Metropolitan News-Enterprise


Wednesday, March 10, 2004


Page 1


Divided C.A. Rejects Tax-Exempt Bonds for Religious Schools


By KENNETH OFGANG, Staff Writer/Appellate Courts


A state agency created to assist community development through tax-exempt bonds violated the California Constitution by participating in the funding of religiously affiliated schools, the Third District Court of Appeal ruled yesterday.

A divided panel affirmed three separate rulings by Sacramento Superior Court Judge Loren E. McMaster, invalidating “conduit financing” agreements between the California Statewide Communities Development Authority and Oaks Christian School in Westlake Village, California Baptist University in Riverside, and Azusa Pacific University.

The rulings were based on Art. XVI, Sec. 5 of the Constitution, which, among other things, prohibits the state and local governments from giving “anything to or in aid of any religious sect, church, creed, or sectarian purpose, or help[ing] to support or sustain any school, college, university, hospital, or other institution controlled by any religious creed, church, or sectarian denomination whatever.”

Funding Mechanism

The authority was established by the Legislature in 1988 to help develop communities by, among other things, issuing tax-exempt bonds for industrial development, housing, health care, and schools. Under the school funding mechanism, a school transfers property to the authority, which then transfers it back to the school and issues bonds under an installment sale agreement.

The school, which could not issue tax-exempt bonds on its own, uses the proceeds of the bond issue to finance its project, gaining the benefit of the lower interest rates paid on bonds when they are tax-exempt.

The authority requires a showing that any project it finances will benefit the surrounding community and requires beneficiaries to sign a statement that no facility financed by it will be used for religious instruction or worship.

The authority brought validation proceedings as to the three agreements, contending they met all legal requirements. Attorney General Bill Lockyer questioned the validity of the agreements, noting that all three schools conceded that they are “pervasively sectarian” and that a predecessor attorney general’s opinion had questioned whether such a school could qualify for conduit financing by another state agency.

The ACLU opposed the agreements on state and federal constitutional grounds.

McMaster found that the agreements violated the state Constitution—he initially found them unconstitutional on federal grounds as well, but later struck that determination as unnecessary—because the schools were organized for religious purposes, practiced religious discrimination in hiring, and made religion “mandatory and integral to every aspect of student life,” including classroom instruction.

The use of the state’s tax-exempt financing powers, the judge said, “necessarily involves financing of religious indoctrination.”

Plain Meaning

Justice Richard Sims III, writing for the Court of Appeal, said the plain meaning of the language in Art. XVI, Sec. 5 supports the trial judge’s rulings.

“The conduit financing, which allows schools to finance projects at a lower cost than they could through conventional financing, is a form of aid within the meaning of article XVI, section 5,” he wrote.

“The aid is substantial,” he added, noting that Oaks Christian’s bond counsel had estimated the interest savings to the school at $52,500.

The prohibition against use of authority-financed improvements for religious instruction or worship, Sims said, does not alter the analysis because it is impossible to enforce.

“Even assuming it was possible to monitor the program restriction under the contract provision allowing CSCDA a right of access to inspect the facilities (upon reasonable advance notice and subject to restriction by the school for safety or security purposes), such monitoring would necessarily require entanglement of government and religion that would raise its own constitutional alarms,” the justice wrote.

Sims distinguished cases in other states allowing use of tax-exempt conduit financing for sectarian schools where the projects were deemed secular. Those cases, he said, all involved challenges under the U.S. Constitution or under state constitutions whose language differs from California’s.

Justice Coleman Blease concurred in the opinion, while Justice George Nicholson dissented.

Nicholson argued that the “pervasively sectarian” test adopted by the majority shows an anti-religion bias, and that the schools’ agreement not to use the bond-financed facilities for religious purposes is sufficient to avoid the bar of Sec. 5.

Noting that the state Supreme Court has approved the use of public funds to build roads and sidewalks for access to religious schools, Nicholson wrote:

“By the [majority’s] 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....Like sewers and sidewalks, however, buildings have no doctrinal content...A covenant not to use for religious purposes the facilities financed with tax-exempt bonds, therefore, gives adequate assurance that they will not be so used.”

The case is California Statewide Communities Development Authority v. All Persons Interested in the Matter of the Validity of a Purchase Agreement, C042944.


Copyright 2004, Metropolitan News Company