U.S. Backs Away From Threatened UC Funding Cuts : Affirmative action: Top Clinton aide Panetta raised specter of review after regents’ vote. Administration lawyers say no legal basis exists for cutbacks.

Clinton Administration officials backed away Monday from threatening the University of California with a loss of its federal funds, saying that they are only reviewing several small education programs that require the use of affirmative action.

University officials also discounted the possibility that they would lose substantial funding, and Gov. Pete Wilson said the Administration “can take those threats and stuff them.”

The nine-campus UC system receives about $4.6 billion a year in federal funding, $2.1 billion of which supports the three national laboratories that UC runs for the Department of Energy.

The specter of a federal review of UC’s funding arose Sunday when White House Chief of Staff Leon E. Panetta suggested that the UC Board of Regents had gone too far last week when it voted to end the use of race as a factor in admissions and hiring.

But government lawyers conceded Monday that as a general matter, no federal law or regulation demands that schools and colleges employ affirmative action in hiring or admissions.

“Affirmative action is permissible under Title VI” of the Civil Rights Act, said Judith Winston, general counsel at the U.S. Department of Education. “It allows race to be taken into account,” she said, “but there is no affirmative-action requirement” in the education law.

The bedrock civil rights law in education, Title VI reads: “No person in the United States shall, on the ground of race, color or national origin, be excluded from participation in . . . or subjected to discrimination, under any program or activity receiving federal financial assistance.”

In 1978, the Supreme Court ruled in the Allan Bakke case that the University of California had wrongly denied admission to a highly qualified white medical student because of his race. It added, however, that race sometimes can be used as a “plus factor” for minority students to bring about diversity in a college class.

Since then, colleges have routinely used the race and ethnic background of minority students as one factor in their favor.

Last week, the UC regents passed a resolution that requires UC to stop using “race, religion, gender, color, ethnicity or national origin” as criteria in its admissions decisions unless applicants can prove that race or other factors had been barriers to their success. The new policy takes effect Jan. 1, 1997.

A similar provision governs the hiring and contracting practices as of Jan. 1, 1996. The proposals also call for increased funding for outreach efforts that seek to better prepare students to become eligible for admission to UC.

In separate TV interviews Sunday, Panetta and Deval L. Patrick, the Justice Department’s civil rights chief, condemned the UC Board of Regents for its affirmative action decisions.

When asked whether the move might cost the university a loss of federal funds, Panetta replied: “Obviously, we are going to be reviewing our contract laws and the provision of resources to that state. The bottom line here is what the President said: We ought not back away from the commitment of this country to equal justice and equal opportunity.”

On Monday, however, there was also finger-pointing about which agency might want to review UC’s funding. White House aides cited the Justice Department as having initiated the review of grants and contracts to UC. And Justice Department officials in turn cited the Education Department as the key agency undertaking the review.

Neither the White House nor the Justice Department pointed to a regulation or law that the university might be violating by ending the use of race and ethnicity in its hiring or admissions decisions.

Each of the two resolutions passed by the UC regents last week include an escape hatch if federal funds are threatened: A provision specifying that nothing in its wording “shall prohibit any action which is strictly necessary to establish or maintain eligibility for any federal or state program, where ineligibility would result in a loss of federal or state funds to the university.”

Those provisions were emphasized Monday by UC President Jack W. Peltason, who issued a statement pointing out that they will probably ensure that, despite the regents’ action, few changes will be made in UC’s contracting and employment programs. Those programs are already governed by state and federal laws, regulations, executive orders and the U.S. Constitution, Peltason said.

“Our practices historically have been and will continue to be in compliance with these various laws and requirements,” Peltason said. “Few significant changes are likely.”

Peltason said university officials are beginning to study how to implement the board’s resolution on admissions. But he stressed that the board’s action, which he opposed, had to do “with means, not with goals.” The university, he said, continues to value diversity and will work hard to develop new procedures and criteria that will ensure that UC’s student body mirrors California’s population.

The UC decision, the first by a major university to roll back affirmative action, clearly leaves Clinton Administration lawyers in an awkward spot.

They are strong advocates of affirmative action. Patrick, who heads the civil rights division at the Justice Department, called Gov. Wilson’s opposition to affirmative action “a divisive and hurtful and, frankly, irresponsible position.”

However, those same lawyers are obliged to enforce a recent Supreme Court ruling that says the federal government may not use race as a criterion, except to remedy proven instances of discrimination.

The high court, on a 5-4 vote, rejected the idea that affirmative action is “benign” discrimination.

On Monday, Wilson appeared on CNN and said Panetta is “guilty of the most outrageous arrogance. This is the second time that the Clinton White House has said that if you have the temerity to disagree on principle, they will use the leverage of cutting off federal funds in contracts and grants to the state of California. They tried the same thing last year with [Proposition] 187.”

But an aide to Panetta downplayed the significance of the legal review of California’s eligibility for funding and said that officials are “not presupposing” that any regulation or requirement would be violated by the regents’ action.

At the Education Department, officials cited three small grant programs that specifically require recipients to focus their efforts on aiding minorities. “I don’t even know whether the University of California has one of those grants, but that’s what we are taking a look at,” Winston said.

The $3.5-million Faculty Development Fellowship Program, the largest of the three, gives grants to universities to fund the further education of minority faculty members.

The department also administers a $2.5-million grant program that gives money to university schools of education to recruit and train minority teachers. A third program allocates $1 million a year to increase the number of African Americans who go into “international service,” but its one grant has gone regularly to the United Negro College Fund.

Outside the Education Department, agencies such as the National Science Foundation and the National Institutes of Health give federal grant money to universities to increase the number of minority students entering careers in science and health. It is not known the extent to which UC participates in any of these grants.

Under a longstanding executive order administered by the Labor Department, federal contractors are required to make a “good-faith effort” to hire and promote minorities. But lawyers said that general requirement has not been aggressively enforced in recent years and has not been used to block funding for major contractors.

Times staff writer Dave Lesher contributed to this article.