Church and State in Court
Thursday, March 11, 2004
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ReprintsSAN FRANCISCO - California's constitution prohibits the government from acting as a conduit issuer for tax-exempt bonds for a religious school, according to a state appeals court decision rendered this week.
The Third District Court of Appeal's 2-to-1 ruling Wednesday in Sacramento upheld a 2002 lower court ruling barring the California Statewide Communities Development Authority from acting as a conduit issuer for tax-exempt bonds for three schools run by religious organizations.
The CSCDA is a joint-powers authority with more than 380 local agencies as members and was created to provide local governments and private entities access to low-cost, tax- exempt financing. As of yesterday, attorneys involved in the case said the authority has not decided whether it will appeal the decision.
California Baptist University, Azusa Pacific University, and Oaks Christian School, by virtue of such rules as requiring faculty members to be Christians and making chapel attendance mandatory for students, are "pervasively religious" and thus ineligible for such state aid, according to the majority opinion by Judge Richard Sims.
"It is impossible to separate their religious aspects from their secular aspects," Sims wrote, even though the schools pledged not to use the facilities constructed with bond proceeds for religious purposes.
This violates the state constitutional prohibition against a California government granting "anything to or in aid of any religious sect, church, creed, or sectarian purpose, or help to support or sustain any school, college, university, hospital, or other institution controlled by any religious creed, church, or sectarian denomination whatever," Sims wrote.
His ruling specifically sidesteps federal constitutional issues.
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"We thought there had been enough movement in the federal establishment clause area to give us an opportunity to proceed with a validation action but not yet sufficient clarity to proceed without one," Carron said.
He said the appeals court majority erred in using a "pervasively religious" definition created in federal jurisprudence to settle a state constitutional issue.
"We're still very secure that legal argument made was very sound, and we hope as lawyers to validate it, but of course that's the client's call," he said.
The U.S. Supreme Court addressed the issue of tax-exempt conduit financing for religious schools in 1973 in the case of Hunt v. McNair, which allowed such a financing to proceed on the grounds that the Baptist school in question was not "pervasively religious."
"For the most part, the jurisprudence has been inching toward greater acceptance of state involvement. Bond lawyers are tending to get more receptive to those financings," said Chicago attorney Milton Wakschlag of the firm Katten Muchin Zavis Rosenman.
In recent years, the Virginia Supreme Court and the U.S. Sixth District Court of Appeals have upheld conduit financings similar to the ones sought in California. In the former case, the Virginia College Building Authority issued debt for Regent University, and in the latter, the Nashville Industrial Development Board was the conduit for Lipscomb University.
"It would be helpful if there was a Supreme Court decision to resolve all the issues," Wakschlag said.
Los Angeles attorney Jeffrey Berman of Sidley Austin Brown & Wood LLP represented Christian organizations that filed amicus briefs in the California case. He said he is urging the plaintiffs to appeal.
"This case has a significantly bad effect, not only on these institutions, but it's also going to deter other institutions from applying for bond financings," he said.
Berman said the Sacramento appeals court has a track record of being adverse to religious interests - a view echoed in Judge George Nicholson's dissent.
"By the same reasoning, the state should deny these schools fire and police protection, as well as maintenance for contiguous roads and sidewalks and services such as water, electricity, and sewer, because these services might be used for religious purposes," Nicholson wrote. "I find no appropriate reason to engage in judicial hostility toward sectarian institutions."