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 612-613, violate the Establishment Clause. Pp. 741-749.
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. 749.
Robert McC. Figg, Jr., argued the cause for appellant. With him on the brief was Thomas B. Bryant, Jr.
Huger Sinkler argued the cause for appellees. With him on the brief were Daniel R. McLeod, Attorney General of South Carolina, and Theodore B. Guerard. *
[ Footnote * ] George F. Kugler, Jr., Attorney General, Stephen Skillman, Assistant Attorney General, and Charles R. Parker and Lewis M. Popper, Deputy Attorneys General, filed a brief for the State of New Jersey as amicus curiae urging affirmance.
MR. JUSTICE POWELL delivered the opinion of the Court.
Appellant, a South Carolina taxpayer, brought this action to challenge the South Carolina Educational Facilities Authority Act (the Act), S. C. Code Ann. 22-41 [413 U.S. 734, 736] 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). 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.
We begin by setting out the general structure of the Act. The Act established an Educational Facilities Authority (the Authority), the purpose of which is "to assist institutions for higher education in the construction, financing and refinancing of projects . . .," S. C. Code Ann. 22-41.4 (Supp. 1971), primarily through the issuance of revenue bonds. Under the terms of the Act, a project may encompass buildings, facilities, site preparation, and related items, but may not include.
While revenue bonds to be used in connection with a project are issued by the Authority, the Act is quite explicit that the bonds shall not be obligations of the State, directly or indirectly:
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.
In its present form, the application requests the issuance of revenue bonds totaling $1,250,000, of which $1,050,000 would be applied to refund short-term financing of capital improvements and $200,000 would be applied to the completion of dining hall facilities. 2 The [413 U.S. 734, 739] 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. 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.
Because the College's application to the Authority was a preliminary one, the details of the financing arrangement have not yet been fully worked out. But Rules and Regulations adopted by the Authority govern certain of its aspects. See Jurisdictional Statement, Appendix C, pp. 47-51. Every lease agreement between the Authority and an institution must contain a clause
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. [413 U.S. 734, 741]
As we reaffirm today in Committee for Public Education & Religious Liberty v. Nyquist, post, p. 756, the principles which govern our consideration of challenges to statutes as violative of the Establishment Clause are three:
The purpose of the statute is manifestly a secular one. The benefits of the Act are available to all institutions of higher education in South Carolina, whether or not having a religious affiliation. While a legislature's declaration of purpose may not always be a fair guide to its true intent, appellant makes no suggestion that the introductory paragraph of the Act represents anything other than a good-faith statement of purpose:
To identify "primary effect," we narrow our focus from the statute as a whole to the only transaction presently before us. Whatever may be its initial appeal, the proposition that the Establishment Clause prohibits any program which in some manner aids an institution with a religious affiliation has consistently been rejected. E. g., [413 U.S. 734, 743] 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.
Aid normally may be thought to have a primary effect of advancing religion when it flows to an institution in which religion is so pervasive that a substantial portion of its functions are subsumed in the religious mission or when it funds a specifically religious activity in an otherwise substantially secular setting. In Tilton v. Richardson, supra, the Court refused to strike down a direct federal grant to four colleges and universities in Connecticut. MR. CHIEF JUSTICE BURGER, for the plurality, concluded that despite some institutional rhetoric, none of the four colleges was pervasively sectarian, but held open that possibility for future cases:
Nor can we conclude that the proposed transaction will place the Authority in the position of providing aid to the religious as opposed to the secular activities of the College. The scope of the Authority's power to assist institutions of higher education extends only to "projects," and the Act specifically states that a project "shall not include" any buildings or facilities used for religious purposes. In the absence of evidence to the contrary, we must assume that all of the proposed financing and refinancing relates to buildings and facilities within a properly delimited project. It is not at all clear from the record that the portion of the campus to be conveyed by the College to the Authority and leased back is the same as that being financed, but in any event it too must be part of the Project and subject to the same prohibition against use for religious purposes. In addition, as we have indicated, every lease agreement must contain a clause forbidding religious use and another allowing inspections to enforce the agreement. 6 For these reasons, [413 U.S. 734, 745] we are satisfied that implementation of the proposal will not have the primary effect of advancing or inhibiting religion. 7
The final question posed by this case is whether under the arrangement there would be an unconstitutional degree of entanglement between the State and the College. Appellant argues that the Authority would become involved in the operation of the College both by inspecting the project to insure that it is not being used for religious [413 U.S. 734, 746] purposes and by participating in the management decisions of the College.
The Court's opinion in Lemon and the plurality opinion in Tilton are grounded on the proposition that the degree of entanglement arising from inspection of facilities as to use varies in large measure with the extent to which religion permeates the institution. In finding excessive entanglement, the Court in Lemon relied on the "substantial religious character of these church-related" elementary schools. 403 U.S., at 616 . MR. CHIEF JUSTICE BURGER'S opinion for the plurality in Tilton placed considerable emphasis on the fact that the federal aid there approved would be spent in a college setting:
A closer issue under our precedents is presented by the contention that the Authority could become deeply involved in the day-to-day financial and policy decisions of the College. The Authority is empowered by the Act:
As the South Carolina Supreme Court pointed out, 258 S. C., at 107, 187 S. E. 2d, at 651, the Act was patterned closely after the South Carolina Industrial Revenue Bond Act, and perhaps for this reason appears to [413 U.S. 734, 748] confer unnecessarily broad power and responsibility on the Authority. The opinion of that court, however, reflects a narrow interpretation of the practical operation of these powers:
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.
[ Footnote 2 ] As originally submitted by the College and approved by the Authority, the proposal called for the issuance of "not exceeding $3,500,000 of revenue bonds . . ." 255 S. C. 71, 75, 177 S. E. 2d 362, 364. As indicated by a stipulation of counsel in this Court, the College subsequently secured a bank loan in the amount of $2,500,000 and now proposes the issuance of only $1,250,000 in revenue bonds under the Act, the proceeds to be used: "(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." App. 49. (Emphasis in original.)
[ Footnote 3 ] 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).
[ Footnote 4 ] Rule 4 relating to the Lease Agreement provides in part that: "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." 258 S. C. 97, 101-102, 187 S. E. 2d 645, 647-648. The Rule goes on to allow the institution to remove this option in the case of involuntary sales: "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.
[ Footnote 5 ] In Board of Education v. Allen, 392 U.S. 236 (1968), this Court commented on the importance of the role of private education in this country: "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 247.
[ Footnote 6 ] 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 [413 U.S. 734, 745] 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.
[ Footnote 7 ] 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.
[ Footnote 8 ] Although the record in this case is abbreviated and not free from ambiguity, the burden rests on appellant to show the extent [413 U.S. 734, 747] to which the College is church related, cf. Board of Education v. Allen, 392 U.S., at 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.
The question presented in this case is whether South Carolina's assistance to the Baptist College at Charleston under the South Carolina Educational Facilities Authority Act constitutes constitutionally impermissible aid by the State for this sectarian institution. 1 The test to which I adhere for determining such questions is whether the arrangement between the State and the [413 U.S. 734, 750] Baptist College is foreclosed under the Establishment Clause of the First Amendment as being among
The act authorizes a financing arrangement between the Authority 2 and the Baptist College at Charleston, a South Carolina educational corporation operated by the South Carolina Baptist Convention. Under that arrangement, the College would convey a substantial portion of its campus to the Authority, and the Authority would lease back the property to the College at an agreed rental. The Authority would then issue revenue bonds of the State of South Carolina in the amount of $3,500,000, which bonds would be payable, principal [413 U.S. 734, 751] 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 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 a 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.
It is true that the Act expressly provides that State financing will not be provided for
Thus, it is crystal clear, I think, that this scheme involves the State in a degree of policing of the affairs of the College far exceeding that called for by the statutes struck down in Lemon I, supra. See also Johnson v. Sanders, 319 F. Supp. 421 (Conn. 1970), aff'd, 403 U.S. 955 (1971). Indeed, under this scheme the policing by the State can become so extensive that the State may well end up in complete control of the operation of the College, at least for the life of the bonds. The College's freedom to engage in religious activities and to offer religious instruction is necessarily circumscribed by this pervasive state involvement forced upon the College if it is not to lose its benefits under the Act. For it seems inescapable that the content of courses taught in facilities financed under the agreement must be closely monitored by the State Authority in discharge of its duty to ensure that the facilities are not being used for sectarian instruction. The Authority must also involve itself [413 U.S. 734, 753] 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 295 (BRENNAN, J., concurring); Lemon I, 403 U.S., at 649 (separate opinion of BRENNAN, J.).
In support of its contrary argument, the Court adopts much of the reasoning of the plurality opinion in Tilton v. Richardson, 403 U.S. 672 (1971). I disagreed with that reasoning in Tilton because, as in this case, that reasoning utterly failed to explain how programs of surveillance and inspection of the kind common to both cases differ from the Pennsylvania and Rhode Island programs invalidated in Lemon I. What I said in Tilton is equally applicable to the present case:
Nor is the South Carolina arrangement between the State and this College any less offensive to the Constitution because it involves, as the Court asserts, no direct financial support to the College by the State. The Establishment Clause forbids far more than payment of public funds directly to support sectarian institutions. It forbids any official involvement with religion, whatever its form, which tends to foster or discourage religious worship or belief. The cases are many in which we have struck down on establishment grounds state laws that provided, not direct financial support to religious institutions, but various other forms of assistance. McCollum v. Board of Education, 333 U.S. 203 (1948) ("release time" program); Engel v. Vitale, 370 U.S. 421 (1962) [413 U.S. 734, 755] (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. 756, and Sloan v. Lemon, post, p. 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.
[ Footnote 1 ] 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, 659 (1971) (separate opinion of BRENNAN, J.).
[ Footnote 2 ] The South Carolina Educational Facilities Authority is composed of the members of the State Budget and Control Board, who are the Governor, the State Treasurer, the State Comptroller General, the Chairman of the Finance Committee of the State Senate, and the Chairman of the Ways and Means Committee of the State House of Representatives. The Act states that "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. 22-41.3 (Supp. 1971).
[ Footnote 3 ] 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. [413 U.S. 734, 756]