Steele v. Industrial Development Board

David Lipscomb University (DLU) is a liberal arts university located in Nashville, Tennessee. DLU is affiliated with the Churches of Christ. To finance a facilities improvement project, DLU applied for $15 million in tax-exempt bond financing from the Industrial Development Board of the Metropolitan Government of Nashville and Davidson County. The financing was approved. By using tax-exempt bonds, DLU was able to save about 30% of the interest it would have had to pay if it had used conventional financing.

Several Nashville taxpayers and a group called Americans for Religious Liberty filed suit against the Industrial Development Board and others arguing that the Board violated the federal constitution by providing an impermissible benefit to a "pervasively sectarian" institution. A federal District Court determined that DLU was pervasively sectarian and that issuing the tax-exempt bonds for its benefit violated the Establishment Clause. The defendants appealed.

In its opinion, a divided panel of the U.S. Court of Appeals for the Sixth Circuit ruled that approving DLU's application for financing did not violate the First Amendment's ban on laws respecting an establishment of religion. Specifically, the court held that tax-exempt financing constitutes "indirect" aid because it is similar in nature to property tax exemptions and income tax deductions and credits. Because pervasively sectarian organizations may receive indirect government aid, the provision of tax-exempt financing for DLU was permissible.

CLS believes that today's decision means that Christian schools and other religious institutions around the country interested in tax-exempt bond financing should now be eligible to obtain the economic benefits of such financing without having to sacrifice their religious character or identity.

Documents:

Full text of the opinion

CLS filed an amicus brief in the case that was joined by the Union of Orthodox Jewish Congregations of America, the Association of Christian Schools International, the Council for Christian Colleges and Universities, and the National Association of Evangelicals.

CLS Brief (PDF - 87 KB)