Wednesday, June 23, 2021

Private Schools, P.P.P. Loans, and Racial Discrimination

Historically, since private schools have not received federal funds, they have not been subject to civil rights laws, including Title VI of the Civil Rights Act of 1964 (“Title VI”), which prohibits discrimination on the basis of race, color, or national origin.  However, loans associated with the Paycheck Protection Program (“P.P.P. loans”) have changed this landscape.  The $659 billion program was intended to help, among others, nonprofits who needed assistance with making payroll by using loans backed by the Small Business Administration.  Perhaps surprisingly, in the words of The New York Times, it was private schools who “cashed in” on the P.P.P. loans.  See Private Schools Cashed in on P.P.P. Funding.

While public schools were ineligible for P.P.P. loans, private and charter schools could and did apply for loans, despite their multi-million dollar endowments.  When P.P.P. funding dissipated quickly, the Small Business Administration revised its guidelines to clarify that those with other financing options should stop submitting applications.  Yet, in order to stem the tide, additional rule tightening was required.  Minority focused lenders and watchdog organizations raised concerns about equity and loopholes in terms of the loans. 

Nevertheless, there may be a silver lining to private schools’ cashing in on P.P.P. loans.  Perhaps unknowingly, the private schools have made themselves subject to Title VI requirements by virtue of receiving federal funds.  The P.P.P. loan application specifically states that borrowers must comply with several civil rights laws, such as Title VI.  As noted above, Title VI prohibits discrimination on the basis of race, color, or national origin.  This means that private schools cannot engage in racial discrimination against employees, students, parents, or other participants.  This includes in terms of employment, admissions, enrollment, and other treatment. 

An interesting question is whether Title VI imposes prohibitions against racial discrimination not covered by section 501(c)(3).  One definite difference is that private schools who have accepted P.P.P. loans now may have to pay compensatory damages to individuals who prove intentional discrimination in lawsuits against the schools.  In addition, injunctive relief may be awarded to such individuals.  At the very least, due to the receipt of P.P.P. loans, some private schools now are subject to causes of action from individuals and families who have faced racial discrimination at their hands.  Over the years, organizations such as the ACLU have despaired that no such actions were possible, but that has now changed.

 

Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law

Tulane Law School

https://lawprofessors.typepad.com/nonprofit/2021/06/private-schools-ppp-loans-and-racial-discrimination.html

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