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High Court Hears Arguments In Title I Audit Lawsuits

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Washington--Lawyers for the federal government told the U.S. Supreme Court last week that the Education Department's ability to recoup misspent grant funds would be "eviscerated" if the Justices uphold rulings by federal appeals courts regarding audits of Title I programs in Kentucky and New Jersey.

In both cases, Bell v. Kentucky (Case No. 83-1798) and Bell v. New Jersey (No. 83-2064), the government contends that the appeals courts improperly set aside federal auditors' findings by misconstruing regulations governing the federal program for educationally disadvantaged children.

'Readiness Classes'

In the first case, the U.S. Court of Appeals for the Sixth Circuit held in September 1983 that Kentucky did not have to pay back $388,000 to the government because it made a "good-faith effort" to comply with Title I's requirement that school districts participating in the program use the funds to supplement, not supplant, funds from state and local sources. The case centered on an audit of Title I funds spent in 1974 for self-contained "readiness classes" for educationally disadvantaged 1st and 2nd graders in 50 Kentucky school districts.

In the second case, the U.S. Court of Appeals for the Third Circuit ruled in December 1983 that New Jersey did not have to repay the government more than $1 million in Title I funds allegedly misspent in Newark between 1970 and 1972.

The court ruled that regulations in effect at that time specifying in which school-attendance areas Title I funds could be spent frustrated the Congress's intent in creating the program. More liberal standards set by the Congress in 1978, the court held, were the proper measure by which the state's compliance with Title I should be judged.

The Court is expected to hand down rulings in the cases in late spring.

In Lieu of Taxes

In other action last week, the Court ruled 7 to 2 that states cannot require local goverment units to distribute federal payments in lieu of taxes in the same manner as they distribute general revenue.

At issue in Lawrence County v. Lead-Deadwood School District No. 40-1 (No. 83-240) was the federal Payment of Lieu of Taxes Act of 1977, under which local governments are compensated for the loss of tax revenue resulting from the tax-immune status of federal lands located in their jurisdictions. Local government officials are authorized under the act to use the funds "for any governmental purpose."

In 1979, the state legislature passed a law requiring local governments to distribute the payments in the same manner as taxes. Under this scheme, the Lead-Deadwood school district would have received 60 percent of the federal funds.

County officials refused to distribute the money in accordance with the state law, claiming that it was invalid under the Constitution's supremacy clause, which holds that federal laws supersede state laws when the two conflict.

A state trial court agreed with the county's position. The state's high court reversed the decision, holding that because the state law requires that funds be spent for governmental purposes, and since support of schools is such a purpose, it did not conflict with the federal law.

Court's Ruling 'Flawed'

The state high court's "plain-language analysis, however, is seriously flawed," wrote Associate Justice Byron R. White for the majority.

The federal law, he said, "seems to say that if the local government unit chooses to spend all of the money on roads, for example, it could do so."

"Under the state law, however, that is forbidden," he continued.

In passing the act, Justice White wrote, the Congress "recognized that the costs associated with maintaining and serving federal lands were varied and unpredictable, and that local governments needed the flexibility to allocate in-lieu payments to those needs as they arose."

One cost unlikely to vary greatly as a result of the presence of federal land, he said, is that of education. "Absent elaborate and speculative calculations and budget juggling, the allocation of federal payments in the same proportion as local revenue would most likely result in a windfall for school districts and other entities that are already fully funded by local revenues," he said.

Teacher Transfers

Also last week, the Court declined to review a federal appeals court's decision last July upholding a school district's voluntary practice of transferring teachers on the basis of their race to other schools to maintain racially balanced faculties. The case is Kromnick v. School District of the City of Philadelphia (No. 84-606).

In 1978, in order to qualify for federal school-desegregation aid, Philadelphia school officials agreed to adopt a racial-balance standard for teachers set by the Education Department's office for civil rights. Under that standard, the percentage of minority teachers employed in each school in the district was allowed to vary from 75 percent to 125 percent of the systemwide proportion of minority teachers at the elementary, middle, and high-school levels. Those proportions are now 42 percent, 40 percent, and 24 percent, respectively.

In 1982, the civil-rights office reviewed the teacher-assignment policy. It determined that the district was in compliance with federal regulations and stated that the district no longer needed to maintain the system to qualify for federal funds. The Philadelphia school board decided to maintain the system nevertheless, and four white teachers who were involuntarily transferred from their schools that year filed suit in federal court.

A federal district judge ordered the school district to stop using the system in January 1983, holding that it violated Title VII of the Civil Rights Act of 1964 and the white teachers' constitutional rights to equal protection under the law. The appeals court overturned that decision, holding that "a school district is competent to choose a race-conscious teacher-assignment policy to further educational goals."

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