The Administration for Children and Families (ACF) of the Department of Health and Human Services notified the Lonoke Economic Development Agency (EDA) on April 28, 1995 that ACF proposed to deny refunding of EDA's Head Start grant. The basis for ACF's proposed action was the lack of Policy Council approval of EDA's application for refunding. The 1993-94 Policy Council voted on August 30, 1994 and again on October 13, 1994 not to approve the application for refunding for the 1994-95 program year. EDA's grant expired on November 30, 1994, although it continued to receive funding pending a decision by ACF and subsequently pending the issuance of this decision, as provided in 42 U.S.C. - 9841(a)(3).

EDA requested a hearing under 45 C.F.R. - 1303.15. The Departmental Appeals Board held a hearing in Little Rock, Arkansas, on September 9-12 and October 10-13, 1995. Portions of the hearing were also held by telephone on November 22 and December 11, 1995. The Board also received pre-hearing and post-hearing briefs from the parties.

At the hearing on October 10, 1995, the Presiding Board Member granted the request of the 1995-96 EDA Head Start Policy Council to intervene in these proceedings pursuant to 45 C.F.R. - 16.16(b). Transcript of hearing (Tr.) at 1740. By agreement of the parties, two representatives of that Policy Council testified at the hearing.

I. Summary of decision

As discussed in detail below, we uphold ACF's decision to deny EDA's application for refunding. We preface our decision by noting that there is no dispute that EDA's Head Start program is in general a well-run program that meets most of ACF's performance standards. EDA received an overall rating of 85 based on the on-site review of its program conducted by ACF in May 1994. Appellant's Ex. 44, 5th page. 1/ However, as discussed below, the Head Start program is unique in that it requires that the management responsibility for the program be shared with the parents of children enrolled in the program, acting through their elected representatives on the Policy Council. EDA, which for several years had administered numerous other federal programs, misapprehended the unique nature of its newest program, applying to it the same strong management techniques that were successful in its other programs. ACF made efforts to educate EDA as to the role which the Head Start Act and the implementing regulations intended for the Policy Council. EDA finally acknowledged in briefing before this Board that "[p]arental involvement are the key words when it comes to the operation of the Head Start program" and that Congress intended Head Start as "a program where the parents control the direction of the program with the aid and assistance of 'professional administrators.'" Supplemental Br. of the Appellant, at 5. However,throughout the relevant time period, EDA clearly failedto internalize this value.

Thus, notwithstanding the positive accomplishments of EDA, the record compels us to find that ACF may properly deny refunding on the ground that EDA's failure to obtain Policy Council approval constitutes a material failure to meet the performance standards for operation of Head Start, which is a basis for the denial of refunding under the applicable regulations. See 45 C.F.R.  1303.15(c) and 1303.14(b)(4). Moreover, EDA did not show that there is any valid reason why ACF should be required to continue funding EDA regardless of EDA's material violation of the regulations.

We note also that the specific problems of which the Policy Council complained have been microscopically parsed by the parties, leading to a voluminous record in which the weight of attention might appear disproportionate to the weight of some of those problems. As we explain later, however, it is the totality of those problems, in the context of the moment when they arose, which persuades us that the Policy Council was not merely being hypersensitive to slights. Rather, the problems, taken together, display a fundamental error in how EDA engaged the unique responsibility under Head Start to treat the Policy Council as a partner, not merely as a constituent.

We conclude specifically that:

o The Policy Council's decision not to approve EDA's application for refunding was based on its determination that, over the course of the 1993-94 program year, EDA disregarded the Policy Council's partnership role in the management of the Head Start program, and the Policy Council's decision was therefore not arbitrary or capricious.

o Neither the Policy Council's decision not toapprove EDA's application for refunding nor ACF's proposed denial of refunding constituted an illegal act of discrimination based on race.

o The Policy Council members were duly elected representatives of the parents of children enrolledin the Head Start program, and the Policy Council'sdecision not to approve EDA's application forrefunding was not invalid simply because many of theparents may have disagreed with this decision.o ACF provided adequate assistance to EDA and the Policy Council in attempting to resolve theconflicts which led to the Policy Council's decisionnot to approve EDA's application for refunding, andis not responsible for the parties' failure toresolve this case through mediation.

o ACF reasonably determined that the 1995-96 Policy Council's retroactive approval of the 1994-95 application for refunding nearly two years after EDA's Head Start grant expired does not moot this case.

o ACF gave EDA an opportunity to come into compliance with the requirement for Policy Council approval of an application for refunding, in accordance with the procedures for the denial of refunding based on the violation of a performance standard.

It is important to recognize that, although EDA will not continue to administer the Head Start program, that does not mean that the community involved will not have a Head Start program. Under the regulations, ACF must select are placement grantee that "reasonably promises the most effective and responsible head Start program" from among applicants, and also consider the extent to which those applicants will provide for "continuation of services" to the children who have been participating and to the target areas that have been served and for "continued employment . . . of the qualified personnel of the existing program." 45 C.F.R. 1302.10 and 1302.11.

II. EDA's history and structure

EDA is a multi-purpose agency located in Lonoke,Arkansas. EDA was organized and incorporated in 1981 forthe purpose of assisting low-income families and children in Lonoke County. Tr. at 2523, 2525. One of the founders of EDA was Alice Rufus, who has been its Executive Director since its inception. Tr. at 2523. Rufus, who is black, envisioned EDA as a black-run organization, and virtually all the members of EDA's Board of Directors over the years have been black. Tr.at 2520, 2933-2934, 2937. 2/ EDA is apparently the onlymajor black-run organization in Lonoke County. See Supplemental Br. of Appellant at 2. EDA serves apopulation which is approximately half black and halfwhite. Tr. at 2932-2933.

EDA administers twelve programs, including Head Start. Tr. at 1315, 2531-2534; Respondent's Supplemental Br. at 3. Its total operating budget is approximately $1,500,000, about $400,000 of which is attributable to the Head Start program. Tr. at 2938. EDA isadministered by the Executive Director, who reports to the Board of Directors. Tr. at 2534. EDA has a paid staff of about 35 individuals, including a Head StartDirector. Id. EDA received its first Head Start grant in October 1991. Tr. at 2539. During the 1994-95 program year (for which ACF proposed to deny refunding), EDA's Head Start program served approximately 121 children. Respondent's Ex. 5. In 1993, the program had centers in the towns of Lonoke and Humnoke. A third center in the town of Carlisle was later added. Respondent's Supplemental Br. at 4; Tr. at 28, 37. The Lonoke Center is the largest of the three centers. See Appellant's Ex. 46.

III. How law and regulation emphasize parental involvement in Head Start through the Policy Council

The Head Start program is designed to deliver early developmental intervention, along with comprehensive educational and supportive services, to low incomepreschool children and their families. See 42 U.S.C. 9831 and 45 C.F.R. 1304.1-3. ACF provides funds to grantees to serve as Head Start agencies within designated communities and periodically conducts an on-site review of their performance in meeting program and fiscal requirements. See generally 42 U.S.C.  9846.

The Head Start program is unique in that parents are expected to participate in the management of the program. The Head Start Act provides in pertinent part that, in order to be designated a Head Start agency, an agency must--

(1) establish effective procedures by which parentsand area residents concerned will be enabled todirectly participate in decisions that influence the character of programs affecting their interest; (2)provide for their regular participation in theimplementation of such programs . . . .

42 U.S.C.  9837. As amended effective October 1, 1994, that section also requires that, to be designated a Head Start agency, an agency--

(4) seek the involvement of parents of participating children in activities designed to . . . afford such parents the opportunity to participate in thedevelopment, conduct, and overall performance of the program at the local level . . . .The 1994 amendments reauthorized the Head Start programand sought to implement the recommendations of theAdvisory Commission on Head Start Quality and Expansion,including a recommendation to strengthen parentinvolvement. The legislative history thus addresses the role of parents in the Head Start program at some length. The Senate report states that Head Start--

recognizes that parents are a child's most influential teachers, and makes parent education and involvement an integral part of the program's operations, both in the classroom and at the highest levels of each center's decision making processes.

S. Rep. No. 251, 103rd Cong., 2nd Sess. 4 (1994). Thereport further states:

The Committee believes that parent involvement in Head Start is the key to its success. Parents who participate in Head Start programs become better educated in life skills. They become better parents. Their actions convey to their children that they, as adults believe education is important and that they support their children's activities. Head Start programs that train their parents to be full participants in the Policy Council, guiding program operations through hiring, firing and budget decisions, are more responsive to the needs o fparents and the local community. Parent involvement in the Head Start program cannot be a rubber stamp; for Head Start to accomplish its purpose, parent involvement must be encouraged, desired, and respected by the program.

Id. at 26. See also H.R. Rep. No. 483, 103rd Cong., 2nd Sess. (1994), at 40-41.

The regulations implementing the Head Start Act (which were promulgated before the 1994 amendments) contain performance standards on parent involvement. 45 C.F.R. Part 1304, Subpart E. The objectives of these performance standards include:

(c) Provide the following kinds of opportunities for parent participation:

(1) Direct involvement in decision making inprogram planning and operation.45 C.F.R.  1304.5-1(c)(1). In order to promote these parent involvement objectives, Head Start grantees are required to have a parent involvement plan that provides --

a system for the regular provision of information to members of Policy Groups. The purpose of such communication is to enable the Policy Group to make informed decisions in a timely and effective manner. . . .

45 C.F.R.  1304.5-4(b). In addition, section 1304.5-2(a) of the performance standards states that:

The basic parent participation policy of the Head Start program, with which all Head Start programs must comply as a condition of being granted financial assistance, is contained in Head Start Policy Manual, Instruction I-31-Section B2, TheParents (OCD Transmittal Notice 70.2, dated August10, 1970). . . .

The Policy Manual referred to in this section appears as Appendix B to 45 C.F.R. Part 1304. It explains the rationale for parent involvement in the Head Start program as follows: Head Start believes that the gains made by the child in Head Start must be understood and built upon by the family and the community. To achieve this goal, Head Start provides for the involvement of the child's parents and other members of the family in the experiences he receives in the child development center. . . . .

* * * * *

It is clear that the success of Head Start . . .demands the fullest involvement of the parents, parental-substitutes, and families of children enrolled in its program. . . .

* * * * * Project Head Start must continue to discover new ways for parents to become deeply involved in decision-making about the program and in the development of activities that they deem helpful and important in meeting their particular needs and conditions. . . .

This sharing in decisions for the future is one ofthe primary aims of parent participation and involvement in Project Head Start.

Appendix B also identifies "four major kinds of parent participation in local Head Start programs," including "participation in the process of making decisions about the nature and operation of the program." The Appendix requires that "[e]very corporate board operating a Head Start program must have a Policy Committee or Council as defined by HHS." The Policy Council must consist of "[a]t least 50% parents of Head Start children presently enrolled in that grantee's program plus representativesof the community." 45 C.F.R. Part 1304, Appendix B, Chart A. Appendix B assigns specific roles to the Board of Directors, Executive Director, Head Start Policy Council and Head Start Director in the management and operation of the grantee agency's Head Start program. Chart C of Appendix B describes the responsibility of the Policy Council with respect to 17 "major management functions." The Policy Council must approve or disapprove actions taken to carry out 12 of the 17 functions listed. This entails approval "before the decision is finalized or action taken." In addition, the Policy Council must "have been consulted in the decision making process prior to the point of seeking approval." Its role with respect to the remaining functions ranges from "general responsibility" to "may be consulted." These represent "the minimum functions and degrees of responsibility . . . ," although the Policy Council "may negotiate for . . . a greater share of responsibility if all parties agree."

IV. The analytical framework we use to review the record

Pursuant to 42 U.S.C.  9841 and the Head Start regulations at 45 C.F.R.  1303.14 and 1303.15, a full and fair hearing must be afforded to a grantee before its application for refunding is denied. ACF proposed to deny refunding of EDA's Head Start grant based on the decision of EDA's Head Start Policy Council not to approve EDA's application for refunding. The Head Start performance standards require Policy Council approval of a refunding application. 45 C.F.R. Part 1304, Appendix B, Chart C, IV.(a). 3/ Violation of the performance standards is a basis for a denial of refunding under the regulations. 45 C.F.R.  1303.14(b) and 1303.15(c). However, the lack of Policy Council approval does not necessarily require ACF to propose the denial of refunding. If ACF determines that the Policy Council's decision was arbitrary, capricious, or illegal, ACF may not deny refunding based on the lack of Policy Council approval.

This standard is consistent with a U.S. District Court decision which involved the question whether the statutory right to a hearing on the denial of a refunding application applied where the Policy Council did not approve the grantee's application. North Shore Community Action Programs, Inc. v. Shalala, Civil Action No. 93-1834 (D.D.C. October 10, 1993). The court held that there was a refunding application before HHS even though the application was missing a required element, so that the statutory right to a hearing applied. As one basis for its decision, the court noted that to accept HHS'sposition that the grantee was not entitled to a hearing on the denial of refunding "would essentially provide a Policy Council with absolute and unreviewable discretionon refunding." North Shore, at 4. The court furtherstated:

The HHS interpretation provides no review mechanism for Policy Council actions -- even if those actions were plainly illegal or suffered from constitutional infirmities. For example, without the prescribed hearing, a Policy Council could refuse to approve an application because the grantee employed minorities or because it refused to provide the Policy Council with kickbacks. [Footnote omitted.] The Court believes that the hearing requirement contained at section 9841(a)(3) was provided in the statute precisely to address these sorts of issues.

At 5. The court also noted that an administrative law judge had held in another case that if the Policy Council's actions "were unreasonable, arbitrary, or improperly motivated, HHS could continue assistance to a grantee despite the lack of approval by the Council." At5, n. 7.

The court in North Shore was expressly concerned aboutthe possibility that a Policy Council might decide not to approve a refunding application for reasons which are unconstitutional or otherwise illegal. The decision also suggests that only similarly invidious reasons would warrant disregarding a Policy Council's decision not to approve an application for refunding. This is apparent from the court's reference to the "unreasonable, arbitrary, or improperly motivated" standard employed by an administrative law judge. In Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415 (1971), the Supreme Court stated that to determine whether a decision was arbitrary, capricious, or illegal (a comparable standard), one must examine whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Thus, North Shore in effect requires only that a Policy Council have a rational basis for its decision. ACF's determination that the Policy Council's decision was not arbitrary, capricious, or illegal was based onits review of information provided by the Policy Council and EDA. According to ACF, the Policy Council in effect concluded that EDA was incapable of "establishing and maintaining a working partnership with the Policy Council." April 28, 1995 notice of intent to deny refunding, at 2.

As indicated above, the Head Start Act and regulations contemplate that the grantee and the Head Start parents, acting through the Policy Council, will share the responsibility for making decisions about the nature and operation of the program. Shared decision making is, moreover, a cornerstone of the Head Start program. Thus, we agree with ACF that if the Policy Council decided not to approve the refunding application on the ground that EDA was disregarding the Policy Council's partnership role in the management of the Head Start program, its decision would not be arbitrary or capricious.

EDA argued before the Board that it did not in fact take some of the actions attributed to it by the Policy Council, and that there was a reasonable explanation for other actions attributed to it. We consider EDA'sarguments using the preponderance of the evidence standard which is generally employed in administrative proceedings, accepting that evidence "which is of greaterweight or more convincing," i.e., "which as a whole shows that the fact sought to be proved is more probable than not." Black's Law Dictionary 1182 (6th ed. 1990). However, evidence concerning matters which were not known to the Policy Council at the time it made its decision, or of which the Policy Council should not reasonably have known, is not entitled to any weight.

We need not find that all of the bases for the Policy Council's decision were valid in order to conclude that the Policy Council's decision was not arbitrary or capricious. The Board may determine that some of those bases, either individually or considered together, were sufficient to justify the Policy Council's determination not to approve the refunding application.

V. Analysis

A. The Policy Council's decision not to approve EDA'srefunding application was based on its determination that EDA disregarded the Policy Council's partnership role in the management of the Head Start program, and was therefore not arbitrary or capricious.

The bases for the Policy Council's decision were initially set out in an August 30, 1994 memorandum from Policy Council Chairperson Bonnie Yoakum 4/ to EDA BoardPresident Richard Young. Appellant's Ex. 2. Yoakum thereafter elaborated on these bases in a statement she read at a September 15, 1994 meeting with the Regional Administrator of ACF. Respondent's Ex. 33. Finally, in response to a request by the Regional Office for a detailed explanation of the Policy Council's reasons for voting not to approve the refunding application, the Policy Council on February 2, 1995 submitted letters written by individual Policy Council members. Respondent's Ex. 3.

We find that many of the allegations made by the Policy Council in support of its decision, taken together, show that EDA failed to give the Policy Council due recognition as a partner in the management of the Head Start program. While some of the events identified by the Policy Council could arguably be discounted as showing only isolated problems in EDA's working relationship with the Policy Council, cumulatively they show a clear pattern of disregard for the Policy Council and the role Congress intended it to play in the Head Start program. The Policy Council's decision not to approve EDA's refunding application was thus a rational one. Accordingly, ACF did not err in finding that the Policy Council's decision was not arbitrary or capricious. 5/

Below, we discuss each of the allegations made by the Policy Council which we find support its decision. We discuss these bases in the order in which they appear in Respondent's Hearing Exhibit 1, a list of the reasons for the Policy Council's decision prepared by ACF, using the descriptions in that exhibit. We also indicate where each item was identified by the Policy Council as a basis for its decision.

--------------------------------

There were a number of additional bases (also listed inRespondent's Hearing Exhibit 1) on which the Policy Council relied. We do not develop them here since we find after careful consideration that some bases are unpersuasive while the remainder are insufficiently substantial for us to rely on them. 6/ In addition, inview of our conclusion that the Policy Council articulated reasons which are sufficient to support itsdecision, we do not consider those reasons ACF saidjustified the Policy Council's decision (also listed inRespondent's Hearing Exhibit 1) but on which the PolicyCouncil did not expressly rely.

Attempted firing of Head Start Director withoutconsulting with Policy Council and without obtainingPolicy Council approval

Policy Council's Allegation: The Policy Council allegedthat EDA attempted to fire the Head Start Directorwithout its approval. Appellant's Ex. 2, 1st page. Seealso Respondent's Ex. 33, 1st page; Respondent's Ex. 3,26th page.

What the Record Shows: On February 15, 1994, the PolicyCouncil held a regularly scheduled meeting. Respondent'sEx. 22. At the meeting, Julius Dodson, the EDA Boardrepresentative to the Policy Council, asked that thePolicy Council meet with the EDA Board on February 16,1994. Id., 2nd page. EDA Executive Director Alice Rufustestified that Dodson made this request on her behalfsince she was not permitted to participate in PolicyCouncil meetings. Tr. at 2570. A meeting was scheduledfor February 18 since one Policy Council member wasunavailable on February 16. Respondent's Ex. 22, 2ndpage.

Immediately after the Policy Council meeting, the EDABoard held a regularly scheduled meeting. Tr. at 242-243. After conducting some business, the Board went intoexecutive session to discuss personnel matters. Tr. at244. Both Rufus and EDA Board member Rose Jonestestified that, during the executive session, Rufusrecommended to the Board that Lillie Turner, the HeadStart Director, be terminated for a number of reasons. Tr. at 2588, 2960, 2235, 2237. In addition, both Rufusand Jones testified that Rufus told the Board that PolicyCouncil approval of a termination was required and that ameeting with the Policy Council had been scheduled forFebruary 18. Tr. at 2181, 2588. Jones further testifiedthat the EDA Board came to a decision that Turner shouldno longer work for EDA but did not terminate Turnerbecause the Board had not yet met with the PolicyCouncil. Tr. at 2183, 2185. The Head Start regulationsprovide that the Policy Council must approve ordisapprove the hiring or firing of Head Start staff. 45C.F.R. Part 1304, Appendix B, Chart C.

At the end of the executive session, Richard Young, theEDA Board Chairman, spoke to Turner outside of heroffice. Tr. at 46, 248, 1873. When she returned to heroffice, she told Policy Council Chairperson Bonnie Yoakumand Policy Council member Rose Williams, who were waitingfor her there, that she had been fired. Tr. at 248. Turner testified that Young told her that the Board hadterminated her for insubordination, effectiveimmediately. Tr. at 46, 232. However, Young testifiedthat he did not inform Turner that she was firedimmediately, but mentioned something to Turner about thePolicy Council. Tr. at 1874. Moreover, in a proceedingin the Lonoke County Court, Young testified that the EDABoard had initiated a decision to terminate Turner, butthat the Board could not terminate her because of "70.2"(the Head Start parent involvement regulations). Respondent's Hearing Ex. 8; Tr. at 2979. Rufus testifiedthat she heard Young tell Turner that the EDA Board haddecided to "suspend" her employment until the Board couldmeet with the Policy Council to discuss possibletermination. Tr. at 2589, 2613-14. The Head Startregulations provide that "if the situation warrantsimmediate action, the grantee may suspend an employeeuntil proper termination proceedings can occur." Respondent's Ex. 10, ACYF-IM-87-33, dated 11/5/87,attached Parent Involvement Policy Interpretations, at 2. The Policy Council held a "Special Called Meeting" onFebruary 18, 1995. Respondent's Ex. 14. After reportingthat Young had informed Turner that she was fired, Yoakumcalled for a motion to "reject the decision of the EDABoard of Directors." Id. at 2. This motion wasapproved. However, the Policy Council was concerned thatthe EDA Board might have Turner arrested if she returnedto work, and therefore voted to approve a second motionthat Turner "be placed on Administrative Leave with payuntil this matter is resolved." Id. The meeting wasthen adjourned so that the Policy Council could meet withthe EDA Board as scheduled. Id. However, the Board didnot hold the meeting because of the presence of a largecrowd of individuals which the Board felt was disruptive. Tr. at 2272-2273; Appellant's Ex. 54, last page.

By letter dated February 25, 1994, Yoakum advised Youngthat the Policy Council had voted against the actiontaken by the EDA Board to terminate the Head StartDirector. Noting that the Policy Council must approvesuch an action, Yoakum stated that the Policy Councilwould be willing to discuss Turner's performance with theEDA Board once Turner had been returned to work. Respondent's Ex. 18, 1st page. Turner subsequentlyshowed the Policy Council a copy of a February 17, 1994memorandum from Rufus to Turner setting forth the EDABoard's rationale for the action taken against Turner. Respondent's Ex. 9; Tr. at 262. By letter dated March 8,1994, Yoakum responded to Rufus' February 17 memorandum,stated that the Board had no authority to terminateTurner, and requested that Turner be returned to work nolater than March 14. Respondent's Ex. 22, 3rd page.

By letter dated March 15, 1994, Young advised Turner thatthe EDA Board was requesting that she return to work onMarch 16, 1994. Appellant's Ex. 6. Turner advised theBoard that she would not be able to return to work untilMarch 21. She also requested a conference to discuss herworking conditions since much had happened since she was"allegedly terminated." Appellant's Ex. 6A. In a letterdated March 16, Young reiterated the Board's request thatTurner return to work on March 16, stating that Turnerwas never terminated. Appellant's Ex. 7. Turnerreturned to work on March 21. Tr. at 67. She receivedpay for the period February 16 through March 16. Tr. at170, 218.

Our Findings: Pursuant to a decision made at the EDABoard's executive session on February 15, 1994, BoardChairman Richard Young told Head Start Director LillieTurner not to report to work the next day. Three Boardmembers who attended the executive session presenteduncontroverted testimony that the EDA Board did not makea final decision to terminate Turner but merely decidedto initiate termination proceedings pending approval of atermination by the Policy Council. The latter actionwould have been authorized under ACF's policy permittingan immediate suspension without Policy Council approval. The Board members' testimony is corroborated by the factthat EDA sought to schedule a meeting with the PolicyCouncil as soon as possible after its executive session. However, Turner clearly believed that Young told her thatshe was fired, and communicated this to the PolicyCouncil. Lacking any contrary information, the PolicyCouncil reasonably believed that EDA had terminatedTurner without seeking its approval, in contravention ofthe Head Start regulations. Following its unsuccessfulattempt to meet with the Policy Council on February 18,1994, EDA made no further attempts to correct thismisunderstanding during the several weeks that Turner wasout of work. Although the Policy Council made twowritten requests to the EDA Board that Turner bereinstated, the Board did not respond to either request.

The Policy Council reasonably relied on its belief thatEDA had terminated Turner unlawfully as a factor indeciding not to approve EDA's refunding application. ThePolicy Council's authority to approve or disapprove thehiring or firing of Head Start staff is one of the majorresponsibilities conferred by the Head Start regulations. Moreover, the position of Head Start Director is a keyone. Even if EDA did not intend to terminate Turnerwithout seeking Policy Council approval, its failure tocorrect the Policy Council's legitimate perception thatEDA had ignored the Policy Council's role in firingdecisions was part of a pattern which showed that EDAdisregarded the Policy Council's partnership role in themanagement of the Head Start program. Attempted confiscation of Policy Council Chairperson'snote to parents on February 16, 1994

Policy Council's Allegation: The Policy Council allegedthat EDA's Executive Director warned the staff aboutsending memos home to Head Start parents. Respondent'sEx. 33, at 1. As indicated below, the Policy Councilbelieved that this was a response to an attempt by thePolicy Council Chairperson to send the parents a note,which the Policy Council alleged was confiscated by EDA.

What the Record Shows: On February 16, 1994, EDAExecutive Director Alice Rufus sent a memorandum to HeadStart staff stating "NO memos are to be passed out to anystaff members nor parents concerning the EconomicDevelopment Agency Head Start unless prior approval hasbeen given by the Executive Director." Respondent's Ex.12. Rufus testified that it was EDA policy to requirethat all correspondence be approved in advance by her. Tr. at 2950.

According to the minutes of a February 18, 1994 PolicyCouncil meeting, Bonnie Yoakum, the Policy CouncilChairperson, told the Policy Council that Rufus wrotethis memorandum after being informed of a note Yoakum hadwritten to the Head Start parents earlier on February 16. Respondent's Ex. 14. The note stated that the Head StartDirector had been fired without Policy Council approvaland reassured the parents that the program would continueto operate as usual. Respondent's Ex. 11. Yoakumtestified that she went to the Lonoke Center during herlunch hour on February 16, 1994, wrote the note, and gavecopies of the note to the teachers to distribute to theparents when they came to pick up their children. Tr. at259-250. Sharon Rudder, Acting Director of the LonokeCenter at the time in question, testified that ShirleyBailey, Rufus' administrative assistant, came to theLonoke Center on February 16, 1994 and picked up copiesof the note which had not already been sent home with thechildren. Tr. at 3303. Rudder further testified thatBailey told parents that she had been instructed to comeover and gather the copies of Yoakum's note. Id. Although Rufus testified that she did not know aboutYoakum's note at the time (Tr. at 3034), Rudder'stestimony was not rebutted by Bailey (who did nottestify) or by anyone else who was at the Lonoke Centerthat day.

Our Findings: EDA had a policy, confirmed by theExecutive Director in a February 16, 1994 memorandum toHead Start staff, which required prior approval of thePolicy Council's communications with the Head Startparents. The preponderance of the evidence shows that,consistent with this policy, a note written by the PolicyCouncil Chairperson to the Head Start parents wasconfiscated at the direction of EDA's Executive Director.

The Policy Council reasonably relied on EDA's policy as afactor in its decision not to approve EDA's refundingapplication. The Policy Council needed to be able tocommunicate freely with the parents whom it represented. EDA's policy, which it attempted to enforce in thisinstance, did not recognize this need and was part of apattern which showed that EDA disregarded the PolicyCouncil's partnership role in the management of the HeadStart program. If the Executive Director objected to thecontent of the note in question here or any othercommunication from the Policy Council to the parents, shecould have sent a separate communication to the parentswhich explained EDA's position instead of suppressing thePolicy Council's communication.

Refusal to provide keys to the Head Start Director uponher return to work, despite repeated requests by thePolicy Council

Policy Council's Allegation: The Policy Council allegedthat EDA failed to provide the Head Start Director andkey staff with keys to the Lonoke Center. Appellant'sEx. 2, lst page. See also Respondent's Ex. 33, 2nd page;Respondent's Ex. 3, 27th page.

What the Record Shows: Prior to her suspension from herjob on February 15, 1994, Head Start Director LillieTurner had keys to the Lonoke Center. EDA ExecutiveDirector Alice Rufus testified that Turner made copies ofthe keys for a number of people. Tr. at 3002. At Rufus'request, Turner gave Rufus her keys when she wassuspended. Tr. at 248. The locks to the Lonoke Centerwere also changed at that time. Id.; Respondent's Ex.25. Upon her return to work on March 21, 1994, Turnerasked for keys to the Lonoke Center, but Rufus refusedher request. Respondent's Ex. 23; Tr. at 71-72. Rufustestified that she explained to Turner at the time thatshe was withholding the keys because supplies weremissing from the Center. Tr. at 2592, 2997, 3001. However, Turner testified as well as stated in a March24, 1994 letter to Rufus that she did not receive anyexplanation. Tr. at 72; Respondent's Ex. 23.

About the time that Turner returned to work, PolicyCouncil Chairperson Bonnie Yoakum spoke to Rufus inperson about giving keys to Turner. Tr. at 2593. Rufustestified that Yoakum demanded the keys, and that shetold Yoakum that she resented her talking to her in thismanner. Id. By letter dated March 25, 1994, Yoakumadvised EDA Board Chairman Richard Young that the PolicyCouncil had voted that Turner and five other people (inaddition to the janitor) be given keys to the LonokeCenter, and requested that this be done by March 28. Respondent's Ex. 24. By letter dated April 4, 1994,Yoakum advised the Regional Office that EDA had notissued the keys and had not given any explanation. Yoakum stated that the Council felt that it "isdemoralizing to staff for them not to be allowed to havekeys, because this demonstrates a lack of trust." Respondent's Ex. 25. By letter dated May 6, 1994, Yoakumadvised the Regional Office that, at an EDA Board meetingthe previous day, the majority of the EDA Board had votedagainst her motion that Turner be given a key to theLonoke Center. Respondent's Ex. 26. The issue of thekeys was raised again at a September 15, 1994 meetingwith the Regional Administrator at which Rufus indicatedthat the keys were taken away because things were beinglost at the center. Tr. at 99. Rufus neverthelessagreed to give Turner the keys in an effort to get therefunding application approved. Tr. at 2718.

Our Findings: EDA withheld the keys to the Lonoke Centerfrom the Head Start Director from March 1994 untilSeptember 1994, despite repeated requests by the PolicyCouncil that she be given the keys. EDA never gave anyexplanation for withholding the keys to either the HeadStart Director or the Policy Council. Rufus' testimonythat she gave Turner an explanation is rebutted byTurner's contemporaneous letter, which specificallystates that no explanation was given.

The Policy Council reasonably relied on EDA's withholdingof the keys from the Head Start Director as a factor indeciding not to approve EDA's refunding application. EDAdid not argue that the Policy Council was notlegitimately concerned with the Head Start Director'shaving access to the Lonoke Center, but rather that EDAhad a strong interest in withholding the keys becausesupplies were missing from the Lonoke Center. Since EDAwas ultimately accountable for the use of Head Startfunds, it may have been justified in withholding thekeys. However, EDA's failure to explain why it waswithholding the keys was part of a pattern which showedthat EDA disregarded the Policy Council's partnershiprole in the management of the Head Start program. Thefact that EDA's Executive Director was offended by whatshe considered the Policy Council Chairperson'speremptory demand for the keys when the Head StartDirector first returned to work does not justify EDA'sfailure to provide any explanation for its action over aperiod of several months.

Handling of the filling of the Lonoke Center Director'sposition - attempt to circumvent input of Policy Council

Policy Council's Allegation: The Policy Council allegedthat Policy Council members were intimidated by theattendance of EDA Board members and the EDA ExecutiveDirector at personnel committee meetings. Appellant'sEx. 2, 2nd page. The Policy Council referredspecifically to the personnel committee meetingsconcerning the selection of a director for the LonokeCenter. Respondent's Ex. 3, 11th page, 27th page.

What the Record Shows: Applicants for the position ofdirector of the Lonoke Center were interviewed by acommittee composed of EDA's Executive Director, the HeadStart Director, two EDA Board members, and four PolicyCouncil members. Appellant's Ex. 17. Pursuant to theHead Start Personnel Procedures and Policies Manual(which was developed by EDA and approved by the PolicyCouncil), the interviews should have been conducted bythe Head Start Director and the "personnel committee." Respondent's Hearing Ex. 10. The Policy Council bylawsas revised 8/94 specified that the personnel committeeconsists of the officers of the Policy Council. Respondent's Ex. 87, at 6. 7/ Alice Rufus, EDA'sExecutive Director, testified that, on the advice ofconsultants hired by ACF to provide technical assistanceto EDA, she and the Head Start Director agreed to includeadditional people on the personnel committee. Tr. at3088, 3090. However, Bonnie Yoakum, the Policy CouncilChairperson, testified that no one told the PolicyCouncil to let EDA sit in on the interviews. Tr. at3371, 3375-3376. 8/

Under the Head Start Personnel Procedures and PoliciesManual, the Head Start Director and personnel committeerecommend an applicant to the Policy Council. If thePolicy Council approves that applicant, the applicant'sname is sent to EDA's Executive Director for finalapproval. Respondent's Hearing Ex. 10.

Six applicants were interviewed during the first round ofinterviews on August 22, 1994. Appellant's Ex. 17. Three of the four Policy Council members, includingYoakum, expressed support for Sharon Rudder for theposition; however, the other Policy Council member, Rufusand one EDA Board member each supported other applicants.(The Head Start Director and the second EDA Board memberdid not state whom they supported.) Id. The committeedid not recommend a candidate to the Policy Council. Id. Nevertheless, the Policy Council voted the next day infavor of hiring Rudder. Respondent's Ex. 90. Rufus didnot hire Rudder at that time, but instead arranged for asecond round of interviews on September 29, 1994. Thenumerical rating system which the personnel committee hadagreed to use broke down when there was a disagreementbetween Rufus and Yoakum about which applicants should bere-interviewed. Tr. at 333; Respondent's Ex. 35. OnOctober 18, 1994, the Policy Council again voted in favorof Rudder, although the personnel committee had notrecommended a candidate. Appellant's Ex. 19. Approximately one month later, Rufus hired Rudder. Tr.at 2769.

Our Findings: EDA's Executive Director included herselfand two EDA Board members on the personnel committeeconsidering applicants for an important position in EDA'sHead Start program. The inclusion of these individualswas contrary to the Policy Council bylaws, which gave thePolicy Council and the Head Start Director theresponsibility for selecting Head Start staff, subject tothe approval of EDA's Executive Director. Theseprocedures were consistent with the Head Startregulations, which provide with respect to the hiring andfiring of Head Start personnel that the grantee Board maybe consulted, the Executive Director has generalresponsibility, and the Policy Council must approve ordisapprove. 45 C.F.R. Part 1304, Appendix B, Chart C. The preponderance of the evidence shows that there wasnever any agreement to alter the composition of thepersonnel committee prior to the completion of theinterview process.

The Policy Council reasonably relied on EDA's inclusionof EDA Board members and the EDA Executive Director onthe personnel committee as a factor in deciding not toapprove EDA's refunding application. EDA ignored theprocess established by the Policy Council bylaws, whichgave the Policy Council the primary responsibility forthe initial selection of an applicant. This was part ofa pattern which showed that EDA disregarded the PolicyCouncil's partnership role in the management of the HeadStart program. The mere fact that the applicant whom thePolicy Council favored was ultimately hired does notcompensate for EDA's unwillingness to let the PolicyCouncil make the initial selection. Failure to provide detailed line item budget reports asrequested by the Policy Council

Policy Council's Allegation: The Policy Council allegedthat EDA failed to provide it with line item financialreports. See, e.g., Appellant's Ex. 2, 1st page;Respondent's Ex. 3, 27th page.

What the Record Shows: EDA did not provide any financialreports to the Policy Council until the 1993-94 schoolyear, the third year of the operation of its Head Startprogram. Tr. at 685. The report on the May 1994 on-sitereview of EDA's Head Start program stated that "[t]hePolicy Council must be provided direct financial reportsmonthly." Respondent's Ex. 95, page 19 of ExecutiveSummary. EDA thereafter began providing reports whichshowed monthly expenditures in seven broad budgetcategories: personnel, fringe benefits, travel,supplies, contractual, rent, and other. Respondent's Ex.66, lst through 3rd pages. At a June 14, 1994 PolicyCouncil meeting, the Policy Council asked the EDAaccountant to provide reports with a detailed line itembreakdown. Tr. at 84, 295, 372. EDA then beganproviding reports which showed, for each of the budgetcategories listed above, the amount budgeted for theyear, the current month expenditures, the cumulativeexpenditures (i.e., annual expenditures to date), and thedifference between the cumulative expenditures and theamount budgeted for the year. Tr. at 457-458;Respondent's Ex. 66, 5th page ff. The Policy Council wasnot satisfied with this information and again requestedreports with detailed line item breakdowns. Tr. at 1114,1116 (August 12-13, 1994 request); Respondent's Ex. 81,2nd page (October 11, 1994 request). Although EDAExecutive Director Alice Rufus stated at the October 11,1994 budget training that she could provide theinformation requested by the Policy Council (Tr. at1117), this information was never provided. Manuel Duque, who provided budget training to EDA and thePolicy Council and was himself the Executive Director ofa Head Start grantee, testified that EDA's monthlyfinancial reports from July 1994 on provided the basicinformation required by the Head Start regulations. Tr.at 1111, 1118. (The regulations require that, at aminimum, the grantee should provide to members of "PolicyGroups" "[f]inancial reports and statements of fundsexpended in the Head Start account." 45 C.F.R.  1304.5-4(b)(3).) However, Duque further testified thatit would be reasonable for the Policy Council to requestdetailed line item breakdowns. Tr. at 1116, 1118. Bonnie Yoakum, the Policy Council Chairperson, as well asPolicy Council members Steven Lilly and Rose Williams,testified that the Policy Council felt it needed theadditional information in order to adequately dischargeits budget planning duties. Tr. at 294, 685, 824. Duquealso testified that EDA should have been able to providethe type of information requested by the Policy Councilusing standard accounting techniques. Tr. at 1119.

The report of ACF's on-site review gave EDA a score of100% on the "Admin/Fin/Prop. Mgmt." component. Appellant's Ex. 44, 5th page. Rufus testified that shewas told by the on-site review team that detailed budgetinformation was not required. Tr. at 2775. In addition,Rufus testified that she responded to the PolicyCouncil's request for detailed line item budgets byinstructing Head Start Director Lillie Turner to providethe Policy Council with information which Turnermaintained on purchase orders submitted by Head Startstaff, but that Turner had failed to do so. Tr. at 2777,2905. Rufus further testified that Turner was givenfinancial reports every month from very early on in thelife of EDA's Head Start program, but did not give themto the Policy Council. Tr. at 2555.

Our Findings: EDA failed to provide financialinformation for which the Policy Council made repeatedrequests over a period of several months and which EDAshould have been capable of providing. There is no basisfor EDA's position that the Head Start Director was toblame for the failure to provide the informationrequested. Even if she had given the Policy Council thepurchase order information which she had, detailedinformation on budget categories other than supplieswould have been lacking. Furthermore, there is noevidence that the financial reports which EDA allegedlygave the Head Start Director contained the informationwhich the Policy Council had requested.

The Policy Council reasonably relied on EDA's failure toprovide the requested budget information as a factor indeciding not to approve EDA's refunding application. Although the information requested went beyond theminimum information required by the Head Startregulations, there was undisputed testimony that it wasreasonable for the Policy Council to request thisadditional information. Moreover, the Policy Council'srequest was clearly related to its responsibility underthe Head Start regulations for approving requests forfederal funds. The additional information would enablethe Policy Council to determine such things as whetherfunds were being spent in accordance with the budget orwere available for additional program activities. EDA'sfailure to provide the requested information was part ofa pattern which showed that EDA disregarded the PolicyCouncil's partnership role in the management of the HeadStart program.

EDA attendance and uninvited participation at PolicyCouncil meetings

Policy Council's Allegation: The Policy Council allegedthat Policy Council members felt intimidated orthreatened by the attendance of EDA Board members, EDA'sExecutive Director and her administrative assistant, andthe EDA bookkeeper at Policy Council meetings. Appellant's Ex. 2, 1st page; Respondent's Ex. 3, 27thpage.

What the Record Shows: EDA Executive Director AliceRufus attended most Policy Council meetings beginning inthe 1993-94 program year. Tr. at 300, 2611. Rufustestified that she began attending the meetings afterascertaining that Head Start Director Lillie Turner hadnot been passing on to the Policy Council copies of thefinancial reports which Rufus had given her. Tr. at2611-2612. After EDA suspended Turner on February 15,1994, the meetings were also attended on occasion byRufus' administrative assistant, EDA's bookkeeper, andseveral EDA Board members (primarily Rose Jones andAretha Dodson, but also Board Chairman Richard Young,Julius Dodson, Willie Mae Hood and Donnell Scott). Tr.at 300-301, 807, 1170-1171, and 2786. (The Head StartDirector also generally attended Policy Council meetings. Tr. at 300. In addition, the Head Start ParentInvolvement and Social Services Coordinator was generallyin and out of the Policy Council meetings, runningerrands for the parents. Id. Members of the Head Startteaching staff also attended some Policy Councilmeetings. Tr. at 1170-1171. However, the Policy Councildid not allege that it objected to the attendance ofthese individuals.)

The Policy Council bylaws as revised 8/94 state that"[i]n accordance with Appendix B of the PerformanceStandards, grantee staff members may attend PolicyCouncil meetings only upon request of the Council." Respondent's Ex. 87, at Article V, Section 4 (emphasis inoriginal). Appendix B states that "[s]taff members [ofthe grantee] may attend the meetings of councils . . . ina consultative non-voting capacity upon request of thecouncil . . . ." 45 C.F.R. Part 1304, Appendix B, PartB, Special Notes, Paragraph 4. ACF clarified that staffmay request time on the agenda of a policy councilmeeting if necessary. Respondent's Ex. 10, ACYF-IM-87-33, Parent Involvement Policy Interpretations, at 6.

There is no evidence that any of the individuals inquestion, with the exception of EDA Board member RoseJones, were ever invited to the Policy Council meetingsor that any of these individuals ever requestedpermission to attend the meetings. (Jones, who was thealternate to the EDA Board representative to the PolicyCouncil during the 1993-94 program year, testified thatshe received notice of the Policy Council meetings heldthat year, as well as notice of the first meeting duringthe 1994-95 program year. Tr. at 2155. The record doesnot show whether Julius Dodson, the regular EDA Boardrepresentative to the Policy Council during the 1993-94program year, received notice of the Policy Councilmeetings.)

There is no evidence that the Policy Council ever advisedEDA before the vote not to approve the refundingapplication that it objected to the presence of EDA Boardmembers and staff at the Policy Council meetings. PolicyCouncil Chairperson Bonnie Yoakum testified that sincethe public had a right to attend the Policy Councilmeetings, the Policy Council "never said the public wasunwelcome in our meetings." Tr. at 300, 304. Rufustestified that there was a point at which she was told byPolicy Council members that they did not want her atPolicy Council meetings. Tr. at 2703. However, it isnot clear when this occurred.

Yoakum testified that the presence of the individuals inquestion made other Policy Council members uncomfortable(although she testified that she herself did not have aproblem with EDA Board members being present since sheknew them from EDA Board meetings). Tr. at 300, 302-303. Mary Abshure, the Head Start Parent Involvement andSocial Services Coordinator, testified that the presenceof these individuals had a "chilling effect on how theparents conducted themselves" in the Policy Councilmeetings. Tr. at 1171, 1212, 1221-1223.

Abshure testified that she did not see anyone "physicallyor verbally taking over or dominating" the meetings. Tr.at 1221. Yoakum testified that the EDA Board members andemployees who attended the meetings did not normally makecomments during the course of the meetings. Tr. at 303. However, Yoakum stated that on one or two occasions, EDABoard members made comments that were disturbing to thePolicy Council. Tr. at 303-304. Moreover, according toPolicy Council member Rose Williams, EDA Board membersRose Jones and Aretha Dodson interrupted and tried totake over Policy Council meetings, belittling parents inthe process. Tr. at 821, 824; Respondent's Ex. 3, 18thpage. Policy Council member Steven Lilly testified thatEDA Board members sometimes said demeaning things aboutPolicy Council members at the Policy Council meetings andlaughed down their suggestions or shot down their ideas. Tr. at 691.

Our Findings: The EDA Executive Director and some EDABoard members and staff attended Policy Council meetingswithout being invited by the Policy Council. Thepresence of these individuals inhibited the conduct ofPolicy Council business, even when these individuals didnot actively participate in Policy Council meetings. Inaddition, the EDA Board members sometimes interfered inthe conduct of the meetings, making comments which werecritical of the Policy Council.

The Policy Council reasonably relied on the attendance ofthese individuals at Policy Council meetings as a factorin deciding not to approve EDA's refunding application. In order to be able to share the responsibility fordecision-making in the Head Start program with thegrantee, a policy council needs to be able to discussfreely matters before it. The Head Start regulationsrecognize that this discussion may be inhibited by thepresence of the Head Start director and professionalstaff, stating that they--

must take care to avoid dominating meetings by forceof their greater training and experience in theprocess of decisionmaking. At these meetings,professionals may be tempted to do most of thetalking. They must learn to ask parents for theirideas, and listen with attention, patience andunderstanding. Self-confidence and self-respect arepowerful motivating forces. Activities which bringout these qualities in parents can prove invaluablein improving family life of young children from lowincome homes.

45 C.F.R. Part 1304, Appendix B, Part B, Section 1.c.(3). Accordingly, the Head Start regulations specificallyprohibit grantee staff members from attending policycouncil meetings without being invited. The rationalefor the prohibition clearly applies to the grantee'sboard members and executive director as well. (Theprohibition may not specifically refer to them becauseACF may not have contemplated that they would ever have alegitimate reason to attend a policy council meeting.) To the extent that they had legitimate reasons forattending Policy Council meetings, they could haverequested time on the agenda to ensure that theirconcerns were addressed, instead of simply showing up atthe meetings. In addition, the EDA Board could haveinvited the Policy Council to attend a Board meeting ifit had matters to discuss with the Policy Council (as theBoard in fact did on more than one occasion).

The fact that the Policy Council never notified any ofthe individuals in question, with the exception of theExecutive Director, that it objected to their attendingthe Policy Council meetings cannot reasonably be taken tomean that the Policy Council did not in fact object. ThePolicy Council may have been too intimidated by thepresence of these individuals to even raise an objection. Moreover, it appears from Yoakum's testimony that thePolicy Council may not have clearly understood that theseindividuals were entitled to attend the Policy Councilmeetings only upon invitation.

Finally, even assuming that the Policy Council meetingswere open to the public under the Arkansas Freedom ofInformation Act (as EDA alleged), all of the individualsin question were properly excluded since EDA agreed to bebound by the rules of the Head Start program in acceptingfederal funds.

Belittling remarks made to Policy Council members 9/

Policy Council's Allegation:

The Policy Council alleged that "disrespectful treatment"of the parents and Policy Council members by EDA occurredon an on-going basis. Appellant's Ex. 2, 1st page;Respondent's Ex. 3, 26th page.

What the Record Shows: In written explanations of thereasons for their decision not to approve the refundingapplication, the majority of Policy Council members saidthat the EDA Board treated them disrespectfully. SeeRespondent's Ex. 3. In addition, two EDA witnesses,Policy Council members Pamela LaHew and Marie Jackson,testified that some Policy Council members felt that theyhad been talked down to by EDA Board members and EDAstaff. Tr. at 2309, 2492. Policy Council member StevenLilly testified that he was present at some PolicyCouncil meetings where EDA Board member Rose Jonesdisparaged "other people" by putting them down andtalking back to them. Tr. at 752. Policy Council memberRose Williams testified that EDA Board Chairman RichardYoung had said in front of a teacher that Williams "wasconfused and did not know what the `hell' [she] wastalking about." Tr. at 870; Respondent's Ex. 3, 17thpage. Williams also said that EDA Board member WillieMae Hood said that parents are ignorant, and put themdown in front of teachers, parents, and citizens. Id. In addition, Williams said that EDA Board member ArethaDodson belittled the parents. Tr. at 870. Williamsfurther testified that she had been treateddiscourteously by the EDA Executive Director's staff. Tr. at 852-853.

EDA Executive Director Alice Rufus denied that shetreated any Policy Council members disrespectfully. Tr.at 2795. Several witnesses also testified that Rufusnever treated them disrespectfully. Tr. 654, 853, 2101,2493, 2499. The evidence concerning disrespectfultreatment by EDA was not otherwise directly rebutted.

Our Findings: On numerous occasions, several EDA Boardmembers treated Policy Council members in a manner thatthe Policy Council members considered disrespectful. Theremark attributed by Williams to Young is clearlydisrespectful and shows that the Policy Council members'perception of how they were treated was justified. (Onthe other hand, there is insufficient evidence to findthat EDA Executive Director or EDA staff treated anyPolicy Council members disrespectfully.)

The Policy Council reasonably relied on its belief thatits members were treated disrespectfully by the EDA Boardas a factor in deciding not to approve EDA's refundingapplication. In enacting the 1994 amendments to the HeadStart Act, Congress specifically stated that "parentinvolvement must be encouraged, desired, and respected bythe program." S. Rep. No. 251, 103rd Cong., 2nd Sess. 26(1994) (quoted more extensively earlier). In order torespect "parent involvement," the grantee must clearlytreat the parents themselves with respect. Moreover, theHead Start regulations stress the need to enhanceparents' "self-confidence" and "self-respect," statingthat grantee staff must therefore "learn to ask parentsfor their ideas, and listen with attention, patience andunderstanding." 45 C.F.R. Part 1304, Appendix B, sectionB. The EDA Board cannot be faulted for occasionalfailures to live up to this standard. However, it isclear in this case that these failures occurredrepeatedly and that they were not attributable topersonality conflicts between particular individuals. The making of disparaging remarks directly to the PolicyCouncil members was obviously an impediment to a goodworking relationship between the EDA Board and the PolicyCouncil. Moreover, far from enhancing the parents' self-confidence in acting as advocates for their children, asCongress and ACF both intended, this treatment led theparents to be intimidated by the mere presence of EDABoard members at the Policy Council meetings. Thus, thebehavior of EDA Board members described above was part ofa pattern which reflected EDA's disregard for the PolicyCouncil's partnership role in the management of the HeadStart program.

Lack of EDA Board interest in and attendance at training

Policy Council's Allegation: The Policy Council allegedthat the EDA Board members failed to attend trainingsessions. Appellant's Ex. 2, 2nd page. See also,Respondent's Ex. 3, 27th page.

What the Record Shows: During the 1993-94 program year,there were seven training sessions at EDA which addressedtopics such as roles and responsibilities of the EDABoard and Policy Council, teamwork, communication, andconflict resolution. (Additional training was providedthrough April 1995; however, we need not discuss thistraining, which was provided after the Policy Councilvoted not to approve the refunding application, sincethere is ample other evidence of the EDA Board's lack ofinterest in training.) With the exception of the firsttraining session, which was provided by a privateconsultant at the request of EDA's Head Start Director,the training sessions were conducted by Basic HealthManagement (BHM), an organization under contract to ACFto provide technical assistance to Head Start grantees inseveral states including Arkansas. Respondent's Ex. 69;Tr. at 890, 1024. ACF requested BHM to provide technicalassistance to address the findings of the report on ACF'son-site review in May 1994. Respondent's Ex. 68, 1stpage. The report found, in pertinent part, that "[t]heGrantee Board and the Policy Council needs [sic] trainingtogether. The training should be provided early in theschool year. The trainings should include: communication skills, group dynamics, budgeting process,developing Policy Council by-laws, conflict resolution,partnership building, and other trainings." Respondent'sEx. 95, Executive Summary, page 19. Most of the training in question was intended to beprovided to both the Board and the Policy Council(although in some cases, the trainers planned to meetseparately with the Board first). Tr. at 939, 1056. Board attendance at all of the training sessions waseither limited or non-existent and was much lower thanthe trainers had expected. Tr. at 1045, 1050. (Thetrainers expected all or almost all of the Board membersto attend the training on October 7-8, 1994. Tr. at 923,1045.) Phyllis Hammonds, who provided some of thetraining, testified that the training was not successfuldue to the lack of Board participation. Tr. at 1056. There is no evidence that the trainers were dissatisfiedwith the extent of participation by Policy Councilmembers.

There were 11 or 12 Board members during the period inquestion, five of whom were appointed to the Board inNovember 1993. Respondent's Ex. 17; Tr. at 1804, 1822,1828, 1830. One Board member attended part of a November20, 1993 training session on the Head Start parentinvolvement regulations ("70.2"). Respondent's HearingEx. 3, 2nd page. No Board members attended a June 3,1994 training session on the development of EDA'stechnical assistance action plan for addressing thefindings in the on-site review conducted in May 1994(which included deficiencies in the parent involvementcomponent). Respondent's Ex. 69, p. 2; Tr. at 1030. OneBoard member attended a July 17-18, 1994 training sessionon the development of a program improvement plan for theAdministration and Parent Involvement components and theopen exchange of information among staff and between theBoard and Policy Council. Respondent's Ex. 72, 6th page. One Board member attended an August 12-13, 1994 trainingsession on the budget development and approval process,and Board and Policy Council roles and responsibilities. Tr. at 1106-1107. (This training is incorrectly shown inRespondent's Exhibits 68 and 69 as a July 12-13 session.Tr. at 901.) Most of the Board members attended thefirst day of a September 30-October 1, 1994 trainingsession on team-building and communication for Boardmembers and Policy Council members, but only threeattended the second day. Tr. at 1060. Four Boardmembers attended an October 7-8, 1994 training session. Respondent's Ex. 77, 2nd page; Respondent's Ex. 78, 1stpage. The October 7 session, for Board members only,focused on the Board and its relationship to Head Start. Tr. at 920, 1045. The October 8 session was a jointsession focusing on 70.2 for the EDA Board, PolicyCouncil and staff members. Tr. at 921. No Board membersattended an October 11, 1994 training session on definingBoard and Policy Council duties and responsibilities, thedesign of an organization chart, and development of adetailed line item financial report. Respondent's Ex.69, p. 5; Tr. at 935. Prior to the September 30-October 1, 1994 training andthe October 7-8 training, EDA Board President RichardYoung sent a memorandum to all Board members stating thatit was "important" for them to attend. Respondent'sHearing Ex. 5. In addition, Young testified that hefound the November 1993 training on 70.2 to be useful andthat he thought 70.2 training would be very important forany new EDA Board member. Tr. at 1788, 1832. EDA Executive Director Alice Rufus testified that the EDABoard members attended the training sessions that wereprovided specifically for the Board. Tr. at 2796. Rufusalso testified that the EDA Board members may not haveattended the 70.2 training because they dislikedHammonds. Id. Rufus further testified that it is hardto get board members of grassroots organizations toattend meetings because most of them work. Tr. at 2797. The record shows that the EDA Board sometimes haddifficulty getting a quorum for its regular monthlymeetings. Tr. at 95, 904; Appellant's Ex. 42. EDA Boardmember Rose Jones testified that she attended as many ofthe trainings as she possibly could, given her schedule. Tr. at 2219. However, Hammonds testified that Jones toldher on September 30, 1994 that Jones did not feel it wasnecessary for her to attend 70.2 training because all shehad to do was read 70.2 herself. Tr. at 1074. Moreover,a similar statement was made by Jones and Board memberAretha Dodson at an EDA Board meeting in March 1994. Tr.at 75; Respondent's Ex. 3, 18th page, 25th page.

Our Findings: There were seven training sessions heldduring the 1993-94 program year which related to theroles and responsibilities of the EDA Board and PolicyCouncil (including how to improve the interactionsbetween the two groups). Most of the training wasdesigned as joint training for both Board and PolicyCouncil members. The EDA Board President believed thatthis training would have been useful to the EDA Board inunderstanding the Head Start regulations on parentinvolvement. However, only two of these trainingsessions were attended by more than one EDA Board member,and two were not attended by any Board members.

The Policy Council reasonably relied on the EDA Board'spoor attendance at these training sessions as a factor indeciding not to approve EDA's refunding application. Since the purpose of the training sessions was to try togive the EDA Board and the Policy Council the skillsneeded to work together effectively, the Policy Councilreasonably attributed the Board's poor attendance to itsdisregard for the Policy Council's partnership role inthe management of the Head Start program. The poorattendance is not adequately explained by the fact thatBoard members had other commitments. In view of thefindings in the on-site review report that joint trainingwas needed to address the deficiencies in the parentinvolvement component, the Board members could reasonablyhave been expected to make an extra effort to attend thetraining sessions. Even if other programs also requiredthe EDA Board's attention, the Board should arguably havegiven priority to the Head Start program in view of theprogram's unique requirement for shared decisionmaking. Nor is it likely that the poor attendance was due to theBoard members' alleged dislike for one of the trainerssince a number of the training sessions were conducted byother individuals. Instead, as the statements by Boardmembers Jones and Dodson to the effect that they couldread 70.2 on their own seem to indicate, the Boardmembers simply did not place a high premium on developinga partnership relationship with the Policy Council.

Pressure placed on Policy Council members to supportrefunding in late November 1994 10/

Policy Council's Allegation: The Policy Council allegedthat Policy Council member Farris McClain was harassedand pressured by an EDA Board member as well as by an EDAstaff member to sign a petition in support of therefunding application in the last few days of November1994. Respondent's Ex. 3, 21st - 23rd pages. 11/

What the Record Shows: Farris McClain was a member ofthe 1993-1994 Policy Council and represented the parentsat the Carlisle Center. He voted on August 30, 1994 andOctober 13, 1994 not to approve the application forrefunding, an action to which many of the Carlisleparents objected. Respondent's Ex. 1 and 2; Tr. at 1675. According to McClain, EDA bookkeeper Talecia Hodge (whowas also the daughter of EDA's Executive Director) wentto his home late one evening at the end of November andthree times the next day to get him to sign a petitionapproving the refunding application. Respondent's Ex. 3,21st - 22nd pages; Tr. at 763, 791. (Although McClaindid not identify the precise dates in question, itappears from the testimony discussed below that Hodge'sfirst visit was on November 28.) Hodge was accompaniedon one visit by Lucretia Hale, the alternate Carlislerepresentative to the Policy Council, and on thesubsequent visit by several Carlisle parents. Id. OnNovember 29, Hodge first visited McClain's home early inthe morning and woke him and his family up. Respondent'sEx. 3, 21st page; Tr. at 763. McClain did not answer thedoor. Respondent's Ex. 3, 21st page. On each of Hodge'sother visits, McClain indicated that he would not signthe petition, sometimes stating that he needed more timeto think about it or engaging in a discussion about it. Respondent's Ex. 3, 21st page; Tr. at 763-764. Hodgealso came to see McClain about the petition twice laterthat day when he was at work at the police station (wherehe was a dispatcher/jailer). Respondent's Ex. 3, 22ndpage.

Hale testified that, when she accompanied Hodge toMcClain's home, McClain invited Hodge to come back withthe rest of the Carlisle parents. Tr. at 2402. However,according to McClain's written statement, he simply saidthat he had not had an opportunity to talk to theCarlisle parents, after which Hodge said she was comingback with the parents. Respondent's Ex. 3, 21st page. Marie Jackson, a Carlisle parent (as well as an EDAemployee) who returned with Hodge, testified that McClaintold her in response to her inquiry that he did not feelthat he was being harassed. Tr. at 2314. It is notclear from the record precisely what Jackson asked him,however. McClain's written statement indicates that hewas harassed and pressured by "EDA and Talecia [Hodge]." Respondent's Ex. 3, 21st page. McClain also testifiedthat he was harassed by Hodge to sign the petition. Tr.at 763. He further testified that she did not reallyfrighten him and would not make him change his mind aboutanything. Tr. at 791.

Also on November 29, EDA Board member Rose Jones went tothe police station and spoke privately with the policechief, Floyd Van Horn. Respondent's Ex. 3, 22nd page;Tr. at 3271. Van Horn testified that Jones asked himwhat his relationship with McClain was, whether he wasaware of McClain's role on the Policy Council, andwhether he knew that McClain would not sign theapplication for refunding. Tr. at 3271-3273. Accordingto Van Horn, he tried at that point to warn Jones that itwas inappropriate for her to try to use her position as amember of the Lonoke City Council (which Van Hornconsidered his employer) to get him to influenceMcClain's decision. Tr. at 3273. Van Horn furthertestified that Jones asked him if he was consideringMcClain for a position as a police officer, and said thatshe thought McClain was incapable of making gooddecisions and that if she had anything to do with it,McClain would not be hired as a police officer. Tr. at3273-3274. Van Horn also testified that Jones did notask him directly to ask McClain to change his vote,although she did threaten McClain's future in the policedepartment. Tr. at 3281-3282, 3286, 3290. In addition,Van Horn testified that he did not remember Jonesdiscussing anything in addition to McClain with him onthe night in question. Tr. at 3290-3293.

According to McClain, Van Horn emerged from his officeafter the meeting with Jones looking "dismayed" and"upset." Respondent's Ex. 3, 22nd page; Tr. at 765. McClain also stated that he then told Van Horn somethingto the effect that people had been "on him" about thepetition, after which Van Horn related the substance ofhis conversation with Jones. Id. at 22nd and 23rd pages;Tr. at 765. However, Van Horn testified that he merelyassured McClain that his position as a dispatcher/jailerwas secure, despite any rumors to the contrary. Tr. at3275, 3277.

Jones denied that she had talked to Van Horn, eitherdirectly or indirectly, about McClain and/or his vote onthe refunding application. Tr. at 2214. She testifiedthat she went to see Van Horn because her home had beenbroken into twice. Tr. at 2211. Van Horn testified thatduring that time period Jones' house had been brokeninto. Tr. at 3291.

Our Findings: EDA bookkeeper Talecia Hodge and EDA Boardmember Rose Jones put undue pressure on Policy Councilmember Farris McClain to sign a petition approving therefunding application before the grant expired onNovember 30, 1994. Hodge harassed McClain by makingrepeated visits to his home and workplace. AlthoughMcClain did not tell Hodge that he objected to hervisits, his statement to the police chief that people hadbeen "on him" about the petition indicated that he wasnot comfortable with the visits. In telling Jackson thathe did not feel that he was being harassed, McClain mayhave meant that he did not feel that Jackson washarassing him, not that Hodge was not harassing him. Moreover, even though McClain stated that he did not feelintimidated by Hodge, the circumstances clearly show thather repeated visits made him very uncomfortable.

Jones sought to have McClain's employer, Police ChiefFloyd Van Horn, influence McClain to sign the petitionapproving the application for refunding. She alsothreatened to stand in the way of any promotion forMcClain. Her statement to Van Horn made clear that thiswas her intent, even if she did not say so explicitly. Although Jones denied that she had talked to Van Hornabout McClain, Van Horn was the more credible witnesssince he had no stake in the outcome of this proceeding. While Jones did not pressure McClain directly, shepressured him indirectly, since McClain realized thenature of Jones' visit to Van Horn (even if Van Horn didnot relate the substance of their conversation to McClainat the time).

The Policy Council reasonably relied on the pressureplaced on McClain to sign the petition approving therefunding application as a factor in deciding not tochange its earlier decision not to approve EDA'srefunding application. The fact that Hodge and Jonesresorted to harassment and coercion to try to get thePolicy Council to change its decision was part of apattern which indicated that EDA disregarded the PolicyCouncil's partnership role in the management of the HeadStart program.

In summary, we find that, based on all of the itemsdiscussed in this section, the Policy Council couldreasonably have discerned a pattern of behavior on thepart of EDA which showed that it disregarded the PolicyCouncil's partnership role in the management of the HeadStart program. We therefore conclude that the PolicyCouncil's decision not to approve the refundingapplication was not arbitrary or capricious.

B. Neither the Policy Council's decision not to approveEDA's application for refunding nor ACF's proposeddenial of refunding constituted an illegal act ofdiscrimination based on race.

EDA argued that the Policy Council's decision not toapprove EDA's application for refunding constituted anact of discrimination based on race and was thereforeillegal. As noted previously, the members of EDA's Boardof Directors as well as its Executive Director are black,and EDA views itself as a black-run organization,although it provides services to all eligibleindividuals. The overall population of Lonoke County, inwhich EDA is located, is between 12 and 27% black. Tr.at 2931-2932. EDA's argument derives in large part fromthese facts and the fact that the 1993-94 Policy CouncilChairperson, Bonnie Yoakum, was white. EDA arguedessentially that Yoakum and other white Policy Councilmembers conspired with the "white establishment" ofLonoke County, and with blacks who were subservient tothe wishes of those whites, to wrest the Head Startprogram from EDA, with the ultimate goal of destroyingEDA as an organization. 12/

It is certainly possible that racial tensions existed inthe Lonoke community during the time in question here. As the only major black-run organization in Lonoke, whichwas highly successful, EDA might have been anxious aboutperceived threats to its existence due to its singularstatus. However, the record does not support theargument that the Policy Council's decision not toapprove EDA's refunding application arose from anyinvidious discriminatory conspiracy or actions.EDA Executive Director Alice Rufus asserted that race wasa factor in the Policy Council's decision simply becauseshe and the EDA Board members are black and because theallegations against EDA were made by a white individual(presumably Yoakum). Tr. at 2916. However, thisspeculative inference is rebutted by the fact that threeof the Policy Council members who voted against refundingon August 30, 1994, and three of the Policy Councilmembers who voted against refunding on October 13, 1994,were black. Supplemental Br. of the Appellant at 7;Respondent's Post-Hearing Br. at 74; Tr. at 342. Seealso Respondent's Ex. 1 and 2. 13/ In addition, the HeadStart Director, whose alleged termination was identifiedby the Policy Council as a major basis for its decisionnot to approve the refunding application, is black. 14/ There is also no persuasive evidence that any of theblack Policy Council members who voted not to approve therefunding application were swayed by the influence ofwhite Policy Council members or white members of thecommunity. The only evidence adduced by EDA was thatPolicy Council member Farris McClain had worked for thewhite husband of Sharon Rudder, a teacher at the LonokeCenter who was ultimately hired as Center Director. Tr.at 788-789. However, there is no basis for concludingthat McClain's vote was somehow influenced by this remoteconnection. Contrary to EDA's characterization ofMcClain, the record shows (as discussed previously) thatMcClain, in the face of considerable pressure to changehis opposition to refunding, had the fortitude to resist.15/

Moreover, McClain specifically testified that he did notbelieve that he or any of the Policy Council members weremotivated by racial bias or influenced by someone who mayhave had some racial bias against the EDA Board. Tr. at776. In addition, Policy Council Chairperson BonnieYoakum and Steven Lilly, another white Policy Councilmember, both testified that neither they nor (in theirview) other members of the Policy Council were motivatedby racial bias. Tr. at 362, 364-365, 697. AngelaBerryman, who was a black Policy Council alternate in the1993-94 program year and Policy Council representativethe subsequent year, testified that she did not believethat race was a factor in the Policy Council's decisionnot to approve the refunding application. Tr. at 2675. Furthermore, three of the consultants who providedtraining to EDA, including a black consultant, testifiedthat they had not observed any racial bias on the part ofthe Policy Council toward the EDA Board. Tr. at 941,1061, 1080, 1130. 16/

Nevertheless, both Rufus and EDA Board member Rose Jonesidentified several actions which they asserted showedthat a white conspiracy against EDA existed. The actionsincluded: the arrest of all of the EDA Board membersexcept Yoakum based on an allegation that the Board hadmet without notifying the local newspaper reporter (inviolation of the Arkansas Freedom of Information Act(FOIA)); that a number of whites from the community sentEDA similar requests for information under FOIA; and theappearance of a group of whites from the community at twospecially called EDA meetings at the end of August 1994. Tr. at 2277-2278, 2282-2283, 2749. See also Appellant'sEx. 48, 51, and 58. EDA also alleged in its briefingthat the local news media and courts had a racial biasagainst EDA, claiming that there was unfavorable coverageof EDA by the Lonoke Democrat and that there wasgratuitous criticism of EDA in a county court decisionfinding that the EDA Board violated FOIA in terminatingthe Head Start Director. See Supplemental Br. of theAppellant at 10-12; Appellant's Post-Hearing Br. at 44. However, even assuming that these actions were motivatedby racial bias (a question which we do not need toreach), EDA failed to show any connection between theseactions and the Policy Council's decision not to approveEDA's refunding application.

EDA also argued that ACF's proposed decision to denyrefunding was racially motivated. In support of thisargument, Rufus pointed to the fact that, in the past 15years, two minority-run programs have been defunded bythe Region VI office of ACF. Tr. at 3213; Appellant'sHearing Ex. 7. (A third minority program was voluntarilyrelinquished after an impasse between the grantee and thePolicy Council developed. Appellant's Hearing Ex. 7.) However, Region VI currently administers 177 Head Startprograms, a large number of which are predominantly blackorganizations. Respondent's Post-Hearing Br. at 43, n.50; Tr. at 890, 954. Viewed in that context, thedefunding of these two organizations does not demonstrateracial bias. Rufus took the position that racial biascould also be inferred because ACF Assistant RegionalCommissioner Beverly Turnbo, who is white, wasresponsible for making the recommendation that ACFpropose the denial of refunding to EDA. Tr. at 2916. However, we find nothing in Turnbo's extensive testimonywhich is indicative of any racial bias on her part. 17/ Finally, we note that EDA Board President Richard Youngdid not know that it was EDA's position that ACF'sproposed denial of refunding was based on racial bias. Tr. at 1775.

We therefore find that the Policy Council's decision notto approve EDA's refunding application was motivated bythe factors it stated, not by racial bias. We also findthat there is no evidence whatsoever that ACF's proposeddecision to deny refunding were motivated by racial bias. Accordingly, we conclude that ACF did not err indetermining that the Policy Council's decision was notarbitrary, capricious, or illegal.

C. The Policy Council's decision not to approve EDA's application for refunding was not invalid simplybecause many of the parents may have disagreed withthis decision.

EDA asserted that the Policy Council's decision not toapprove EDA's application for refunding was contrary tothe wishes of the parents of children enrolled in theHead Start program. EDA argued that the Policy Council'sdecision was therefore arbitrary and capricious.

This issue is among the most troubling of those raised byEDA. If, after being informed of the Policy Council'sand EDA's positions in this dispute, the Head Startparents collectively disagreed with the Policy Counciland communicated their wishes to the Policy Council, thisarguably would be compelling evidence that the PolicyCouncil's decision was arbitrary and capricious. As weexplain in detail below, however, we find this argumentof EDA unpersuasive for the following reasons: (1) theparents who supported EDA were not clearly informed aboutthe bases for the Policy Council's decision; (2) it isunclear whether the parents' support for EDA wasinfluenced by other considerations, such as amisunderstanding of the consequences of a denial ofrefunding; (3) Head Start commands a role for the PolicyCouncil that has considerable presumptive validity, suchthat a decision of the Policy Council should not beoverridden merely because some parents disagree with thedecision; and (4) notwithstanding the Policy Council'svote, the parents re-elected many of the same PolicyCouncil members, who did not thereafter change theirvote.

As evidence that the parents favored approval of therefunding application, EDA submitted petitions "in favorof EDA keeping the program," signed by 91 parents onNovember 15, 1994. Appellant's Ex. 45. 18/ EDA alsosubmitted a petition signed on November 29, 1994 by whatappear to be the parents of all the children in theCarlisle Center (except Farris McClain) which stated inpart, "We the parents of the Carlisle Head Start Centerwant EDA to keep the head start program and ourrepresentatives will not vote the way we want. . . ." Appellant's Ex. 48. In addition, EDA submitted theresults of a telephone poll of the Head Start parentsconducted by EDA staff in the summer of 1995 in which theparents were asked whether they supported the approval ofthe refunding application. Appellant's Ex. 46; Tr. at3224-3225, 3233. Of the 98 parents who were contacted,78 (or 80%) were for approval of the refundingapplication. The votes of the parents were reported byname. Id. 19/ 20/

While this evidence on its face indicates that theoverwhelming majority of parents supported refunding EDA,ACF raised questions about "the objectiveness of theprocesses used to collect the opinions and the degree offactual knowledge of the parents." Respondent's Post-Hearing Br. at 78. ACF suggested that many parents mayhave signed the November 15, 1996 petitions because theybelieved that there would be no Head Start program inLonoke County if EDA were not refunded. Id. 21/ Indeed,the record shows that a spokesperson for a U.S.congresswoman suggested at a November 14, 1994 "townmeeting" that this might be the case, and that thespokesperson's statement was reported on television. Respondent's Ex. 91. 22/ Moreover, ACF noted that thepoll taken in the summer of 1995 was conducted by two EDAemployees rather than an objective third party. Id. at79. Since the vast majority of parents responding to thepoll were not presented by EDA for cross-examination, theresults of the poll are not reliable. Of the sevenparents who testified for EDA, one was employed by EDA,one had a spouse who was employed by EDA, and oneregularly received other assistance from EDA. Tr. at2108, 2298, 2859. These individuals may therefore havehad an economic incentive to testify in EDA's favor.

Even if the parents' support for refunding EDA was notinfluenced by other considerations, this does not meanthat the Policy Council's decision not to approve EDA'sapplication for refunding should be disregarded. TheHead Start regulations specify a "formal structure bywhich parents can participate in policy making andoperation of the program . . . ." 45 C.F.R. Part 1304,Appendix B, section B. A grantee (such as EDA) without adelegate agency must have center committees composed ofthe parents whose children are enrolled in each center(which EDA had and which is not at issue here) and aPolicy Council composed of "at least 50% parents of HeadStart children presently enrolled in that grantee'sprogram . . . ." Id. at Chart A. All of the managementfunctions in the Head Start program are divided among thegrantee Board, the grantee's executive director, thePolicy Council, and the Head Start director. Id. atChart C. There is no provision for direct participationin management by the parents. The Policy Council wasthus clearly intended to represent parents' interests.

Moreover, as ACF also pointed out, there is an "inherentrationality" to the system outlined in the regulations. Respondent's Post-Hearing Br. at 77. Policy Councilmembers devote more time and energy to the Head Startprogram than the average parent. They receive specialtraining on the Head Start program in general and on 70.2(the parent involvement regulations) in particular. Furthermore, in carrying out their managementresponsibilities, they are normally able to observe theworkings of the program more closely than the averageparent. Thus, the Policy Council members were in abetter position than other parents to assess whether EDAwas administering the Head Start program in accordancewith the requirements of the Head Start Act andregulations.

ACF nevertheless acknowledged that the Policy Council'sdecision not to approve the refunding application mightbe invalid if there were evidence showing that the PolicyCouncil members who voted that way are no longer theelected representatives of the parents, such as anattempt to recall the Policy Council members or vote themout. Tr. at 1411-1412. There was no such evidence here,however. The Policy Council first voted not to approvethe refunding application on August 30, 1994, with all ofthe eight Policy Council members who were present votingthat way. Respondent's Ex. 1. Between the August 30 andthe October 13, 1994 Policy Council meetings, the membersof the 1994-95 Policy Council were elected. Tr. at 324-325; Appellant's Ex. 49, at 7-8, 10-12. Five individualswho voted on August 30 not to approve the refundingapplication were re-elected to the 1994-95 PolicyCouncil. Tr. at 325. (The remaining three individualswere not eligible to serve on the Policy Council again. Tr. at 325-326.) 23/ If the parents had wished the 1994-95 Policy Council to reverse the decision of the 1993-94Policy Council, they could have elected otherrepresentatives who might have done so. Instead, the1994-95 Policy Council did not even bring the matter toanother vote. Appellant's Ex. 47, lst page; Appellant'sEx. 49, 2nd page.

Covella Jackson, a Carlisle parent (and Chairperson ofthe 1995-96 Policy Council), testified that the Carlisleparents had voted to unseat their Policy Councilrepresentative, Farris McClain. Tr. at 1971. Respondent's Ex. 1 and 2. The alleged vote to unseatMcClain occurred in late November 1994, after McClain hadvoted twice not to approve the refunding application. See Tr. at 1972, 2402; Respondent's Ex. 1 and 2. However, Jackson also testified that McClain was not infact unseated because he was not present at the meetingat which this action was taken. Tr. at 1971. AnotherCarlisle parent, Lucretia Hale, testified that theparents wanted to vote McClain out but thought they couldnot do so because there were not enough parents present. Tr. at 2402. In any event, there is no evidence in therecord that any actions were taken to unseat or recallany of the other Policy Council representatives who votednot to approve the refunding application. We therefore conclude that the fact that the PolicyCouncil's decision not to approve EDA's application forrefunding may have been contrary to the wishes of many ofthe parents did not render the Policy Council's decisionarbitrary or capricious and thus invalid.

D. ACF provided adequate assistance to EDA inattempting to resolve the conflicts which led to thePolicy Council's decision not to approve EDA'sapplication for refunding, and is not responsiblefor the parties' failure to resolve this casethrough mediation.

EDA took the position that ACF did not give EDA adequateassistance in resolving the conflicts which led to thePolicy Council's decision not to approve EDA'sapplication for refunding, and that ACF should thereforebe precluded from denying refunding. According to EDA,the extensive training which ACF funded was intendedprimarily to address the deficiencies identified in thereport of ACF's on-site review and not to assist EDA inresolving conflicts with the Policy Council. EDA alsoargued specifically that ACF did not assist it inadopting an impasse procedure, despite the recommendationof ACF and its technical assistance contractor that EDAadopt such a procedure. In addition, EDA asserted thatACF failed to comply with the requirement of the HeadStart Act Amendments of 1994 that ACF adopt proceduresfor resolving conflicts between grantees and policycouncils. EDA suggested that if ACF had adopted suchprocedures, the EDA Board and the Policy Council wouldhave been required to engage in a process which mighthave led to approval of the refunding application. See,generally, Supplemental Br. of the Appellant at 15-18;Appellant's Post-Hearing Br. at 52-55; Tr. at 3187-3194.It is unclear whether, even if EDA's allegations weretrue, we should conclude that EDA's failure to obtainPolicy Council approval of its refunding applicationshould be excused somehow. We need not reach that issue,however, since we conclude that ACF provided adequateassistance to EDA. As indicated earlier in thisdecision, during the 1993-94 program year, there wereseven training sessions at EDA which addressed topicssuch as roles and responsibilities of the EDA Board andPolicy Council, teamwork, communication, and conflictresolution. The fact that the on-site review was theimpetus for most of these training sessions does not meanthat the training did not provide information and skillswhich EDA and the Policy Council could have used toresolve their conflicts.

Moreover, both ACF and its trainers provided sampleconflict resolution procedures to EDA on numerousoccasions. ACF forwarded introductory material onconflict resolution to EDA on February 25, 1994. Appellant's Ex. 56. This material outlined a three step-process for resolving conflicts: "the shared decision-making process," "voluntary negotiation or mediation,"and "mandatory (binding) negotiation arbitration." Id. During its on-site review in May 1994, ACF provided moredetailed information on conflict resolution to EDA andthe Policy Council. Tr. at 275-276, 1233-1235. Thisinformation included a rule for resolving potentialimpasse situations proposed by ACF in 1980 (but neverfinalized) which would have required binding arbitrationif an impasse were reached. See Respondent's Ex. 79 and94. In addition, at an October 7-8, 1994 trainingsession, the trainers provided materials which werevirtually identical to those provided in May. Tr. at924. Furthermore, in an October 21, 1994 letter to EDA'sExecutive Director, ACF noted that it had previouslyprovided EDA with documents outlining a suggestedmediation process to be used in impasse situations. Appellant's Ex. 24. The letter further stated, "[i]t issuggested that you review that information and considerusing whatever portions you deem appropriate or develop asimilar policy for use in your program." Id. at 1.

In addition, in September 1994, the ACF RegionalAdministrator met with members of the EDA Board, EDA'sExecutive Director, the Head Start Director, the PolicyCouncil Chairperson and others to encourage the Board andthe Policy Council to resolve the situation which led tothe Policy Council's decision not to approve therefunding application. Respondent's Ex. 32.

ACF thus clearly made a concerted effort over an extendedperiod of time to assist EDA in resolving its conflictswith the Policy Council. Notwithstanding this effort,the EDA Board never adopted a conflict resolutionprocedure, although the minutes of a July 7, 1994 EDABoard meeting indicate that the Board was aware that itneeded to adopt such a procedure. Respondent's Ex. 30.

EDA argued that ACF was also to blame for EDA's failureto adopt such procedures because ACF failed to promulgateregulations implementing the Head Start Act Amendments of1994. We do not agree that the lack of regulations was afactor here. The Head Start Act Amendments require inpertinent part that --

the Secretary shall develop and publish procedures(including mediation procedures) to be used in orderto--(A) resolve in a timely manner conflictspotentially leading to adverse action between--(i) recipients of financial assistance underthis subchapter; and (ii) delegate agencies or Head Start ParentPolicy Councils; and(B) avoid the need for an administrative hearing on an adverse action.

42 U.S.C.  9841(a)(4). This provision requires that ACFdevelop and publish procedures which could be used bygrantees and policy councils to resolve conflicts. Although ACF did not publish procedures in a formalregulation, it did provide sample procedures to EDA, andthus satisfied the intent of this provision.

Moreover, it is not necessarily the case that, had ACFpublished conflict resolution procedures, the EDA Boardand the Policy Council would have been required to engagein a process which might have led to a resolution of theconflict. Although ACF's 1980 proposed rule would haverequired a grantee and a policy council to submit tobinding arbitration where there is an impasse, theprovision quoted above does not require that ACFpromulgate a similar rule. 24/ If ACF had adopted solelyprocedures for mediation, a voluntary process requiringthe consent of both parties, it is not clear that EDAwould have utilized them. Although ACF had suggestedmediation as a technique for conflict resolution, EDA didnot take action to obtain a mediator until November 1994notwithstanding the Policy Council's apparent willingnessto agree to mediation early in 1994. Respondent's Ex.46; Tr. at 588. Thus, EDA's argument that regulationsimplementing the Head Start Act Amendments might havechanged the outcome in this case is highly speculative.

We therefore reject EDA's argument that ACF did notprovide adequate assistance in attempting to resolve theconflicts which led to the Policy Council's decision notto approving EDA's refunding application.

E. ACF reasonably determined that the 1995-96 PolicyCouncil's retroactive approval of the 1993-94application for refunding does not moot this case.

On October 2, 1995, the 1995-96 EDA Head Start PolicyCouncil voted on "the refunding application." Petitionby Lonoke County Economic Development Agency Head StartPolicy Council to Intervene, dated October 10, 1995, Ex.A, 2nd page (minutes of October 2, 1995 Policy Councilmeeting). Five of the seven Policy Council memberspresent voted to approve the refunding application andtwo abstained. Id. The 1995-96 Policy Council votedagain on October 9, 1995 to approve the refundingapplication. Tr. at 1929. The 1995-96 Policy Council'spetition to intervene alleged that, in light of thePolicy Council's votes, it would be a violation of "70.2"(the Head Start regulations on parent involvement) tohave the Board hearing continue. Petition at para. 7. Counsel for this Policy Council (who also representedEDA) indicated at the hearing that the petition, ineffect, constituted a request for summary judgment on theground that the Policy Council's votes mooted the basisfor ACF's proposed denial of refunding. Tr. at 1687,1702. The Board later denied the request for summaryjudgment on the ground that "it was predicated on mattersin dispute as to which the Board has yet to make adetermination (e.g., whether the Policy Council wasproperly constituted)." Letter to parties dated October24, 1995, at 2. Upon further consideration, we concludethat, regardless of whether the Policy Council wasproperly constituted or convened, the 1995-96 PolicyCouncil's votes to approve the refunding application didnot moot the basis for ACF's proposed denial ofrefunding.

ACF took the position that the Head Start regulations at45 C.F.R. Part 1304, Appendix B, Chart C, require that apolicy council approve a refunding application before itis forwarded to ACF. In this case, ACF asserted, itwould have continued to fund EDA's program only if therefunding application had been approved before December1, 1994 (i.e., before the current grant expired) by thepolicy council in existence at the time. Respondent'sPost-Hearing Br. at 86. ACF argued that the 1995-96Policy Council, which was not even in existence prior tothe expiration of the grant in question, therefore couldnot retroactively approve the application for refundingfor the 1994-95 program year. Id. 25/

We agree that ACF was entitled to require that anapproved refunding application be submitted by the end ofthe current funding year so that Head Start servicescould continue with a minimum of disruption if it werenecessary to get a new grantee. The mere happenstancethat administrative proceedings on ACF's proposed denialof refunding were still pending two years later shouldnot entitle EDA to renewal of a grant which ACFreasonably proposed to deny based on the circumstanceswhich existed when the refunding application was due.

ACF nevertheless clearly believed it had discretion toaccept the decision of a policy council to approve arefunding application even if this decision was madeafter the current grant expired. This is apparent fromthe fact that ACF twice agreed to continue funding EDA'sHead Start program, first through December 31, 1994 andthen through January 31, 1995, in order to give EDA anopportunity to resolve conflicts with the Policy Councilthrough mediation. See Respondent's Ex. 53 and 57. Seealso Respondent's Ex. 64, at 1.

We conclude, however, that ACF did not abuse itsdiscretion in proceeding with this case notwithstandingthe 1995-96 Policy Council's approval of the refundingapplication. This Policy Council was elected inSeptember 1995, more than two years after the 1993-94Policy Council first voted not to approve the refundingapplication. Tr. 1920, 2109. The record indicates thatthe 1995-96 Policy Council was not fully cognizant of thegrounds on which this action was taken. Most of themembers of this Policy Council were newly elected. Tr.at 2112. Barbara Dixon, one of the new members,testified that she had no idea what the 1994-95 HeadStart Policy Council's complaints against the EDA Boardwere. Tr. at 2090-2091. In addition, Dixon testifiedthat another Policy Council member, Rosie Lynch,abstained from voting on October 2, saying that she hadnot seen the refunding application and did not know whatwas in it. Tr. at 2126. Covella Jackson, the 1995-96Policy Council Chairperson, who was also a new member,was able to identify at the hearing only three bases forthe decision of the 1993-94 Policy Council not to approvethe refunding application, and did not demonstrateknowledge of any of the details involved. Tr. at 1941-1943, 1959-1960. Moreover, the members of this PolicyCouncil had not received any training on either 70.2 orthe budget. Tr. at 1962, 2010, 2120. The 1995-96 PolicyCouncil thus was not equipped to evaluate whether, as the1993-94 Policy Council found, EDA failed to recognize thePolicy Council's partnership role in the management ofthe Head Start program under the Head Start Act andimplementing regulations.ACF also questioned whether the 1995-96 Policy Councilwas convened in accordance with the Policy Council bylawsas revised 5/95. Respondent's Hearing Ex. 12. 26/ Weneed not determine whether any of the alleged proceduralirregularities rendered the 1995-96 Policy Councilincompetent to conduct business, however, since therewere other grounds for finding that this Policy Councilcould not retroactively approve the 1994-95 refundingapplication. 27/

F. ACF gave EDA an opportunity to come into compliancewith the requirement for Policy Council approval ofan application for refunding, in accordance with theprocedures for a denial of refunding based on aviolation of a performance standard.

EDA asserted that it was entitled under 45 C.F.R.  1304.1-5 to notice of violation of the performancestandards and to a 90-day period to come into compliance. EDA argued that the Board should find in EDA's favorsince these procedures were not followed here. Appellant's Post-Hearing Br. at 23-24. We find no meritin this argument.

The regulations in question provide that, if theresponsible HHS official is aware that a Head Startprogram is not in compliance with performance standards,"he shall notify the grantee promptly in writing of thedeficiencies and inform the grantee that it . . . has aperiod stated in the notice not to exceed 90 days to comeinto compliance." 45 C.F.R.  1304.1-5(b).

ACF advised EDA by letter dated September 14, 1994 that,pursuant to 45 C.F.R. Part 1304, Appendix B, therefunding application received by ACF on September 7,1994 "cannot be considered as valid until policy councilapproval has been obtained." Respondent's Ex. 34, 2ndpage. ACF also advised EDA by letter dated November 29,1994, that, without Policy Council approval of EDA'srefunding application, ACF would be unable to continuefunding EDA after November 30, 1994. Respondent's Ex.48. (The November 29 letter referred to letters datedNovember 9 and November 28 which it said gave the sameadvice.) ACF's letters did not specifically provide fora period of time to come into compliance. Nevertheless,since ACF did not issue the notice of intent to denyrefunding appealed from here until April 28, 1995, EDAclearly had substantially more than 90 days in which toattempt to persuade the Policy Council to reverse itsdecision not to approve the refunding application. 28/

EDA also argued that it did not receive notice of thespecific reasons which ACF said supported the PolicyCouncil's decision until Respondent's Hearing Ex. 1 wasintroduced at the hearing in September 1995. However,EDA was advised of most of the Policy Council's reasonsfor not approving the refunding application in a letterfrom the Policy Council Chairperson dated August 30, 1994and in a September 15, 1994 statement of the PolicyCouncil Chairperson. 29/ Respondent's Ex. 2 and 33. Asexplained previously, we do not consider here any of thereasons in Respondent's Hearing Exhibit 1 which were notgiven to EDA by the Policy Council in support of itsdecision. Thus, the lack of earlier notice ofRespondent's Hearing Exhibit 1 did not prejudice EDA.

EDA also argued that it would have requested one year toobtain Policy Council approval of the refundingapplication pursuant to 45 C.F.R.  1304.1-5(f)(4) had itbeen given an opportunity to come into compliance. However, that section allows HHS to extend the time forcompliance only if the grantee cannot come intocompliance within 90 days "because of lack of funds andoutside community resources. . . ." There is nothing inthe record which suggests that this was the reason forEDA's failure to obtain Policy Council approval of itsrefunding application.

In any event, the lack of Policy Council approval of arefunding application also violates the terms andconditions of the grant, and therefore provides a basisfor the denial of refunding under 45 C.F.R.  1303.14(b)(9). The regulations do not provide for anopportunity to come into compliance where there is afinding that the grant terms and conditions have beenviolated.

VI. Conclusion

We conclude that the determination of the 1993-94 PolicyCouncil not to approve EDA's application for refundingfor the 1994-95 program year was not arbitrary,capricious, or illegal. Accordingly, ACF may properlydeny refunding on the ground that EDA's failure to obtainPolicy Council approval constitutes a material failure tomeet the performance standards for operation of HeadStart programs, which is a basis for the denial ofrefunding under the Head Start regulations. We furtherconclude that EDA did not show that there is any validreason why ACF should be required to continue funding EDAregardless of this material violation of the regulations.

_______________________
Donald F. Garrett

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M. Terry Johnson

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Norval D. (John) Settle
Presiding Board Member

1. EDA was, however, required to develop a ProgramImprovement Plan to achieve compliance with thedeficiencies found by the on-site review. Appellant'sEx. 44, 6th page.

2. The Policy Council representatives to the EDABoard in the 1993-94 and 1994-95 program years werewhite. In addition, there was a white member of the EDABoard in a prior year. Tr. at 2933-2934.

3. In its last brief, ACF asserted that the proposeddenial of refunding was not based on the failure to meetperformance standards, but was "because [EDA] failed toobtain Policy Council support for its refundingapplication." Respondent's Post-Hearing Reply Br. at 1. (This assertion was made in response to an argument byEDA that ACF did not follow the procedures for the denialof refunding based on a violation of the performancestandards. We address this matter at the end of thisdecision.) However, in its pre-hearing brief, ACFdescribed Appendix B as part of the performance standardson parent involvement, and noted that failure to meetperformance standards was one of the grounds on which arefunding application may be denied. Respondent's Pre-Hearing Br. at 3-4. Furthermore, elsewhere in its lastbrief, ACF asserted that the denial of refunding wasjustified "pursuant to 45 C.F.R.  1303.14(b)(4), (7) and(9). . . ." Respondent's Post-Hearing Reply Br. at 19. Section 1303.14(b)(4) involves a grantee's failure "tomeet the performance standards for operation of HeadStart programs . . . ." Moreover, guidance issued by theHead Start Bureau specifically states that Appendix B of45 C.F.R. Part 1304, in which the requirement for PolicyCouncil approval of an application for refunding appears,is part of the performance standards. Respondent's Ex.65 ("Parent Involvement Policy Questions Raised at ParentInvolvement Institute").

4. Yoakum also appears in the record as Bonnie YoakumSuttles. See Tr. at 236-237.

5. We consider separately whether the PolicyCouncil's decision constituted an act of discriminationbased on race and was therefore illegal. In addition, weconsider separately whether the fact that many of theparents may have disagreed with the Policy Council'sdecision rendered that decision arbitrary or capriciousand thus invalid.

6. For example, we are not persuaded that the PolicyCouncil reasonably relied on the ejection of PolicyCouncil Chairperson Bonnie Yoakum from the EDA Boardexecutive session on February 15, 1994. The EDA Boardhad been prepared to allow Lucretia Hale, another PolicyCouncil member, to participate in the executive session,but was unwilling to allow Yoakum to participate sincethe Policy Council had clarified only minutes before theexecutive session that Yoakum rather than Hale was to beits representative to the EDA Board and Yoakum wasunknown to the Board. Another example is the hiring ofTalecia Hodge as EDA's bookkeeper without Policy Councilapproval. Hodge was hired in August 1992. The PolicyCouncil did not object to her hiring for nearly two yearsand did not complain about EDA's failure to obtainapproval to hire other Head Start staff, including theHead Start Parent Involvement and Social ServicesCoordinator. Still another example is the public remarkof EDA Board Chairperson Richard Young expressing lack ofagreement with all the tenets of 70.2 (the Head Startparent involvement regulations), which is not verymeaningful since the context of his statement was notgiven.

7. According to Alice Rufus, the EDA ExecutiveDirector, she had been on the personnel committee "fromday one." Tr. at 3082. See also Tr. at 3076-3077. Therecord shows that Rufus participated in a personnelcommittee meeting on August 17, 1993. Appellant's Ex.20A. However, the Policy Council bylaws as revised 8/94clearly did not include the Executive Director on thepersonnel committee.

8. However, the report of an October 7, 1994 trainingsession at EDA (which took place after the interviews)states that an agreement was reached at that session thatthe personnel committee would be composed of two membersof the Policy Council and two members of the Board. Respondent's Ex. 77, 1st page. The meeting was attendedby four EDA Board members, the EDA Executive Director,the Head Start Director, and the Policy CouncilChairperson. Id.

9. A related item in Appellant's Hearing Exhibit 1 is"Disrespectful treatment of the Policy CouncilChairperson at EDA Board meetings." According to thePolicy Council Chairperson, Bonnie Yoakum, the rudetreatment consisted primarily of the tone of voice inwhich she was spoken to. Tr. at 272. Yoakum explainedthat "people can be overly friendly to you . . . and makeyou as uncomfortable as being cold. But the tone thingscame across as rude." Id. We are not persuaded that this rises to the level of disrespectful treatment on thepart of the EDA Board members, however.

10. These events took place after the 1993-94 PolicyCouncil had voted twice not to approve the refundingapplication and thus were not a basis for those votes. However, as discussed later, ACF was willing to accept alater decision by this Policy Council to approve therefunding application. Thus, these events are relevantbecause the Policy Council could reasonably have reliedon them in deciding not to change its earlier decisionnot to approve EDA's refunding application.

11. ACF also alleged that other Policy Councilmembers were pressured to sign this petition. SeeRespondent's Post-Hearing Br. at 55, 69. However, thePolicy Council did not refer to any additional instancesof such pressure in the explanations for its decisionsubmitted to ACF in February 1995.

12. It is not clear at what point EDA's theory tothis effect was formulated. One of the consultants whoprovided training to EDA testified that EDA ExecutiveDirector Alice Rufus told her (at some point in timewhich the consultant did not identify) that race might bea factor in the Policy Council's actions. Tr. at 953. However, at a training session on October 1, 1994, whenEDA Board President Richard Young, Policy CouncilChairperson Bonnie Yoakum and Head Start Director LillieTurner listed the obstacles to a good workingrelationship between EDA and the Policy Council, racialbias was not listed as an obstacle. Respondent's Ex. 75,at 2-3.

13. Lucretia Hale, one of the black Policy Councilmembers who voted on October 13, 1994 not to approveEDA's refunding application, testified that she thoughtat the time that she was voting on "70.2," not on therefunding application. Tr. at 2396, 2398-2399, 2454-2455. She further testified that she voted "no" becauseHead Start Director Lillie Turner had told her to votethat way. Tr. at 2399, 2460. However, Hale did notspecifically state that she would have voted differentlyat that time if she had known what she was voting on.

14. Rufus alleged that four individuals on the 1993-94 Policy Council--Ernest Beeson, Judith Tarver, LisaDavis, and Gayle Lesher--were not duly elected by theparents but were placed on the Policy Council by Turnerand Head Start Parent Involvement and Social ServicesCoordinator Mary Abshure. Tr. at 2614-2618, 2699-2700,2712-2713. See also Appellant's Post-Hearing Br. at 17,57. Rufus later claimed that even if there were minuteswhich showed that these individuals were duly elected,"it was with some trickery of Lillie Turner and MaryAbshure." Tr. at 3017-3018. However, of the fourindividuals in question, only Beeson was present oneither occasion when the Policy Council voted not toapprove EDA's application for refunding. See Appellant'sEx. 1 and 2. Thus, even if these individuals had beenplaced on the Policy Council as part of a conspiracy, itdid not affect the Policy Council's decision not toapprove the refunding application. Moreover, there isnothing in the record which indicates that Turner orAbshure engineered Beeson's election (or that of any ofthe other individuals in question).

Rufus also questioned whether Beeson was eligible toserve on the Policy Council since he was a paidsubstitute for the Head Start program. Tr. at 2615-2616. However, the record shows that until July 19, 1994,Beeson was only a Policy Council alternate, and Rufusstated that she had no knowledge that Beeson was a paidsubstitute after that date. Tr. at 3020, 3023. Thus,while there may have been a technical violation of ACFpolicy (see Respondent's Ex. 10, ACYF-IM-87-33, dated11/5/87, attached Parent Involvement PolicyInterpretations, at 5), it did not impinge in any way onthe Policy Council's decisionmaking.

15. The 1995-96 Policy Council Chairperson, CovellaJackson, who, like McClain, was from Carlisle, testifiedthat she knew McClain and that "he can be manipulated." Tr. at 1938, 1948. However, she did not provide anyfactual basis for this assertion.

16. Linda Reasoner, one of the trainers, testifiedthat the Policy Council had complained to her about theracial composition of the EDA Board. Tr. at 1006. However, the fact that the Policy Council may havedesired to work with a board which was morerepresentative of the racial composition of the communitydoes not show that the Policy Council was racially biasedagainst the EDA Board as it was then constituted. Therecord indicates that, at a training session on October7, 1994 attended by four EDA Board members, the EDAExecutive Director, the Head Start Director, and thePolicy Council Chairperson, there was a discussion of"the need to expand community representation on the Boardand to ensure a more racial and gender balance."Respondent's Ex. 77, lst page. The next day, many of thesame individuals agreed that racial and gender diversityshould be one of the criteria in selecting communityrepresentatives to the Policy Council. Respondent's Ex.78, 2nd page.

17. EDA argued that it "really [did] not know thebasis" for ACF's decision because the official who signedACF's notice of intent to deny refunding, RegionalAdministrator Leon McCowan, did not testify at thehearing. Appellant's Post-Hearing Br. at 20. Prior tothe hearing, McCowan (who is black) was identified byboth parties as a possible witness. Supplemental Br. ofAppellant at 24; Respondent's Pre-Hearing Br.,attachment. Although ACF later decided not to callMcCowan as a witness, this did not preclude EDA fromcalling McCowan as its witness during the subsequentpresentation of its case. However, EDA did not do so. Furthermore, as indicated above, Turnbo was the primarydecisionmaker and was subject to extensive cross-examination by EDA.

18. In response to an inquiry made by EDA shortlyafter the petitions were signed, ACF stated that "[t]hereare no regulations which would allow other parental inputto be substituted for [Policy Council] approval." Respondent's Ex. 48.

19. EDA also proffered notes and letters in supportof EDA. Appellant's Exhibit 52. However, the Boardinitially ruled that this exhibit would be excludedunless EDA established that the authors of the notes andletters were parents or guardians of Head Start children. Notice of Hearing dated August 23, 1995, at 8. The Boardsubsequently asked the parties to agree on some method ofestablishing this. Tr. at 1017, 3237; Board's letter toparties dated January 31, 1996. In the absence of anyindication that the parties reached such an agreement,the exhibit is excluded with the exception of the May 25,1995 letter at the second page of the exhibit, to whichACF withdrew its objection. Tr. at 834. The May 25,1995 letter has nine signatures and states, "We theparents of Humnoke Head Start support the EDA Grantee forkeeping funding for the Lonoke County Head StartProgram."

20. EDA also submitted a petition dated November 28,1994, signed by seven individuals purporting to be PolicyCouncil members. Appellant's Ex. 47, 2nd page. EDA didnot rely on this as evidence of the wishes of theparents, but instead argued that the petition constitutedPolicy Council approval of the refunding application. However, the record clearly shows that the petition wasnot signed at a meeting attended by the requisite numberof Policy Council members, but was brought to individualPolicy Council members to sign. Tr. at 2441. See alsoTr. at 675, 818-819. (Under the Policy Council bylaws asrevised 8/94, seven of the 13 Policy Council members, ofwhom at least 51% must be Head Start parents, constitutea quorum, which must be present in order for the PolicyCouncil to conduct business. Respondent's Ex. 87, at 3-4.) Thus, the petition was not effective to approve therefunding application. (ACF advised EDA of the sameconclusion by letter dated January 24, 1995. Respondent's Ex. 58, at 1. ACF later articulated anumber of grounds for its conclusion in addition to theone on which we rely. See e.g., Respondent's Post-Hearing Br. at 53-54. We need not consider those groundshere, however.)

21. However, it is clear from the testimony of bothMary Abshure, the Head Start Parent Involvement andSocial Services Coordinator, and Sherry Evans, the 1994-95 Policy Council Chairperson, that the parents were notpressured to sign the November 15, 1994 petitions. Tr.at 529, 615, 1217. See also Tr. at 2018, 2024, 2498-2499. One individual, Policy Council member FarrisMcClain, testified that his wife was misled into signinga November 15, 1994 petition, but did not indicate howshe was misled. Tr. at 781. There is alsouncontroverted testimony that the Carlisle parents werenot pressured to submit their petition. Tr. at 2868.

22. The spokesperson subsequently clarified hisstatement, however. Respondent's Ex. 91.

23. The 1994-95 Policy Council was not officiallyseated until October 18, 1994. Appellant's Ex. 19. Thus, it was the 1993-94 Policy Council which voted asecond time on October 13, 1994 not to approve therefunding application. The vote was 7 to 1, with RoseJones, the EDA Board member selected by the Board as itsrepresentative to the Policy Council, casting the solevote in favor of the refunding application. Respondent'sEx. 2. Five of the individuals who voted not to approvethe refunding application had also voted the same way onAugust 30, 1994. The three remaining Policy Councilmembers at the October 13, 1994 meeting were not presentat the August 30, 1994 meeting. Compare Respondent's Ex.1 and 2.

24. The proposed rule provided that the granteeagency must notify the Policy Group (Policy Council) ofits decision to submit an impasse to arbitration. Itfurther provided that "[f]ailure by the Policy Group todesignate an arbiter within seven (7) days . . . shall bea default, and shall be considered to be approval of theagency's proposed action." Respondent's Ex. 94, 3rdpage. EDA Executive Director Alice Rufus argued that ACFshould have applied this provision, finding the PolicyCouncil's February 2, 1995 vote not to participate inmediation to be a default, because the proposed rule wasincluded in material which ACF provided to EDA. Tr. at3188. See also Appellant's Ex. 34; Respondent's Ex. 62. However, the proposed rule was merely provided to EDA asan example of a conflict resolution procedure which EDAcould adopt. Since EDA never adopted this procedure,there was no basis for applying it here.

25. ACF also took this position in response to anOctober 3, 1995 letter from the 1995-96 Policy CouncilChairperson advising the Regional Administrator of thevotes on October 2 and 9, 1995. Letter from McCowan toSmith dated October 25, 1995, at 1.

26. ACF noted that, contrary to the requirements ofthe Policy Council bylaws as revised 5/95 (at Appellant'sHearing Ex. 1), three days' written notice for aspecially called meeting was not given, officers wereelected in October instead of November and therefore hadnot received the 70.2 or budget training that was to begiven in October, the Lonoke Center had threerepresentatives rather than two, and no communityrepresentatives had been seated. Tr. at 1989-1990, 2063,2082. In addition, ACF noted that the usual practice wasfor the current policy council to hold a meeting andconduct old business, after which the members of thispolicy council would step down and the new members wouldbe officially seated. See Appellant's Ex. 19. That didnot occur in this case. See Petition by Lonoke CountyEconomic Development Agency Head Start Policy Council toIntervene, Exhibit A, enclosure (minutes of October 2,1995 Policy Council meeting).

27. Furthermore, we need not resolve the question,raised by EDA Executive Director Alice Rufus, whether the5/95 Policy Council bylaws were in fact approved by the1994-95 Policy Council. See Tr. at 2732-2733. We note,however, that the minutes of the May 23, 1995 PolicyCouncil meeting indicate that the revised bylaws wereapproved. Respondent's Hearing Ex. 12.

28. The record shows that ACF initially sought todeny refunding when the grant expired on November 30,1994 without giving EDA the opportunity for a hearing. Appellant's Ex. 25 and 26. However, the April 28, 1995notice was clearly the operative document here.

29. EDA Executive Director Alice Rufus asserted thatshe did not receive a copy of the August 30, 1994 letteruntil September 15, 1994. Tr. at 2715-2716. However,EDA would still have had adequate notice of the bases forthe Policy Council's decision stated in that letter evenif this was the case.