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•lMllM IS

Hillsdale College Hillsdale, Michigan 49242

Vol . 10, No . 7July 198 1

HEW'S CONDUIT THEORY :TOWARD THE ABOLITION OF PRIVAC Y

By Ronald L. Trowbridg e

Dr. Ronald L . Trowbridge is Vice President of theCenter for Constructive Alternatives and College Rela-tions, and Editor ofIMPRIMIS at Hillsdale College . Hedirects the four week-long CCA seminars held eachyear; directs the Ludwig von Mises DistinguishedLecture Series ; edits Champions of Freedom ; and directsthe Washington-Hillsdale Intern Program .

He holds a Ph .D. in English Language and Literaturefrom the University of Michigan and has taught at theUniversity of Michigan and Eastern Michigan Univer-sity, where he was Professor of English. He was formany years Editor-in-Chief of the Michigan Acade-mician, the quarterly journal of the Michigan Academyof Science, Arts, and Letters . He also served two term sas an Ann Arbor City Councilman .

Among his own works are numerous published arti-cles on English literature, political thought, and highe reducation . His articles have appeared in Nationa lReview, the Michigan Academician, New Guard ,Studies in Scottish Literature, Western Review ,Imprimis, and Conservative Digest .

The CCA, under his directorship, has won TheGeorge Washington Honor Medal Award from th eFreedoms Foundation . He is a member of ,The MontPelerin Society; the Philadelphia Society ; and theAdvisory Board of CEAFU (Concerned EducatorsAgainst Forced Unionism), the education division of theNational Right to Work Committee .

Dr. Trowbridge recently delivered this presentation atHillsdale during the CCA seminar, "The Law : AnErosion or Enhancement of Freedom?"

On September 22, 1980 attorneys for Hillsdale Col-lege filed its brief in the U .S . Sixth Circuit Court ofAppeals against the Department of Health, Educatio nand Welfare in an effort to preserve the college' sindependence and privacy . A subsequent brief namin gthe Department of Education, HEW's successor on Title

IX matters, was filed December 31, 1980 . The case i spending; contents of the brief are herein disclosed for th efirst time .

At stake in the case is not simply the provincial matte rof one small liberal arts college seeking to remain fre efrom governmental regulation and control : on a largerscale private education itself in any and every academicinstitution in the country is potentially threatened ; andon the widest scale, it is no strain of the imagination a tall to suggest that the generic private sector itself—i neducation, in the business community, in publication, i nany establishment that involves the exchange ofmoney—faces abolition via subjugation to governmentalregulation and control . HEW's logic and rulings i nrecent administrative proceedings unmistakably suggest sthis extinction of privacy, and legal precedent in th eHillsdale case is being tested that could well have awider national impact than imagined or intentioned .

im•pri•mis (im-pri-mis) adv . In the first place . Middle English ,from Latin in primis, among the first (things) . . .

IMPRIMIS is the journal from The Center for Constructive Alter -natives . As an exposition of ideas and first principles, it offer salternative solutions to the problems of our time . A subscriptionis free on request .

A little background is necessary . Hillsdale Collegesince its founding in 1844 had never solicited no raccepted one penny of government funds for its opera-tions, feeling free to direct its own affairs withoutharassment . But with the coming of Title IX of theEducation Amendments of 1972, governmental attempt swere subsequently made to change this . Previously, allgovernment regulatory activities in higher education ha dbeen directed only toward those institutions tha taccepted government money . The Title IX regulations ,however, specified that Hillsdale and all other indepen-dent colleges and universities would now be subject t ogovernment directives if they had on campus any studentwho, as an individual, was receiving government finan-cial assistance, such as a National Direct Student Loan .Aid to a student, argued HEW by a strained condui ttheory, was determined to be aid to Hillsdale College asa whole, making the college a "recipient institution" o f"federal financial assistance, " therefore required t ocomply with the maelstrom of governmental costs ,regulations, quotas (euphemistically called "goals") ,forms, and formulas . In order for students to continuereceiving federal loans, HEW demanded, with seeminginnocuousness, that Hillsdale College merely sign anAssurance of Compliance with Title IX regulation sacknowledging that the college would not discriminate .

Hillsdale refused . It had never discriminated nor bee naccused of or found guilty of discrimination ; in fact itgraduated blacks and women before the Civil War . Thecollege refused to sign not so much as a matter o fabstract "principle," but because it felt that such asignature and endorsement of compliance would openthe floodgates to the imposition of ancillary controls an dthe loss of freedom . Later judicial rulings in the Nint hCircuit Court of Appeals in the El Camino case provedthat Hillsdale College's suspicions were entirely correct .

Following Hillsdale's refusal, Secretary Joseph Cali-fano subsequently announced that he was movin gagainst certain school districts and schools, mentionin gHillsdale by name, by withdrawing federal loans fromany and all individual students attending those institu-tions . Hillsdale never felt it was any of its business t opass judgment on the source of money that any studentbrought to its door, but when Califano announced hi smisanthropic intent to deny many individual studentstheir ability even to attend the college of their choice ,Hillsdale took the matter to court . The college's legalcounsel advised that the college exhaust all legal reme-dies and begin at step one with an administrative hearin gwithin HEW itself .

In August, 1978 HEW administrative judge Herber tPerlman ruled that HEW did not have the authority t orequire the execution of the Assurance of Compliance ,stating :

It would be an abuse of discretion and arbitrary an dcapricious to terminate the pertinent program slisted above by reason of Respondent Institution's

failure and refusal to sign the Assurance of Compli-ance under these circumstances .

Hillsdale College had won round one .

Round two the college lost . On October 25, 1979 th ethree-member Reviewing Authority of HEW unani-mously reversed the earlier ruling by Judge Perlman—n osurprise to anyone as it was HEW ruling on HEW . TheReviewing Authority argued speciously, in an adminis-trative proceeding here disclosed by Hillsdale Collegefor the first time, that student "costs of tuition, books ,room and board, and other expenses," if not defrayed b yfederal loans, "would otherwise have to be provided b ythe Respondent [Hillsdale College] itself" (sic) and thatfederal "payments under those student grant and loa nprograms are clearly federal financial assistance to theRespondent" (sic) .

The Reviewing Authority further argued that theAssurance of Compliance "puts the recipient on noticethat in taking these funds there is an obligation not todiscriminate and gives the government some assuranc ethat the recipient understands these obligations andintends to abide by them ." In sum, the college—anycollege—is guilty until proven innocent .

Elsewhere, in a passage of critical importance, th eReviewing Authority opined : "Under the GSL Progra m[Guaranteed Student Loan], the Government also pay sinterest on the loans to the lender [sic] on behalf ofstudent borrowers while they are attending college . Thi sis in effect a subsidy of federal funds from which th eRespondent benefits ." (I would add quickly that th egovernment pays a partial interest on these loans, not th eentire interest, the balance of which is left to the studen tto pay .) It is the logic and the precedent in this passagethat is most frightening and that has the potential forwidespread application in every sector of the country ,including the private, that exchanges money . The logi cof this Reviewing Authority position, carried to it sconclusion, would mean that if one individual ("anyentity," to quote HEW) spent a part of his Socia lSecurity check in a supermarket, then that store wouldbe a "recipient institution" of federal funds, thereforerequired to comply with federal regulations and the cost sand loss of freedom thereof .

Hence Hillsdale College's brief to the Circuit Court o fAppeals on September 22, 1980—and to the U .S .Supreme Court if necessary . The brief contains a gooddeal of information whose importance is impossible t ooverestimate . To the argument, "What harm can therepossibly be in signing a mere slip of paper acknowledg-ing that the college does not discriminate? How coul dany moral institution not sign such an assurance?", th eEl Camino precedent is critical . The signature opens thedoor to the onslaught of ancillary federal controls . Onthis the brief reads :

As an accompanying HEW document makes ex-plicit, the execution of the Assurance by Hillsdal e

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results in a legally enforceable contract unde rwhich Hillsdale will, by agreeing to comply wit hthe regulations, undertake a separable duty o fcompliance apart from Title IX . Any doubt as to th evalidity of this conclusion is quickly dispelled b ythe Ninth Circuit's decision in United States v . ElCamino Community College . In that case, theCollege, having executed an Assurance of Compli-ance with certain regulations, was deemed by th eNinth Circuit Court of Appeals to have thereb ywaived a jurisdictional challenge to an HEW re -quest for documents . The scope of the reques textended to information about programs and activi-ties not receiving federal aid . The court upheld th eschool's duty to supply such divergent informatio non the sole basis of the execution by El Camino o fan Assurance of Compliance with Title VI of th eCivil Rights Act of 1964 and the regulation spromulgated thereunder . Indeed, the court stated :

"On the record before us, we have no occa-sion to decide . . . the extent to which, if at all ,the agency regulations go beyond the statu-tory authority committed to the agency . "

Obviously, if Hillsdale signs the Assurance ofCompliance, HEW will be doing indirectly what i tcannot do directly: compelling Hillsdale to obey theinvalid Title IX regulations by executing the Assur-ance of Compliance with them as a condition of it sstudents' continued receipt of federal aid . TheReviewing Authority's notion that the Assurance i slittle more than a piece of paper, acknowledging theexistence of Civil Rights Laws, is far removed fro mthe reality of Hillsdale's situation and is contra-dicted by its own remarks recognizing the contract-ual aspect of executing the Assurance .

Moreover, the brief spells out the freedoms a collegeor university loses when subject to HEW's regulations :These

regulations specify at which high schools Hillsdal emay recruit students for admission,'' the literatur ethat Hillsdale may provide that student concerningthe college, 30 and the tests which Hillsdale ma yrequire the student to take as a condition of admis-sion . 31 If the student passes the test for admissionbut needs financial assistance, the regulation sspecify how Hillsdale may use its own funds to aidthe student"- even though the funds may come fro man entirely private source, such as a bequest to th ecollege to endow a scholarship .

Once the student is admitted, the regulation sspecify the courses the student may take," th emanner in which the student is housed, whether o nor off campus, 34 the health services provided thestudent,' and his or her participation in extra-curricular activities 36 and sports . " They control th ehours at which the students must return to thei r

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dormitories, and the hours during which the mal estudents may visit the females and vice versa' andthe manner in which Hillsdale may treat the conse-quences of its students' marriages, pregnancies ,and abortions . "

Further, the brief documents the fallacy of the HE Wconduit theory that equates benefit to a student as benefi tto a college . Congress, the Justice Department an dSenator Birch Bayh in drawing up Title IX regulation sdid not intend individuals to be interpreted as a synec-doche for programs or institutions as a whole . On this Iquote the brief at length because it demolishes HEW' sconduit theory, the very heart of HEW's case agains tHillsdale .

The accuracy of this conclusion [that aid to a nindividual is not aid to a program or college] i sconfirmed by the pertinent legislative history o fTitle IX and of the legislation upon which Title I Xwas based, Title VI of the Civil Rights Act of1964 . 40 The legislative history and the interpreta-tion of the executive branch at the time the "pro -gram or activity" language in Title VI was drafte dconfirm that there is, indeed, a distinction betwee naid "to a person" and aid "to a program o ractivity ." In a letter written to the Chairman of theHouse Judiciary Committee when Title VI wa spending, the Justice Department interpreted th elatter words :

Dear Mr . Celler :"This is in response to your request for a lis tof programs and activities which involv eFederal financial assistance within the scop eof Title VI . . ." "

The Justice Department's letter then describedcertain programs which would not be considered tobe covered by the statute, including :

"[a] number of programs administered b yfederal agencies [which] involve direct pay -ment to individuals possessing a certain statu s. . . [T]o the extent that there is financial assis-tance . . . , the assistance is to an individual an dnot to a p̀rogram or activity ' as required byTitle VI . ' 4'

Similarly, a principal Senate sponsor of Title V Iassured his colleagues that "[d]irect payments [toindividuals] are not covered in any way by Titl eVI. ''

When Title IX was pending in Congress, thi squestion arose again . Senator Bayh, the sponsor ofthe Senate version of Title IX, was asked what kin dof aid HEW could terminate for violation of the to-be-promulgated sex discrimination regulations .Bayh confirmed that Congress did not intend adenial of aid to students as a sanction under TitleIX :

"It is unquestionable, in my judgment, that

this termination power would not be directe dat specific assistance that was being receive dby individual students, but would be directe dat the institution . . . "4 4

It is equally unquestionable that aid to a studen tis not aid to an activity or program, that receipt o ffederal financial assistance is one thing, and bene-fitting from its existence, another . HEW's oblitera-tion of those critical distinctions renders nugatoryCongress' careful use of the words, "program o ractivity receiving federal financial assistance" t odefine the scope of Title IX's coverage and resur-rects the very institution-wide coverage whic hCongress rejected .

If the Congress had wanted to cover the "entireoperation " of recipients, it surely knew how to d oso. Indeed, the administration's own version ofTitle IX, which was rejected, would have give nHEW the very institution-wide authority it no wpurports to have . 45 Similarly, the original Senat eversion of Title IX provided :

"No person in the United States shall, on theground of sex, be excluded from participationin, be denied the benefits of or be subject todiscrimination under any program or activityconducted by a public institution . . . , which i sa recipient of Federal financial assistance fo rany education program or activity, . . . "(emphasis added) ."

By prohibiting sex discrimination in every pro -gram or activity "conducted by" recipients o ffederal aid, these alternative versions would hav eauthorized HEW to promulgate regulations cover-ing every program operated by aid recipients . Butthe version that was enacted authorized federa ljurisdiction only over those programs whichreceive federal aid . And, of course, not even thes ebroad "institutional eligibility" versions of TitleIX would have transformed Hillsdale into a "re-cipient" because Hillsdale maintains no such pro -grams .

The Reviewing Authority, ignoring the con-siderable authority to the contrary, nevertheles sfound the regulation under which Hillsdale i sdeemed a "recipient" to be valid . 47

The conduit theory, if upheld, could have a ravagin geffect nationwide . If a government subsidy to an indi-vidual is a subsidy to a larger private whole, then will a nA&P store or Chrysler dealership or physician or non -profit charity have to comply with government regula-tions and the costs and losses of freedom thereof if i taccepts one individual's ("any entity") Social Securit ypayment ?

If an individual donates to a seminary money that i nany way and in any small amount comes from or passes

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through the government or necessitates a governmen texpense to process, is that a subsidy to religion o rviolation of the separation of church and state ?

Or take the matter of tuition tax credits for privat eeducation, which both President Reagan and Secretar yBell endorse and will likely attempt to push throughCongress. If a tax credit is defined as equivalent to agovernment subsidy and if that credit/subsidy to anindividual family is by the conduit process defined as acredit/subsidy to the private school that the family' schild attends, will not tuition tax credits for privat eeducation ironically render public that private education -al option the government wishes to preserve? Tuition taxcredits and the conduit precedent could spell the demis eof the privacy of all private schools and subject thes einstitutions to governmental control . Particularlytroublesome is the fact that this governmental control o fone party--the private school—would result if th eparents—a second party outside the control of th eprivate school—took tax credits . I can see the letter ofthe Registrar of a private school to the parents now :"Dear Parents: Please do not take advantage of tuitiontax credits for your child to attendby doing so you will make us public ." Such is theperversion of logic on trial in the Hillsdale case .

Or take Policy Review, or Commentary, or anynumber of other magazines . To mail 'h ounce costs me18 cents postage, while Policy Review can mail a heavier

journal at a lower class and lesser rate . Suppose som efederal bureaucrat or some court system determines tha tthis amounts to a federal subsidy to Policy Review or theHeritage Foundation, which must then comply with amultitude of expensive and freedom-restrictive edicts ?

In sum, in any manifestation of the private sector ,what money that it transacts does not wash through thegovernment or share some governmental processin gexpense? Does not the logic of the conduit theory and th eequating of the one with the many really mean that thereis no such thing as a private entity?

"Readiness is all," said Hamlet . Legal precedent maybe all, too . Those aloof individuals who declare that th eHillsdale example "couldn't happen to me" or "to mybusiness," or to "our journal," display a naivete abou tjudicial precedent, application of court decisions, an dthe enforceability of law . Such innocence waits unwit-tingly to be assaulted and to be judged guilty unti lproven innocent . Nor do intentions matter; results, only ,count . Congress, the Justice Department, and Senato rBayh did not intend to equate individuals by som econduit process with wider entities, but that intention gotlost in both the bureaucratic and judicial translations .While Congress passes laws, bureaucracy and the court sinterpret them . "History," observed Carl Becker, "i snot fact, but the interpretation of fact . "

What, finally, are the legal consequences at work her eand, more importantly, the larger impact upon society ?In addition to the obvious lesser ones of higher costs fo rgovernmental compliance and of more bureaucratic regu-lations, freedom of the mind itself is to some extent theissue . Schools controlled by government must inevitabl yto some extent become government schools . Furtherrestricted or even lost then are alternatives, freedom o fchoice, even availability of choice, privacy, individua linitiative and responsibility .

Pervasive, uniform governmental control means amonolithic oneness, a sameness, an enslaving conformi-ty that denies individuals the freedom to be different an dthat denies educational institutions the freedom to b etruly liberal, that is, broad and varied .

If education and therefore society are to remain free, i tis vital that competition of ideas be allowed to prevail .Even public educational policy must never be dominatedby any one strain of thought . Ideas do have conse-quences . Hillsdale College, led by President Georg eRoche and the Trustees, will continue to fight the battl eto preserve the individual's secular and religious right tobe different, to make choices, and to follow the hones tand moral dictates of his or her own heart .

The Hillsdale College Speakers BureauIn recent years Hillsdale College has reached a degree of recognition that results in many requests for speakers . I n

order to be able to honor more of these requests the Hillsdale College Speakers Bureau has been organized .

Material is available upon request that presents individuals from various areas and disciplines of the college . Thetopics covered by these speakers are varied so as to attract a wide range of listeners . Hillsdale is pleased to provideinteresting speakers for various occasions—alumni meetings, service clubs, award banquets, church socials, and th elike .

The honorarium for a visiting speaker will be at the discretion of the hosting group and the invited speaker, unles sthe Speakers Bureau is requested by either party to assist in such a determination . Normally, consideration should b egiven by the hosting group to payment of travel expenses for the visiting speaker, with the exception of presentation sbasically for, and in the interest of, the college .

Speaking appearances may be arranged by writing the Hillsdale College Speakers Bureau, Hillsdale College ,Hillsdale, Michigan 49242 or calling (517) 437-7341, extension #273 . It is urged that speaking engagements bearranged at least one month prior to the time of presentation .

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Hillsdale College is marked byits strong independence and itsemphasis on academic excellence .It holds that the traditional valuesof Western civilization, especiall yincluding the free society of re-sponsible individuals, are worthyof defense . In maintaining thesevalues, the college has remainedindependent throughout its 13 6years, neither soliciting nor ac-cepting government funding forits operations .

The opinions expressed in IMPRIMIS may be, but are not necessarily, the views of the Center for Constructive Alternatives or Hillsdale College .Copyright © 1981 by Hillsdale College . Permission to reprint in whole or in part is hereby granted, provided customary credit is given .Editor, Ronald L . Trowbridge.