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Religious schools' use of tax-free bonds spurs church-state debate

By The Associated Press

BOSTON — When Gordon College needed millions of dollars to build a new dorm, it joined a growing number of colleges and some private secondary schools using tax-exempt bonds to raise the money.

Because Gordon is nonprofit, investors who buy the bonds don't have to pay taxes on the yearly payments. That means the school can offer the bonds at a lower interest rate, which could save the school millions over 30 years.

Gordon's $6.5 million bond issue was so successful that the suburban Wenham college plans another this year: $39 million for another dorm and to refinance old debt.

There is a catch, however: Gordon is, unmistakably and proudly, a Christian college. Students and faculty must sign a pledge to recognize the Bible as the word of God and "call themselves Christian" through a "personal commitment to Jesus Christ." Professors are asked to teach all subjects from a Christian perspective. Chapel attendance is required, twice a week.

No public funds are used to pay the bonds. The state serves as a conduit, a legal requirement for the nonprofits to get the tax exemption, and the bonds' credit is backed separately.

But nationwide, similar schools have had their bonds' tax-exempt status challenged by groups who claim it amounts to state support of religion. Some judges have agreed, though the law is unclear.

The religious schools maintain that it would be religious discrimination to deny them the bonds.

So far, nobody has challenged Gordon or the Massachusetts Development Finance Authority, known as MassDevelopment, the state agency that issued the bonds. The school claims the exemption is appropriate because it is using the money for a dormitory, not an overtly religious building such as a chapel.

However, because the school essentially limits enrollment to Christians, the bonds appear to violate the standard of nondiscrimination that MassDevelopment says it applies when deciding who can benefit from its services.

The issue is a somewhat obscure offshoot of related debates about how much indirect support government can provide for religious schools — textbooks, lunches and busing, for example.

"Whether one characterizes them as a tax exemption or a cash benefit, the loss to taxpayers and citizens is the same, and in many cases runs to the tune of millions of dollars," said Ayesah Khan of Americans United for Separation of Church and State.

Khan's group sued unsuccessfully to invalidate bonds issued for Pat Robertson's Regent University in Virginia. "The heart of the establishment clause is that taxpayers not be forced to support a religious institution," Khan said.

The religious schools read the First Amendment differently. They say it prohibits the government from denying them, on religious grounds, a tax exemption available to anyone else.

"The ACLU's position is asking government to discriminate against religion," said Martin Nussbaum, a Colorado attorney who has represented a number of schools in such cases. "That's shameful."

Nussbaum says the state is simply providing a neutral government service. Telling religious schools they can't take advantage is like telling church members the fire department won't protect them or they can't use a national park, he said.

The only U.S. Supreme Court decision on such financings is nearly 30 years old. It upheld such bonds as long as schools are not "pervasively sectarian." The standard has allowed financings for Catholic schools such as Georgetown University and Boston College, where many students aren't Catholic and faculty do not have to teach from a particular religious perspective.

But some say the standard forces judges to conduct a kind of inquisition into how religious a school is.

That happened in the Regent case. In 1999, a circuit judge ruled against the university, citing faculty handbooks and applications that stated the university's purpose as "glorifying God and his Son Jesus Christ."

The Virginia Supreme Court, however, reversed that ruling, even though it had previously ruled against Jerry Falwell's Liberty University in a similar case. Meanwhile, a federal court in Nashville, Tenn., recently ruled against Lipscomb University, but a Michigan Catholic high school won its case, as did a Catholic school in California whose bonds were contested by the American Civil Liberties Union.

Many believe that if the Supreme Court revisits the issue, it will side more clearly with religious schools. The court, on a number of issues, has tilted lately toward letting religious schools receive at least indirect government aid.

"Clearly that's where the pressure is," said Robert Sedler, a law professor at Wayne State University in Detroit who unsuccessfully argued the Michigan case.

Last year, MassDevelopment issued more than $1 billion in mostly tax-exempt bonds for a wide range of projects: $3.8 million for the North Shore Music Theatre in Beverly, $30.1 million for the Salem Community Corp. and $247 million for Harvard University.

It is unclear whether the Gordon bonds would run afoul of the state constitution, which forbids public money, property or loaned credit from supporting any school where "any denominational doctrine is inculcated." Gordon is non-denominational.

MassDevelopment spokesman Chris Kealey said the authority's policy, based on its interpretation of federal law, is to issue bonds for religious schools only if they do not discriminate on the basis of religion in hiring or admissions.

Gordon does not appear to meet that standard, and in fact meets many of the standards for "pervasively sectarian" that courts have used in interpreting the U.S. Supreme Court's standard.

Gordon's application begins: "A successful application for admission to Gordon gives evidence of solid academic promise and strong Christian commitment." Later, applicants are required to sign a two-page "Statement of Life and Conduct" that includes subscription to numerous specific religious doctrines.

Some courts have granted leeway to schools with religious leanings that don't bring religion into so-called secular subjects like science. Gordon, however, states on its Web site: "Almost all Christian Colleges put strong emphasis on behavioral expectations, chapel attendance, prayer before classes, etc. Gordon goes beyond this. Every professor integrates Christian thought and assumptions into classroom study."

James MacDonald, Gordon's vice president for finance, said students who feel unable to sign the statement have occasionally been admitted on the basis of a demonstrated interest in Christianity. "That would be an exception," he said.

"If it was an issue for them, we would wonder why they would want to be here," he said. "Because clearly we're going to try to inform the curriculum with that worldview in all the curricular materials."

Khan, of Americans United, said Gordon "raises red flags" but said she would have to examine the school more closely before making judgments.

After being read some of the material from Gordon's application, Kealey, the MassDevelopment spokesman, said it "raises an interesting question" and referred further questions to the private attorneys who advised MassDevelopment on the issue.

One of the attorneys, Tom Collins, declined to answer specific questions about Gordon, citing attorney-client confidentiality. But he said he generally takes into account several factors: whether the school's curriculum "is consistent with a general liberal arts education," whether religious principles are presented as general standards like "toleration" and "respect for others," and whether there is discrimination.

He again declined to comment on Gordon when read material from the college describing the "Statement of Life and Conduct" and its commitment to infusing all subjects with Christian teaching.

The bond counsel is responsible for issuing an opinion that the bonds qualify under state and federal law as tax-exempt. And the prospectus should disclose any risks related to the bonds.

However, the Gordon prospectus makes no mention of litigation in other states involving the legal status of bonds from similar religious schools. The only mention of Gordon's religiosity is a brief description of the school as a "Christian liberal arts college" striving to graduate men and women of "Christian character."


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