NASHVILLE, Tenn. In a decision that affects religious schools across the state, a federal appeals court ruled 2-1 on Aug. 14 that Church of Christ-affiliated Lipscomb University can benefit from tax-exempt municipal bonds.
The 6th U.S. Circuit Court of Appeals in Cincinnati overturned U.S. District Judge Aleta Trauger's October 2000 ruling that government bond authorities could not issue tax-free bonds for Lipscomb or any other "pervasively sectarian" institution.
"Because the proposed issuance of industrial revenue bonds to Lipscomb University is part of a neutral program to benefit education, including that provided by sectarian institutions, and confers at best only an indirect benefit to the school, we hold that the issuance of bonds does not violate the First Amendment," Judge Edmund A. Sargus Jr. wrote for the majority.
In a dissenting opinion, Judge Eric L. Clay said Trauger ruled correctly because Lipscomb is "indisputably a 'pervasively sectarian' educational institution" and the tax-exempt bonds "amounted to a direct economic benefit in violation" of the First Amendment.
The $15 million in bonds in the Lipscomb case were issued through Nashville's Industrial Development Board. The bonds are tax-free to the buyer. Since the buyer has no tax obligation, he accepts a lower return and the school benefits by paying the lower interest rate.
Lipscomb used the bonds to build and equip a new library, to renovate and convert the old library to office space, and to build intramural athletic facilities, four tennis courts, a baseball stadium and an addition to the university's business center.
The city of Nashville has issued similar bonds to Belmont University, a Southern Baptist school, and Father Ryan High School, which is affiliated with the Roman Catholic Church.
The Aug. 14 ruling "will make that process a little bit easier," city law director Karl Dean said.
Nashville attorney Joe Johnston represents the five men who sued Lipscomb, Nashville, the Industrial Development Board and the Sovran Bank in 1992.
Johnston said the plaintiffs plan to appeal, although he didn't know if they would seek a rehearing before the full appeals court or take the case directly to the U.S. Supreme Court.
"We believe it's wrong," Johnston said of the majority's decision.
Using the court's logic, a church could apply for tax-free bonds to build a sanctuary, he said.
Lipscomb officials argued that it's in Nashville's best interest to promote education, and that preventing their school from participating in the low-interest government financing would amount to discrimination based on religious orientation.
"We're very pleased with the ruling. We've been optimistic throughout the case that the courts would rule in our favor," said Brad MacLean, an attorney who represented Lipscomb.
"The court pointed out that there are numerous tax exemptions and tax benefits that are enjoyed by religious institutions, such as exempting church property from taxation," MacLean added.
Claude Pressnell, director of the Tennessee Independent Colleges and Universities Association, called the ruling "very positive for independent higher education" and the communities they serve.
The association represents 35 mostly church-affiliated schools, many of which have benefited from tax-free bonds.
"They use that type of bond financing not only for campus improvements but for refinancing options," Pressnell said.