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Federal Government Could Withhold Funds Over HB2. Would It?

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North Carolina receives nearly $4 billion in federal funds to support the state's public schools and university system. That's money the state could lose because the U.S. justice department deems House Bill 2 discriminates on the basis of sex by not allowing transgender people to use the bathroom of the sex with which they identify. "Could" is the operative word though.

First, some background. How is the federal education money divvied up in North Carolina? 

The state's public schools receive about $1.4 billion. That's about an eighth of public schools' k-12 budgets. The UNC system receives about that same amount, mostly through research and Pell grants. Another $800 million goes to students in the form of federally-backed student loans that are subject to Title IX.  You also have money tied to the Violence Against Women's Act. And then there are other federal agencies like the Department of Transportation reviewing HB2 to see if it puts the state in violation of other federal programs and policies. That could add up to a lot more money.

Critics of House Bill 2 say this legislation jeopardizes all of this money. Is that the case?

There certainly have been instances where federal agencies have withheld money, but that doesn't happen often. Usually the threat alone is enough to get schools, states to comply. William Yeomans spent more than twenty years in the justice department's civil rights division. He's now a law professor at American University. 

"The threat of a fund cut off gives federal agencies enormous leverage. It really is a nuclear weapon in these types of disputes and it's one that, I think, everybody would prefer to avoid," says Yeomans.

That's especially true when the stakes are so high. You're talking about a whole state, not just one school or county. 

Has the federal government actually threatened North Carolina with withholding money? 

No, not explicitly. But there's certainly something unsettling about getting a letter from the justice department saying that as a recipient of federal financial assistance, you must comply with federal law and that you are indeed violating it. In this case, that law is Title IX which prohibits discrimination on the basis of sex in education programs, as well as the Violence Against Women Act and Title VII of the Civil Rights Act, the justice department says. That's the letter the UNC system received last week.

At a press conference Monday, a reporter asked Attorney General Loretta Lynch what is her threshold for going after North Carolina's federal funding. 

"We are deferring on requesting the curtailment of funding now, but we do retain that right. It would be premature right now to give a date on when we will actually take that step," said Lynch.

What justice department officials have done, of course, is to file a lawsuit in an attempt to stop what they see as a violation of federal law by having the courts find HB2 does discriminate on the basis of sex.  Lynch said lawsuits by Governor McCrory and state lawmakers forced their hand. Basically, it showed them the state wasn't interested in negotiating.

Does that mean state lawmakers aren't swayed by the prospect of losing federal funds?

Not necessarily. Federal agencies can withhold money at any step in the process. But Michael Gerhardt who teaches civil rights law at UNC Chapel Hill thinks the state likely sued to protect itself. 

"By filing the lawsuit, North Carolina leaders obviously buy themselves more time and it's unclear whether or not the lawsuit could be resolved any way prior to the next election. So the political leaders of the state in a sense get to ensure the federal government can't really act upon its implicit threat they think the federal government is making until after the federal lawsuits are done," says Gerhardt.

He thinks the lawsuits gives state lawmakers and the governor political cover, since they can point to the federal courts and say they're the reason the law failed. 

How is the UNC system responding to what Gerhardt calls the federal government's "implicit threat" to withhold funds? 

The UNC system is in a tough spot. UNC System President Margaret Spellings told the justice department Monday that HB2 remains the law of the state.  She did send a memo out to chancellors saying, "universities must require every multiple-occupancy bathroom and changing facility to be designated for and used only by persons based on their biological sex." However, she believes the UNC system is in compliance with federal laws because schools have taken, as she said, no steps to enforce the statute's requirement on campuses. 

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