An estimated 1.7% of youth (aged 13-19) and 0.3% of adults in the United States identify as transgender.Applying these percentages to the number of youth and adults living in North Carolina indicates that the state is home to approximately 15,600 transgender youth aged 13-19 and 22,200 adults aged 20 and older.
House Bill 2/Session Law 2016-3(HB2) requires state and local government entities and public educational institutions to restrict the use of restrooms according to “biological sex.” The bill defines “biological sex” as “the physical condition of being male or female, which is stated on a person’s birth certificate.” This policy is in conflict with several federal laws that prohibit discrimination against transgender people. This memorandum analyzes the potential fiscal impact on North Carolina as a result of the conflicts between House Bill 2 and seven such federal laws: Title IX of the Education Amendments of 1972, Executive Order 13672, the Workforce Innovation and Opportunities Act, the Violence Against Women Act, the Affordable Care Act, the Equal Access Rule, and Title VII of the Civil Rights Act of 1964.
The potential fiscal impact of HB2 includes:
- Loss of federal educational funding of up to $4.7 billion annually as a result of Title IX violations;
- Loss of federal contracts to state and local government entities of an estimated $35 million to$65 million annually as a result of Executive Order 13672 violations;
- Loss of federal funding to support NCWorks of up to $108 million annually;
- Loss of federal grants authorized by the Violence Against Women Act of an estimated $5 million to $5.6 million or more annually;
- Loss of federal funding from the U.S. Department of Health and Human Services as a result of Affordable Care Act violations;
- Loss of federal funding from the U.S. Department of Housing and Urban Development as a result of Equal Access Rule violations; and
- Costs incurred as a result of litigation and federal administrative enforcement under Title IX, Executive Order 13672, the Workforce Innovation & Opportunity Act, the Affordable Care Act, the Violence Against Women Act, Title VII of the Civil Rights Act of 1964, and the Equal Access Rule promulgated under the Housing Act of 1949.
Funding for Education under Title IX
Title IX of the Education Amendments of 1972 prohibits discrimination based on sex in all federally funded education programs and activities.Title IX applies broadly to educational institutions, prohibiting discrimination against students, teachers and staff and in all operations by state, local, and private schools that receive federal funding, with a few limited exceptions.8=
The U.S. Department of Education has interpreted Title IX to prohibit discrimination based on gender identityand its Office for Civil Rights (OCR) has resolved complaints by requiring school districts to allow transgender students to access restrooms and other facilities that correspond to their gender identity. The Office for Civil Rights has explicitly determined that permitting a transgender student to use a separate, gender-neutral facility (a single-stall faculty restroom) does not absolve a school district of Title IX liability, rather schools must allow students to access shared restrooms and facilities corresponding to their gender identity.
On May 4, 2016, the Department of Justice notified Governor Pat McCrory that HB2 violates Title IX as well as Title VII of the Civil Rights Act and the Violence Against Women Act.The Department of Justice stated in the notice that state officials have until May 9, 2016, to confirm that they will not enforce HB2.
North Carolina’s public educational institutions are at risk of losing federal funding because HB2 requires them to restrict the use of restrooms based on biological sex. The Department of Education could revoke or withhold funding from educational institutions that refuse to correct the violation.Each year, North Carolina receives a substantial amount of federal funding to support public education. In fiscal year 2015, North Carolina’s expenditures for elementary and secondary public educational institutions included $1.4 billion in federal funding, which represented 11.5% of the state’s total support for these institutions in that year. In addition, higher and other educational institutions in North Carolina will receive an estimated $3.3 billion in federal grant funding from the U.S. Department of Education in fiscal year 2016, and this funding is projected to grow to $3.5 billion by fiscal year 2017. House Bill 2 puts this funding at risk of being revoked or withheld by the Department of Education.
Federal Contracts under Executive Order 13672
Executive Order 13672, which amends Executive Order 11246, prohibits federal contractors that receive more than $10,000 in federal contracts annually from discriminating against employees and job applicants based on gender identity.The Office of Federal Contract Compliance Programs has issued guidance stating that Executive Order 13672 requires contractors to “allow employees and applicants to use restrooms consistent with their gender identity,” and defines gender identity as “one’s internal sense of one’s own gender. It may or may not correspond to the sex assigned to a person at birth, and may or may not be made visible to others.”
HB2 puts state and local government entities at risk of losing federal contracts and being barred from future bidding opportunities because the law requires public entities to discriminate against transgender individuals in violation of Executive Order 13672.In the past three fiscal years, state and local government entities (including public schools) in North Carolina have received between $35.6 million and $65.1 million in federal contracting dollars annually. State and local entities that received contracts during this period included North Carolina’s Departments of Administration, Environment and Natural Resources, Health & Human Services, Motor Vehicles, Agriculture & Consumer Services, Public Safety, and Transportation. In addition, the following received federal contracts: Asheville, Charlotte, Havelock, Brunswick County, Cumberland County, Jackson County, Elizabeth, Fayetteville, McDowell County, Onslow County, Stanly County, Fayetteville State University, North Carolina State University, the University of North Carolina system, and Vance-Granville Community College.
As a result of HB2, North Carolina’s state and local government entities are at risk of losing $35 million to $65 million in federal contacts annually, and state and local entities may also be debarred from bidding on future federal contracting opportunities.
Funding to Support NCWorks
The Workforce Innovation and Opportunity Act is a federal law that provides financial support to states to “help job seekers access employment, education, training, and support services” and to match employers with skilled employees.In North Carolina, the program is administered by NCWorks. The Workforce Innovation and Opportunity Act prohibits funding recipients from discriminating against employees and program participants based on sex. The U.S. Department of Labor has issued a proposed regulation interpreting the sex non-discrimination requirement to prohibit discrimination based on gender identity. The regulation specifically states that recipients of funding under the Workforce Innovation and Opportunity Act are prohibited from “denying individuals access to the bathrooms use by the gender with which they identify.”
HB2 puts at risk funding received by North Carolina under the Workforce Innovation and Opportunity Act. Under the law, all NCWorks facilities and centers that are considered state and local entities would be prohibited from allowing transgender employees and program participants to use restrooms that correspond to their gender identity, violating the Department of Labor’s proposed regulation and potentially resulting in suspension or termination of funding.For the 2016 program year, North Carolina will put at risk a total of $88.2 million in federal funding to support NCWorks: $25.2 million to support the Youth Activities Program; $24.1 million to support the Adult Activities Program; and $38.8 million to support the Dislocated Worker Activities Program.
Grants Issued under the Violence Against Women Act
The Violence Against Women Act authorizes 24 grant programs “to reduce domestic violence, dating violence, sexual assault, and stalking.”The Act prohibits discrimination based on gender identity by grant recipients. Under guidance issued by the Office of Justice Programs in the U.S. Department of Justice, sex-specific programs or services should be made accessible based on an individual’s self-identified gender. The non-discrimination requirement applies to all operations of grant recipients (not only the operations funded by the grant) and protects grant beneficiaries as well as employees of grant recipients. State and local governments that receive or administer grant funding under the Act must comply with the requirements. As described in Section I, the Department of Justice has issued a notification to Governor Pat McCrory stating that HB 2 violates the non-discrimination requirements of the Violence Against Women Act.
HB2 puts at risk $5 million to $5.6 million in grants each year under the Violence Against Women Act.The North Carolina Department of Public Safety has received most of this funding during the past three years, with grants of $3.8 million to $4.3 million annually.
Further, guidance issued by the Office of Justice Programs states that the gender identity non-discrimination requirement that applies to grants authorized by the Violence Against Women Act may also apply to one or more other grant programs administered by the Office of Justice Programs.The guidance does not specify which grant programs these may be, but states that the Office of Justice Programs will notify grant applicants and recipients that these non-discrimination requirements apply during the grant-making process. If the state or local entities in North Carolina receive additional grants administered by the Office of Justice Programs, they may also be at risk of having the funds suspended or terminated for not complying with the Violence Against Women Act’s gender identity non-discrimination requirement.
Funding for Health Care Programs and Activities under the Affordable Care Act
The Affordable Care Act prohibits discrimination based on gender identity in health care programs or activities.A proposed regulation issued by the U.S. Department of Health and Human Services (HHS) incorporated Title IX regulations to prohibit discrimination based on sex using the same language that the Department of Education and the Department of Justice have interpreted to require access to shared restrooms based on gender identity. The comments on the proposed regulations indicated HHS intends to promulgate regulations “consistent with…recent guidance issued and enforcement actions taken by the U.S. Department of Education, the U.S. Department of Justice, and the Equal Employment Opportunity Commission,” and cited to recent enforcement actions requiring access to shared restrooms. The non-discrimination requirement applies to all operations of funding recipients (not only the federally funded operations). State and local governments that receive such funding must comply with the non-discrimination requirements.
HB2 puts at-risk federal Affordable Care Act funding issued to state and local entities by HHS and could result in suspension or termination of funding.Given available data sources, it is not possible to track the amount of HHS funding issued to state and local government entities in North Carolina. Nonetheless, available data show that the state, in general, receives a significant amount of funding for the Department of Health and Human Services programs. For example, North Carolina received an estimated $8.8 billion in Medicaid funding in fiscal year 2015, and will receive an estimated $448.2 million in CHIP funding in fiscal year 2016. Some portion of this funding would likely go to state and local government entities that administer health programs and activities funded by HHS.
Funding from the U.S. Department of Housing and Urban Development
The Housing Act of 1949 charged the U.S. Department of Housing and Urban Development (HUD) with accomplishing “the goal of a decent home and a suitable living environment for every American family.”In 2012, HUD established the Equal Access Rule through the Code of Federal Regulations, which required that HUD-funded housing be made equally accessible regardless of gender identity and prohibited inquiries into a person’s gender identity in the provision of housing that receives HUD funding, but did “not prohibit lawful inquiries of an applicant or occupant’s sex where the housing provided…is temporary, emergency shelter that involves the sharing of sleeping areas or bathrooms.” After monitoring the results of that exception, HUD determined that further guidance and regulations were needed to explicitly require that individuals be given access to sex-segregated spaces in accordance with their gender identity. The proposed regulations remove the previous exception allowing inquiries into gender identity and require that “[p]lacement and accommodation of individuals in shelters and other buildings and facilities with…shared sleeping quarters or shared bathing facilities shall be made in accordance with the individual’s gender identity,” except “[u]nder narrow circumstances…[when] necessary to ensure health and safety.” The proposed regulations would apply to recipients and sub-recipients of HUD assistance, including state and local governments. Entities that violate the Equal Access Rule “will be subject to all sanctions and penalties … including the withholding of HUD assistance.”
HB2 puts at risk any HUD funding issued to state and local entities. Under HB2, any single-sex shelters considered state or local government entities would be required to restrict access to restrooms based on biological sex. This policy violates HUD’s guidance that requires placement in single-sex facilities based on gender identity and could result in suspension or termination of funding. Based on available data sources, it is not possible to determine the amount of HUD funding received by state or local government-run shelters.
Costs of Litigation and Other Enforcement Actions
By creating conflicts with federal law, HB2 also exposes state and local governments to litigation costs, including a challenge to the law and individual enforcement actions. Days after HB2 was enacted, legal organizations filed a suit against state government officials and the University of North Carolina in federal district court on grounds that the law violates the Equal Protection Clause and the Due Process Clause of the Fourteenth Amendment and Title IX.The State of North Carolina will incur the costs of defending the law in court against the challenge.
Further, all seven of the federal laws discussed in this memo allow individuals to file administrative complaints of discrimination.For example, under Title IX, any individual is permitted to file a complaint alleging that a school policy violates the law; the person need not have experienced discrimination under the policy. Similarly, any individual may file a complaint under the Workforce Innovation and Opportunity Act if he or she believes that any specific class of individuals has been subjected to discrimination. Complaints filed under the laws trigger administrative enforcement procedures, such as investigations and compliance reviews. These procedures may be burdensome to state and local entities, particularly those that are under-resourced and understaffed.
In addition, all seven federal laws allow the Department of Justice (or another federal agency) to bring suit against entities that fail to comply with the laws.Further, three of these laws, Title IX, Title VII, and the Affordable Care Act, provide a private right of action, allowing individuals who have been discriminated against to file lawsuits alleging discrimination directly in court. State and local government entities are not immune from suits brought under Title IX and Title VII, as the U.S. Supreme Court has held that Congress validly abrogated states’ Eleventh Amendment sovereign immunity under both laws. The same would likely be true for suits brought under the Affordable Care Act, since the statute expressly incorporates the scope and enforcement of Title IX protections.
A case recently filed under Title IX in Virginia demonstrates that parents and legal organizations are willing to take schools to court for not allowing transgender students to use the restroom consistent with their gender identity.In addition, employees may file lawsuits under Title VII if their employers refuse to allow them to use the restroom consistent with their gender identity. Several federal courts and the U.S. Equal Employment Opportunity Commission have held that gender identity discrimination is a form of sex discrimination prohibited by Title VII. The Equal Employment Opportunity Commission and the Department of Justice have specifically interpreted Title VII to require employers to provide employees access to workplace restrooms and changing facilities consistent with their gender identity. In line with these interpretations, the Department of Justice has issued a notification to Governor Pat McCrory stating that HB 2 violates the non-discrimination requirements of Title VII.
With thousands of transgender youth and adults in North Carolina, the costs and burden associated with litigation and administrative enforcement could be significant.
HB2 conflicts with the gender identity non-discrimination requirements of federal laws including Title IX, Executive Order 13672, the Workforce Innovation and Opportunity Act, the Violence Against Women Act, the Affordable Care Act, the Equal Access Rule and Title VII by restricting restroom access to individuals based on “biological sex.” As a result, state and local government entities in North Carolina are at risk of losing up to $4.7 billion in federal funding for education, $35 million to $65 million in federal contracts, $108 million in federal funding for NCWorks, $5 million to $5.6 million in grants authorized by the Violence Against Women Act, and funding to state and local entities from the Department of Health and Human Services and the Department of Housing and Urban Development. In addition, the legislation would likely give rise to litigation and administrative enforcement actions that impose burdens and costs on the state.