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Sunday, July 28, 2002


Her will be done

Trustees must tread carefully through
a complex maze of laws, court rulings,
IRS policies and constitutional limits
in administering Kamehameha
Schools' admissions policy

What the trustees say


By Randall W. Roth
Special to the Star-Bulletin

According to recent media reports, many people believe that Kamehameha Schools should admit only Hawaiian students. This sentiment is especially strong in the Hawaiian community.


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COURTESY KAMEHAMEHA SCHOOLS
Princess Pauahi


At least a majority of the current trustees appear to be sympathetic to such an approach, but unwilling to embrace it publicly. Picking their words very carefully, trustees have intimated that they would exclude non-Hawaiians from consideration if they could do so without jeopardizing the trust's tax-exempt status.

The IRS approved the current admissions policy just three years ago, but because of relevant developments in the law since then, IRS officials might be expected to revisit this issue relatively soon.

To fully understand the IRS's role and the trustees' options, one must be familiar with not just Princess Pauahi's will, but also local trust law, the Internal Revenue Code, the U.S. Constitution and key decisions of the U. S. Supreme Court.

Trustee Douglas Ing's analogy to a chess game rings true, except that the issues surrounding the Kamehameha Schools admissions policy generate stronger feelings, affect the lives of children and involve billions of dollars.

Hawaiians-only admissions

Admission materials on the Kamehameha Schools Web site describe the current policy as giving "preference to children of Hawaiian ancestry to the extent permitted by law," leaving unsaid the exact nature and extent of the preference. A later section of the same materials instructs all admitted students to "prove their Hawaiian ancestry through birth certificates."

Until recently, most people thought non-Hawaiian applicants could not, or would not, be accepted as students at Kamehameha Schools.

Recent public statements by trustees and school officials indicate that the official policy for many years has been to admit qualifying non-Hawaiians, but only to fill seats still open after all Hawaiian applicants who qualify have been admitted. This is reportedly how a non-Hawaiian managed to get admitted to the Maui campus -- the first non-Hawaiian knowingly admitted to Kamehameha in 40 years.

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AYUMI NAKANISHI / ANAKANISHI@STARBULLETIN.COM
The discussion among trustees, parents and alumni at Kamehameha Schools last week was marked by an outpouring of anger and frustration over the admittance of a non-Hawaiian student to the Maui campus. Puanani Chee from the Kamehameha class of 1984 held a sign during the discussion.




Many critics of this decision to admit a non-Hawaiian student contend that the trust should serve only Hawaiians, and that the trustees should stand firm on this issue regardless of what the IRS might think about it. If necessary, the trust's tax-exempt status should be given up, according to these voices.

Many such critics of the decision appear to assume that Princess Pauahi's will directs the trustees to give preference in admission decisions to Hawaiians, and that the exclusion of all non-Hawaiians can accurately be described as a policy that just gives preference to Hawaiians.

This is critically important because the trustees have a fiduciary duty to preserve trust assets, which generally would prevent them from voluntarily giving up tax-exempt status. An exception might apply, but only if the terms of the will instruct the trustees to limit admission to Hawaiians.

Princess Pauahi's will

From a purely technical standpoint, Princess Pauahi's will mandates a preference for Hawaiians only when the applicant is an orphan or is indigent, and it does not indicate that any child should be excluded from consideration for any reason, including race.

Nowhere does the will use the expression "children of Hawaii," as local legend has it. The will calls for two schools in the Hawaiian Islands, one for boys and one for girls, both with the goal of producing good and industrious men and women.

But that does not mean that the trustees cannot choose to enroll only Hawaiians. In fact, the will grants to the trustees broad discretionary powers to establish an admissions policy. So, if this chess match involved only trust law and the terms of Princess Pauahi's will, it is likely that the school could properly admit only Hawaiians.

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STARBULLETIN / 1999
Students lined up in front of the newly dedicated Kamehameha Schools Maui Campus in August 1999.




Many believe that this is exactly what the Princess had in mind. A letter written by her widower certainly supports the current practice of admitting non-Hawaiians only after every Hawaiian applicant has been given an opportunity to meet established criteria:

"... it was intended that the Hawaiians having aboriginal blood would have preference, provided that those of suitable age, health, character, and intellect should apply in numbers sufficient to make up a good school ... The Schools were intended to be perpetual, and as it was impossible to tell how many boys and girls of aboriginal blood would in the beginning or thereafter qualify and apply for admissions, those of other races were not barred or excluded."

So, while the letter of the will does not actually call for Hawaiians-only admissions, the spirit of the will seems to do so as long as there are at least as many qualified Hawaiians as there are seats to fill. If the analysis could stop here, the conclusion would be that the recent admission of a non-Hawaiian was a one-time occurrence related to the sudden expansion of seats at the new Maui campus, and that the trustees are free to continue giving preference to Hawaiians.

The constitutional question -- Rice vs. Cayetano

Several years ago, the U.S. Supreme Court invalidated a state law that allowed only Hawaiians to vote in Office of Hawaiian Affairs (OHA) elections. An attorney for OHA contends that this decision applies only to voting rights and that challenges based on the Fourteenth Amendment's Equal Protection Clause are governed by principles different from those applicable under the Fifteenth Amendment, which prohibits discrimination in voting.

The winning lawyers in Rice vs. Cayetano contend that this misses the main point. According to them, "if it is racial discrimination to permit only Hawaiians to vote in a state election (as the Rice case held), then it is racial discrimination to admit only Hawaiians to a government-sponsored school."

Even if they were right, the so-called Rice vs. Cayetano problem (as opposed to the Bob Jones University problem described below) would appear to be a problem only if the government is involved in the school.

Most experts would say that the risk of a constitutional challenge was greatly reduced, or even eliminated, when the trustees dropped ROTC and other government-supported campus programs, thereby leaving Kamehameha Schools 100 percent private.

Other experts, however, contend that an institution ceases to be private, and exposes any racially discriminatory practices to constitutional challenge, when it accepts the benefit of a tax exemption.

Perhaps ROTC was a pawn that was sacrificed. Even if doing so accomplished its intended goal of eliminating a constitutional challenge, giving up ROTC and government funding did not end the chess match, nor did it address the biggest threat to the current admissions policy.

The tax question -- Bob Jones University

The much bigger threat to the current admissions policy is a 1983 U.S. Supreme Court case involving a private school by the name of Bob Jones University. The IRS revoked that school's tax exemption because of racially discriminatory practices. It did not matter to the IRS or to a majority of the justices that the school's funding was 100 percent private:

"Bob Jones University's racial policies violated the clearly defined public policy, rooted in our Constitution, condemning racial discrimination and, more specifically, the government policy against subsidizing racial discrimination in education, public or private."

The discrimination at Bob Jones University targeted African Americans, a historically subordinated group. Previously, the U.S. Supreme Court regularly invalidated this kind of discrimination, calling it invidious. But the majority opinion in the Jones case discussed race discrimination as if the identity of the group being discriminated against might be irrelevant.

Indeed, Supreme Court decisions since then have not distinguished between discrimination against members of a minority group and so-called reverse discrimination against individuals who belong to the majority group.

This so-called colorblind approach is not just reflected in recent Supreme Court opinions. Voters and legislators in a few dozen states have considered measures in recent years that would prohibit consideration of race in numerous contexts. California's Proposition 209 and Washington's Initiative 200 are two that passed, thereby outlawing all existing state affirmative action programs.

The Bob Jones University case did not pose a threat to Kamehameha Schools prior to Rice vs. Cayetano because earlier case law had held that Hawaiians enjoyed the same status under the law as is enjoyed by Native Americans and native Alaskan tribes. Thecourt'sfailurein Rice vs. Cayetano toincludeHawaiians in this specialcategorybrought into question the prior cases on pointand arguably made the Jones case applicable to Kamehameha Schools.

The stakes

The IRS revoked the tax exemption of Bob Jones University retroactively and demanded six years of back taxes. As has been stated by trustee Nainoa Thompson, a similar retroactive revocation of Kamehameha Schools' tax exemption could theoretically result in a bill of $1 billion. At least as important, annual funding available to the schools in all future years would be cut by more than 40 percent. At this reduced level, it would be impossible to maintain all three of the existing campuses, not to mention outreach programs and the planned charter schools.

The impact on the beneficiaries would be nothing short of catastrophic.

The IRS's 1999 threat to revoke the trust's exemption

IRS officials easily could have justified a decision to revoke Bishop Estate's tax exemption several years ago when former trustees were found to have paid themselves excessive compensation and failed to adequately pursue a charitable mission. IRS officials chose instead to protect trust beneficiaries by demanding that the former trustees be replaced and that new trustees increase dramatically the amount of money spent each year on the charitable mission -- Kamehameha Schools.

The former trustees' breaches of fiduciary duty were so serious and numerous that an unrelated challenge to the admissions policy at that time got relatively little attention. District IRS personnel actually had decided to revoke the trust's tax exemption because of the admissions policy, but their decision was reversed by officials in the IRS's national office.

The national office relied on the 9th Circuit opinion in Rice vs. Cayetano, which was reversed by the U.S. Supreme Court later that same year, after the IRS's decision. So while it is true that the IRS has approved the current policy, it is anything but certain that it would be approved if the IRS were to revisit the issue.

What might bring back the IRS

The IRS spent an inordinate amount of time and other resources on Bishop Estate from 1993 to just recently. And it was criticized in some circles for the heavy-handed way it indirectly forced the local probate court to take action at that time. It was unprecedented, but IRS officials reportedly felt good about the role they played in protecting the trust.

One gets the impression that IRS officials would like to give the new trustees ample time to get the trust completely back on track.

However, if the current trustees were to decide now to replace a policy that theoretically gives no more than a preference to Hawaiians with one that absolutely prohibits the admission of non-Hawaiians, the IRS probably would feel compelled to take another look.

Why the outcome is not clear

Affirmative action programs that favor members of one race over others have not fared well in recent U.S. Supreme Court cases. Even so, it is not yet clear that carefully structured preference programs would not be upheld.

Despite sweeping language in the Bob Jones University case, many experts believe that the current justices would not deny tax benefits to a private school whose racially discriminatory admissions policy is intended to remedy the effects of past discrimination.

One could argue that there is a legally significant difference between admissions policies that exclude members of a specific race and those that exclude everyone but members of a specific race that continues to suffer the consequences of past discrimination.

Another reason why tax lawyers would hesitate to predict the outcome of an IRS challenge to the current admissions policy is that Kamehameha Schools is unique. No legal precedent really fits.

Proponents of a colorblind America (i.e., one in which all racial discrimination is bad, regardless of who is advantaged by it) point out that, with the exception of a few children of faculty many years ago and one applicant on Maui just recently, only members of the Hawaiian race have ever been admitted to Kamehameha Schools. To them, race should not make that much difference in something that at least indirectly involves the government.

But defenders of the current admissions policy point out that 78.3 percent of a recent Kamehameha Schools student body was part-Caucasian. Almost as high a percentage, 73.7 percent, was part-Chinese; 30.9 percent part-Filipino; 27.7 percent part-Japanese. Sure, 100 percent were part-Hawaiian, but no race was excluded.

Both sides have legally valid points.

How trustees can improve their chances of victory

The admission of a single non-Hawaiian is seen by some as a meaningless token -- the exception that proves the rule. One school of thought is to admit just enough additional non-Hawaiians to get beyond tokenism.

Many legal experts, however, would describe this not so much as a winning move, but as one that merely ensures a longer game.

Trust-supported charter schools that soon will serve non-Hawaiians as well as Hawaiians bolster the argument that not just Hawaiians are served by the trust.

A particularly controversial way to possibly get around all the above-mentioned problems would be to remove blood from the equation. An admissions policy could legally take into account other aspects of what it means to be Hawaiian. For example, the trustees could legally discriminate on the basis of an applicant's exposure to, knowledge of or interest in Hawaiian language, history and culture.

A related set of issues and possibilities has to do with admission standards. Many people argue that Princess Pauahi would be primarily concerned about the neediest of beneficiaries, the ones who typically are screened out by Kamehameha Schools' high academic standards for admission.

Time for cool heads and spirited debate

The trustees are planning a series of community gatherings both here and on the mainland to discuss these and related issues. How all of this gets resolved will shape the future of the single most important private institution in the state of Hawaii. I Mua Kamehameha.


THE AUTHOR

Randall W. Roth is a law professor at the University of Hawaii's William Richardson School of Law. He teaches courses in trusts and estates and federal taxation. Roth was one of five co-authors of "Broken Trust," the 1997 essay that led to the eventual removal or resignation of five former Bishop Estate trustees.




BACK TO TOP

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Trustees:
We made a painful
but necessary choice

The Kamehameha Schools'
trustees explain their decision
to admit a non-Hawaiian


The last two weeks have been painful, not only for the Hawaiian community, but for us, the trustees charged with protecting the legacy of Ke Ali'i Pauahi. We have felt the overwhelming hurt and the anger from those who fear the trust will fall. The reaction has been resounding and powerful, and we are listening attentively.

If we have learned nothing else from this, it is that Hawaiians want us to educate more of Ke Ali'i Pauahi's children. We couldn't agree more. Indeed, this is the same message that was delivered when the community helped us shape our Strategic Plan.

Ke Ali'i Pauahi intended the Kamehameha Schools to serve a broad range of students. However, for the last decade the admissions process has been heavily weighted toward academic performance, which is only one measure of talent and potential. Although the situation on Maui resulted from an unusually small applicant pool, it brought the problems with the admissions process into sharp focus. As a result, we have pledged to work with the Hawaiian community to carefully review our admissions process so we can align our campuses and programs with the needs of the specific communities they serve. To accomplish this, we are setting up a series of community meetings.

But as we move forward, we also need to clear up some common misunderstandings:

>> First, the trustees did not change the admissions policy.

We upheld the school's policy of preference for children of Hawaiian ancestry. That policy was set by the first Kamehameha Schools trustees, under the leadership of Ke Ali'i Pauahi's widower, Charles Reed Bishop. Ke Ali'i Pauahi's will directs her trustees to "devote a portion of each year's income to the support and education of orphans and others in indigent circumstances, giving the preference to Hawaiians of pure or part aboriginal blood." The original trustees expanded that preference to include all Hawaiian keiki because they believed that was Ke Ali'i Pauahi's intention, but they allowed for non-Hawaiian admissions.

>> Second, the Maui admissions process was fairly applied to all applicants.

All the applicants on Maui went through the same process and were evaluated by the same criteria. Non-Hawaiians always have been able to apply to Kamehameha, and in the past, some have. All applicants are considered without regard to ancestry. Ancestry is verified only at the end of the admissions process, after applicants have been notified of their acceptance. In the Maui case, the trustees were told in May that a non-Hawaiian was offered admission. Again, the trustees were informed after the applicants had been notified and asked to verify their ancestry. There were no Hawaiian children on the waiting list.

Some have said we should have offered the vacancy on the Maui campus to a Hawaiian student wait-listed on another island. Some have said we should have changed the admissions criteria to keep the non-Hawaiian student out. We couldn't do either of those. To change the process in mid-stream would be unfair and unethical, and unworthy of the high moral character and integrity that Ke Ali'i Pauahi expected of her children and her trustees.

Nor did we feel we could change the admissions policy from one of preference to one of exclusion. That would certainly have endangered Pauahi's legacy, which we have vowed to protect and defend. We must stand by the decision, despite the pain it has caused.

We do regret the way the decision was communicated, and we have apologized for that. The process of evaluating individual applicants is confidential and must be kept private in order to protect the integrity of the trust and the privacy of applicants.

Most important, we see this situation as something that can help the Kamehameha Schools grow and serve a broader segment of the Hawaiian community. Even as we review our admissions process, we have instructed Kamehameha Schools CEO Hamilton McCubbin to implement the Strategic Plan that will dramatically expand the schools' reach. The plan, which spans all age groups from preschool to adult education, was developed over two years with input from more than 4,000 members of the community. It is a 15-year plan. We project that in just five years the number of Hawaiians we serve will double.

We all want Kamehameha to serve as many Hawaiians as possible. It is the wish of our beloved princess. Let us unite behind that common goal. I Mua Kamehameha.


The Authors

This essay was signed by all five members of the Kamehameha Schools Board of Trustees:

> Douglas Ing
> Constance Lau
> Nainoa Thompson
> Diane Plotts
> Robert Kihune




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