Source: https://supreme.justia.com/cases/federal/us/413/734/
Timestamp: 2019-04-23 02:17:07+00:00

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In this action for injunctive and declaratory relief appellant challenges the South Carolina Educational Facilities Authority Act as violative of the Establishment Clause of the First Amendment insofar as it authorizes a proposed financing transaction involving the issuance of revenue bonds benefiting a Baptist controlled college. The Act establishes an Educational Facilities Authority to assist (through the issuance of revenue bonds) higher educational institutions in constructing and financing projects, such as buildings, facilities, and site preparation, but not including any facility for sectarian instruction or religious worship. Neither the State nor the Authority is obligated, directly or indirectly, to pay the principal of or interest on the bonds; nor is the State's taxing power pledged or implicated. All expenses of the Authority also must be paid solely from the revenues of the projects. The Authority gave preliminary approval to an application submitted by the college, only 60% of whose students are Baptists. As subsequently modified, the application requests the issuance of revenue bonds to be used for refinancing capital improvements and completing the dining hall. Under the statutory scheme, the project would be conveyed to the Authority, which would lease it back to the college, with reconveyance to the college on full payment of the bonds. The lease agreement would contain a clause obligating the institution to observe the Act's restrictions on sectarian use and enabling the Authority to conduct inspections. The provision for reconveyance would restrict the project to nonsectarian use. The trial court denied appellant relief, and the State Supreme Court affirmed. After this Court had vacated the judgment and remanded the case for reconsideration in the light of Lemon v. Kurtzman, 403 U. S. 602, and other intervening decisions, the State Supreme Court adhered to its earlier decision.
Held: The Act as construed by the South Carolina Supreme Court does not, under the guidelines of Lemon v. Kurtzman, supra, at 403 U. S. 612-613, violate the Establishment Clause. Pp. 413 U. S. 741-749.
State, whether or not they have a religious affiliation. Pp. 413 U. S. 741-742.
(b) The statute does not have the primary effect of advancing or inhibiting religion. The college involved has no significant sectarian orientation, and the project must be confined to a secular purpose, with the lease agreement, enforced by inspection provisions, forbidding religious use. Pp. 413 U. S. 742-745.
(c) The statute does not foster an excessive entanglement with religion. The record here does not show that religion so permeates the college that inspection by the Authority to insure that the project is not used for religious purposes would necessarily lead to such entanglement. The Authority's statutory power to participate in certain management decisions also does not have that effect, in view of the narrow construction by the State Supreme Court, limiting such power to insuring that the college's fees suffice to meet bond payments. Absent default, the lease agreement would leave full responsibility with the college regarding fees and general operations. Pp. 413 U. S. 745-749.
258 S.C. 97, 187 S.E.2d 645, affirmed.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, WHITE, BLACKMUN, and REHNQUIST, JJ., joined. BRENNAN, J., filed a dissenting opinion, in which DOUGLAS and MARSHALL, JJ., joined, post, p. 413 U. S. 749.
et seq. (Supp. 1971), as violative of the Establishment Clause of the First Amendment insofar as it authorizes a proposed financing transaction involving the issuance of revenue bonds for the benefit of the Baptist College at Charleston (the College). [Footnote 1] The trial court's denial of relief was affirmed by the Supreme Court of South Carolina. 255 S.C. 71, 177 S.E.2d 362 (1970). This Court vacated the judgment and remanded the case for reconsideration in light of the intervening decisions in Lemon v. Kurtzman, Earley v. DiCenso, and Robinson v. DiCenso, 403 U. S. 602 (1971); and Tilton v. Richardson, 403 U. S. 672 (1971). 403 U.S. 945 (1971). On remand, the Supreme Court of South Carolina adhered to its earlier position. 258 S.C. 97, 187 S.E.2d 645 (1972). We affirm.
or department of divinity for any religious denomination."
S.C.Code Ann. § 22-41.2(b) (Supp. 1971). Correspondingly, the Authority is accorded certain powers over the project, including the powers to determine the fees to be charged for the use of the project and to establish regulations for its use. See infra at 413 U. S. 747-749.
"Revenue bonds issued under the provisions of this chapter shall not be deemed to constitute a debt or liability of the State or of any political subdivision thereof or a pledge of the faith and credit of the State or of any such political subdivision, but shall be payable solely from the funds herein provided therefor from revenues. All such revenue bonds shall contain on the face thereof a statement to the effect that neither the State of South Carolina nor the Authority shall be obligated to pay the same or the interest thereon except from revenues of the project or the portion thereof for which they are issued and that neither the faith and credit nor the taxing power of the State of South Carolina or of any political subdivision thereof is pledged to the payment of the principal of or the interest on such bonds. The issuance of revenue bonds under the provisions of this chapter shall not directly or indirectly or contingently obligate the State or any political subdivision thereof to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment."
S.C.Code Ann. § 22-41.10 (Supp. 1971).
Moreover, since all of the expenses of the Authority must be paid from the revenues of the various projects in which it participates, S.C.Code Ann. § 221.5 (Supp. 1971), none of the general revenues of South Carolina is used to support a project.
On January 6, 1970, the College submitted to the Authority for preliminary approval an application for the issuance of revenue bonds. Under the proposal, the Authority would issue the bonds and make the proceeds available to the College for use in connection with a portion of its campus to be designated a project (the Project) within the meaning of the Act. In return, the College would convey the Project, without cost, to the Authority, which would then lease the property so conveyed back to the College. After payment in full of the bonds, the Project would be reconveyed to the College. The Authority granted preliminary approval on January 16, 1970, 255 S.C. at 76, 177 S.E.2d at 365.
advantage of financing educational institutions through a state-created authority derives from relevant provisions of federal and South Carolina state income tax laws which provide in effect that the interest on such bonds is not subject to income taxation. [Footnote 3] The income tax exempt status of the interest enables the Authority, as an instrumentality of the State, to market the bonds at a significantly lower rate of interest than the educational institution would be forced to pay if it borrowed the money by conventional private financing.
"obligating the Institution that neither the leased land, nor the facility located thereon, shall be used for sectarian instruction or as a place of religious worship, or in connection with any part of the program of a school or department of divinity of any religious denomination."
restriction against use for sectarian purposes. [Footnote 4] The Rules further provide that simultaneously with the execution of the lease agreement, the Authority and the trustee bank would enter into a Trust Indenture which would create, for the benefit of the bondholders, a foreclosable mortgage lien on the Project property including a mortgage on the "right, title and interest of the Authority in and to the Lease Agreement." Jurisdictional Statement, Appendix C, p. 50.
Our consideration of appellant's Establishment Clause claim extends only to the proposal as approved preliminarily with such additions as are contemplated by the Act, the Rules, and the decisions of the courts below.
"First, the statute must have a secular legislative purpose; second, its principal or primary effect must be one that neither advances nor inhibits religion . . . ; finally, the statute must not foster 'an excessive government entanglement with religion.'"
Lemon v. Kurtzman, 403 U.S. at 403 U. S. 612-613. With full recognition that these are no more than helpful signposts, we consider the present statute and the proposed transaction in terms of the three "tests": purpose, effect, and entanglement.
the State be provided with appropriate additional means to assist such youth in achieving the required levels of learning and development of their intellectual and mental capacities; and that it is the purpose of this chapter to provide a measure of assistance and an alternative method to enable institutions for higher education in the State to provide the facilities and structures which are sorely needed to accomplish the purposes of this chapter, all to the public benefit and good, to the extent and manner provided herein."
S.C.Code Ann. § 22.41 (Supp. 1971).
The College and other private institutions of higher education provide these benefits to the States. [Footnote 5] As of the academic year 1969-1970, there were 1,548 students enrolled in the College, in addition to approximately 600 night students. Of these students, 95% are residents of South Carolina who are thereby receiving a college education without financial support from the State of South Carolina.
Bradfield v. Roberts, 175 U. S. 291 (1899); Walz v. Tax Comm'n, 397 U. S. 664 (1970); Tilton v. Richardson, 403 U. S. 672 (1971). Stated another way, the Court has not accepted the recurrent argument that all aid is forbidden because aid to one aspect of an institution frees it to spend its other resources on religious ends.
"Individual projects can be properly evaluated if and when challenges arise with respect to particular recipients and some evidence is then presented to show that the institution does in fact, possess these characteristics."
Id. at 403 U. S. 682.
admission, and that only 60 of the College student body is Baptist, a percentage roughly equivalent to the percentage of Baptists in that area of South Carolina. 255 S.C. at 85, 177 S.E.2d at 369. On the record in this case, there is no basis to conclude that the College's operations are oriented significantly towards sectarian, rather than secular, education.
purposes and by participating in the management decisions of the College.
"Since religious indoctrination is not a substantial purpose or activity of these church-related colleges and universities, there is less likelihood than in primary and secondary schools that religion will permeate the area of secular education."
"It is enough for me that . . . the Federal Government [is] financing a separable secular function of overriding importance in order to sustain the legislation here challenged."
403 U.S. at 403 U. S. 664.
"(g) [g]enerally, to fix and revise from time to time and charge and collect rates, rents, fees and charges for the use of and for the services furnished or to be furnished by a project or any portion thereof and to contract with any person, partnership, association or corporation or other body public or private in respect thereof;"
"(h) [t]o establish rules and regulations for the use of a project or any portion thereof and to designate a participating institution for higher education as its agent to establish rules and regulations for the use of a project undertaken for such participating institution for higher education. . . ."
S.C.Code Ann. § 22-41.4 (Supp. 1971). These powers are sweeping ones, and were there a realistic likelihood that they would be exercised in their full detail, the entanglement problems with the proposed transaction would not be insignificant.
"Counsel for plaintiff argues that the broad language of the Act causes the State, of necessity, to become excessively involved in the operation, management and administration of the College. We do not so construe the Act. . . . [T]he basic function of the Authority is to see . . . that fees are charged sufficient to meet the bond payments."
"will unconditionally obligate the College (a) to pay sufficient rentals to meet the principal and interest requirements as they become due on such bonds, [and] (b) to impose an adequate schedule of charges and fees in order to provide adequate revenues with which to operate and maintain the said facilities and to make the rental payments. . . ."
on the mortgage or take a hand in the setting of rules, charges, and fees. It may be argued that only the former would be consistent with the Establishment Clause, but we do not now have that situation before us.
This case comes to us as an action for injunctive and declaratory relief to test the constitutionality of the Act as applied to a proposed -- rather than an actual -- issuance of revenue bonds. The specific provisions of the Act under which the bonds will be issued, the Rules and Regulations of the Authority, and the College's proposal -- all as interpreted by the South Carolina Supreme Court -- confine the scope of the assistance to the secular aspects of this liberal arts college and do not foreshadow excessive entanglement between the State and religion. Accordingly, we affirm the holding of the court below that the Act is constitutional as interpreted and applied in this case.
At various points during this litigation, appellant has made reference to the Free Exercise Clause of the First Amendment, but has made no arguments specifically addressed to violations of that Clause except insofar as this Court's approach to cases involving the Religion Clauses represents an interaction of the two Clauses.
"(i) to repay in full the College's Current Fund for the balance (approximately $250,000) advanced to the College's Plant Fund as aforesaid; (ii) to refund outstanding short-term loans in the amount of $800,000 whose proceeds were to pay off indebtedness incurred for capital improvements, and (iii) to finance the completion of the dining hall facilities at a cost of approximately $200,000."
Gross income for federal income tax purposes does not include interest on "the obligations of a State, a Territory, or a possession of the United States, or any political subdivision of any of the foregoing. . . ." 26 U.S.C. § 103(a)(1). For state income tax purposes, gross income does not include interest "upon obligations of the United States or its possessions or of this State or any political subdivision thereof. . . ." S.C.Code Ann. § 65-253(4) (Supp. 1971).
"If the Lease Agreement contains a provision permitting the Institution to repurchase the project upon payment of the bonds, then in such instance the Lease Agreement shall provide that the Deed of reconveyance from the Authority to the Institution shall be made subject to the condition that so long as the Institution, or any voluntary grantee of the Institution, shall own the leased premises, or any part thereof, that no facility thereon, financed in whole or in part with the proceeds of the bonds, shall be used for sectarian instruction or as a place of religious worship, or used in connection with any part of the program of a school or department of divinity of any religious denomination."
"The condition may provide, at the option of the Institution, that, if the leased premises shall become the subject of an involuntary judicial sale, as a result of any foreclosure of any mortgage, or sale pursuant to any order of any court, that the title to be vested in any purchaser at such judicial sale, other than the Institution, shall be in fee simple and shall be free of the condition applicable to the Institution or any voluntary grantee thereof."
258 S.C. at 102, 187 S.E.2d at 648. See n 6, infra.
"Underlying these cases, and underlying also the legislative judgments that have preceded the court decisions, has been a recognition that private education has played and is playing a significant and valuable role in raising national levels of knowledge, competence, and experience."
Id. at 392 U. S. 247.
Appellant also takes issue with the Authority's rule allowing a purchaser at an involuntary sale to take title free of restrictions as to religious use. See n 4, supra. Appellant's reliance on Tilton v. Richardson, 403 U. S. 672 (1971), in this respect is misplaced. There, the Court struck down a provision under which the church-related colleges would have unrestricted use of a federally financed project after 20 years. In the present case, by contrast, the restriction against religious use is lifted not as to the institution seeking the assistance of the Authority nor as to voluntary transferees, but only as to a purchaser at a judicial sale. Because some other religious institution bidding for the property at a judicial sale could purchase the property only by outbidding all other prospective purchasers, there is only a speculative possibility that the absence of a use limitation would ever afford aid to religion. Even in such an event, the acquiring religious institution presumably would have had to pay the then fair value of the property.
The "state aid" involved in this case is of a very special sort. We have here no expenditure of public funds, either by grant or loan, no reimbursement by 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 (the Authority) 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. The Supreme Court of New Jersey characterized the assistance rendered an educational institution under an act generally similar to the South Carolina Act as merely being a "governmental service." Clayton v. Kervick, 56 N.J. 523, 530-531, 267 A.2d 503, 506-507 (1970). The South Carolina Supreme Court, in the opinion below, described the role of the State as that of a "mere conduit." 258 S.C. at 107, 187 S.E.2d at 650. Because we conclude that the primary effect of the assistance afforded here is neither to advance nor to inhibit religion under Lemon and Tilton, we need not decide whether, as appellees argue, Brief for Appellees 14, the importance of the tax exemption in the South Carolina scheme brings the present case under Walz v. Tax Comm'n, 397 U. S. 664 (1970), where this Court upheld a local property tax exemption which included religious institutions.
Although the record in this case is abbreviated and not free from ambiguity, the burden rests on appellant to show the extent to which the College is church related, cf. Board of Education v. Allen, 392 U.S. at 392 U. S. 248, and he has failed to show more than a formalistic church relationship. As Tilton established, formal denominational control over a liberal arts college does not render all aid to the institution a violation of the Establishment Clause. So far as the record here is concerned, there is no showing that the College places any special emphasis on Baptist denominational or any other sectarian type of education. As noted above, both the faculty and the student body are open to persons of any (or no) religious affiliation.
MR. JUSTICE BRENNAN, with whom MR JUSTICE DOUGLAS and MR. JUSTICE MARSHALL join, dissenting.
"those involvements of religious with secular institutions which (a) serve the essentially religious activities of religious institutions; (b) employ the organs of government for essentially religious purposes; or (c) use essentially religious means to serve governmental ends, where secular means would suffice."
Abington School District v. Schempp, 374 U. S. 203, 374 U. S. 295 (1963) (BRENNAN, J., concurring); Walz v. Tax Comm'n, 397 U. S. 664, 397 U. S. 680-681 (1970) (BRENNAN, J., concurring); Lemon v. Kurtzman, 403 U. S. 602, 403 U. S. 643 (1971) (Lemon I) (separate opinion of BRENNAN, J.). Because under that test it is clear to me that the State's proposed scheme of assistance to the Baptist College is violative of the Establishment Clause, I dissent.
and interest, from the rents paid by the College to the Authority under the lease. The proceeds of the sale of the bonds would be used to pay off outstanding indebtedness of the College [Footnote 2/3] and to construct additional buildings and facilities for use in its higher education operations. Upon payment in full of the principal and interest on the bonds, the arrangement requires that the Authority reconvey title to the campus properties to the College free and clear of all liens and encumbrances. The arrangement does not, however, amount merely to a mortgage on the campus property. The Authority is also empowered, inter alia, to determine the location and character of any project financed under the act; to construct, maintain, manage, operate, lease as lessor or lessee, and regulate the same; to enter into contracts for the management and operation of such project; to establish rules and regulations for the use of the project or any portion thereof; and to fix and revise from time to time rates, rents, fees, and charges for the use of project and for the services furnished or to be furnished by a project or any portion thereof. In other words, the College turns over to the State Authority control of substantial parts of the fiscal operation of the school -- its very life's blood.
"any facility used or to be used for sectarian instruction or as a place of religious worship nor any facility which is used or to be used primarily in connection with any part of the program of a school or department of divinity for any religious denomination. "
"obligating the Institution that neither the leased land, nor any facility located thereon, shall be used for sectarian instruction or as a place of religious worship, or in connection with any part of the program of a school or department of divinity of any religious denomination."
258 S.C. at 101, 187 S.E.2d at 647.
But policing by the Authority to insure compliance with these restrictions is established by a provision required to be included in the lease agreement allowing the Authority to conduct on-site inspections of the facilities financed under the act.
deeply in the fiscal affairs of the College, even to the point of fixing tuition rates, as part of its duty to assure sufficient revenues to meet bond and interest obligations. And should the College find itself unable to meet these obligations, its continued existence as a viable sectarian institution is almost completely in the hands of the State Authority. Thus, this agreement, with its consequent state surveillance and ongoing administrative relationships, inescapably entails mutually damaging Church-State involvements. Abington School District v. Schempp, 374 U.S. at 374 U. S. 295 (BRENNAN, J., concurring); Lemon I, 403 U.S. at 403 U. S. 649 (separate opinion of BRENNAN, J.).
"I do not see any significant difference in . . . telling the sectarian university not to teach any nonsecular subjects in a certain building, and Rhode Island's telling the Catholic school teacher [in Lemon I] not to teach religion. The vice is the creation, through subsidy, of a relationship in which the government polices the teaching practices of a religious school or university."
403 U.S. at 403 U. S. 660 (separate opinion of BRENNAN, J.).
"[U]nlike the direct and continuing payments under the Pennsylvania program [in Lemon I], and all the incidents of regulation and surveillance, the Government aid here is a one-time, single-purpose construction grant. There are no continuing financial relationships or dependencies, no annual audits, and no government analysis of an institution's expenditures on secular, as distinguished from religious, activities."
403 U.S. at 403 U. S. 688. But, under the South Carolina scheme, "continuing financial relationships or dependencies," "annual audits," "government analysis," and "regulation and surveillance" are the core features of the arrangement. In short, the South Carolina statutory scheme, as applied to this sectarian institution, presents the very sort of "intimate continuing relationship or dependency between government and religiously affiliated institutions" that, in the plurality's view, was lacking in Tilton. Ibid.
(prayer reading in public schools); Abington School District v. Schempp, 374 U. S. 203 (1963) (Bible reading in public schools). Moreover, any suggestion that the constitutionality of a statutory program to aid sectarian institutions is dependent on whether that aid can be characterized as direct or indirect is flatly refuted by the Court's decisions today in Committee for Public Education & Religious Liberty v. Nyquist, post, p. 413 U. S. 756, and Sloan v. Lemon, post, p. 413 U. S. 825. In those cases, we went behind the mere assertion that tuition reimbursement and tax exemption programs provided no direct aid to sectarian schools and concluded that the "substantive impact" of such programs was essentially the same as a direct subsidy from the State.
The South Carolina arrangement has the identical constitutional infirmities. The State forthrightly aids the College by permitting the College to avail itself of the State's unique ability to borrow money at low interest rates, and the College, in turn, surrenders to the State a comprehensive and continuing surveillance of the educational, religious, and fiscal affairs of the College. The conclusion is compelled that this involves the State in the "essentially religious activities of religious institutions" and "employ[s] the organs of government for essentially religious purposes." I therefore dissent, and would reverse the judgment of the Supreme Court of South Carolina.
No one denies that the Baptist College at Charleston is a "sectarian" institution -- i.e., one "in which the propagation and advancement of a particular religion are a function or purpose of the institution." Lemon v. Kurtzman, 403 U. S. 602, 403 U. S. 659 (1971) (separate opinion of BRENNAN, J.).
"all the functions and powers of the Authority are hereby granted to the State Budget and Control Board as an incident of its functions in connection with the public finances of the State."
S.C.Code Ann. § 221.3 (Supp. 1971).
This outstanding indebtedness pertains to certain unspecified "capital improvements." App. 49. Thus, it may be that the indebtedness was incurred for improvements to facilities used for religious purposes.

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