Hunt v. McNair
Headline: State law allowing tax-exempt revenue bonds to finance secular parts of a religious college is upheld, permitting the college to borrow more cheaply while courts found safeguards to limit aid to nonreligious facilities.
Holding: The Court affirmed that the Educational Facilities Authority may issue tax-advantaged revenue bonds to finance strictly secular facilities at the Baptist College without violating the Establishment Clause because of safeguards limiting aid and entanglement.
- Allows religious colleges to use state-created authorities to borrow at tax-exempt rates.
- Requires financed projects to exclude sectarian-use facilities and permits inspections.
- College retains control unless it defaults and bondholders or the Authority intervene.
Summary
Background
A South Carolina taxpayer challenged a state law that lets a state-created Authority issue revenue bonds to help colleges pay for campus buildings. The Baptist College at Charleston sought preliminary approval to convey a portion of its campus to the Authority, lease it back, and use bond proceeds to refinance debt and finish a dining hall. The plan relies on tax-exempt treatment of bond interest to lower borrowing costs and includes lease covenants, inspections, and reconveyance after bonds are paid.
Reasoning
The Court applied the three-part test from prior cases: the law’s purpose, its primary effect, and whether it creates excessive government entanglement with religion. The majority found the law’s purpose secular (helping higher education generally), concluded the specific financing would fund only secular campus projects excluded from sectarian use, and determined inspections and lease terms did not create unconstitutional entanglement on this record. The Court emphasized that the bonds are not obligations of the State and are payable only from project revenues. A dissent warned that inspections and the Authority’s broad powers could lead to intrusive state control over a sectarian college’s operations and finances.
Real world impact
The ruling allows religiously affiliated colleges to use similar state authorities to borrow at lower interest rates for secular facilities when restrictions and enforcement mechanisms are in place. Colleges and Authorities must carefully limit financed projects to nonsectarian uses and rely on lease covenants and inspections to enforce that limit. Future cases with different facts or evidence of pervasive sectarian control could lead to a different result.
Dissents or concurrances
Justice Brennan’s dissent argued the statutory scheme risks pervasive state surveillance and financial control of the sectarian college and would have found the arrangement unconstitutional.
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