Cutting off any federal money — or threatening to do so — would put major new pressure on North Carolina to repeal the law, which eliminated local protections for gay and transgender people.
WASHINGTON — The Obama administration is considering whether North Carolina’s new law on gay and transgender rights makes the state ineligible for billions of dollars in federal aid for schools, highways and housing, officials said Friday.
Cutting off any federal money — or threatening to do so — would put major new pressure on North Carolina to repeal the law, which eliminated local protections for gay and transgender people and restricted which bathrooms transgender people can use. A loss of federal money could send the state into a budget crisis and jeopardize services that are central to daily life.
Although experts said such a drastic step was unlikely, at least immediately, the administration’s review puts North Carolina on notice that the new law could have financial consequences. Gov. Pat McCrory of North Carolina had assured residents the law would not jeopardize federal money for education.
The law also represents a test for the Obama administration, which has declared that the fight for gay and transgender rights is a continuation of the civil-rights era. The North Carolina dispute forces the administration to decide how aggressively to fight on that principle.
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The North Carolina law created a mandatory statewide anti-discrimination policy, but it did not include specific protections based on sexual orientation or gender identity. The law bars transgender people from using public bathrooms that do not match the sexes on their birth certificates.
Anthony Foxx, the secretary of transportation, first raised the prospect of a review of federal funding in remarks Tuesday in North Carolina. The Department of Transportation provides roughly $1 billion a year to North Carolina. The New York Times then asked other federal agencies whether they were conducting similar reviews.
A Department of Education spokeswoman, Dorie Nolt, said Friday that her agency was also reviewing the North Carolina law “to determine any potential impact on the state’s federal education funding.”
The agency said it provided $4.3 billion to North Carolina last year for kindergarten through 12th grade and colleges.
The Department of Housing and Urban Development said it was doing a similar evaluation. “We’re reviewing the effects of the law on HUD funding allocated for North Carolina,” said Cameron French, a department spokesman.
Obama administration officials had no comment.
Any decision on federal aid would take time, experts said. Federal agencies have successfully used the threat of lost money to pressure a handful of municipal governments in California and Illinois to change their policies and allow transgender students to use the restrooms of the gender with which they identify. There is no recent precedent for the federal government applying similar pressure to address a state law that it sees as discriminatory.
“It would be a long process of negotiation,” said Jane Wettach, an education-law specialist at the Duke University School of Law in Durham, N.C. “I think the federal government would be loath to do it and would give North Carolina every possibility, every chance to change their position. …”
McCrory, a Republican who is seeking re-election, and other supporters of the law have been aware, but dismissive, of suggestions that the measure might endanger the state’s federal largesse. McCrory’s office did not respond to messages Friday.
Dan Forest, the Republican lieutenant governor and president of the state Senate, said he expected federal aid would continue to flow. He noted that many states do not explicitly provide gay and transgender people with anti-discrimination protection. Neither does federal law.
“It would be wrong — even illegal — to single out North Carolina for unfavorable treatment,” Forest said in an emailed statement. He said the state complied with the Constitution and federal laws. “I’m confident that we will continue to receive this federal money despite the threats from a few in Washington, D.C.”
Forest is correct that federal anti-discrimination laws do not explicitly mention gay and transgender people: The Obama administration has repeatedly called on Congress to pass a law banning discrimination against them in employment decisions. On several occasions, however, the administration has also said that gay, lesbian and transgender people are already covered by laws banning sex discrimination.
Last year, a federal judge in Virginia rejected that notion, ruling that restricting the bathroom choices for transgender students did not violate federal law. The Obama administration had argued otherwise, and the case is on appeal.
The Obama administration would not need to go to court to withhold grant money, but doing so would surely lead to a court fight, especially since the law is unsettled.
North Carolina has faced criticism from businesses including Bank of America, which has its headquarters in Charlotte; Apple; and Facebook. The NBA suggested it might move the 2017 All-Star Game from Charlotte.
In a related development, the Mississippi House on Friday passed, 69-44, a bill that would allow government employees and private businesses to deny services to same-sex couples who want to marry. Republican Gov. Phil Bryant must decide whether to sign the bill into law. He would not say whether he will sign House Bill 1523. “I haven’t gotten to it yet. As soon as it gets to us we’ll look at it and decide,” he said Friday.