Copyright 2000 - 2002 (c) Kenneth R. Conklin, Ph.D. All Rights Reserved
What does the Rice v. Cayetano decision say about whether the admissions policy is racist? Will the school be able to keep its admissions policy and still keep its tax-exempt status? Will the school be able to keep its admissions policy at all, even without the tax exemption? Will the answers to these questions change if the U.S. government recognizes kanaka maoli as being an Indian tribe?
KS/BE is a tax-exempt charitable trust. Thus far, the U.S. Internal Revenue Service has allowed KS/BE to remain tax-exempt, even with the racially exclusionary admissions policy. Why this is so is quite a mystery. Some have speculated that it is because of the powerful political connections cultivated by KS/BE, not only in the State of Hawai'i legislative, executive, and judicial branches, but also their powerful political connections at the federal level. Until the forced resignations and expulsions of the KS/BE board of trustees, there was a continuous policy of recruiting current elected legislators by paying them high retainer fees to work as consultants even while the legislature was in session. All trustees were selected by the justices of the Hawai'i State Supreme Court, as requested in the Will of the Princess, which probably made it difficult for the Justices to rule against the trustees they had selected when KS/BE issues came before the courts. Former leaders of the legislature became trustees, at high salaries. There were also interesting relationships between KS/BE and the federal government. For example, KS/BE at one time owned 10% of the shares of a major Wall Street brokerage firm, which was the same firm where the U.S. Secretary of the Treasury (boss of the IRS) had been a major shareholder and high-level executive before taking his government position.
As previously mentioned, the trustees came under severe attack in recent years. Their outrageously high self-determined salaries, approaching a million dollars per year per trustee, had provoked great criticism. The low percentage of income spent on education was severely criticized, and was one of the reasons the IRS investigated whether to discontinue their tax-exempt status. Financial scandals, self-dealing, mismanagement, political cronyism, and personal scandals provoked further scrutiny by the public as well as by the IRS. The IRS used its power to force the trustees out of office, threatening to rescind the tax-exempt status unless the trustees were all permanently removed and replaced. After the State Attorney General filed criminal and civil charges against some of them, there were some resignations. The Attorney General also sued to remove some of the trustees. Finally they were all gone and replaced by temporary trustees. The IRS allowed the tax-exempt status to remain in place, possibly because that was part of an agreement in return for significant reforms including expulsion of all trustees, adoption of a CEO management style, drastic reduction of trustee salaries, increase in expenditures on education, payment of millions of dollars in back taxes owed on profits from commercial enterprises, and other concessions.
But the IRS decision to continue the tax-exempt status was made before the Rice v. Cayetano decision was announced. That decision made no mention of KS/BE, and only concerned voting rights for trustees of a completely different institution (OHA). Nevertheless, the Rice decision will probably force KSBE to give up its racially exclusionary admissions policy to be able to keep the tax-exempt status. If the trustees are forced to choose between the current admissions policy and the tax-exempt status, their hearts tell them to keep the admissions policy and give up the tax exemption; but their fiduciary duties under trust law will probably force them to keep the tax exemption and give up the admissions policy. Even without the issue of tax-exempt status, the admissions policy will have to give up racial exclusion because of general laws against racial discrimination in public accommodations and in schools receiving federal aid. The Rice v. Cayetano decision will bring about all these consequences, even though it only directly affected the right to vote for trustees of a different institution. The issues are complex, but will be explored below.
A 13-minute segment about Bishop Estate was a featured story on the nationally-broadcast TV program "60 Minutes." The TV exposee featured State of Hawai'i Attorney General Margery Bronster, Randy Roth (one of four authors of a newspaper series that exposed Bishop Estate corruption), and Henry Peters (Bishop Estate trustee and former Speaker of the House in the Hawai'i Legislature). A "real-player" file includes complete video and audio of the 13 minutes of actual broadcast content. Note that from about 11:00 to 11:30, Bronster says Bishop Estate looked into moving itself out of Hawai'i in order to incorporate under a mainland Indian tribe to avoid federal and state taxes on its business activities. It's no secret that Bishop Estate today (i.e., Kamehameha Schools) is strongly supporting the Akaka bill, perhaps because they hope to re-incorporate under the Akaka tribe to protect both the racially exclusionary admissions policy and to get total tax exemption for all business activity. The 13-minute TV exposee can be downloaded at:
http://hpam.hi.net/60minBishop/bishop.rm
Ken Conklin, the author of this website, is not a trust attorney, not a tax attorney, and indeed not an attorney at all! But I do have two degrees in mathematics, and a Ph.D. in philosophy. I have published numerous scholarly essays about complex issues, and have thoroughly read various legal decisions, most particularly the Rice v. Cayetano decision. So the following legal analysis is based on careful thinking by a person accustomed to doing careful thinking about complex issues, and who has carefully studied the Rice v. Cayetano decision. Comments from trust attorneys and tax attorneys are welcome, via the e-mail address at the bottom of this page. Please give specific permission in your commentary if you are willing to have your comments posted on this website.
To get things started, here are some observations made in another part of this webpage.
Supporters of the Kamehameha School admissions policy claim that it is NOT racially exclusionary. No races are in fact excluded. All races are represented in the blood of the students at Kamehameha School, because of intermarriage. Some children have Chinese ancestry, along with kanaka maoli. Some have Irish ancestry, along with kanaka maoli. The only requirement is that every child must have at least one drop of kanaka maoli blood -- at least one kanaka maoli ancestor.
However, 80% of the children of Hawai'i are prohibited from admission to Kamehameha School for no reason other than their failure to have the correct genetic makeup. This is racial segregation. It is apartheid. It would surely be considered racially discriminatory to require that nobody could live in a private suburban gated community unless he has Irish ancestry -- requiring a specific component of ancestry (one drop of Irish blood required for residency) is just as discriminatory as prohibiting a specific component of ancestry (one drop of African blood is sufficient to exclude from residency). Even privately owned restaurants or stores are not allowed to require or prohibit specific racial heritages as a condition of admission. And certainly the existence of a taxpayer subsidy (in the form of exemption from taxes, which others must then make up for) makes Kamehameha School far less "private" than a neighborhood restaurant or a mom-and-pop grocery store.
In the Rice v. Cayetano decision, the Supreme Court specifically looked at the requirement that a person must be kanaka maoli in order to vote in OHA elections. The Court explicitly stated:
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"Ancestry can be a proxy for race. It is that proxy here........ The State, in enacting the legislation before us [OHA], has used ancestry as a racial definition and for a racial purpose."
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The fact that people of Irish or Chinese ancestry get to vote in OHA (as long as they have that one precious drop of kanaka maoli blood) does not prevent the kanaka maoli requirement from being ruled as racially exclusionary. The intent is clearly to exclude people who are not of the "right" race. Exactly that same analysis which the Supreme Court applied to the voting restriction in OHA applies also to the admissions restriction at Kamehameha School. The admissions policy in its definition is racial, and in its intent and effect is racist.
The U.S. Supreme Court is very concerned about racial discrimination. It wrote the following extremely harsh language in the Rice decision, which applies equally well to the Kamehameha School admission policy:
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"The ancestral inquiry mandated by the State implicates the same grave concerns as a classification specifying a particular race by name. One of the principal reasons race is treated as a forbidden classification is that it demeans the dignity and worth of a person to be judged by ancestry instead of by his or her own merit and essential qualities. An inquiry into ancestral lines is not consistent with respect based on the unique personality each of us possesses, a respect the Constitution itself secures in its concern for persons and citizens."
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Of course Kamehameha School is a private institution, it is not a State. But the above paragraph is also a rationale that explains why racial discrimination is prohibited in public accommodations in general: places such as restaurants, private housing subdivisions, and private nightclubs. It is also a rationale that explains why racial discrimination is not allowed in schools which accept government funds, including taxpayer-supported scholarships or funds used for constructing facilities, purchasing supplies, or paying teachers. Most particularly for this discussion: it is also a rationale that explains why racial discrimination is not allowed in tax-exempt charitable organizations(whether or not they are trusts), because the tax exemption is a form of taxpayer support to the institution, which makes the institution a public accommodation.
The private lunch counters in the South were forced to desegregate several decades ago, even though they had no tax exemption. The University of Mississippi was forced to admit black student James Meredith. It did no good for Governor George Wallace of Alabama to stand in the school-house door, or Governor Orval Faubus of Arkansas to call out his troopers to prevent desegragation. Governor Lester Maddox of Georgia used his "pickrick drumsticks" (ax handles) to keep black people out of his privately-owned chicken restaurant, but finally had to let them in.
By now it should be clear that "kanaka maoli", "Hawaiian" and "Native Hawaiian" are racial classifications, and that racial discrimination is prohibited in tax-exempt organizations as well as in public accommodations. It doesn't matter whether they are privately owned, whether they are trusts, or whether they are charitable organizations.
Previously we saw that the trustees of Kamehameha School have changed the focus of the school from vocational to college-preparatory, despite the express provision of the Will to the contrary. And we have seen that the provision of the Will requiring teachers to be Protestants was struck down by the courts because it is contrary to law since the school's primary focus is not religious education.
Could the trustees go all-out to rescue the tax-exempt status AND the racially exclusionary policy by changing the curriculum of the school to focus on Hawaiian history and Hawaiian culture, with instruction exclusively in Hawaiian language, etc? As a practical matter, this might succeed. Much as it might like to, the school still could not officially discriminate on the basis of race. However, a curriculum de-emphasizing both college preparation and vocational training, in favor of a strong focus on Hawaiiana, might produce a student body almost entirely kanaka maoli. Very few non-kanaka maoli would have such a zealous commitment to Hawaiian studies that they would give up both traditional college preparation and training for jobs in the dominant culture in order to focus primarily on Hawaiian language, fishing with throw-net and spear, hula, taro cultivation, Hawaiian history, etc. Of course, most kanaka maoli might have similar misgivings!
The next time the IRS evaluates the tax exemption for Kamehameha School, it will do so in the wake of the Rice v. Cayetano decision, and will probably reach the conclusion that Kamehameha School cannot maintain its racially exclusionary admissions policy while also maintaining its tax-exempt status.
The question for the trustees will then be whether to give up the admissions policy or give up the tax exempt status. This is where trust law enters the picture. Trustees of a charitable trust are obligated by law to conserve the resources of the trust while carrying out the provisions of its founding documents. We previously saw that the racially exclusionary admissions policy is a matter within the discretion of the Kamehameha School trustees -- the admissions policy is NOT required by the Will of Princess Pauahi. The Will calls for a racial preference, not an exclusion; and it applies only in the case of orphans and indigents, who are only a small part of the student population. However, the trustees are absolutely required to conserve the assets of the estate. Therefore, the clear duty of the trustees under the laws governing charitable trusts is to maintain the tax exemption and give up the racially exclusionary admissions policy.
Even aside from the issue of tax exemption, the racially discriminatory admission policy is illegal under the laws governing public accommodations, whether or not they are privately owned. Private restaurants cannot discriminate by race, and neither can private schools. It is unclear whether the admissions policy will die because of the IRS tax exemption or because of the more general laws prohibiting racial discrimination. That will depend on who files a lawsuit first, or how the issue arises.
The Rice decision makes the abandonment of the admissions policy mandatory because, for the first time, the U.S. Supreme Court has clearly stated that "Hawaiian" and "Native Hawaiian" are racial classifications.
On May 25, 2001 the administration of Kamehameha School announced to the alumni that a charge of racial discrimination had been filed against the school. Here is the announcement:
US DOE Office of Civil Rights Receives Discrimination Complaint Against
Kamehameha Schools
On Monday, May 21, 2001, Kamehameha Schools received notification of a
complaint of discrimination that has been filed with the U.S. Department of
Education's Office of Civil Rights (OCR), Western Region. The complaint
alleges that KS discriminates against non-Hawaiians on the basis of race in
our admissions policy, specifically under Title VI, which prohibits
discrimination on the basis of race, color and national origin in programs
and activities receiving Federal financial assistance from the U.S. DOE.
KS legal counsel, in consultation with external legal counsel, is addressing
this issue. We will keep you informed as this matter progresses.
Kamehameha Schools
On September 8, 2001 the Honolulu Star-Bulletin reported that Kamehameha School has decided to give up $3 Million in current funding, and all future funding, from the U.S. Department of Education. Although it is withdrawing itself from such grant programs, the school will nevertheless work with other racially-restricted local institutions to steer federal grants to them. and to provide them with expertise in seeking and utilizing such grants. Clearly, Kamehameha School decided it does not want to subject itself to scrutiny regarding its racially discriminatory admissions policy. It probably fears that such scrutiny by the Department of Education Office of Civil Rights might cause the IRS to re-evaluate the school's tax-exempt policy; or might even result in the admissions policy being declared illegal. The school will now work behind the scenes, while hiding from direct scrutiny. For the Star-Bulletin article, see
http://starbulletin.com/2001/09/08/news/index.html
An important development occurred on July 11, 2002 when Kamehameha School announced it will admit one teenager with no Hawaiian blood to the 9th grade at its satellite campus on Maui. For details of the events leading up to this event, and the consequences of it, see
RECENT DEVELOPMENTS: Kamehameha School July 2002 -- First Steps Toward Desegregation?
But what if kanaka maoli are an Indian tribe? If this question seems odd or off-base, the reader should look at the section of this website about the issue of Indian tribe status for kanaka maoli.
The President can grant tribal recognition by executive order; but the next President can rescind it. Congress can grant tribal recognition that would be more stable. Courts can overturn tribal recognition which is granted improperly, and of course the Supreme Court can overturn any Presidential order or Act of Congress that is contrary to the Constitution. There will be interesting times ahead!
Indian tribes are allowed to discriminate racially, can exclude outsiders from their tribal reservations, and are exempt from federal and state taxes and regulations except as imposed by Congress or the Bureau of Indian Affairs on a tribe-by-tribe basis. Kamehameha School is a charitable trust under the laws of Hawai'i. It is not clear whether a charitable trust under the laws of a State can set aside its founding documents after 115 years and transfer its assets into an Indian tribe. It is not clear whether an Indian tribe can have a tribal school campus located many miles away from its reservation, and can have numerous other institutions scattered among non-tribal lands and non-Indian populations, and exclude non-Indians from all these scattered locations. Tax exemptions and racial preferences pertaining to Indian tribes do not apply outside tribal reservations. The jurisdictional issues are mind-boggling for the relations between a Kanakian wannabe tribe and the State of Hawai'i.
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