Dateline, March 6, 2007, Chicago
A closely divided California Supreme Court ruled yesterday that a public entity could use its authority to issue tax-exempt bonds to raise funds to assist religiously affiliated schools that devote a substantial portion of their functions to religious mission. California Statewide Communities Development Authority v. All Persons Interested in the Matter of the Validity of a Purchase Agreement, S124195 (March 5, 2007). The court held that the bond financing program survived constitional challenge under both the California and United States constitutions. California may be the source of all things liberal in the views of some, but its supreme court just handed the religious right a major victory. What is significant about this decision is the fact that the schools in question were...
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pervasively religious.
The public entity would not be lending the money or giving it directly to the schools. The bonds, to be purchased by private buyers, would be issued through a conduit financing mechanism, with the result that the schools would be solely responsible for repayment of the bonds. Under the arrangement, the schools would not be able to use bond proceeds to finance for religious/sectarian activities.
California Constitution. Both the trial and appellate courts held that the financing arrangement was unconstituional under Section 5 of Article XVI of California’s state constitution. That provision of the California’s constitution prohibits an appropriation or paying from any public fund money for the benefit of “any school, college, [or] university...controlled by any religious creed, church, or sectarian denomination.” At issue was whether the proposed indirect assistance to three schools, through the issuance by a state bond financing authority of revenue bonds, would be “aid of any . . . sectarian purpose” or “help to support any school . . . controlled by any . . . sectarian denomination,” as prohibited by section 5 of article XVI of the California's constitution.
The California Supreme Court acknowledged that the three schools were sectarian, but said the focus should be on two questions: (i) Does each of the recipient schools offer a broad curriculum in secular subjects? and (ii) Do the schools’ secular classes consist of information and coursework that is neutral with respect to religion? The court indicated that this test was designed to assure the expression of any religious viewpoint in the secular classes was “merely incidental to the bond program’s primary purpose of promoting secular education."
The court’s analysis of the issue begins with a discussion of conduit financing. It notes that the California Statewide Communities Development Authority (CSCDA) issues the bonds, but that it is not the source of the funds. No public monies are expended. It is the recipient of the bond proceeds that bears full responsibility for payment of principal and interest, and the bondholders have no recourse to CSCDA or any other governmental entity for repayment of the bonds. CSCDA is authorized to issue the bonds “whenever there are significant public benefits for taking the action.” The program encourages private support of certain activities.
In this particular case, CSCDA issued revenue bonds to fund campus improvements at three private schools (Oaks Christian School, California Baptist University, and Azusa Pacific University), all of which are operated by tax-exempt religious corporations. In issuing the bonds, CSCDA assumed each school was pervasively sectarian, meaning that “a substantial portion of [each school’s] functions are subsumed” in its religious mission. The Oaks Christian School provides a private, comprehensive, college preparatory, Christian education for students in the 6th through 12th grades (i.e., middle and high school). The school seeks to foster student growth “in knowledge and wisdom through God’s grace” and “to dedicate [themselves] to the pursuit of academic, excellence, athletic distinction and Christian values.” It admits students without regard to religion. For the 2001-2002 school year, about 35% of the enrolled students were not Christian. All students were required to support the school’s mission, statement of faith, and biblical goals. Faculty members had to adhere to the Christian faith and must sign a statement of faith.
The two colleges were accredited liberal arts colleges, but operated under “biblically based Christian principles” in one case and to “advance the word of God [by encouraging students] to develop a Christian perspective of truth and life,” in the other. In one case, the undergraduates were required to complete “120 hours of student ministry assignments.” In the 2001-2002 academic year, less than 7% of Azusa Pacific University’s undergraduate degrees were awarded to students who had completed majors in religious studies, but all faculty members were Christian.
Each bond financing provided for the appointment of an independent trustee to receive and handle the bond proceeds. Each school authorized the trustee to disburse funds to pay for the construction of the physical facilities. The school then was required to pay the principal and interest to the trustee, who in turns was required to pay the private purchasers of the bonds.
The trust indenture provided that the recipient school would not use the bonds proceeds to finance a facility that will be used for “sectarian instruction or as a place for religious worship or in connection with any part of the programs of any school or department of divinity for the useful life of the Project.” The trustee was given access to each bond financed facility to assure that the school is in compliance with the covenant.
The California Supreme Court had previously considered this issue in California Educational Facilities Authority v. Priest, 12 Cal.3d 593 (1974), in which it unanimously held:
that issuing revenue bonds to fund capital improvements at religiously affiliated colleges did not violate former section 24 of article XIII, the identically phrased predecessor of the constitutional provision involved here.
In Priest, the school that was the subject of the financing agreement, University of the Pacific (UOP), had no religious affiliation. Nevertheless, the court addressed the religious clauses in the constitution because several other colleges with “denominational ties” had sought to participate in the bond financing program. The court upheld the constitutionally of the program because it was made available to both sectarian and secular institutions, and no portion of the proceeds could be used to finance religious projects. The focus of the program was on education.
Under Priest, the bonding program must (i) serve a public interest; (ii) be available to sectarian and secular institutions; (iii) prohibit the use of bond proceeds for “religious projects;” and (iv) impose no financial burden on the government. The California Supreme Court concluded that the last three requirements had easily been met in the case at hand. Therefore, it focused on the first requirement—that the program serve the public interest.
The problem facing the court was that in Priest, the schools were not pervasively sectarian. Here they were assumed to be. That put into question whether the bonding program served a “public” purpose. To address that question, the court examined the bond program’s purpose and effects. The court decided to examine the substance of the education being provided by the schools. The court indicated that the school must have a secular curriculum, but that the secular course did not have to necessarily be religiously neutral. In the court’s view, a teacher in a course on Shakespeare could express a religious view without tainting the course’s religiously neutral content. It concluded that any benefit to religion in this case was no more than incidental.
The court looked to a decision of the Virginia Supreme Court, noting that Virginia's highest court had observed:
in concluding that issuing government bonds to benefit a religious college (the Reverend Pat Robertson’s Regent University, excluding its divinity school) did not violate the establishment clause of the federal Constitution’s First Amendment: “The nature of this aid is properly defined as the granting of tax exempt status to the bonds which has the incidental result of permitting a qualifying institution to borrow funds at an interest rate lower than conventional private financing.” (Virginia College Bldg. Authority v. Lynn (2000) 260 Va. 608, 638 [538 S.E.2d 682, 698]
The California Supreme Court also noted a 2002 Sixth Circuit challenge to a bond financing program benefiting Lipscomb University, a Tennessee college run by the Churches of Christ. Steele v. Industrial Development Bd. of Metro, 301 F.3d 401 (6th Cir. 2002). The Sixth Circuit uphelf the financing. In the end, the court equated the bond financing program with the provision of fire protection by municipalities to churches.
United States Constition. The California Supreme Court then turned to the federal constitutional question: whether the California’s program violated the establishment clause in the First Amendment to the United States Constitution. It looked to the United State’s Supreme Court’s opinion in Lemon v. Kurtzman, 403 U.S. 602 (1971). That case adopted a three-part test to determine when a particular law or government practice would not constitute an establishment of religion. Under that test, (i) the program must have “a secular legislative purpose”; (ii) the program’s “principal or primary effect must be one that neither advances nor inhibits religion”; and (iii) the program “must not foster ‘an excessive government entanglement with religion.’" The United States Supreme Court subsequently folded the third inquiry into the second one. Agostini v. Felton, 521 U.S. 203 (1997). The United States Supreme Court had previously applied the gist of these tests to bond financing program that benefited sectarian schools, but only in a case where the religious aspects of the school were not “so pervasive.” Hunt v. McNair, 413 U.S. 734 (1973). In that case, the school was a Baptist college, but its student body was 40% non-Baptist and the school had no religious qualification for faculty or students. The California Supreme Court then noted that recent United States Supreme Court decisions have more recently held that:
[N]othing in the Establishment Clause requires the exclusion of pervasively sectarian schools from otherwise permissible aid programs, and other doctrines of this Court bar it.
Mitchell v. Helms, 530 U.S. 793 (2000). In Mitchell, the United States Supreme Court upheld a federal aid program that provided library and media materials, as well as computer software, to private elementary and secondary schools, including religiously affiliated schools.
The California Supreme Court then concluded that the safeguards in the existing program met the Lemon-Agostini tests. There was not indoctrination, there was a broad secular curriculum, and bond proceeds could not be used for sectarian purposes. Moreover, the program was open to both sectarian and secular schools.
The dissent focused on the fact that the trial court found that “religion is both mandatory and integral to every aspect of student life.” The dissent therefore found that the bond financing program violated Article XVI of California's constitution because the program helped support and sustain a sectarian institution. The dissent also drew analogies to another California Supreme Court case that prohibited the California Superintendent of Public Education from lending textbooks to private religious schools without charge. California Teachers Assn. v. Riles, 29 Cal.3d 794 (1981).
Open Question. We do have one question about the California decision. Is the amount of bond financing subject to a a volume cap? That is an important fact that is not addressed in the majority opinion (we must admit to skimming the dissenting opinion after it began a discussion of disputed facts). If it were, the "pervasively sectarian" programs could crowd out the secular programs. At the same time, if the selection process were made in accordance with objective standards, a court might not find such caps to be a problem.
Conclusion. Albeit, by a four to thee vote, the California Supreme Court has spoken. It clearly is on a slippery slope when it says that a Shakespeare class is secular even though a religious viewpoint is expressed by the teacher. At some point, the course will move from secular to sectarian if enough religious viewpoints expressed. Shakespeare could become just another means to religious indoctrination.
Ironically, California, that state of alleged liberalism, has just open the doors for more conservative states to engage in bond financing of sectarian schools. As has been the case with President Bush’s faith-based program, the government sponsors of bond financing programs will require that form be satisfied before a religious school can participate—limitations on the use of the bond proceeds, etc. However, there will be schools that agree to the formal requirements and then simply ignore them. Yes, we teach Shakespeare, but every line has something to do with Jesus Christ, Mohammed, Vishnu, or Moses.
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