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U.S. COMMISSION ON CIVIL RIGHTS,

Washington, D.C., November 7, 1968. Hon. HENRY H. FOWLER, Secretary of the Treasury, Washington, D.C.

DEAR MR. SECRETARY: On August 4, 1967, William L. Taylor, then Staff Director of the Commission, sent you a copy of the Commission's Southern School Desegregation, 1966–67, Report to be released that week. In his letter he called your attention to Recommendation No. 10 that the Secretary of the Treasury should request an opinion of the Attorney General as to whether Title VI of the Civil Rights Act of 1964 or the Internal Revenue Code authorizes or requires the Internal Revenue Service to withhold tax benefits presently being afforded by the Service to racially segregated private schools, or whether Congressional action is necessary to assure that such benefits are withheld. Mr. Taylor in his letter solicited your comments or reactions to the report, but our records do not indicate that any response was received.

On July 18, 1968, Mr. Taylor wrote to you a second letter inquiring about the present status of the policy of the Internal Revenue Service granting tax exempt status to segregated private schools. In this letter he also inquired whether you had sought an opinion of the Attorney General on the legality of this policy as recommended by the Commission in its 1967 Southern School Desegregation Report. The Commission has not yet received an acknowledgment of the receipt of this letter nor an answer to our inquiries.

In addition, Mr. Taylor on July 30, 1968, sent a letter to Commissioner Sheldon S. Cohen of the Internal Revenue Service expressing his concern about the approval of Federal tax benefits to the Nansemond-Suffolk Academy, a segregated private school in Suffolk, Virginia, and raised the possibility that a neighboring school might seek and be granted the same benefits. In this letter he indicated his view that the operation of this school is unconstitutional under a series of court decisions interpreting the Fifth and Fourteenth Amendments and recommended a reconsideration of the decision and current policy, especially in light of recent legal developments. Although the receipt of that letter was acknowledged and Mr. Taylor was informed that Commissioner Cohen would reply “as soon as possible,” no reply has been received.

I am greatly concerned that the Commission has not received the courtesy of a full response to its recommendations and correspondence. As Mr. Taylor pointed out in his letter to you, these segregated private schools continue to flourish in some areas and have a detrimental effect upon public school education. As a result of the Supreme Court's May decision in Green v. County School Board of New Kent County, Virginia, outlawing freedom of choice desegregation plans where they are ineffective, the number of segregated private schools in the South can be expected to grow.

May we please have your response on whether the Commission's recommendation was followed either in the manner recommended or in some alternative manner, and whether current legal developments have led to a reappraisal and change in the policy of the Internal Revenue Service? Sincerely yours,

JOHN A. HANNAH, Chairman.

U.S. COMMISSION ON CIVIL RIGHTS,

Washington, D.C., October 29, 1968. Hon. SHELDON S. COHEN, Commissioner, Internal Revenue Service, Washington, D.C.

DEAR MR. COHEN: I am enclosing a copy of a recent report by the Virginia State Advisory Committee to the United States Commission on Civil Rights in which that Committee recommends that “[t]he Internal Revenue Service should grant no tax exempt status or other tax benefits to private, segregated schools.” The recommendation of the Committee was based in part, on meetings held to investigate the schools of Nansemond County and Isle of Wight County.

In a letter to you dated July 30, 1968, then Staff Director William L. Taylor expressed his concern about the approval of tax exempt status and tax deductibility of contributions to the Nansemond-Suffolk Academy, a segregated private school in Suffolk, Virginia. Mr. Taylor also raised the possibility that similar status would be granted to the private Isle of Wight Academy. Mr. Taylor forwarded to you copies of our correspondence with Secretary Fowler that grew out of the Commission's recent report on Southern School Desegregation.

On August 8, 1968, Mr. Taylor's letter to you was acknowledged by A. S. O'Connell, Chief, Technical Services Branch. That letter stated that we would hear further from you “as soon as possible.” No reply has been received. Nor has the Treasury Department seen fit to respond to the recommendations made by the Commission in its report issued in July 1967.

I am greatly concerned that the Commission has not received the courtesy of a full response to its recommendations and correspondence.

I know that the Commission is vitally interested in this issue for it is greatly disturbed by the support Federal policy is giving to the growth of private, segregated schools in the South. The Commission is meeting on November 7, 1968, and I shall review this situation with them. Sincerely yours,

(Signed) HOWARD A. GLICKENSTEIN,

Acting Staff Director. Enclosures.

INTERNAL REVENUE SERVICE,

August 8, 1968. Mr. WILLIAM L. TAYLOR, Staff Director, U.S. Commission on Civil Rights, Washington, D.C.

DEAR MR. TAYLOR : Commissioner Cohen asked me to thank you for your July 30 letter, and enclosures, concerning the right to a tax exempt status of certain private schools. He will write to you further in the matter as soon as possible. Sincerely yours,

A. S. O'CONNELL, Chief, Technical Services Branch.

U.S. COMMISSION ON CIVIL RIGHTS,

Washington, D.C., July 30, 1968. Hon. SHELDON S. COHEN, Commissioner, Internal Revenue Service, Washington, D.C.

DEAR MR. COHEN: I have learned that on last Tuesday, July 23, the Internal Revenue Service approved for tax exempt status and tax deductibility of contributions the Nansemond-Suffolk Academy, a segregated private school in Suffolk, Virginia. There is also a possibility that a similar segregated private school, the Isle of Wight Academy, may submit a similar application. Information of the operations and financing of the private academies in Nansemond and Isle of Wight Counties has recently been gathered by the Virginia State Advisory Committee and staff of the U.S. Commission on Civil Rights. The Chairman of the State Advisory Committee has asked that I forward the information that it has obtained to you.

The Nansemond-Suffolk Academy, according to information obtained from the records of the county board of education, serves grades 1 through 12 while the Isle of Wight Academy serves only grades 1 through 8. Both institutions are segregated, all-white private schools established after the initial desegregation of the public schools in these counties for the purpose of avoiding public school desegregation mandated by Federal law. Students attending the NansemondSuffolk Academy received through State tuition grants and paid over to the school $76,177.75 during the 1967–68 school year. This amounts to approximately 46% of the school's income. This school is accredited by the State and adhere to various State regulations on curriculum and State-adopted textbooks. School officials consult frequently with public school officials on their mutual operations. The buses used by the private school were sold to it by the public school system. In addition, under the State's tuition grant statute, teachers in the private school are eligible to participate in the State teacher retirement fund, and the school itself qualifies for State tax benefits as a charity under Virginia law.

The Isle of Wight Academy, located in Isle of Wight, is housed in a former public school building which was declared surplus property by the public school system in June, 1966, and immediately sold for a reported $10,000 to a group of local citizens who established the private school. All of the Academy's teachers came from the public school system. Its buses were once owned by the public school system. The Assistant Superintendent of the Isle of Wight public schools told a staff investigator that when he purchased textbooks and other materials for the public school system, he also purchased a sufficient quantity for the private academy and then sold the books over the counter to private school officials. It is our understanding that this school too receives a substantial amount of State money through tuition grants and is accredited and regulated by State standards.

These elements of State involvement make the operations of the NansemondSuffolk Academy and the Isle of Wight Academy unconstitutional according to the decisions in Evans v. Newton, 382 U.S. 296 (1966); Burton v. Wilmington Parking Authority, 365 U.S. 715 (1961) ; Cooper v. Aaron, 358 U.S. 1 (1958); Commonwealth of Pennsylvania v. Brown, 392 F.2d 120 (3rd Cir. 1968), affirming 270 F. Supp. 782 (E.D. Pa. 1967) ; Simkins v. Moses H. Cone Mem. Hosp., 323 F.2d 959 (4th Cir. 1963), cert. denied, 376 U.S. 938 (1964); Poindexter v. Louisiana Financial Assistance Commission, 275 F. Supp. 833 (E. D. La. 1967), aff’d per curiam, 389 U.S. 571 (1968), and Lee v. Macon County Board of Education, 267 F. Supp. 458, 475–78, (M.D, Ala. 1967), aff'd per curiam, 389 U.S. 215 (1968). With regard to the tuition grants being less than 50% of the support of the school, whatever force the “preponderance test” announced in Griffin v. State Board of Education, 239 F. Supp. 560 (E.D. Va. 1965) (unappealed), may have had has since been dissipated by the Poindexter and Lee decisions cited above. But even if these tuition grants are terminated, the remaining elements of State involvement would mean that government was still entwined in the operations of the schools and the considerable momentum the schools have acquired as State-supported institutions would not be dissipated. Further, the public character of the schools would remain, and thus the segregated operations would continue to be unconstitutional under the Evans, Brown, and Lee decisions cited above.

In the case of the Nansemond-Suffolk Academy, I fail to understand how the Federal Government can continue to encourage the development of these segregated private schools formed to frustrate Federal policy by granting them Federal tax benefits, especially when these schools continue to be so generously aided and encouraged by State agencies as part of a State policy of blocking the Federal mandate. I strongly urge that the recent action of your agency be reconsidered. For your reference, I am enclosing a recent letter from me to Secretary of the Treasury Henry H. Fowler and a memo which accompanied that letter setting out the recent administrative and judicial developments relating to tax exempt status for segregated private schools.

I would greatly appreciate being informed of any further action your agency takes in this matter. Sincerely yours,

(Signed) WILLIAM L. TAYLOR,

Staff Director.

U.S. COMMISSION ON CIVIL RIGHTS,

Washington, D.C., July 18, 1968. Hon. HENRY H. FOWLER, Secretary of the Treasury, Washington, D.C.

DEAR MR. SECRETARY : In July 1967, the Commission completed an investigation of desegregation in Southern schools for the 1966–67 school year and issued a report containing a number of recommendations for action by Federal agencies and the Congress. In this report, which I enclose, the Commission made a specific finding on page 89 regarding the segregated private schools established throughout the South to avoid public school desegregation. The Commission found :

“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 educational 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 those tax benefits, while others have applications for these benefits pending before the Internal Revenue Service.”

On page 99 of the report the Commission recommended that the Secretary of the Treasury should request an opinion of the Attorney General as to whether

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Title VI of the Civil Rights Act of 1964 or the Internal Revenue Code authorizes or requires the Internal Revenue Service to withhold tax benefits presently being afforded by the Service to racially segregated private schools, or whether Congressional action is necessary to assure that such benefits are withheld.

Despite the Internal Revenue Service's August 2 announcement, these segregated private schools continue to flourish in some areas. In at least one Southern state, Virginia, these schools continue to accept students who receive substantial tuition grants paid out of state funds, although such tuition grant statutes have been declared unconstitutional in other states.

It now is nearly one year since the Commission's report was issued, and, as yet, we have not received any comments from the Treasury Department on our recommendation. I would like to know, first, whether the Commission's recommendation was followed and the Secretary of the Treasury did request an opinion of the Attorney General on the legality of Federal tax benefits for segregated private schools? Second, if some alternative procedure was followed to get a final decision on this difficult legal question, what was that alternative procedure and what was its outcome? Third, I would like to know what the current position of the Internal Revenue Service is with regard to Federal tax benefits for segregated private schools.

I am enclosing a staff memorandum outlining the recent administrative and judicial developments in this area. Sincerely yours,

(Signed) WILLIAM L. TAYLOR,

Staff Director. Enclosure.

U.S. COMMISSION ON CIVIL RIGHTS,

Washington, D.C., August 4, 1967. Hon. HENRY H. FOWLER, Secretary of the Treasury, Washington, D.C.

DEAR MR. FOWLER: Enclosed is a report to the President and to the Congress on Southern School Desegregation. The report is a followup to the Commission's Survey of School Desegregation in the Southern and Border States, issued in February 1966. I call your attention especially to Recommendation No. 10 beginning on page 150 and to Appendix VIII beginning on page 225.

The report is scheduled for release Tuesday, August 8, 1967. I would be glad to have the benefit of your comments on or reaction to the report. Sincerely yours,

(Signed) WILLIAM L. TAYLOR. Enclosure,

UNITED STATES COMMISSION ON CIVIL RIGHTS-LEGAL

APPENDIX

INEQUITY IN SCHOOL FINANCINGS THE ROLE OF LAW*

I. INEQUITY IN SYSTEMS OF SCHOOL FINANCE THROUGHOUT THE COUNTRY Inequality in school financing is currently a major national issue. Systems of school finance recently have been struck down on the basis of inequality by courts in California, Texas, Minnesota, Arizona, and New Jersey. Appeals from some of the cases are now progressing to the Supreme Court of the United States. On March 6, 1972, the President's Commission on School Finance issued its Final Report calling for numerous reforms in school finance. A number of State legislatures are in the process of making substantial changes in their systems of school finance. In the wake of all these developments ,the Administration is showing increasing interest in providing large-scale Federal aid to assist in restructuring school finance. The United States Commissioner of Education, Sidney P. Marland, for example, recently said he believed the Federal Government should pay 25 to 30 percent of the cost of public education rather than the 8 percent it presently pays.

Inequities in the Texas system of school finance is the focus of this Commission Report. The Report unravels three separate, cumulative ways in which the Texas system functions to provide grossly inequitable funding for predominantly Chicano school districts. First the minimum foundation formula, nominally an equalizing device, operates in such a fashion that it provides less money for the predominantly Chicano school districts. The formula by which the local district fund assignment is computed is the second source of inequity. Though supposedly a fair measure of the share that districts are financially able to contribute to the minimum foundation plan, the local fund assignment formula is replete with discriminatory features. The third source of inequity in the Texas system of school finance is the use of local property taxes to supplement the minimum foundation plan. The cumulative effect of these inequities is that in spite of the minimum equalizing effect of State aid and the higher tax rates prevalent among predominantly Chicano school districts, per pupil expenditures from State and local revenue sources are below those in primary Anglo districts ranging from a high of about $675 in districts 20 to 30 percent Mexican American to $340 in districts 80 percent or more Mexican American.”

Perhaps Texas is unique in that its system of finance clearly operates to the financial detriment of minority group children (Chicano in this case). The in

* This survey was prepared for the Commission by Howard A. Glickstein, B.A. 1951, Dartmouth College ; LL.B. 1954, Yale University, LL.M. 1963, Georgetown University, and William L. Want, B.S. 1967, Washington and Lee; LL.B. 1970, Yale University.

1 See Coons, Clune, and Sugarman, “A First Appraisal of Serrano”, 2 Yale Rev. of Law and Social Action 111, 112 (winter 1971) where the authors predict that it is likely that one of the school finance cases will reach the U.S. Supreme Court in the next 18 months. See also note infra.

See, e.g., Washington Post, Mar. 15, 1972, sec. B at 1, cols. 6-7 which reports that the Ways and Means Committee of the Maryland House of Delegates has approved a bill “radically redistributing State aid to public schools in Maryland. " The Committee agreed to withdraw its proposal after it was assured by the Governor that he will introduce his own bill next year. Washington Post, Mar. 22. 1972 sec. C at 1, col. 8. 3 N.Y. Times, Jan. 10, 1972, sec. E, at 25, col. 1.

7 See pp.

See pp.-supra. 5 See pp.-supra. • See pp. — supra.

supra. 8 This report points out that, in contrast to Texas, in the other Southwestern StatesCalifornia, Arizona, New Mexico, and Colorado—the majority of Chicano pupils are in predominantly Anglo districts. This made it very complex to separate out the affect of the State finance systems on Mexican Americans, as tinguished from Anglos, attending school in the same district. See pp. supra. In California, it also appears that a majority of minority group pupils reside in districts that are not financially disadvantaged. See Coons, Clune, and Sugarman,”. Private Wealth and Public Education 356–57, n. 47°(1970). Coons, Clune, and Sugarman discount the relationship between race and financial inequities : "There is an understandable tendency to treat the school finance issue as an outrider of the racial problems of public education. .

The fact is otherwise. There is no reason to suppose that the system of district-based school finance embodies a racial basis. The districts which contain the great masses of black children ordinarily also contain great masses of white children. There well may be very significant racial dollar discrimination within districts but that is another problem; to lump it with interdistrict discrimination is totally misleading." (Emphasis added) Id. a 355-57.

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