How much should government regulate private schools? Our law firm regularly helps our nonprofit educational clients to address nonprofit corporate formation, Section 501(c)(3) tax-exempt status, and a myriad of other legal compliance and risk management aspects for private schools. This article focuses on three areas: government regulation of schools particularly in light of COVID’s impact, religious freedom implications of government-mandated non-discrimination requirements, and the evolving “tax subsidy” theory specifically within Title IX’s educational funding context.
Government Registration and Regulation in COVID’s Wake
State and local governments have long regulated private schools in various ways, such as for fire safety, health and immunization requirements, food preparation safety, and attendance-related requirements. States do not necessarily require private schools though to register or to seek other recognition with state boards of education; such efforts may be voluntary. Doing so typically comes with significant benefits, however, such as state-recognized diplomas, eligibility to participate in state-sanctioned sports programs, and eligibility for government grants. But such government benefits may well come with strings – and in connection with COVID, such “strings” intensified and became quite unattractive for some schools.
Using Illinois as an example, private schools may voluntarily register with the Illinois State Board of Education (ISBE) on an annual basis. To be eligible for ISBE registration, an Illinois school must be incorporated as an Illinois not-for-profit corporation, must be open and have students enrolled, and must offer at least two grades between PreK and 12.[1] But neither institutional private schools nor home school groups need permission from the State of Illinois to form or serve students, nor are any registration forms required.[2]
Private schools in Illinois additionally may voluntarily seek “recognition” status with ISBE, which is available one year after being registered. Obtaining “recognized” status involves compliance with specific ISBE guidelines and procedures related to administration, educational content, personnel requirements, and health and safety. Recognition also requires an initial examination process and ongoing oversight by ISBE.[3]
The available benefits of ISBE recognition include: 1) eligibility to participate in Illinois’ Invest in Kids program,[4] which provides a tax credit to interested supporters; 2) eligibility for membership in the Illinois High School Association; 3) participation in Illinois Elementary School Association sanctioned sports, contests, and tournaments; 4) state-recognized diplomas; 5) eligibility to receive safety and educational improvement block grant funding; and 6) participation in the textbook block grant program.
But what the state giveth, the state can taketh away, at least sometimes. Private schools that are registered or recognized can also lose such status for failing to comply with and maintain government-imposed requirements. Efforts to strip schools of their government-recognized status became front and center in 2021 when many school employees and parents challenged Illinois Governor Pritzker’s COVID emergency mandates affecting schools. These legal battles largely resulted with court rulings on procedural grounds, namely that that the ISBE, the Illinois High School Association, and Illinois Department of Public Health had not complied with their own procedures or the rule-making process.[5]
The clear lesson here is that private schools can indeed be de-registered and de-recognized, but only if schools do or fail to do something that provides sufficient legal grounds for such action. And while the litigation efforts to push back against emergency-related government regulation were successful, the schools’ victories came at a significant cost not only financially but also in terms of internal strife within schools, uncertainty in terms of whether such government favor would be removed, and related leadership challenges. For registered and recognized private schools, the impact of government regulation and potential shifts thus should be taken seriously – whether in extreme situations like COVID or otherwise.
Non-Discrimination Requirements and Religious Freedom
The IRS has long required private schools to affirmatively refrain from any racial discrimination, as a condition of Section 501(c)(3) tax-exempt status and as a vestige of the Civil Rights era.[6] But what about other types of discrimination issues, such as sexual orientation and gender identity (“SOGI”)? Significant tensions may exist for many organizations, including schools, that seek to make faith-based distinctions that are contrary to increasing SOGI-related legal prohibitions.[7]
Using Illinois as an example, the Illinois School Code and applicable sections of the Illinois Administrative Code require that non-public schools comply with federal and state laws addressing a wide variety of nondiscrimination categories.[8] Additionally, Title VI, VII, and IX of the federal Civil Rights Act and the Illinois Human Rights Act contain similarly broad-ranging non-discrimination requirements.
These types of non-discrimination laws are commonly grounded in "public accommodation” legal status. Such laws make it illegal to refuse access or services that are generally made available to the public.[9] The term “public accommodations” may include public elementary or secondary schools or other places of education,[10] but it typically does not apply to private schools that are religious in nature. Indeed, the Illinois Human Rights Act specifically includes “non-sectarian” elementary and secondary schools in its definition of public accommodations but, by exclusion, does not include religious (aka “sectarian”) schools.[11]
Sectarian schools thus should retain religious liberty protections to make faith-based distinctions in their operations and practices (including employment, admission decisions, and conduct expectations) without violating discrimination prohibitions.[12] To do so, they may need to take additional measures to clarify and communicate their religious identity such as through corporate governance documents that reflect religious attributes, employee handbooks with a statement of faith and standards of conduct, similar religious job descriptions, student conduct handbooks, and other school materials.
Title IX – Outlier Cases or Trend?
Despite well-established legal protections, the landscape related to discrimination and what rights religiously oriented entities can expect continues to evolve. Litigation developments are thus important to monitor, with the caveat that judicial rulings among jurisdictions can be inconsistent. Such cautions are evident in two recent federal court rulings addressing whether religious schools are subject to Title IX non-discrimination requirements based solely on their status as Section 501(c)(3) tax-exempt entities.[13] Title IX refers to the title within the Higher Education Act (first enacted in 1965 in the wake of the Civil Rights Act) that prohibits discrimination on the basis of sex in any education program or activity that receives federal financial assistance.[14] Since most all public schools and many private schools receive some type of federal financial assistance (such as federally-subsidized school lunch programs), Title IX has an extremely broad reach.
In both recent cases, the plaintiffs argue that mere status as a tax-exempt organization constitutes “federal financial assistance,” under the highly suspect “tax subsidy” theory. This theory depends in turn on an expansive view of government power and control, essentially the presumption that tax exemption equates to withholding money that otherwise belongs to the government.[15] Under this argument, the panoply of restrictions for expenditure of government funds should apply equally to Section 501(c)(3) organizations, including Title IX, based merely on these organizations’ tax-exempt status.
Thus far, the trial courts have each allowed the litigation to proceed beyond preliminary motions.
Notably, however, this argument that mere tax-exempt status equates to federal financial assistance has not yet otherwise been accepted.[16] Additionally, the U.S. Supreme Court has recognized that Section 501(c)(3) tax-exempt status only involves minimal and remote government involvement, properly restricts the fiscal relationship between church and state, and protects the religious freedom of tax-exempt organizations far more than taxation would.[17] Hence it would be illogical to use tax-exempt status to restrict that freedom, as these trial court decisions would do.
These recent federal cases are still in process; hopefully the tax subsidy rulings will not stand on appeal. Nevertheless, private religious schools are wise to proceed deliberately and be aware of applicable legal considerations and recent decisions that may apply in their individual jurisdictions.
Concluding Thoughts
Schooling is undoubtably an integral aspect of child development, and private schools and home schooling may be extremely beneficial for many families. Those involved with private schools should be aware of applicable legal requirements, including additional considerations like employment-related obligations and local health and safety regulations. Additionally, those seeking state registration and recognition for a private school should be aware of the requirements, benefits, and accompanying oversight involved. For optimal religious protection, private religious schools should maintain a strong religious identity and monitor religious liberty legal developments, as they seek to remain faithful to both their religious mission and applicable legal requirements.
[1] 23 Ill. Admin Code 425.20. The requirements listed above are not exhaustive.
[2] For home-schooled students, the Illinois State Board of Education (ISBE) has a voluntary registration form. Chicago Public Schools also requests a “Statement of Assurance for Parent-Taught Home Instruction.” Neither of these forms are required to be submitted in order to home school students. However, if a question arises regarding whether a school-aged child is attending school or if the schooling meets the minimum qualifications, the burden is on the home-schooling parent or guardian to demonstrate that the student is attending school and receiving adequate instruction in the required subjects. Illinois law requires that children between the ages of 6 and 17 attend school. Numerous resources are available to home-schooling parents in Illinois including Illinois Christian Home Educators, and the Home School Legal Defense Association.
[3] Requirements for Recognition are contained in 23 Ill. Admin Code 425.30.
[4] See our law firm’s blog article, Illinois Tax Credit Program to Benefit Participating Taxpayers, Schools, and Students.
[5] See Red Hill Community Unit School District v. ISBE, Hutsonville Community Unit School District v. Illinois State High School Association, Austin v. Pritzker, et al.
[6] For more information about this IRS requirement, particularly as addressed through the U.S. Supreme Court’s landmark Bob Jones ruling, please see S. Wagenmaker, Why Religious Organizations Shouldn’t Lose Tax-Exempt Status Based on Public Policy, Post-Obergefell.
[7] Within the employment context, see our law firm’s blog articles: SCOTUS Broadens Employers’ “Ministerial Exception” Protects and Demkovich: The Ministerial Exception Bars Harassment Claims Too. With regard to government grant programs, see our law firm’s blog article, Espinoza: Upholding Taxpayer Support for Religious and Non-Religious Schools Alike.
[8] 105 ILCS 2-3.25o; 23 Ill. Adm. Code 425.20(a)(2)(H), 30(d)(2)(B).
[9] For example, federal law prohibits denial of access and services by establishments open to the public, such as hotels, restaurants, lunch counters, retail facilities, and movie theaters, but only on the basis of race, color, religion, or national origin – not sex. See 42 U.S.C. 2000a. State and local laws may or may not include sex, sexual orientation, and gender identity as protected classifications with respect to public accommodations.
[10] See, e.g., 775 ILCS 5/5-101(A)(11).
[11] 775 ILCS 5/5-101(A)(11).
[12] Note, however, the recent litigation involving Yeshiva University, which is unquestionably religious in nature. The University has argued that its religious freedom extends to the ability to deny recognition of an LGBT club, but thus far such argument has been rejected by New York courts and not garnered further relief from the U.S. Supreme Court.
[13] See Buettner-Hartsoe v. Baltimore Lutheran High School Association, E. H. v. Valley Christian Academy.
[14] 20 U.S.C. § 1681.
[15] For further reading on this “tax-subsidy” theory, see our law firm’s blog articles: Giving Thanks for Charitable Tax Exemption and “Play Between the Joints” and Tax Theory: Reflections on Seventh Circuit’s Clergy Housing Allowance Ruling.
[16] See, e.g., Johnny’s Icehouse, Inc. v. Amateur Hockey Ass’n, 134 F. Supp. 2d 965, 971-72 (N.D. Ill. 2001).
[17] Walz v. Tax Com. of New York, 397 U.S. 664, 676 (1970).
