evidence does 
demonstrate the impact a financial loss could have on Bedford.  With evidence of 
significant possible losses in revenue and their possible effects, the board did not 
err when it considered the loss as causing a financial or educational detriment that 
factored against the transfer. 
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{¶ 17} Appellants also argue that the referee erred by not considering the 
mitigation techniques that could reduce the financial loss suffered by Bedford.  
This argument is without merit, as the referee did consider two of the mitigation 
techniques: the savings from the loss of students and the change in tax law.  He 
declined to apply the techniques that were not legally binding.  The referee was 
within his authority to determine that some of the techniques should not have 
been considered in his recommendation, and we defer to that decision because it 
appears that evidence supports the referee’s conclusions. 
{¶ 18} Our holding here will not render school territory transfer petitions 
meaningless, as argued by appellants, because courts will still be able to review 
the state board’s decisions regarding revenue loss under the abuse-of-discretion 
standard.  Even if a loss in revenue is considered a factor against transfer, the 
overall decision must be supported by the evidence.  The Bartchy plurality 
affirmed the board’s rejection of the requested transfer based on the small revenue 
loss only because there was so little evidence presented in favor of the transfer.  
See Bartchy, 120 Ohio St.3d 205, 2008-Ohio-4826, 897 N.E.2d 1096, at ¶ 84.  In 
a different case, after considering all of the evidence, a court may find that the 
state board weighed a showing of a revenue loss too heavily against a transfer.  
See id.  See also Residents of Baldwin Rd. v. Ohio Dept. of Edn., Franklin App. 
No. 02AP-257, 2002-Ohio-5522, at ¶ 19 (the state board depended too heavily on 
small revenue loss and ignored extensive and persuasive evidence in favor of 
transfer).  A state board could also determine that a loss of revenue is so 
insubstantial to the operation of the district that it will not consider it as a factor 
against transfer.  In Levey v. State Bd. of Edn. (Feb. 28, 1995), Franklin App. No. 
94APE08-1125, 1995 WL 89703, * 4, the Tenth District Court of Appeals noted 
that although the referee had considered the loss of revenue, he had decided that it 
was not “ ‘a factor significant enough to stand in the way of the proposed 
transfer.’ ”  This holding creates the correct balance between giving deference to 
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the state board and giving school territory transfer petitions fair consideration 
upon appeal. 
{¶ 19} Questions regarding the weight given to the revenue loss in the 
overall balancing of factors and whether the petitioners met their burden are not 
before us in this case.  The only question before us concerning the revenue loss is 
the legal sufficiency of the decision regarding the single factor in Ohio Adm.Code 
3301-89-02(B)(9). 
IV 
{¶ 20} The Walton Hills residents also assert that the state board erred in 
applying racial factors against the transfer, because the transfer would have only a 
de minimis impact on the affected school districts’ racial composition.  The 
significant revenue loss was the primary negative factor against the transfer, and 
little weight was given to the finding of de minimis racial impact.  If error 
occurred, it does not affect the outcome of this case, rendering it harmless.  
Therefore, we need not decide this question and its constitutional implications, as 
it is not necessary to do so.  See Hall China Co. v. Pub. Util. Comm. (1977), 50 
Ohio St.2d 206, 210, 4 O.O.3d 390, 364 N.E.2d 852. 
V 
{¶ 21} For the foregoing reasons, we affirm the judgment of the court of 
appeals. 
Judgment affirmed. 
 
O’CONNOR and LANZINGER, JJ., concur. 
 
PFEIFER, J., concurs in judgment only. 
 
O’DONNELL and CUPP, JJ., dissent. 
 
BROWN, C.J., not participating. 
__________________ 
 
O’DONNELL, J., dissenting. 
{¶ 22} Respectfully, I dissent. 
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{¶ 23} This case presents the issue of whether the state board of education 
may deny a petition to transfer territory from one school district to another based 
solely on a loss of revenue to the relinquishing (or transferring) school district.  
The majority resolves this issue by concluding that “the state board may consider 
a loss of revenue to be a sufficient demonstration of a financial or educational 
detriment to the transferring school district.”  However, a relinquishing district 
will always suffer a loss of some revenue when there is a transfer of territory from 
one school district to another.  Further, the evidence here is insufficient to support 
the board’s finding that the loss of revenue will detrimentally impact the fiscal or 
educational operations of the relinquishing district, and the state board 
compounded this error when it found that a de minimis impact on racial isolation 
also weighed negatively against the transfer. 
Loss of Revenue 
{¶ 24} Ohio Adm.Code 3301-89-02(B)(9) directs the board to consider 
this question: “Will the loss of either pupils or valuation be detrimental to the 
fiscal or educational operation of the relinquishing school district?”  Notably, the 
relevant consideration is not whether there will be a loss of pupils or a loss of 
valuation; rather the regulation directs the board to evaluate whether those losses 
will have a detrimental impact on the fiscal or educational operation of the 
relinquishing district.  Thus, Ohio Adm.Code 3301-89-02(B)(9) expressly 
recognizes that a loss of students and revenue will occur in every territory transfer 
and that those losses, per se, are insufficient to support the board’s denial of a 
transfer when there is no resulting detriment to the operations of the school 
district.  Rather, the school board must consider the impact of the revenue loss on 
the relinquishing district. 
{¶ 25} The question, then, is whether any reasonably foreseeable loss of 
revenue will be “detrimental to the fiscal or educational operation” of the 
relinquishing school district.  If that loss of revenue, no matter the amount, does 
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not have a detrimental impact on the fiscal or educational operation of the district, 
the state board may not rely on it to deny a petition to transfer territory. 
{¶ 26} In this case, insufficient evidence supports the state board’s finding 
that the loss of revenue will be detrimental to the fiscal or educational operation 
of the Bedford City School District.  At the initial hearing, Mary Ann Nowak, the 
district treasurer, testified that the expected loss of revenue would impact school 
programs, but, as the majority acknowledges, she did not have an accurate 
projection of the amount that the school district would lose as a result of the 
transfer because “the expected revenue loss was viewed as less after the 
legislative changes.”  Majority opinion at ¶ 16.  The treasurer believed that the 
district would lose almost $4,000,000 each year out of an annual budget of almost 
$40,500,000 for 2004.  Notably, Lowell Davis, a former school district treasurer 
and Spitznagel’s expert, testified that a shortfall in a school district’s budget of ten 
percent would cause the state board to place the district on fiscal watch.  After 
hearing the evidence, the referee found in his first report that the loss of revenue 
would cause a detrimental impact on the Bedford City School District. 
{¶ 27} The state board remanded the matter for the referee to consider 
what effect 2006 Am.Sub.H.B. No. 66 (“H.B. 66”), which phases out the tangible 
personal property tax, would have on the proposed transfer.  The referee 
considered the effect of H.B. 66 as well as 2006 Sub.S.B. No. 321 (“S.B. 321”), 
which mitigates losses to the relinquishing school district as a result of the 
passage of H.B. 66.  Relying on the testimony of Spitznagel’s expert, Todd 
Puster, the referee recognized that the passage of H.B. 66 and S.B. 321 could 
mean that the Bedford City School District would lose as little as $1,400,000 per 
year over the next five years.  Further, the referee accepted the expert’s opinion 
that the school district could save an additional $600,000 by no longer having to 
provide educational services to students from Walton Hills.  Therefore, based on 
the revised projections presented at the second hearing, the revenue loss to the 
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Bedford City School District amounts to less than two percent of the district’s 
$44,900,000 annual budget for 2005, but the referee received no evidence that a 
two-percent loss of revenue would detrimentally impact the Bedford City School 
District. 
{¶ 28} The referee thus did not and could not make specific factual 
findings regarding whether the revised projections of financial loss would result 
in a detrimental impact on the fiscal or educational operation of the Bedford City 
School District.  Instead, the referee merely assumed that the same detrimental 
impact would result from a smaller revenue loss.  However, testimony that a ten-
percent loss of revenue will cause a detriment to the school district does not prove 
that the same detriment results from a two-percent loss of revenue. 
{¶ 29} As the majority acknowledges, at best, the evidence before the 
state board represented only “evidence of significant possible losses in revenue 
and their possible effects.”  (Emphasis added.) Majority opinion at ¶ 16.  In my 
view, speculation as to the potential impact of a potential loss of revenue does not 
support a decision to deny a petition for a school district transfer. 
{¶ 30} Accordingly, my view is that the state board may not rely on 
evidence of a mere loss of revenue to deny a petition for transfer of territory when 
there is insufficient evidence that the revenue loss would be detrimental to the 
fiscal or educational operation of the relinquishing school district. 
Racial Isolation 
{¶ 31} Ohio Adm.Code 3301-89-02(B)(2) requires the state board to 
consider the following: “Are there racial isolation implications?” and “If 
approved, would the transfer result in an increase in the percentage of minority 
pupils in the relinquishing district?”  The referee found that any resulting racial 
isolation would have a de minimis impact on students.  Nonetheless, he concluded 
that the resulting racial isolation constituted a factor weighing against the territory 
transfer. 
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{¶ 32} Also, Ohio Adm.Code 3301-89-03(B)(5) provides that “[t]he 
transfer shall not cause, preserve, or increase racial isolation.”  In evaluating the 
impact of the transfer on racial isolation pursuant to this regulation, the referee 
found that “[u]sing the numbers to judge, the determination must be made that a 
transfer would ever so slightly change the racial composition in the effected 
districts, and, as such, this factor disfavors the transfer.” (Emphasis added.)  
{¶ 33} The majority does not reach the issue of whether the state board 
erred in weighing racial factors against the transfer when any resulting racial 
isolation would be negligible.  However, the error of the state board in finding 
that a de minimis impact on racial isolation weighs against the transfer 
compounds its misapplication of the law in finding a detrimental impact on the 
fiscal or educational operation of the relinquishing district from the mere loss of 
revenue.  Accordingly, I disagree with the majority that any error would have 
been harmless. 
{¶ 34} For these reasons, I would reverse the judgment of the court of 
appeals and on these facts order the state board to grant the petition to transfer. 
 
CUPP, J., concurs in the foregoing opinion. 
__________________ 
Roetzel & Andress, L.P.A., Stephen W. Funk, and David R. Harbarger, for 
appellants. 
Richard Cordray, Attorney General, Benjamin C. Mizer, Solicitor General, 
Alexandra T. Schimmer, Chief Deputy Solicitor General, and Todd R. Marti, 
Assistant Attorney General, for appellee State Board of Education. 
Squire, Sanders & Dempsey, L.L.P., D. Lewis Clark Jr., and Meghan E. 
Hill, for appellee Bedford City School District. 
Chester, Willcox & Saxbe, L.L.P., and Donald C. Brey, urging affirmance 
for amici curiae city of Bedford, city of Bedford Heights, and village of 
Oakwood. 
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Scott, Scriven & Wahoff, L.L.P., and Patrick J. Schmitz, urging 
affirmance for amicus curiae Ohio School Boards Association. 
Janice St. John, urging reversal for amici curiae Edward Thellmann, Karen 
Mellon, Rita Charsanko, Dean Penix, and Joanne Podojil, members of the Walton 
Hill Education Network. 
______________________