Hon. WILBUR MILLS, U.S. COMMISSION ON CIVIL RIGHTS, Chairman, Committee on Ways and Means, House of Representatives, DEAR MR. CHAIRMAN: I am submitting the enclosed statement on H.R. 16141 with accompanying exhibits on behalf of the United States Commission on Civil Rights. The principal concern of the Commission is that H.R. 16141 contain strong protections against discrimination in the use of Federal financial assistance made available in Title I and prohibit tax credits to individuals paying tuition to racially segregated private schools. The Commission's statement also reviews the record of the Internal Revenue Service in enforcing the decree and policy of the Green v. Kennedy and Green v. Connally decisions prohibiting tax exempt status to private segregated schools. The Commission recommends that the IRS' compliance review responsibilities be turned over to the Secretary of Health, Education, and Welfare, who upon ascertaining that a private school was racially segregated, would certify that fact to the Commissioner of Internal Revenue who would then take action to withdraw the tax exempt status of the school. We feel that this allocation of responsibility would relieve the IRS of an additional enforcement burden and place the responsibility in a Department which possesses both expertise and resources with which to make the necessary compliance reviews. I hope the statement and accompanying materials will be of use to your committee and staff in studying H.R. 16141. Thank you for receiving it. Sincerely, Enclosures. JOHN A. Buggs, Staff Director. STATEMENT OF HON. JOHN A. BUGGS, STAFF DIRECTOR, U.S. COMMISSION ON CIVIL RIGHTS Mr. Chairman, I am John A. Buggs. Staff Director of the United Staff Commission on Civil Rights. I wish to thank you for this opportunity to present the Commission's views on H.R. 16141, the "Public and Private Education Assistance Act of 1972." The Commission on Civil Rights has completed this summer a new study on issues of disparities in school finances-a problem which H.R. 16141 attempts to remedy through a formula providing Federal financial assistance for State school equalization payments. This study, which was conceived as the fourth report in our series on Mexican American Education, is limited to the school finance system in the State of Texas. It is supplemented, however, by an extensive review and analysis of the legal and constitutional issues involved in equalization of school finance systems. I would like to offer advance copies of the study and the legal analysis to the Committee for its further study and use. The Commission is not prepared at this time to offer specific criticisms of the formula developed in H.R. 16141 for Federal assistance for State equalization payments. It is enough to say at this time that our studies so far have indicated to us that there are many unanswered questions in this field. For example, will this formula discourage States from increasing their total expenditures for public education? What encouragement is provided to equalize public education expenditures among the States? How are States to establish an equitable property assessment system which will accurately measure the relative wealth of school districts? Will such a formula tend to benefit or penalize minority group children or will the results for them be neutral? Should equalization consider the relatively greater educational needs of disadvantaged children? Should equalization also take into consideration the heavy tax burden on cities to provide for other services than education? I am not sure that we know the answers to questions of this nature. Therefore, the Commission not only urges more consideration of these problems, but we plan to devote a portion of our staff resources to studying them this fall and winter. Our immediate concern is that whatever form the legislation proposed in H.R. 16141 takes, that there be adequate assurances and protections against discrimination on the basis of race, color, religion, national origin and sex. While I am pleased to note that Title I does contain a specific prohibition against discrimination in Section 106, we do have several specific comments to offer. Section 106 (a) prohibits discrimination in programs funded in whole or in part with funds made available under this title. It should be clearly understood that this nondiscrimination provision is not limited solely to programs actually funded with Federal monies. Since the financial assistance provided to State equalization payments will benefit the entire spectrum of State and local educational programs, it follows that the State must assure nondiscrimination in all its educational activities. Section 106 (b) requires that the Secretary of Health, Education, and Welfare shall notify the Governor of a State found to be in noncompliance of that fact and await a reasonable length of time before undertaking corrective action. It is our view that it is unnecessary and inconsistent with existing Federal civil rights enforcement policy to require through legislation that the Secretary notify the Governor of a State in writing of noncompliance with Section 106. In addition, I would like to point out that the bill takes a vigorous approach in Section 105 to protect against misuse of funds made available through H.R. 16141; whereas, in Section 106, a conciliatory approach is adopted in enforcing the nondiscrimination requirement. While I am not going so far as to urge that Section 106 conform to the approach in Section 105, I wish to emphasize that the abuse of racial discrimination in federally assisted programs is far more damaging to society and to the affected minority groups than any conceivable fiscal abuse by State departments of education. The Federal Government always can sue to recover stolen or misappropriated monies, it cannot restore an educationally damaged child to its proper status in society or ever compensate a minority child for denial of his or her constitutional rights. TITLE II-PRIVATE EDUCATION Title II of H.R. 16141 provides for a credit against an individual's income tax for tuition paid by the taxpayer to "any private nonprofit elementary or secondary school" for a dependent. The amount of the tax credit is limited to the lesser of either the tuition paid or $200. The bill states that for the purposes of the Title a private nonprofit elementary or secondary school means an educational institution which is described in sections 501(c)(3) and 170(b)(1) (A) (ii) of the Internal Revenue Code of 1954 and which is exempt from tax under section 501 (a) of the Code. The Commission on Civil Rights is concerned with this provision of the "Public and Private Assistance Act of 1972." We have considerable doubt concerning the propriety of such an enormous level of Federal support to private schoolsschools which tend to serve rather limited and distinct religious and economic classes of our population-when such support will almost certainly limit the amount of Federal support extended in the future to the public schools. The re sult may be an erosion of local and State support for public schools to the irreparable damage to the education of all poor and minority group children. Our immediate concern, however, is that the granting of tax credits for tuition payments to private schools may encourage and support the establishment and maintenance of private segregated academies. The Commission on Civil Rights first investigated the creation and spread of segregated private schools and their impact on public school desegregation in our 1967 report on Southern School Desegregation 1966-67, a copy of which I would like to provide for the Committee's files at this time. Segregated private schools spread through the South in the 1960's following the beginning of effective implementation of the 1954 Brown decision. These so called "private" schools generally received substantial State support. Often the State or local school district sold or donated land, buildings, buses, text books and other school equipment to the private schools. Furthermore, eight of the Southern States adopted schemes of State grants for tuition payments to private schools in a further effort to frustrate the implementation of desegregation. In some States these grants were made to the parents of students choosing to attend the private schools themselves. The discriminatory purpose of these enactments was often quite clear. In some instances the tuition grant legislation was passed in connection with school closing laws or laws repealing compulsory school attendance. In other instances tuition grants were made available to parents who did not wish to send their children to desegregated schools. For example, in 83-453-72-pt. 3- -5 North Carolina funds were made available to every child who was "assigned to a public school attended by a child of another race against the wishes of his parent or guardian." Our 1967 report contained this specific finding with regard to segregated academies : "Many private segregated schools attended exclusively by white students have been established in the South in response to public school desegregation. In some districts such schools have drained from the public schools most or all of the white students and many white faculty members. Under the Internal Revenue Code of 1954, institutions organized and operated exclusively for charitable purposes and not for private benefit are exempt from paying income taxes and contributors to these institutions are entitled to deduct contributions, within certain limits, from their taxable income. Some racially segregated private schools have been approved by the Internal Revenue Service for the receipt of these tax benefits, while others have applications for these benefits pending before the Internal Revenue Service." It is this latter issue-the role of the Federal tax laws and their interpretation and enforcement by the Internal Revenue Service-that is our primary concern. We are pleased to note that H.R. 16141 by incorporating the Internal Revenue Code's definitions of tax exempt institutions whose tuition charges qualify for tax credits has thereby incorporated the interpretations given those sections by a three-judge Federal court in the cases of Green v. Kennedy and Green v. Connally-a development in the law which occurred in part because of the Commission's 1967 report. Mr. Chairman, the Internal Revenue Code, as interpreted by Green v. Connally, does not permit tax exempt status or the deduction of charitable contributions to segregated private schools. The court based its holding on its reading of the Code in light of the public policy against racial discrimination in education. It strongly indicated, however, that if it were not able to base its holding on this statutory interpretation it would have been compelled to find that Federal support for private segregated schools through tax benefits was unconstitutional. As the court stated in its earlier decision: "The Federal Government is not constitutionally free to frustrate the only constitutionally permissable state policy, of the unitary school system, by providing Government-support for endeavors to continue under private auspicies the kind of racially segregated dual school system that the state formerly supported." Further, although the specific order is limited to Mississippi, the court clearly indicated the applicability of the principles of its decree to private schools throughout the Nation. The court stated: "To obviate any possible confusion the court is not to be misunderstood as laying down a special rule for schools located in Mississippi. The underlying principle is broader, and is applicable to schools outside Mississippi with the same or similar badge of doubt. The court continued: "The Service would be within its authority in including similar requirements for all schools of the nation." Unfortunately, the court's reliance on the good faith efforts of the Internal Revenue Service to implement the decree nationwide has proved to be unjustified. The Commission on Civil Rights has found that in many cases the IRS is not fully carrying out what we believe are its obligations under the Green order. In our publication The Federal Civil Rights Enforcement Effort: One Year Later of November 1971 which I will submit for your consideration, the Commission noted that the IRS in a Revenue ruling interprets a racially nondiscriminatory policy for private schools to mean that: "... the school admits students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs." This interpretation by IRS does not encompass nondiscrimination in teacher employment. The Green decree required the IRS to collect racial data on the faculty and administrative personnel of private academies in Mississippi. The IRS, however, insisted that this data is only to be used to determine whether the academies discriminate as to students. The Service further argued that no public policy required it to consider private schools' employment practices since employment practices of educational institutions were excluded from the coverage of Title VII of the Civil Rights Act of 1964. This reason, which was questionable in the first place, now is clearly wrong in view of the recent amendments to Title VII to include educational institutions in the Equal Employment Opportunities Enforcement Act of 1972. Furthermore, the IRS position ignores the fact that the Department of Health, Education, and Welfare for years has prohibited faculty discrimination in public schools under Title VI of the 1964 Civil Rights Act. Although the Commission believes the Green order does not exhaust the enforcement function of the Service, IRS has not required that schools outside Mississippi submit the information the court ordered be obtained from Mississippi schools, "unless there is a reason to doubt the good faith of a school's declaration of a nondiscriminatory policy and an examination is conducted.” The IRS only requires schools outside Mississippi to submit a statement indicating whether the school's admission policies and practices are nondiscriminatory (and, if so, to indicate how this has been publicized), but these statements are not accompanied by specific statistical data. I am sorry to report that the IRS and the Treasury Department have not improved their enforcement efforts since our 1971 report. In July of this year, Father Hesburgh, Chairman of the Commission, wrote to the Secretary of the Treasury concerning the Internal Revenue Service's enforcement of its policy on discrimination in nonpublic schools. The Secretary responded: "There has been no change in the IRS policy within the last nine months with regard to its program against racial discrimination in private nonprofit schools. "The IRS has not altered its decision to exclude teacher employment from its racially nondiscriminatory requirements . "There has been no decision to expand the type of enforcement program required in the Green v. Connally case to states other than Mississippi." At this point I would like to submit the response of Secretary Shultz to Chairman Hesburgh as well as the complete file of correspondence between the Commission and the IRS and Treasury dating back to 1967. This record is necessary to support our recommendations with respect to Title II of H.R. 16141. As I indicated earlier the provisions of the Internal Revenue Code which are referred to in Title II of H.R. 16141 do not permit the granting of tax credits for tuition payments to segregated private schools. But in light of the IRS's failure to enforce this prohibition, the Commission feels that specific enforcement provisions must be included in the Title. These provisions should explicitly require the IRS to collect information in all States, including a racial breakdown of students attending and applying to the private school the disposition of available scholarship and loan funds, and a racial breakdown of faculty and administrative staff. In addition, the provision should require that each school publicize its racially nondiscriminatory policy. I would also like to suggest that the field review and other enforcement of these provisions be given to the Department of Health, Education, and Welfare. That Department possesses the expertise and personnel to determine whether a private school actually is segregated or not; the Secretary could certify to the Commissioner of the Internal Revenue Service that he has found a private school to be operating on a segregated basis in violation of the law. Upon receipt of such a certification, the Commissioner would withdraw the tax exempt status of the institution and thereby under the terms of Title II not grant tax credits for tuition payments to such institutions. The adoption of such a procedure, we believe, would relieve the Service of an enforcement burden while at the same time strengthening the overall enforcement effort. CONCLUSION In summary, the Commission expresses no view on the equalization payments provided in Title I, other than to note the reservation that Congress might wish to postpone action until the Supreme Court has spoken on the school finance equalization question and established standards in this area. The nondiscrimination enforcement provisions of Section 106 should be made consistent with existing Federal civil rights enforcement policies and laws. Lastly, we feel that in view of the five year record of non-enforcement by the Internal Revenue Service with respect to segregated private schools, the Congress should specifically require evenhanded and effective enforcement of the Code as interpreted by the Court in the Green decisions in all States, not just in Mississippi, and place the responsibility for compliance review in the Department of Health, Education, and Welfare. Rev. THEODORE M. HESBURGH, THE SECRETARY OF THE TREASURY, Chairman, U.S. Commission on Civil Rights, DEAR FATHER HESBURGH: This is in response to your letter dated July 3, 1972, in which you ask that we provide you with information on relevant action taken by this agency to enforce its civil rights efforts. Your request is directed specifically to the enforcement of the Internal Revenue Service (IRS) policy on discrimination by nonpublic schools. Under this policy a school that has not established a racially nondiscriminatory policy as to students will not be recognized as exempt from Federal income taxes. Revenue Ruling 71-447 defines "a racially nondiscriminatory policy as to students" as meaning that "the school admits students of any race to all the rights, privileges, programs and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs." The term "nonpublic schools" as you used it in your letter is construed to mean private nonprofit schools. Your first question asks for a description of the organizational structure created to enforce the IRS policy on racial nondiscrimination by such schools, indicating the locus and degree of authority and responsibility of each unit. The organizational structure for administering exempt organizations provisions of the Internal Revenue Code is reflected in the attached chart (Attachment 1). The enforcement of the IRS policy on racial discrimination by private nonprofit schools is handled within the existing organizational structure established for the exempt organizations program. No special organization was set up to handle private nonprofit school cases. The field enforcement program is under the jurisdiction of the Office of the Assistant Commissioner (Compliance) which has an Exempt Organizations Examination Branch within its Audit Division that plans, implements, and evaluates nationwide programs for the examination of exempt organizations' returns and records. This Branch issues procedural material required for the execution of exempt organizations examinations and reviews revenue agent reports for quality and uniformity of exempt organizations examinations. This Branch maintains close communication and liaison with the Office of the Assistant Commissioner (Technical) on exempt organizations matters. The actual field operations are centralized in 16 key districts identified in the News Release dated January 29, 1970, attached (Attachment 2). Key districts process applications for recognition of exemption, conduct examinations of exempt organizations, and make appropriate recommendations as to the exempt status and the advance assurance of deductibility of contributions. Within the Office of the Assistant Commissioner (Technical), there is the Exempt Organizations Branch which has jurisdiction over substantive questions relating to the program. This Branch drafts Revenue Procedures and Revenue Rulings relating to exempt organizations matters, processes complex applications for recognition of exemption referred to it from the key districts, reviews recommendations made by the key districts, and furnishes technical advice to those districts relative to specifically identified problem areas or cases. You then ask for the current number of full-time, professional staff within IRS who devote more than half their time to enforcement of the policy concerning racial discrimination by private nonprofit schools and to provide the total manhours spent in FY 1972 by the staff implementing this policy. The IRS does not have a designated full-time, professional staff specifically assigned to the enforecment of this policy. The man-hours expended in such enforcement are set out below. Field personnel expended 9.384 man-hours and National Office personnel 11.278 man-hours during FY 1972 in conducting surveys of the admissions policy of all private nonprofit schools that held favorable tax exemption rulings in field examinations of certain schools, in processing applications for recognition of exemption and other related work. FY 1972 man-hours broken down by Regions and the National Office are as follows: |
