dissenting:
The majority opinion holds that the CBest examination is not subject to Title VII because the CBest is a licensing exam. Because I believe that the majority’s holding rests on the mistaken conclusion of law that Title VII does not apply to the CBest simply because it is a licensing exam, I respectfully dissent from that portion of the opinion which holds that the CBest is not subject to Title VII.1 Because the majority holds that neither Title VI nor Title VII applies, I see no reason for dictum concerning the merits of the contention that the CBest violated Title VI and Title VII.
I
The majority characterizes the “critical issue” in this case as “whether the State is exercising its police powers or proprietary powers.” Majority Opinion at 483-84. If the CBest is an exercise of the State’s police powers, the majority states, then the CBest would be a licensing exam and therefore exempt from Title VII liability. See id. at 485. Ignoring for the moment the wisdom of relying on a standard as uncertain as the “police/proprietary power” standard offered by the majority, I believe that framing the issue in these terms is incorrect as a matter of law.
Title VII provides in pertinent part that “[i]t shall be an unlawful employment practice for an employer ... to fail or refuse to hire ... any individual ... because of such individual’s race, color, religion, sex, or national origin,” 42 U.S.C. § 2000e-2(a). Title VII governs the relationship between employers and employees; it does not speak to any exceptions for governmental licensing activities or exercises of the State’s police power. Under Title VII, the only issue we need examine is whether an employer has “fail[ed] or refuse[d] to hire *496any individual because of such individual’s race, color, religion, sex, or national origin.” Id. Thus, if the State as employer administers a test to its potential employees as a condition of employment, the exam would be subject to Title VII notwithstanding its being called a licensing exam or characterized as an exercise of the State’s police power.2
I would agree with the majority that in most cases, courts have found that Title VII did not apply to a governmental licensing agency. See George v. New Jersey Bd. of Veterinary Med. Exam’rs., 794 F.2d 113, 114 (3d Cir.1986); Haddock v. Bd. of Dental Exam’rs., 777 F.2d 462, 463-64 (9th Cir.1985); Woodard v. Virginia Bd. of Bar Exam’rs., 598 F.2d 1345, 1346 (4th Cir.1979) (per curiam); but see Puntolillo v. New Hampshire Racing Comm’n, 375 F.Supp. 1089, 1092 (D.N.H.1974) (holding that a state agency that licensed race horse drivers was an employer of the drivers where the agency allegedly interfered with their employment by race track owners). The result of the George, Haddock and Woodard cases should not be surprising, however, because in those cases, there was no employment relationship between the licensing entity and employee, and the courts concluded that the licensing entity was not an applicable “employer” under Title VII. In other words, the licensing entity was not subject to Title VII for its activities because it lacked an employment relationship with the employees, not because-their activities could be characterized as licensing activities.
Rather than focusing on the employment relationship, the majority’s approach attempts to determine whether the State’s action is an exercise of its police or proprietary powers. Even assuming that such a framework is workable, and I do not believe that it is, see, e.g., J.L. v. Soc. Sec. Admin., 971 F.2d 260, 270 (9th Cir.1992) (stating that such a framework “would require courts to make unfamiliar and potentially unworkable threshold characterizations of agency actions as either proprietary or regulatory”), framing the issue in these terms begs the question. Further, the majority’s two-factored test to distinguish a State’s police and proprietary powers is of little help in this case.
In any event, because licensing exams are not exempt from Title VII scrutiny, whether we determine that the CBest is an exercise of the State’s police power and, according to the majority opinion, “therefore a valid licensing exam,” is irrelevant. See Majority Opinion at 484-85. Under Title VII, our focus is whether an employer has “fail[ed] or refuse[d] to hire any individual ... because of such individual’s race, color, religion, sex or national origin.” It makes no difference whether the failure or refusal to hire is based on the exercise of police or proprietary powers.
II
Still, the issue remains in this case whether the State may properly be characterized as the employer of the public school teachers. While the employment relationships between the State and public school teachers are not direct ones, they are nevertheless strong, and I believe warrant treating the State as the teachers’ employer under Title VII. The majority concludes that California public school teachers are not the State’s employees, and that the CBest is not an employment exam, because public teachers do not have a traditional employment relationship with the State. Such a conclusion, however, does not end the inquiry under Title VII. As the majority rightfully concedes, a direct employment relationship is not a prerequisite for Title VII liability. See Majority Opinion at 482 n. 17.
*497This Court has held that while “there must be some connection with an employment relationship for Title VII protections to apply ... [t]he connection with employment need not necessarily be direct.” Lutcher v. Musicians Union Local 47, 633 F.2d 880, 883 (9th Cir.1980) (footnotes omitted); see also Baker v. McNeil Island Corrections Ctr., 859 F.2d 124, 127 (9th Cir.1988). Title VII “ ‘does not use the term “employee.” The phrase is, rather, the “person aggrieved;” and that term can certainly be taken as comprehending individuals who do not stand in a direct employment relationship with an employer.’ ” Gomez v. Alexian Bros. Hosp. of San Jose, 698 F.2d 1019, 1021 (9th Cir.1983) (per curiam) (quoting Sibley, 488 F.2d at 1341). Such a reading is also consistent with liberally interpreting the definition of “employer” in order to effectuate the remedial and public policy goals of Title VII. See Virgo v. Riviera Beach Assoc., Ltd., 30 F.3d 1350, 1359 (11th Cir.1994); Spencer v. General Elec. Co., 894 F.2d 651, 657 (4th Cir.1990), abrogated on other grounds, Farrar v. Hobby, 506 U.S. 103, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992); Owens v. Rush, 636 F.2d 283, 287 (10th Cir.1980); Quijano v. Univ. Fed. Credit Union, 617 F.2d 129, 131 (5th Cir.1980); Baker v. Stuart Broadcasting Co., 560 F.2d 389, 391 (8th Cir.1977); Sibley Mem. Hosp. v. Wilson, 488 F.2d 1338, 1340-41 (D.C.Cir.1973).
I agree with the majority that the relationship between the State and local school districts is analogous to the relationship between a corporate parent and its wholly owned subsidiary. I disagree, however, with the majority’s conclusion that a parent corporation would not be subject to Title VII under the circumstances involved. This court has previously held that “[i]n the absence of special circumstances, a parent corporation is not liable for the Title VII violations of its wholly owned subsidiary.” Watson v. Gulf and West. Indus., 650 F.2d 990, 993 (9th Cir.1981) (emphasis added). In Watson, the plaintiff contended that both the parent corporation, Gulf, and its wholly owned subsidiary, Paramount, were liable for Paramount’s Title VII violations. Id. Because there were no “special circumstances” present, the Watson court upheld the district court’s grant of summary judgment to Gulf. In explaining what might constitute “special circumstances,” however, the Watson court stated: “[i]f there was any evidence that Gulf ... participated in or influenced the employment policies of Paramount, ... then we would be presented with a very different case.” Id. (emphasis added).
Although the majority recognized that a parent corporation might be liable under Title VII given the presence of such special circumstances, the majority expressly declined to consider whether the State’s heavy involvement in local school district’s operations were sufficient to hold the State liable under Title VII. See Majority at 482 n. 17. The majority avoided this issue by concluding that the CBest is a licensing exam, and that Title VII does not apply to governmental licensing activities. As demonstrated in the previous section, however, that conclusion is mistaken, and we must therefore determine whether the State possesses an employment relationship with public school teachers. Given the close regulatory control exercised by the State over all aspects of the operation of local school districts, including personnel policies, I conclude that under Title VII the State is an employer of public school teachers.3
*498School districts are agents of the State for the local operation of the common school system, see Hall v. City of Taft, 47 Cal.2d 177, 302 P.2d 574, 577 (1956), and under the California Constitution, the duty of educating the state’s children falls squarely upon the State. See Cal. Const. Art. I, § 1. California courts have long recognized that “public schools ... are a matter of statewide rather than local or municipal concern; their establishment, regulation and operation are covered by the Constitution and the state Legislature is given comprehensive powers in relation thereto.” Hall, 302 P.2d at 576; see also San Francisco Unified Sch. Dist. v. Johnson, 3 Cal.3d 937, 92 Cal.Rptr. 309, 479 P.2d 669, 677 (1971); Johnson v. San Diego Unified Sch. Dist., 217 Cal.App.3d 692, 266 Cal.Rptr. 187, 191 (1990). “The Constitution has always vested ‘plenary’ power over education not in the districts, but in the State, through its Legislature, which may create, dissolve, combine, modify, and regulate local districts at pleasure.” Butt v. State of California, 4 Cal.4th 668, 15 Cal.Rptr .2d 480, 842 P.2d 1240, 1254 (1992). “The local school district system of administration, although ‘recognized by the Constitution and deeply rooted in tradition, is not a constitutional mandate, but a legislative choice,’ ” id. (citing Cal. Const., art. IX, §§ 6, 14), and it is clear that “[t]he system of public schools ... is ‘one system ... applicable to all the common schools....’” Butt, 15 Cal.Rptr.2d 480, 842 P.2d at 1248 (emphasis omitted) (quoting Kennedy v. Miller, 97 Cal. 429, 32 P. 558, 559 (1893)). Further, “[ujnlike most states, California school districts have budgets that are controlled and funded by the state government rather than the local districts.” See Belanger v. Madera Unified Sch. Dist., 963 F.2d 248, 251 (9th Cir.1992). This court has held that given this relationship, school districts enjoy the State’s immunity under the Eleventh Amendment. Id. at 254.
Local school districts are bound by a multitude of State constitutional and statutory mandates. For example, the California Constitution
creates State and county educational offices, including a Superintendent of Public Instruction and a State Board of Education. It authorizes the formation of local school districts, requires that all public elementary and secondary schools be administered within the Public School System, establishes a State School Fund, reserves a minimum portion of State revenues for allocation to the Fund, guarantees minimum allocations from the Fund for each public school, specifies minimum salaries for public school teachers, authorizes the State Board of Education to approve public school textbooks, and permits the Legislature to grant local districts such authority over their affairs as does not conflict with the laws and purposes for which school districts are established.
Butt, 15 Cal.Rptr.2d 480, 842 P.2d at 1248 (citations and quotations omitted). In addition, State statutes govern
such matters as county and district organization, elections, and governance; educational programs, instructional materials, and proficiency testing; sex discrimination and affirmative action; admission standards; compulsory attendance; school facilities; rights and responsibilities of students and parents; holidays; school health, safety, and nutrition; teacher eredentialing and certification; rights and duties of public school employees; and the pension system for public school teachers.
Id. at 1254 (citations omitted). Finally, this statutory scheme is supported by “voluminous regulations administered by the *499State’s Department of Education and the [California Superintendent of Public Instruction].” Id. It is clear that even though local school districts are operated by officials who are locally elected and appointed, they are effectively extensions of the State in providing a constitutionally mandated public education to California children. The complex legal and functional relationship between the State and local school districts constitutes sufficient “special circumstances” to warrant holding the State liable as an employer of the public school teachers for the CBest, even without the direct employment relationship otherwise required by the majority.4
In any event, it is clear that even without a direct employment relationship with the teachers, the State would still be subject to Title VII as a covered employer if it discriminatorily interferes with the employment opportunities of public teachers with local school districts. See Gomez, 698 F.2d at 1021; Sibley, 488 F.2d at 1341. The majority also declined to discuss this issue, again because the majority concluded that licensing exams are not subject to Title VII. See Majority Opinion at 485.
A sufficient relationship arises under Title VII where an entity, usually a labor union or employment agency, is in a position to interfere with an applicant’s employment opportunities with a third party, and does so. Sibley, 488 F.2d at 1341. In this case, the State regulates the credentials necessary for public school employment. An applicant who does not adhere to the State’s requirements is free to teach in private schools, but not in public schools. As Gomez stated,
it would contravene Congress’s intent in Title VII “[t]o permit a covered employer to exploit circumstances peculiarly affording it the capability of discrimina-torily interfering with an individuars employment opportunities with another employer, while it could not do so with respect to employment in its own service. ...”
Gomez, 698 F.2d at 1021 (quoting Sibley, 488 F.2d at 1341). These circumstances certainly exist in the instant case. Only the state Legislature possesses the constitutional authority to regulate public school teacher hiring on a statewide level, such as by imposing a credentialing requirement like the CBest, but under the majority opinion, the State is not subject to Title VII because it is not a direct employer. On the other hand, local school districts, which are the direct employers, are not subject to Title VII because it is the State and CTC that require' and administer the CBest. Given these circumstances, as a practical matter, the majority’s reading of Title. VII leaves minority public school teachers without any of the protections afforded by Title VII to challenge a state-imposed employment practice such as the CBest. “Congress expressly indicated the intent that the same Title VII principles be applied to governmental and private employers alike,” Dothard v. Rawlinson, 433 U.S. 321, 331-32 n. 14, 97 S.Ct. 2720, 53 L.Ed.2d 786 (1977), and surely did not intend to allow states so easily to circumvent Title VII’s mandate. Thus, I would hold the State subject to Title VII as a covered employer if it discriminatorily interferes with the employment opportuni*500ties of public teachers with local school districts.5
In sum, because I believe that the CBest examination is subject to the provisions of Title VII, I would reach the merits of the plaintiffs’ Title VII claims and determine whether the CBest was properly validated. Because the majority concludes that Title VII does not apply, I do not express any opinion whether the CBest, as validated by the three studies, violated Title VII.
Ill
“The objective of Congress in the enactment of Title VII is plain from the language of the statute. It was to achieve equality of employment opportunities and remove barriers that have operated in the past to favor an identifiable group of white employees over other employees.” Griggs v. Duke Power Co., 401 U.S. 424, 429, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). I do not believe that congressional intent is served by relying on a constrained reading of Title VII to avoid the application of that statute to statewide hiring requirements for all public school teachers.
As a result of today’s decision, California is no longer bound to follow Title VII’s mandate when imposing its statewide hiring requirements for public school teachers, however invidious, discriminatory, or harmful those requirements may be. In reaching its decision, the majority ignores the political realities of public education in California and instead relies on the non-dispositive observation that the relationship between the State and public school teachers is not a traditional one. Because I believe that the majority has diminished the protections of Title VII for public school teachers beyond what Congress intended, I respectfully dissent.
IV
The district court stated the following as its reasons for denying all costs: the suit involved an issue of substantial public importance; the issues were reasonably close and difficult; that there was some merit to the plaintiffs’ case; and there was a substantial disparity of resources between the parties. The majority holds that these reasons may not themselves justify the denial of all costs to the prevailing parties. When, however, there is the added circumstance that awarding such high costs against a civil rights plaintiff may well have a “chilling effect ... on future civil rights litigants,” Stanley v. Univ. of Southern California, 178 F.3d 1069 (9th Cir.1999), I believe that it is within the district court’s discretion to deny all or a portion of the huge costs assessed in this case.
I start with the acknowledged fact that the CBest resulted in the failure of a disproportionate number of minorities as compared to Caucasians. To challenge the State of California, with all of its resources, may well be daunting — a David facing Goliath — if in addition to the attorneys’ fees and costs incurred in bringing suit in such a complex matter, the plaintiffs may be required to pay the defendants’ costs, which in this case amount to $216,433.67.
The case primarily relied upon by the majority is not a civil rights case, but litigation between private corporations, where National Information Services, Inc., Credit Data of Illinois, Inc., Informative Research, Inc., and CDB Infotek all sued TRW, Inc. and Credit Bureau Reports, Inc. for alleged antitrust violations. See Nat’l Info. Services, Inc. v. TRW, Inc., 51 F.3d 1470 (9th Cir.1995) (as amended). *501Under the circumstances there involved, where the litigation is between corporate entities, the failure to award costs to the prevailing party properly was considered an unjustified penalty. The appeal before us more closely involves the civil rights considerations set forth in Stanley.
While I concur in the majority’s decision to remand for a determination of the proper costs, I assume that the majority agrees that in making its determination of the proper amount of costs, the district court in its discretion may consider whether there is a disparity of resources between the parties; the fact that this is civil rights litigation; the plaintiffs’ partial success in securing modification of the CBest; the possibility that the cost award would render some or all of the plaintiffs indigent; the possibility that the cost award could chill future civil rights litigation, and any other appropriate factors.
Unlike the majority, however, I would allow the district court, in exercising its broad discretion, to award zero costs if the balance of factors so warrant. This result is supported by Stanley. In Stanley, this court found that the award of costs by the district court was an abuse of discretion because the district court had failed to consider all of the proper factors, namely the possibility that the cost award could render some or all of the plaintiffs indigent, or the possibility that the cost award could chill future civil rights litigation, and thus remanded the issue to the district court for reconsideration in light of those factors. If, on remand in this case, the district court properly considers the factors discussed above and then determines that given those factors, the appropriate cost award is zero, then under Stanley, I believe the district court would be acting within its discretion in awarding zero costs.
Federal Rule of Civil Procedure 54(d)(1) provides in part that “costs other than attorneys’ fees shall be allowed as of course to the prevailing party unless the court otherwise directs; ...” (emphasis added). The district court’s power in an appropriate case to “otherwise direct” is not limited. Yet, the majority engages in engrafting on the rule a requirement that “in no event may the court direct that no costs be awarded.” While in some cases it would certainly be an abuse of discretion for a court to direct that no costs be awarded a prevailing party, we should not attempt to restrict the discretion granted the court so as to eliminate that possibility in all cases. Rule 54(d)(1) itself is broad enough to allow district court judges to deny all or a portion of the costs to the prevailing parties, and we should only interfere when they abuse their discretion. Because I disagree that in a civil rights case, a district court necessarily abuses its discretion when it denies all costs to a prevailing party, I respectfully dissent from that part of the majority’s holding.
. I also do not concur in the majority's conclusion that Title VI is inapplicable to the CBest. This court has previously held that Title VI disparate impact analysis closely tracks Title VII disparate impact analysis. Larry P. v. Riles, 793 F.2d 969, 982-83 & fns. 9-10 (9th Cir.1986) (as amended) (placing the burden on a Title VI defendant to prove that an exam with a disparate impact on African-American children was "required by educational necessity”); cf. Smith v. Barton, 914 F.2d 1330, 1336 (9th Cir.1990) (stating that courts look to Title VII to determine appropriate rules under Title VI). Thus, because Title VI disparate impact analysis would be the same as that of Title VII, and I conclude that Title VII applies to the CBest as administered by the State and Commission on Teacher Credentialing (CTC), I do not find it necessary to address the issue whether Title VI is also applicable. Since the filing of this opinion, however, we have been informed that commencing in March 1996, the CTC has been receiving federal funds. At least since that date, there should be no question that Title VI applies to the use of the CBest for determining eligibility to teach.
. The State is subject to Title VII even though it is a state agency, the CTC, that actually administers the CBest. Title VII does not limit its application to direct employers, but includes "any agent” of that employer. See 42 U.S.C. § 2000e-2(a); Morgan v. Safeway Stores, Inc., 884 F.2d 1211, 1214 (9th Cir.1989).
. The majority erroneously relies on Gonzales v. State of California, 29 Cal.App.3d 585, 105 Cal.Rptr. 804 (1972), for the proposition that "California law establishes that [public] teachers are not State employees.” Majority Opinion at 485; see also id. at 482-83. Gonzales is inapplicable, however, because it merely holds that the general theory of re-spondeat superior does not render the State liable for the torts of local school districts or their employees. See id. at 590-92, 105 Cal.Rptr. 804; Butt v. State of California, 4 Cal.4th 668, 15 Cal.Rptr.2d 480, 842 P.2d 1240, 1248 (1992) (citing Gonzales). Gonzales thus does not address whether the State may be subject to Title VII for its actions in *498carrying out its broad constitutional duty to educate the state’s children. See Butt, 15 Cal.Rptr.2d 480, 842 P.2d at 1248 (stating that while ''[school] districts are separate political entities for some purposes ... the existence of th[e] local-district system has not prevented recognition that the State itself has broad responsibility to ensure basic educational equality under the California Constitution.”).
. In. reaching its holding that the State is not the employer of the public teachers, the majority relies heavily on Fields v. Hallsville Indep. Sch. Dist., 906 F.2d 1017, 1020 (5th Cir.1990) (per curiam). In Fields, the Fifth Circuit held that the State of Texas was not subject to Title VII for a teacher credentialing exam similar to the CBest because the State was not the employer of the public teachers. Fields is distinguishable in several respects. First, because the issue was not properly raised, the court expressly declined to consider whether Texas’s close relationship with the local school districts might change their holding. See id. at 1019 fas. 2 & 3. Second, the analysis in Fields focused on whether Texas exercised any right of control over the teachers. See id. at 1019-20. This analysis may be relevant to whether Texas maintained a direct employment relationship with the public school teachers, but it is inapposite to the determination whether the State could be an employer under Title VII as a result of its close regulation of public schools.
. Numerous courts relying on Sibley have also found public actors to be the relevant employer under Title VII for interfering with the employment opportunities of covered employees. See United States v. City of Yonkers, 592 F.Supp. 570, 589-92 (S.D.N.Y.1984); Rivas v. State Bd. for Community Colleges, 517 F.Supp. 467, 470 (D.Colo.1981); Vanguard Justice Soc'y, Inc. v. Hughes, 471 F.Supp. 670, 696-97 (D.Md.1979); Curran v. Portland Superintending Sch. Comm., 435 F.Supp. 1063, 1073 (D.Me.1977); Puntolillo, 375 F.Supp. at 1091-92.