CALIFORNIA STATEWIDE
COMMUNITIES DEVELOPMENT
AUTHORITY v.ALL PERSONS INTERESTED IN THE
MATTER OF THE VALIDITY OF A
PURCHASE AGREEMENT
Filed 3/5/07
IN THE SUPREME COURT OF CALIFORNIA
CALIFORNIA STATEWIDE )
COMMUNITIES DEVELOPMENT )
AUTHORITY, )
)
) S124195
v. )
) Ct.App. 3 C042944, C042947, C042948
ALL PERSONS INTERESTED IN THE )
MATTER OF THE VALIDITY OF A ) Sacramento County
PURCHASE AGREEMENT, ) Super. Ct. Nos. 02AS03351,
__________________________________ )
STORY CONTINUED FROM PART I
As we have pointed out, tax exempt bond financing is a mechanism by which the government makes available to private investors a tax exemption on income earned on government bonds, thereby encouraging private investment in community development and enabling the recipients of these investments to borrow private funds at a lower interest rate. As the Virginia Supreme Court has observed, in concluding that issuing government bonds to benefit a religious college (the Reverend Pat Robertsons Regent University, excluding its divinity school) did not violate the establishment clause of the federal Constitutions First Amendment: The nature of this aid is properly defined as the granting of tax exempt status to the bonds which has the incidental result of permitting a qualifying institution to borrow funds at an interest rate lower than conventional private financing. (VirginiaCollege Bldg. Authority v. Lynn(2000) 260 Va. 608, 638 [538 S.E.2d 682, 698] (VirginiaCollege).)
More recently, in 2002, the federal Court of Appeals for the Sixth Circuit in Steele v. Industrial Development Bd. of Metro. (6th Cir. 2002) 301 F.3d 401 (Steele), rejected an establishment clause challenge to a bond financing program benefiting Lipscomb University, a Tennessee college run by the Churches of Christ. Steele viewed the bond funding program as a form of tax policy, equating the issuance of revenue bonds to tax exemptions benefiting religious organizations that the high court has held do not violate the establishment clause. (See Hernandez v. Commissioner of Internal Revenue (1989) 490 U.S. 680, 688 [deductions from taxable income for gifts to religious organizations]; Mueller v. Allen (1983) 463 U.S. 388, 396 [state tax deductions for amounts paid for school tuition and textbooks even though such deductions substantially benefited religious schools]; Walz v. Tax Commission (1970) 397 U.S. 664, 675 [city tax exemption for real estate owned by religious organizations].) In neither situation, the federal appellate court in Steele stressed, did the government transfer any public funds to the recipient institutions. (Steele, supra, at p. 409.) Steele concluded that the benefit to the recipient school from the issuance of the tax exempt bonds was analogous to an indirect financial benefit conferred by a religiously neutral tax or deduction. (Id. at p. 413.) Steele explained: The purchaser of a bond has recourse for repayment against Lipscomb University only, and not against the issuing governmental entity. (Ibid.) Also: No government funds are involved in the entire transaction. The interest paid to the bond holders by Lipscomb University is not subject to federal, state, or local income taxes. Since the bonds are tax exempt, Lipscomb University reaps the benefit of a lower interest rate than that paid to a lender paying income taxes on the interest received. Only by the potential loss of tax revenue does the conduit financing involve any impact on public funds. (Ibid.)[1]
The trial court here, in denying the Authoritys request to validate its bond funding agreements with the three religious schools, did not consider the substance of the education at those schools. Accordingly, we remand this case to the Court of Appeal, which in turn is to remand the matter to the trial court for that evaluation.
The trial court is to determine whether each religious school benefiting from the state bond program offers a sufficiently broad curriculum in secular subjectse.g., English literature, history, math, sciences, professional or pre-professional trainingthat the schools use of the educational facilities built or improved with the bond funding may be expected to promote the public interest in making secular education more available to California residents in general. The trial courts inquiry should center on the schools curriculum as a whole, but it should exclude theological or divinity programs because, under the terms of their agreements, the schools may not use the facilities built or improved with the state bond proceeds for those programs. If the school does offer this sort of broad secular curriculum, the trial court should consider whether the academic content of the classes in secular subjects is typical of such classes when taught in nonreligious schools and thus neutral with respect to religion. In resolving this issue, the court may consider the schools course descriptions or any other information submitted to establish the content or coursework of the secular classes. The circumstance that a religious viewpoint may also be expressed in these otherwise secular classes does not preclude a determination that providing the proposed tax exempt bond financing to the school promotes the states interest in the intellectual development of its residents and only incidentally benefits religion.[2]
Having concluded that the proposed state bond funding, as discussed on pages 18-20, ante, would not violate our state Constitution if certain conditions are satisfied (a determination to be made by the trial court on remand), we now consider whether the proposed bond funding, on the conditions we have articulated, would pass muster under the establishment clause of the First Amendment to the federal Constitution. We discuss this issue below.
III
The First Amendment to the federal Constitution states that Congress shall make no law respecting an establishment of religion . . . . (Italics added.) This provision is incorporated in the due process clause of the Fourteenth Amendment, thus making it applicable not only to Congress but also to the states. (See Everson v. Board of Education (1947) 330 U.S. 1, 8.)
In Lemon v. Kurtzman (1971) 403 U.S. 602 (Lemon), the United States Supreme Court adopted a three-part test to determine when a particular law or government practice would not constitute an establishment of religion: (1) The government program must have a secular legislative purpose; (2) the programs principal or primary effect must be one that neither advances nor inhibits religion; and (3) the program must not foster an excessive government entanglement with religion. (Id. at pp. 612-613.) Failure to satisfy any one of Lemons three requirements would render a governmental program unconstitutional. (See id. at pp. 619-620, 622.) In Agostini v. Felton (1997) 521 U.S. 203 (Agostini), the high court refined that three-part test.
Addressing the Lemon tests third criterionexcessive entanglement between church and stateAgostini rejected the idea that entanglement should be treated as a separate inquiry. Rather, Agostini stated, the entanglement inquiry was an aspect of Lemons second inquiry, whether the government aid at issue has the impermissible effect of advancing religion. (Agostini, supra, 521 U.S. at pp. 232-233.) In determining such effect, Agostini explained, the pertinent inquiry is whether the government aid program result[s] in governmental indoctrination; define[s] its recipients by reference to religion; or create[s] an excessive entanglement [between church and state]. (Id. at p. 234.) By folding Lemons entanglement inquiry into the primary effect inquiry (Zelman v. Simmons-Harris (2002) 536 U.S. 639, 668), the high court in Agostini has collapsed Lemons three-part test into just two parts.
The high court has acknowledged that it does not apply the Lemon test in every establishment clause case (see Van Orden v. Perry (2005) 545 U.S. 677, 686 [125 S.Ct. 2854, 2861] (plur. opn. by Rehnquist, C.J.) [[m]any of our recent cases simply have not applied the Lemon test]; id. at p. 698 [125 S.Ct. at p. 2868] (conc. opn. of Breyer, J.) [the Court has found no single mechanical formula that can accurately draw the constitutional line in every case]); and some members of the court have expressed disagreement with that test (e.g., Lambs Chapel v. Center Moriches Union Free School Dist., supra, 508 U.S. at pp. 398-400 (conc. opn. of Scalia J., joined by Thomas, J.)). But the high court has resorted to the Lemon test in dealing with issues involving government aid to sectarian educational institutions. (E.g., Mitchell v. Helms (2000)530 U.S. 793, 807-808 (plur. opn. by Thomas, J.) (Mitchell); Agostini, supra, 521 U.S. at pp. 222-223, 232-233; Hunt, supra, 413 U.S. 734.) Because Hunt is the case most closely on point here, we summarize it below.
At issue in Hunt was whether South Carolinas issuance of revenue bonds benefiting the Baptist College of Charleston, a religiously affiliated institution, constituted an impermissible establishment of religion in violation of the First Amendment. Hunt was decidedin 1973, just two years after Lemon and 24 years before Agostini (which collapsed Lemons three-part test into just two parts). Naturally, therefore, the high court in Hunt applied the original three-part Lemon test. Hunt held that the bond funding satisfied the first Lemon requirement because its purpose was manifestly a secular one, providing a funding mechanism for all South Carolina institutions of higher education whether or not having a religious affiliation. (Hunt, supra, 413 U.S. at p. 741.) And the program produced no unconstitutional degree of entanglement between the State and the College, thus satisfying Lemons third requirement, even though the agreement between the bond funding agency and the college allowed inspection of the project to insure that it [was] not being used for religious purposes. (Hunt, supra, at pp. 745-746.)
Most pertinent here, however, is the high courts discussion in Hunt of Lemons second requirement, that the bond funding not have the primary result of advancing religion. Concluding that the second Lemon requirement was met with respect to the Baptist College of Charleston, the court observed that it had no religious qualifications for faculty membership or student admission, and that in its student body Baptists comprised only some 60 percent, a percentage roughly equivalent to the percentage of Baptists in that area of South Carolina. (Hunt, supra, 413 U.S. at pp. 743-744.) The court cautioned, however, that a similar bond program might have the impermissible effect of advancing religion if the proceeds flow[] 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. (Id. at p. 743.)
The high court in Hunt, supra, 413 U.S. 734, left open whether the state bond program in that case would have violated the establishment clause of the First Amendment if the college had been pervasively sectarian. To this date, the high court has yet to address that issue. (See Note, Revenue Bonds and Religious Education, supra, 100 Mich. L.Rev. 1108.)
Certain observations in the high courts more recent establishment clause cases suggest that even if state bond funding were to benefit a pervasively sectarian school, the program might still survive scrutiny under the federal Constitution. In Mitchell, supra, 530 U.S. 793, the high court upheld a federal aid program that provided library and media materials, as well as computer software, to private elementary and secondary schools, including religiously affiliated schools. Four of the courts nine members who comprised the Mitchell plurality unequivocally stated: [N]othing in the Establishment Clause requires the exclusion of pervasively sectarian schools from otherwise permissible aid programs, and other doctrines of this Court bar it. (Id. at p. 829 (plur. opn. by Thomas, J., joined by Rehnquist, C.J., Kennedy, J. and Scalia, J.).) Moreover, the two justices who in a separate concurrence became part of the Mitchell majority did not consider whether the recipients of government aid in that case were pervasively sectarian. (Mitchell, supra, at pp. 836-867 (conc. opn. of OConnor, J., joined by Breyer, J.).)
Furthermore, since 1985 the United States Supreme Court has not invalidated any government aid program on the ground that the recipients were pervasively sectarian. (See Mitchell, supra, 530 U.S. at p. 826.) In Agostini, supra,521 U.S. 203, the high court repudiated the analysis of its two most recent cases that had done soAguilar v. Felton (1985) 473 U.S. 402 and School District of the City of Grand Rapids v. Ball (1985) 473 U.S. 373. The Agostini court overruled Aguilar completely and overruled Ball in part. (Agostini, supra, at pp. 218, 225; see Mitchell, supra, at p. 826.) The high courts overruling of Aguilar has been said to signal its intent to weaken the Lemon test in favor of a more neutral stance toward sectarian education. (Note, Educational Vouchers and the Religion Clauses Under Agostini: Resurrection, Insurrection and a New Direction (1999) 49 Case W. Res. L.Rev. 747, 755.) It has also been observed that [t]he case law on funding religious institutions has changed dramatically over the last twenty years (Laycock, Theology Scholarships, the Pledge of Allegiance, and Religious Liberty: Avoiding the Extremes But Missing the Liberty (2004) 118 Harv. L.Rev. 155, 162), that [f]ederal constitutional restrictions on funding religious institutions have collapsed (id. at p. 156), and that decisions of the United States Supreme Court restricting government aid to sectarian schools are confined to a remarkably brief period, from 1971 to 1985 (id. at p. 167).
Here, we need not decide whether extending the benefit of a government bond funding program to a pervasively sectarian school could ever violate the First Amendments establishment clause. As explained in part II, ante, we have concluded that, to avoid violating our state Constitution, a religious school participating in a conduit financing bond program must offer a broad curriculum in secular subjects, comprised of classes whose academic content must be neutral with respect to religion, and it must not use the facilities built or improved with the state bond proceeds for theological or divinity programs or as a place of worship. Accordingly, the issue we address here is whether state bond funding for a religious school, under those conditions, would violate the federal Constitutions establishment clause.
As we have discussed in greater detail on pages 25 and 26, ante, in 1973 the high court in Hunt, supra, 413 U.S. 734, upheld a South Carolina revenue bond program benefiting a religiously affiliated college. In reaching that decision, Hunt applied the three-part test of Lemon, supra, 403 U.S. 602, which provides courts with a means of determining the constitutionality of government programs that aid religious institutions. We too apply the Lemon test here, but we do so using the test as refined in the high courts 1997 decision in Agostini, supra, 521 U.S. at pages 232-233, which reduced Lemons test to just two parts.
The first of these requirements is that the government program have a secular purpose. As we explained on pages 18, 19 and 20, ante, to comport with our state Constitution a religious school receiving the bond funding for building or improving its educational facilities must offer a broad curriculum in secular subjects, in which the academic content is typical of that at nonreligious schools and thus is religiously neutral. As we stated, under those conditions, the program serves the primary secular purpose of increasing secular educational opportunities for Californians in general. (See p. 18, ante.)
The second, and final, inquiry under Lemon, as refined by the high court in Agostini, is whether the government program will have the impermissible effect of advancing religion. Pertinent to this inquiry is whether the program will result in governmental indoctrination; define its recipients by reference to religion; or create an excessive entanglement between the government and the religiously affiliated beneficiaries of the program. (Agostini, supra, 521 U.S. at p. 234.) We first address governmental indoctrination below.
Government indoctrination of religion occurs when any use of [the government] aid to indoctrinate religion [can] be attributed to the State. (Agostini, supra, 521 U.S. at p. 230.) Here, the Authoritys issuance of revenue bonds to finance campus improvements at the three religious schools will not result in governmental indoctrination. As we have explained, a school cannot qualify for the bond funding unless it offers a broad curriculum in secular subjects and the academic content of its classes in secular subjects is similar to that offered in nonreligious schools. (See pp. 18-20, ante.) The mere incidental expression of a religious viewpoint while teaching a secular class does not constitute religious indoctrination. Moreover, the Authoritys financing agreements with the three schools expressly prohibit them from using the bond proceeds to build or improve facilities for sectarian instruction or as a place for religious worship or in connection with any part of the programs of any school or department of divinity. (See p. 8, ante.)
We now consider whether the Authority here defines the recipients of its revenue bond funding by reference to religion. (Agostini, supra, 521 U.S. at p. 234.) As we have explained on pages 3 and 4, ante, the Authority is by statute a joint powers authority, which is comprised of some 350 cities, counties and other public entities, and which has since its creation issued tax exempt bonds to promote economic development within its members boundaries, based on principles of neutrality, without taking into account the recipients religious affiliation, if any.
Nor will the state bond funding here create an excessive entanglement (Agostini, supra, 521 U.S. at p. 234) between the state and the religious schools in question. As mentioned earlier, the Authoritys agreements with the three schools strictly prohibit them from using the bond-funded educational facilities for religious purposes, and we have conditioned a schools participation in the bond program on its offering a broad secular curriculum comprised of classes with academic content similar to or typical of that provided in nonreligious schools. In the absence of contrary evidence, courts presume that recipients of government aid will comply with restrictions imposed. (Agostini, supra,521 U.S. at pp. 223-224, 226-227; accord, Mitchell, supra, 530 U.S. at p. 847 (conc. opn. of OConnor, J.).)
In addition, the state bond funding agreements here provide for the appointment of an independent trustee, with the right of access to the three schools to ascertain their compliance with the restrictions imposed. The trustees right of access could be exercised by occasional unannounced visits. We note that even when the monitoring visits are by the government entity, rather than as here by a trustee independent of the public entity issuing the bonds, such visits have been held insufficient to create an excessive entanglement between the monitoring agency and the sectarian schools. (See Agostini, supra, 521 U.S. at p. 233; see also Bowen v. Kendrick (1988) 487 U.S. 589, 615-617 [government monitoring of educational materials used by grantee is not excessive entanglement with religion]; Roemer v. Maryland Public Works Bd. (1976) 426 U.S. 736, 764-765 [no excessive entanglement with religion where state conducts annual audits of religious colleges to ensure state aid is not used for sectarian purposes].)
For all of these reasons we conclude that the Authoritys issuance of government bonds benefiting religious schools under the conditions we have here set forth (see pp. 18-20, ante) does not violate the establishment clause of the First Amendment to the federal Constitution. Our conclusion finds support in a 2000 decision by the Virginia Supreme Court and in a 2002 decision by the federal Court of Appeals for the Sixth Circuit, both of which upheld similar bond funding programs benefiting religious schools. (Virginia College, supra, 538 S.E.2d 682; Steele, supra, 301 F.3d 401.)
Disposition
The judgment of the Court of Appeal is reversed, and the matter is remanded to that court with directions to remand the case to the trial court so it can reconsider the Authoritys request for validation of its bond funding agreements with Oaks Christian School, California Baptist University, and Azusa Pacific University in light of our opinion here.
KENNARD, J.
WE CONCUR:
GEORGE, C. J.
BAXTER, J.
CORRIGAN, J.
COPY
DISSENTING OPINION BY CHIN, J.
In sweeping terms, article XVI, section 5 of the California Constitution (article XVI, section 5) provides: Neither the Legislature, nor any county, city and county, township, school district, or other municipal corporation, shall ever make an appropriation, or pay from any public fund whatever, or grant 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; nor shall any grant or donation of personal property or real estate ever be made by the State, or any city, city and county, town, or other municipal corporation for any religious creed, church, or sectarian purpose whatever; provided, that nothing in this section shall prevent the Legislature granting aid pursuant to Section 3 of Article XVI. (Italics added.) This section constitute[s] the definitive statement of the principle of government impartiality in the field of religion. [Citation.] (California Educational Facilities Authority v. Priest (1974) 12 Cal.3d 593, 604 (Priest).) Its purpose, as revealed by the debates of the constitutional convention that drafted it, is to insure the separation of church and state and to guarantee that the power, authority, and financial resources of the government shall never be devoted to the advancement or support of religious or sectarian purposes. [Citation.] (Ibid.)
Given the trial courts uncontested factual findings that [r]eligion is both mandatory and integral to every aspect of student life at the schools here at issue, and that the schools are organized primarily or exclusively for religious purposes, restrict[] admission of students by religious criteria, discriminate[] on the basis of religion in hiring faculty, and integrate[] [r]eligion . . . into classroom instruction, I conclude that the proposed bond financing agreements now before us are invalid under both the plain language and our judicial construction of article XVI, section 5. In my view, that provision simply does not permit a public entity to act as a fundraiser for schools of this nature in order, as the majority puts it, to encourage the development of such schools (maj. opn., ante, at p. 5) and to enhance[] their ability . . . to expand . . . . (Id. at p. 17.) I therefore dissent.
Factual Background
Because the majority completely ignores the trial courts factual findings and glosses over the details of the proposed bond financings, I begin by discussing those matters.
In each of the three validation actions here at issue, the California Statewide Communities Development Authority (the Authority) moved for a default judgment. In its moving papers, the Authority assumed, but did not concede, that each school would be considered to be pervasively sectarian, meaning that religion is so pervasive [at the school] that a substantial portion of its functions are subsumed in [its] religious mission.
The Authority also submitted declarations in support of its motions. Regarding Oaks Christian School, the Authoritys supporting declarations stated: (1) the school is a Christian school for the education of children in the sixth through twelfth grades; (2) its mission statement is to grow in knowledge and wisdom through Gods grace, and to dedicate [oneself] to the pursuit of academic excellence, athletic distinction and Christian values ; (3) students and their parents must agree to support the Schools mission, statement of faith and Biblical goals and objectives; (4) [f]aculty members must be Christian and . . . sign a statement of faith; and (5) the school seeks, among other things, to develop each students mind, body and spirit . . . through . . . spiritual training by the finest Christian teachers and coaches in the nation, foster an understanding of the sovereignty of God to provide a framework for the application of knowledge, refine the body and character through teamwork and in competition that honors God, and encourage a passion to love God. In its supporting brief, the Authority added that the school require[s] . . . that students attend assembly period twice a week during which prayers may be held.
Regarding California Baptist University, the Authoritys supporting declarations stated: (1) the school is a Christian liberal arts institution offering undergraduate and graduate programs of study; (2) it seeks students who believe in biblically-based Christian principles and expect[s] students to live in accordance with such principles; (3) it require[s] students to attend a church of their choosing and to complete a certain number of courses in . . . Christian studies; (4) it requires that [all] faculty members be Christian, and [that] at least 51% of the faculty members . . . be Baptist; and (5) it expect[s] all faculty members to maintain a theological and philosophical position consistent with the Universitys principles.
Regarding Azusa Pacific University, the Authoritys supporting declarations stated: (1) the school is an evangelical Christian community of disciples and scholars who seek to advance the work of God in the world through academic excellence in liberal arts and professional programs of higher education that encourage students to develop a Christian perspective of truth and life; (2) applicants must evidence appreciation for the standards and spirit of the University, and exhibit moral character in harmony with its purpose; (3) an applicants involvement in church is reviewed during the admission process; (4) students must complete . . . 120 hours of student ministry assignments; and (5) all faculty members must be Christian and are expected to maintain a theological and philosophical position consistent with the Universitys principles. The Authoritys supporting brief added that the school requires students to attend chapel.
In each action, the trial court denied the Authoritys motion for default judgment. In its orders, the court first set forth the facts regarding the schools as detailed in the Authoritys declarations. It then found as to each school that the proposed bond financing fail[ed] to pass muster under article XVI, section 5, explaining: Based upon the facts presented, the educational institution is organized primarily or exclusively for religious purposes. It restricts admission of students by religious criteria and discriminates on the basis of religion in hiring faculty. Religion is both mandatory and integral to every aspect of student life. Religion is integrated into classroom instruction. [] Thus low cost financing for the schools acquisition, construction, improvement, renovation, remodeling, furnishing and equipping of classrooms and other facilities necessarily involves financing religious indoctrination.[3]
In the Court of Appeal, the Authority did not contest the trial courts factual findings. On the contrary, it argued that because there [were] no contested factual issues, the only issue was whether the trial court had applied the correct legal analysis in focusing on the religious nature of the school[s] instead of the nature of the benefit being provided. Moreover, [f]or purposes of th[e] appeal, the Authority did not dispute that [the schools] could be characterized as pervasively sectarian, and it explained that an educational institution is considered pervasively sectarian when a substantial portion of [its] function is subsumed in its religious mission and it is impossible to separate its religious aspects from its secular aspects. Similarly, in this court, the Authority does not contest the trial courts findings. Thus, we must accept the trial courts factual findings regarding the nature of the schools.[4]
The details of the proposed bond financing are set forth in purchase and sale agreements between the schools and the Authority, the governing statutes, and declarations the Authority submitted in support of its motions for default judgment. Under these agreements, the Authority, which is a public entity, promises to issue, sell, and deliver the bonds and to apply the proceeds received from the sale to pay for the costs of the bond sales and the specified projects at the schools. By both statute and the agreements with the schools, the bonds constitute special obligations of the Authority. (Gov. Code, 91535, subd. (a); see also id., 91541, subd. (e).) The Authoritys obligation is special in the sense that the bonds are payable only from funds the Authority receives from the schools under the agreements. (Ibid.) In this regard, the Authoritys agreements with Oaks Christian School and California Baptist University state: The Authority shall not be obligated to pay the principal (or redemption price) of or interest on the Bonds, except from Revenues and other moneys received by the Trustee on behalf of the Authority pursuant to this Sale Agreement. . . . [] The [school] hereby acknowledges that the Authoritys sole source of moneys to repay the Bonds will be provided by the payments made by the [school] pursuant to this Sale Agreement, together with investment income on certain funds held by the Trustee under the Indenture. The Authoritys agreement with Azusa Pacific University contains a substantively identical provision.
With respect to each school, the Authority simultaneously executes both a purchase agreement and a separate sale agreement. In the purchase agreements, the schools sell and transfer to the Authority all of their right, title and interest in and to the school property on which the improvements will be made. In the sale agreements, the Authority sells and transfers back to the schools all of the interest in the schools property it acquired under the purchase agreements. The purchase price for the school property the Authority sells back to the schools is essentially the amount needed to pay off the principal, interest, and any premium on the bonds. As security for the payment of the [b]onds, the Authority assigns to a trustee its right to receive the schools payments for repurchasing the property, and directs the schools to make these payments directly to the trustee. The trustee, as assignee of the Authority, uses this money to pay off the bondholders on behalf of the Authority and to satisfy the special obligation[] . . . of the [A]uthority to pay the bondholders. (Gov. Code, 91535, subd. (a).) As this discussion makes clear, although the schools are to be the sole source of the funds to pay the bondholders, the legal obligation to pay the bondholders is the Authoritys.[5]
The purpose of these machinations is to save the schools considerable money in financing costs. In general, bond investors will accept a lower interest rate on investments where the interest is tax exempt. However, interest on bonds cannot be tax exempt unless a governmental entity like the Authority is the bond issuer. Thus, as the Authority explained in the Court of Appeal, the schools, through the Authoritys participation as bond issuer, will be able to borrow money to pay for their projects at a lower interest rate, thus enabling them to finance their respective projects at a lower cost than is available through conventional private financing. The savings would be considerable; for example, according to a declaration the Authority submitted in support of its motions for default judgment, the proposed bond financing would have saved Oaks Christian School approximately $52,500 per month in financing costs under interest rates prevailing in 2002. Each of the purchase and sale agreements acknowledges the importance of these savings to the schools, stating that obtaining Tax-Exempt status for the financing of the Costs of the Project is a significant factor in maintaining the operations of the [schools] within the jurisdiction of the Project Program Participant.
The agreements also describe the projects to be financed through the bond sales. Oaks Christian School intends to use the funds to acqui[re], construct[], improve[], renovat[e], remodel[], furnish[] and equip[] . . . classrooms, laboratories, administration offices, dining facilities, athletic facilities, parking facilities, [and] a co-generation facility. California Baptist University intends to make similar use of the funds for residence facilities, parking facilities, classrooms, administration offices, the academic and student center complex, [and] athletic facilities. Azusa Pacific University intends to use the funds for similar purposes regarding certain educational facilities . . . including . . . a new . . . residence facility, a dining facility, [and] a mail center. In the agreements, the schools agree[] that no facility, place or building financed or refinanced with a portion of the proceeds of the Bonds will be used . . . for sectarian instruction or as a place for religious worship or in connection with any part of the programs of any school or department of divinity for the useful life of the Project.[6]
Discussion
The determination of [Californias] public policy . . . resides, first, with the people as expressed in their Constitution . . . . (Jensen v. Traders & General Ins. Co. (1959) 52 Cal.2d 786, 794.) In other words, the California Constitution is both the highest expression of the will of the people of the state (Ex parte Braun (1903) 141 Cal. 204, 211) and the preeminent expression of California law. (American Academy of Pediatrics v. Lungren (1997) 16 Cal.4th 307, 314 (Lungren).) Accordingly, when construing a provision of the state Constitution, our paramount consideration is the intent of those who enacted the provision at issue. [Citation.] To determine that intent, [we] look first to the language of the constitutional text, giving the words their ordinary meaning. [Citations.] (Leone v. Medical Bd. (2000) 22 Cal.4th 660, 665.) We give the words their ordinary meaning because we presume[] that they were so understood by the framers, and by the people who adopted [them]. (Miller v. Dunn (1887) 72 Cal. 462, 465.)
In light of the trial courts uncontested factual findings, the proposed bond agreements in this case unquestionably are invalid under the ordinary meaning of article XVI, section 5s language. As noted above, among other things, that provision prohibits public entities from grant[ing] 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. (Art. XVI, 5.) As we have explained, a bond financing program like the one here at issue clearly provides a benefit to participating schools through the use of a [governmental] instrumentality, by enabl[ing] them to borrow money . . . at a cost below that of the marketplace. (Priest, supra, 12 Cal.3d at p. 605.) Indeed, as noted above, under interest rates prevailing in 2002, the proposed bond program would have saved Oaks Christian School approximately $52,500 per month in financing costs. As also noted above, both the Authority and the schools have acknowledged that the savings realized through the bond program, which would be unavailable without a public entitys participation, are a significant factor in maintaining the operations of the [schools] within the jurisdiction of the Project Program Participant. Given the trial courts uncontested factual findings that the schools are organized primarily or exclusively for religious purposes, restrict[] admission of students by religious criteria, discriminate[] on the basis of religion in hiring faculty, and integrate[] [r]eligion . . . into classroom instruction, the proposed bond agreements clearly violate the ordinary meaning of article XVI, section 5s prohibition against grant[ing] anything to or in aid of any religious sect . . . 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.
In several relevant cases, we have explored the reach of article XVI, section 5, and its materially identical predecessor. The more recentand in my view more authoritativeis California Teachers Assn. v. Riles (1981) 29 Cal.3d 794 (Riles). There, we held that statutes authorizing the Superintendent of Public Instruction to lend, without charge, textbooks used in the public schools to students attending private sectarian schools were invalid under article XVI, section 5. (Riles, supra, at pp. 797-798.) The religious schools at issue in Riles offer[ed] instruction in secular subjects, but they also [had] as their purpose the teaching of the tenets of their faith. Some of the[] schools [gave] preference to enrolling Catholic pupils; more than 97 percent of the students attending [the] schools [were] Catholic. The schools ordinarily require[d] students to receive religious instruction, attend religious services during the school day, and participate in prayers and religious ceremonies. Sectarian symbols and pictures [were] distributed throughout the schools buildings. The teachers in these schools [were] for the most part members of the church. (Id. at pp. 799-800.)
TO BE CONTINUED AS PART III..
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[1] As illustrated by Steele, supra, 301 F.3d 401, and by Virginia College, supra, 538 S.E.2d 682, the issuance of government bonds to construct or improve facilities at religious schools is a practice not limited to California. The Council for Christian Colleges & Universities (CCCU), which is an international higher education association with a membership consisting of some 100 Christian colleges and universities, including the two colleges here, has filed an amicus curiae brief in support of the Authority. The CCCU mentions that, in addition to California, 22 states have provided conduit financing benefiting CCCU member colleges and universities, thereby providing these states private schools with lower interest financing resulting from state and federal tax benefits: Arkansas, Colorado, Georgia, Illinois, Iowa, Kansas, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, and Washington.
[2] Although the trial court made a factual finding that [r]eligion is integrated into classroom instruction at the three schools, it is unclear what the trial court meant by that finding or on what evidence it was based. Because the Authoritys declarations provided little information about the form or content of classroom instruction in secular subjects at the three schools, a remand is appropriate to permit the presentation of additional evidence and reconsideration of the issues under the standards we have set forth here.
[3] The trial courts orders make clear that the court based its ruling on the facts presented in the Authoritys declarations. Thus, the majority errs in asserting that it is unclear . . . on what evidence the trial court based its findings. (Maj. opn., ante, at p. 23, fn. 11.)
[4] Curiously, despite the trial courts findings and the Authoritys failure to contest those findings, the majority is merely willing to infer that the schools here include a religious perspective along with [their] teaching of secular subjects. (Maj. opn., ante, at p. 17, fn. 8.)
[5] The Authoritys purchase agreements with Oaks Christian School and California Baptist University specify that the Authority must pay $1.00 to purchase the schools property. The Authoritys purchase agreement with Azusa Pacific University does not specify an amount for the Authoritys purchase of the schools property. Instead, it requires the Authority to make installment payments in an amount necessary for the Trustee to make the transfers and deposits required pursuant to Section 5.02 of the Indenture. It also specifies that the Authoritys obligation to make these installment payments is limited exclusively to the payments and other moneys and assets received by the Trustee on behalf of the Authority pursuant to the Sale Agreement, and it directs the school to make each Sale Payment due under the Sale Agreement directly to the Trustee in satisfaction of the Authoritys Installment Payment obligations.
[6] The quoted language appears in the Authoritys agreements with Oaks Christian School and California Baptist University. In slightly different language, the Authoritys agreement with Azusa Pacific University states: No portion of the proceeds of the Bonds shall be used to finance or refinance any facility, place or building used or to be used . . . for sectarian instruction or as a place for religious worship or in connection with any part of the programs of any University or department of divinity for the useful life of the Project. These provisions will hereafter be referred to as restricted use covenants.
