Church and State

Federal funds and religious construction cross paths

By Sean Ryan

St. Joseph's had a year left to line up $8.8 million.

It made a $1.3 million deal with Walgreens to move out of its church on a prime piece of property in downtown Fort Atkinson by January 2005, but St. Joseph's needed another $7.5 million to build a new church and school on the edge of town. After the congregation pitched in, there was still a deficit of around $4 million.

But one of the parishioners had heard of a Catholic parish in Minnesota that per-
suaded the city of New Prague to give it a federal tax exemption on a construction bond for its new school. So St. Joseph's hired Milwaukee-based Quarles & Brady LLC to draft a legal opinion and a bond proposal for the school project. The bond and opinion ended up at the Fort Atkinson City Hall in April. St. Joseph's sweetened the request by paying the city's tab to get a second legal opinion, this time from Milwaukee-based Godfrey & Kahn, and promising to pay any legal bills if the exemption was challenged. Both are common practices for groups requesting a federal tax exemption.

Then the request went public, and the community wondered if it was legal for the government to give a religious school the tax-exempt bonding authority. After answering that, people raised the stickier question of whether it was appropriate.

"They just simply questioned if it was a church-and-state issue; they felt uncomfortable with that kind of issue before the council," said City Manager John Wilmet.

"We determined that legally it was OK. Then we had to discuss the moral issues, or whatever you want to call it."

The city received about 15 or 20 calls split evenly for and against the request, and a public hearing before the City Council's vote produced a packed chamber and a 12-3 split between advocates and opponents who stood up and spoke. The only responses City Hall received after the unanimous council approval on Sept. 7 were a few thank you letters from parish members.

But 30 miles northeast in Madison, the St. Joseph's bond lit up the phone lines at the Freedom from Religion Foundation. And the group took a slightly different approach to the issue. Freedom from Religion decided it was inappropriate, and then it worked on determining if it was illegal.

"We've never had so many people who are not affiliated with our organization contact us," said Annie Laurie Gaylor, foundation co-president. "We'd love to go to court. We didn't like this at all."

She said the law firm the group customarily used was ready to pursue a suit but backed down when it discovered its previous work with Fort Atkinson created a conflict of interest. In late October, the group was consulting with a second law firm that hadn't decided whether or not to accept the case.

Gaylor held the instance up as another sign of America becoming more comfortable with the unification of church and state.

"Things have really changed, attitudes have changed, and I think it's very sad to see that happen," she said.

Advocacy groups such as Freedom from Religion, the American Civil Liberties Union and the Wisconsin Taxpayers Alliance are worried what the attitude shift means to government policy, but others are welcoming it.

In New Prague, no one in the predominantly Catholic population contacted city leaders or appeared at the public hearings to protest the Church of St. Wenceslaus' request for a tax exemption on its $2.9 million bond for a school project in August 2002.

"This community looks at it as this is just another elementary school, and we're growing like crazy," said New Prague City Administrator Jerry Bohnsack. "You've got to understand New Prague. You don't argue with the hospital. You don't argue with the Fire Department. You don't argue with the church."

Scott Rolfs, managing director of the Church and School Financing Division for the Ziegler Companies Inc., a nationwide bonding company based in Milwaukee, sees shifts in the church-and-state debate over the past four years as positive. His company is set to underwrite between 20 and 25 tax-exempt bonds for religious school projects in the country this year, compared to none four years ago. While those projects would've been built either way, Rolfs said their tax exemptions mean they can get a bigger loan for a larger construction budget.

"What it means to builders is we can fund bigger projects," he said. "With a bigger loan you can build a bigger building."

He points to President Bush's decision to provide public funds to faith-based social groups as a sign that public money going to religious groups is no longer automatically taboo.

"What the faith-based initiative has done is cast new light on this to say that just because it is faith-based doesn't mean it's bad," Rolfs said.

Court systems and governments, both locally and nationally, are softening their positions on letting religious institutions use public dollars.

Last year, Wisconsin's Legislature passed, and Gov. Jim Doyle signed, a law that allows the Wisconsin Hospital and Educational Facilities Authority to issue federally tax-exempt bonding authority for religious primary and high school projects. The program was previously only allowed to issue the bonding authority to federally tax-exempt colleges and medical facilities.

Since the rule took effect in January, three Wisconsin religious schools have received the tax exemption, said WHEFA Executive Director Larry Nines.

"We're not working with any others right now; we have had inquiries," he said. "Where there is a faith-based mix to the school, what the lawyers do is determine that the projects being built are primarily for nonsectarian purposes."

An earlier instance that refined the legal standards, and some say opened the legal door wider, for issuing tax exemptions to religious institutions is the school voucher program. In 2002, the U.S. Supreme Court answered a lawsuit filed by Ohio Superintendent of Public Instruction Susan Tave Zelman against Cleveland's school voucher program by ruling that it doesn't violate the U.S. Constitution because it is neutral toward religion. School vouchers are issued to parents, who are allowed to use them at any certified private school they wish.

"That is sort of a central theme that the courts have gotten to — the issue of neutrality," said Godfrey & Kahn attorney and shareholder Tom Griggs, who wrote the city-commissioned legal opinion on the St. Joseph's bond. "The courts look at this noting of neutrality and whether the statute in question is neutral in terms of its approach to religious or nonreligious types of facilities."

The Zelman case boiled down the previous legal test, known as the Lemon Test, into a question of neu-trality. The Lemon Test looked at three criteria in deciding whether a program has the primary effect of advancing religion. It asked if programs resulted in government indoctrination, defined beneficiaries by reference to religion or created an excessive government entanglement.

The Zelman opinion, written by Chief Justice William Rehnquist, said that government aid programs that are neutral with respect to religion and available to a wide group of people who independently decide to use the aid on a religious school are not readily subject to constitutional church-and-state challenges.

The WHEFA and federal tax exemptions fit right into the neutrality argument since both judge eligible institutions based only on their tax status.

The impact of the Zelman ruling on the legality of tax-exempt bonds isn't cut and dry, but its effect has been to make the bonding market feel more secure issuing them for religious institutions' construction projects.

Rolfs said tax-exempt bonds for religious schools already met the Lemon Test, but Zelman raised the legal comfort level to the point where he is advocating tax-exempt bonding as an option to his clients.

"We just think Zelman was the lynchpin that put it over the top," he said. "Even though you had [the Lemon Test] out there, there were still a lot of
challenges."

Godfrey & Kahn's Griggs doesn't see Zelman as a major redefinition of the Lemon Test, but, like any decision that refines a previous ruling, it narrows the gray areas in determining legality. The bottom line so far is that the court system is supporting tax-exempt bonds for religious school construction, and in 2003, the Supreme Court rejected a case that would've allowed it to revisit the issue.

But just as the public attitude and court policies have swung one way over the past few years, there is no guarantee they won't swing back. That, however, is unlikely to happen in the next four years considering President Bush’s re-election and his support of faith-based initiatives.

"That's a tough question to consider because Zelman was a 5-4 decision, but it is the law, and one can follow that," Griggs said. "You can follow that with confidence until at some point it may be overturned."

Some states have already squelched the practice by adding Blaine Amendments to their constitutions that ban the use of public funding for religious schools.

Currently, 37 states, including Wisconsin, have Blaine Amendments, but not all are written in a way that would ban tax-exempt bonding.

People are also wondering what would happen if the legal doorway swings even wider and a parish goes one step farther and asks for a tax-exempt bond to build a church rather than a church's school. Rolfs said there is no doubt that some organization would immediately challenge it, but there's no certainty as to the outcome.

"When you build that sanctuary you ask, 'What is the purpose of building this large gathering place?'" he said. "I don't know what the prognosis would be for the outcome of that type of litigation."

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