Education Funding

Justices Allow Suit Challenging Tax Credits

By Caroline Hendrie — June 23, 2004 5 min read
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A lawsuit challenging Arizona’s tax credit for scholarships to private schools will move forward following the U.S. Supreme Court’s ruling last week that federal courts have the authority to hear such claims.

The 5-4 ruling on June 14 came on a busy day during which the justices also accepted the appeal of an Alabama high school coach that raises significant questions about the enforcement of the federal law that prohibits sex discrimination in education programs that receive federal funds. That day, too, the justices left public schools free to lead students in reciting the Pledge of Allegiance. (“Pledge Stays Intact as Justices Dismiss Atheist’s Challenge,” this issue.)

In the Arizona case, the court held that a federal district judge was wrong when he threw out a challenge to the state’s program of tax credits for donations to private tuition scholarships. The judge had held that the lawsuit was barred by a 1937 statute designed to limit the federal courts’ jurisdiction over disputes about state taxes.

That decision was overturned by the U.S. Court of Appeals for the 9th Circuit, in San Francisco, and the Supreme Court’s majority opinion in Hibbs v. Winn (Case No. 02-1809), written by Justice Ruth Bader Ginsburg, affirmed that reversal.

In practical terms, the high court’s decision clears the way for the lawsuit brought by a group of Arizona taxpayers challenging the state’s tax credit as a violation of the U.S. Constitution’s ban on government-established religion. Under the program, taxpayers can claim credits on their state income taxes for donations to organizations that provide scholarships to private schools, including religious ones.

The question before the justices was whether the suit was barred by the federal Tax Injunction Act, which says federal courts cannot “enjoin, suspend, or restrain the assessment, levy, or collection of any tax under state law” when “a plain, speedy, and efficient remedy” is available in state courts.

Justice Ginsburg said federal courts have heard challenges to state tax breaks for private school tuition in a line of cases stretching back nearly 50 years, without construing the tax statute as barring their jurisdiction. She also cited cases in which federal judges have struck down attempts by Southern states to use their tax codes to help private schools in the wake of the high court’s 1954 desegregation ruling in Brown v. Board of Education of Topeka.

“It is hardly ancient history that states, once bent on maintaining racial segregation in public schools, and allocating resources disproportionately to benefit white students to the detriment of black students, fastened on grants and tax credits as a promising means to circumvent Brown v. Board of Education,” Justice Ginsburg said.

She was joined by Justices John Paul Stevens, Sandra Day O’ Connor, David H. Souter, and Stephen G. Breyer.

Dissenting Opinion

Justice Anthony M. Kennedy argued in a dissent that the Tax Injunction Act should be interpreted as making state courts the proper forum for lawsuits affecting all elements of state tax systems, including suits challenging tax breaks.

Justice Kennedy, joined by Chief Justice William H. Rehnquist and Justices Antonin Scalia and Clarence Thomas, contended that the majority opinion evinced “great skepticism for the state courts’ ability to vindicate constitutional wrongs.”

Arizona Attorney General Terry Goddard voiced disappointment last week, saying that “state courts should have the last word on challenges to state tax actions.”

In 1999, the Arizona Supreme Court rejected a challenge to the tax-credit law, finding that it did not violate federal or state constitutional prohibitions against government aid to religion. Now the case is expected to go back to U.S. District Court in Phoenix.

Marvin S. Cohen, a Scottsdale, Ariz., lawyer who represents the plaintiffs, said the federal suit differs from the earlier one in state court by focusing chiefly on the tax credit as implemented, rather than the law on its face. The federal suit points to the high proportion of tax credits claimed for scholarship contributions meant to aid to religious schools.

Clint Bolick, the president of the Phoenix-based Alliance for School Choice, denounced the Arizona suit as “the most frivolous” of the current challenges around the country to various types of public funding for private schools.

“The program is constitutional because it provides aid to needy students, not to religion,” said Mr. Bolick, who remains affiliated with the Institute for Justice, a public-interest law firm in Washington that has intervened in the Arizona case to represent low-income scholarship recipients.

Coach’s Case

Separately last week, the Supreme Court accepted the appeal of a high school teacher, Roderick L. Jackson, who maintains that the 34,500-student Birmingham, Ala., school district illegally retaliated against him for complaining about discriminatory treatment of the girls’ basketball team that he coached.

In Jackson v. Birmingham Board of Education (No. 02-1672), the court will consider whether Title IX of the Education Amendments of 1972 should be interpreted to allow suits over such retaliation. A related question is whether such suits can be brought by individuals, such as Mr. Jackson, who were not the direct victims of the alleged discrimination under Title IX.

Mr. Jackson, a physical education teacher at Ensley High School, said he was stripped of his coaching duties after complaining to his superiors that his girls’ team was being shortchanged compared with the boys’ squad.

Because Title IX does not specifically prohibit retaliation for complaints, the school district—which denies Mr. Jackson’s allegations of both discrimination and retaliation—argues that such suits are not permitted under the statute. The U.S. Court of Appeals for the 11th Circuit, in Atlanta, agreed in a ruling in 2002.

But in a brief filed last month at the request of the high court, U.S. Solicitor General Theodore B. Olson urged the court not only to take the case, but also to reverse the 11th Circuit decision. Echoing a point made by the National Women’s Law Center, a Washington-based organization representing Mr. Jackson, Mr. Olson said that teachers and coaches are often in a better position than students to recognize and complain about violations of anti-discrimination laws.

The case will be argued in the court’s next term, which begins in October.

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