JOHN K. VAN DE KAMP Attorney General
RONALD M. WEISKOPF Deputy Attorney General
AGO 82-509
No. 82-509
California Attorney General Opinion
Office of the Attorney General State of California
February 4, 1983
THE
CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY has requested an
opinion on the following question:
May the
California Educational Facilities Authority issue tax-exempt
bonds to loan monies from revenue raised thereby to the
University of Judaism for it to refinance an existing loan
that was used to build classroom and administration
facilities?
CONCLUSION
Whether
or not the California Educational Facilities Authority may
issue tax-exempt bonds and make a loan from revenue derived
therefrom to the University of Judaism to refinance an
existing loan that it used to build classroom and
administration facilities would depend on the Authority's
determining, based on the facts presented to it, (a) whether
the University requires its students to receive
"instruction in the tenets" of Judaism, (b) whether
the University is "pervasively sectarian," and (c)
whether the monies loaned the University will be used for
"sectarian purposes." An affirmative resolution of
any of these inquiries would preclude the Authority from
acting on the University's behalf.
ANALYSIS
Under
section 94151 of the California Educational Facilities
Authority Act (Stats. 1972, ch. 1432, p. 3127, § 1, as
amended and recodified by Stats. 1976, ch. 1010, p. 2384,
§ 2; Ed. Code, pt. 59, ch. 2, § 94100 et
seq.)
1 the California Educational Facilities
Authority is authorized to "loan funds to a
participating institution and to provide for the issuance of
[tax exempt revenue] bonds for the purpose of refinancing
projects not originally funded pursuant to [the Act]."
(§ 94151; cf. §§ 94149, subd. (d),
94144-91446, 94150, 94156; 26 U.S.C.A. § 103(a)(1).) To
be eligible to receive such funds however, an institution may
"neither [restrict] entry on racial or religious grounds
nor [require] all students . . . to receive instruction in
the tenets of a particular faith" (§ 94110,
participating college; see fn. 3, post) and no aid
may be given in any event for a project which involves
"any facility used or to be used for sectarian
instruction [or] as a place for religious worship or any
facility used or to be used primarily in connection with any
part of the program of a school or department of
divinity." (§ 94110,
"project"/"educational facility"; see fn.
3, post.)
The
University of Judaism—the West Coast Branch of the Jewish
Theological Seminary of America (see fn. 6, post)
and an institution of higher education specializing in the
study of Judaism and Judaica - has applied to the Authority
for a loan in the amount of $6 million in order to refinance
an existing loan that it had secured in order to construct
classroom and administration facilities. Because of its
particular and narrow specialization, and perhaps because of
its name, question has arisen as to whether the Authority is
permitted to grant the application.
[2] We have been asked by the
Authority whether it may issue bonds and loan revenues
derived therefrom to the University for the requested
purpose.
Resolution
of the issue however depends on a careful determination of
intricate issues of fact, an area into which
opinions of this office are not wont to venture. (See 64
Ops.Cal.Atty.Gen. 856, 859 (1981); 64 Ops.Cal. Atty.Gen. 1
(Foreword).) Nevertheless we can describe the parameters and
define the setting in which those factual determinations must
be made. So doing we conclude that whether or not the
Authority may issue tax-exempt bonds to loan requested monies
from the revenue derived therefrom to the University of
Judaism would depend on its making a determination
based upon a resolution of the factual issues presented to it
as to: (a) whether the University requires all students to
receive instruction in the tenets of Judaism; (b) whether the
University is pervasively sectarian; and (c) whether the
monies loaned will be used for sectarian purposes. An
affirmative resolution in any of the areas of inquiry would
preclude the Authority from acting on the University's
behalf.
Background
Article
IX, section 1, of the California Constitution directs the
Legislature to "encourage by all suitable means the
promotion of intellectual improvement." In response to
that mandate the Legislature enacted the California
Educational Facilities Authority Act, the declared purpose of
which is "to give this and future generations of youth
the fullest opportunity to learn and develop their
intellectual and mental capacities by providing private
institutions of higher education within the state an
additional means by which to expand, enlarge, and establish
dormitory, academic, and related facilities, to finance such
facilities, and to refinance existing facilities."
(§ 94100.)
The Act
creates the California Educational Facilities Authority
(§ 94120) and empowers it, inter alia, to issue
tax-exempt revenue bonds (§§ 94140, subd. (d),
94144-94146, 94150; cf. § 94156; 26 U.S.C.A. §
103(a)(1)), and with monies so derived to make loans to
"participating colleges" to undertake or to
refinance permissible projects.
3 (§ 94151.) (See
generally, California Educational Facilities Authority v.
Priest, supra, 12 Cal.3d at pp. 596-597.)
In
California Educational Facilities Authority v.
Priest, supra, 12 Cal.3d 593, our Supreme Court
unanimously upheld the constitutionality of the Act against a
challenge made on various federal and state constitutional
grounds as to the aid it might enable to be provided
to "sectarian institutions of higher education."
(12 Cal.3d at p. 598 & 598, fn. 5; see 12 Cal.3d at pp.
599-606 discussing U.S. Const., amend. I; Cal. Const., art.
I, § 4 (free exercise of religion without preference),
art. IX, § 8 (no public money for sectarian or
denominational school), art. XVI, § 5 (then art. XIII,
§ 24) (no grant of anything to or in aid of any church,
religious sect or sectarian purpose or help to support or
sustain any school, college, university controlled by any
creed, church or sectarian denomination); art. XVI, § 3
(then, art. XIII, § 21) (no public money for benefit of
private organization); art. XVI, § 6 (then, art. XIII,
§ 25) (no pledging state's credit for corporate
liability); see also Hunt v. McNair (1973) 413 U.S.
734 which upheld a South Carolina statute identical in all
pertinent respects to the Act.) The Court held the Act did
not violate any of the constitutional proscriptions upon
which challenge was made. "[A]lthough in certain subtle
respects" said the Court, "the Act appears to
approach state involvement with religion [citation], we
cannot say that in the abstract it crosses the forbidden
line." (12 Cal.3d at 606.) Nevertheless caution was
given that—
"—if the Authority were to exercise its powers in aid
of an institution which is pervasively sectarian
within the meaning of the Hunt test, [i.e., an
institution in which a substantial portion of its functions
is subsumed in its religious mission] a different
conclusion might be compelled. 'Individual projects can
be properly evaluated if and when challenges arise with
respect to particular recipients and some evidence is then
presented to show that the institution does in fact possess
these [disqualifying] characteristics.' (Tilton v.
Richardson (1971) supra, 403 U.S. 672, 682.)
(12 Cal.3d at 602, fn. 8.)
The
instant request in effect poses such a challenge for we are
asked whether the Authority may exercise its powers in aid of
an institution of higher learning whose general particulars,
if not whose proposed specific use of the funds, might
disqualify it for such aid.
As
noted prefatorily, the genesis of this opinion stems from the
University having applied to the Authority for a loan with
more favorable terms than could be secured
conventionally,
4 for it to refinance an outstanding
indebtedness that it incurred to build classroom and
administration facilities, as part of a capital expansion
program designed to complete its campus. The proposed loan
from the Authority involves long term takeout financing for
six million dollars, to be carried over a period of 15 years
at an interest rate of eight and one-half percent. Absent
that financing the University will continue to be obligated
under its existing loan with a commercial lender which
requires the University to obtain refinancing in 1987. By
obtaining financing through the Authority the University
would not have to refinance in 1987 under uncertain market
conditions and its monthly payments would immediately be
maintained at a significantly...
