By Joe Feuerherd
NCR Washington Correspondent
Does the $79.8 million government-sponsored bond issue that will fund the construction and modernization of parish halls and parochial school classrooms in the Austin, Texas, diocese result in an “excessive entanglement” between church and state and violate the Constitution’s establishment clause?
Probably not, according to three decades of court rulings on related issues, though that doesn’t mean someone couldn’t make the argument.
“In most of the jurisdictions where we operate the diocese itself could be the borrower without running afoul of church and state issues as long as the facility being financed served a public purpose,” says Edsell Eady, partner in the San Francisco office of Nixon Peabody, a leading public finance law firm.
Martha Ratnoff Fleisher, author of Establishing Bonds Between Church and State: The Issuance of Tax-exempt Bonds for Religious Institutions, says the first step a bond counsel for a potential borrower must take in considering such financing is to “find state statutory authority to do whatever you are trying to do.”
The Austin bond issue passes the first church-state threshold, which explicitly forbids using bond proceeds to fund “sanctuaries” or “chapels.” Further, the Public Finance Division of the Texas Attorney General’s office signed off on the bond issue, finding that it fell within the parameters of the state’s Cultural Education Facilities Finance Corporation Act.
Still, it’s not that simple. Because the bonds purchased by investors are free of federal taxation, the attorneys for the issuer must provide an “unqualified opinion” that they pass constitutional muster. Here, too, they seem to have the law on their side.
In 1971, the Supreme Court in Lemon v. Kurtzmann overturned a Rhode Island statute that allowed state funding to supplement the salaries of teachers in religious schools. To pass constitutional muster, the court said in laying out the “Lemon test,” legislation that aids churches must have a secular purpose, its primary effect should not be to hinder or advance religion, and it should not lead to “excessive entanglement” between church and state.
Two years later, the court said that South Carolina’s Baptist College was eligible for tax-exempt financing to fund construction projects because it was not a “pervasively sectarian” institution and the funds would meet the secular purpose of furthering education. The court also drew a distinction between direct public funding and the circuitous path of bond proceeds.
With tax-exempt bonds, said the court, “We have here no expenditure of public funds, either by grant or by loan, no reimbursement of a state for expenditures made by a parochial school or college, and no extending or committing of a state’s credit. Rather, the only state aid consists, not of financial assistance directly or indirectly which would implicate public funds or credit, but the creation of an instrumentality … through which educational institutions may borrow funds on the basis of their own credit and the security of their own property upon more favorable interest terms than otherwise would be available.”
Since that ruling, billions of dollars of local government- and state-sponsored bond issues have funded classrooms and dormitories at religiously affiliated colleges and universities, construction projects for faith-based social service providers, and wings at church-affiliated hospitals.
In the late 1990s, the Supreme Court supported the constitutionality of programs that allowed publicly funded teachers to supplement the nonreligious education of low-income students in church-sponsored schools; that was followed by a 5-4 decision in which the court found Cleveland’s school voucher program constitutional.
The trend was clear. There is no “wall” separating church and state, the court consistently held, but rather a porous barrier that can be overcome based on what activity is being funded rather than on who is carrying it out.
Lower courts applied the Supreme Court’s increasing friendliness toward public support for the secular programs carried out by religious institution directly to the question of bond financing.
In 2000 in Virginia College Building Authority v. Lynn (“Lynn” was Barry Lynn, executive director of Americans United for Separation of Church and State), the Virginia Supreme Court held that Pat Robertson’s Regent University was a “pervasively sectarian” institution but that it was nonetheless eligible for government supported tax-exempt financing.
Finally, in 2002 the U.S. Sixth Circuit upheld the issuance of bonds to fund projects at Tennessee’s “pervasively sectarian” David Lipscomb University.
The apparent bottom line: “These are powerful financial tools and it’s important that they be used prudently,” says attorney Eady. “But they should not be denied to religious institutions or affiliates simply because of who they are.”
For more information on church use of publicly supported tax-exempt financing see “The Doctrine of ‘Pervasive Sectarianism’ and the Bond Lawyer’s Dilemma,” an article by attorney Jeffrey O. Lewis, information from which was helpful in preparation of this article. It can be found at www.icemiller.com. | 