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Point: Bonds, Liberty, and Adventist Education


In 2008, La Sierra University agreed to participate in a newly available tax-exempt municipal bond program. Like other bonds, it is funded by other organizations or individuals, and it is the tax-exemption portion that bears the great scrutiny.

Because it is tax-exempt, and costs the state of California insofar as potential tax revenues are diverted, the program carried with it certain restrictive covenants that could affect certain aspects of the life of the private religious university. These could include areas such as science instruction, whether students can be required to attend chapel, the types of clubs on campus, and the manner in which the university makes personnel decisions.

Before 2007, private religious universities in California were not permitted to participate in tax-exempt bond programs because it was seen to run afoul of a uniquely strong California state constitution provision enacted in 1879 that prohibited state and local governments from granting anything “in aid of any … sectarian purpose, or help[ing] to support or sustain any school, college, university, hospital or other institution controlled by any … sectarian denomination whatever …”

In 2007, the California Supreme Court ruled that religious institutions that met specific qualifications could participate in state-run programs without violating the state constitution. In the case, California Statewide Communities Development Authority (CSCDA) v. All Persons Interested in the Validity of a Purchase Agreement, the California Court found that three religious schools who sued to participate in a bond program could be trusted to keep their word that the money would not be used for religious purposes.

All three Southern California Christian schools, Oaks Christian School, California Baptist University, and Azusa Pacific University, had signed covenants that, “no portion of the proceeds of the bonds shall be used to finance and refinance any facility, place or building used or to be used for sectarian instruction or study or as a place for devotional activities or religious worship or in connection with any part of the programs of any school or department of divinity for the duration of the useful life of the project financed with the proceeds of the Bonds.”

In other words, the schools had promised that they would never use facilities financed with the bonds to further the explicitly religious aspects of their campus.

The trial court had ruled against the schools on the basis that compliance with the covenant against religious use would be impossible to uphold because each school was “organized primarily or exclusively for religious purposes” and “discriminates on the basis of religion in hiring faculty.” The lower court had further stated that it would be absolutely impossible for the schools to comply because “religion is both mandatory and integral to every aspect of student life. Religion is integrated into classroom instruction.”

The 4th District Court of Appeals reviewed the case and decided that deeper inquiry was needed since the schools had been identified as “pervasively sectarian.” The District court said that the covenant itself was not enough to insure compliance with the sectarian aspects and that it would be impossible to separate the religious from the secular aspects of these campuses. The District court added, “[e]ven assuming it was possible to monitor the program restriction under the contract provision allowing CSCDA a right of access to inspect the facilities…, such monitoring would necessarily require entanglement of government and religion that would raise its own constitutional alarms…. Moreover the fact that certain classrooms would not themselves be devoted to religious study is immaterial when the school program, as a whole, pervasively focuses on religious instructions.”

Finally, the California Supreme Court upheld the covenant against religious use and said that the schools could decide whether to comply with these provisions. It did propose a two-part test to see whether the financing would meet the secular requirements of the California constitution. First, “does each of the recipient schools offer a broad curriculum in secular subjects?” Secondly, “do the schools’ secular classes consist of information and coursework that is neutral with respect to religion?”

The high court said this two-part test, “ensures that the state’s interest in promoting the intellectual improvement of its residents is advanced through the teaching of secular information and coursework, and that the expression of a religious viewpoint in otherwise secular classes will provide a benefit of religion that is merely incidental to the bond programs’ primary purpose of promoting secular education.” (Emphasis added.)

The high court said that religion could be taught in the same manner it is taught in public schools. “Of course, religion may be an object of study in classes such as history, social studies, and literature, just as in public schools, in a manner that neither promotes nor opposes any particular religion or religion in general.” However, the court specifically prohibited sectarian education in funded facilities. “[A] class that includes as part of the instruction information or coursework that promotes or opposes a particular religion or religious belief may not be taught in facilities financed through tax exempt bond financing.”

The court was willing to presume that the institutions would abide by covenants against religious use subject to investigation by governmental authorities to ensure compliance.

Three dissenting justices expressed concern that even if the schools followed the covenants, they still routinely made hiring decisions that discriminated along the lines of religion or sexual orientation and would violate neutrality requirements. Justice Ming W. Chin, writing the dissent stated that “the proposed bond financings would have the direct, immediate, and substantial effect of advancing religion and would contravene the constitutional provision’s purpose, by devoting the government’s power and authority to raise money at below-market interest rates through the issuance and sale of tax-exempt bonds to the support and advancement of religious or sectarian purposes.”

Justice Chin then described ways that the institutions would be in violation of the restrictive use covenant. Noting the uncontested findings that religion was both mandatory and integral to every aspect of student life at the schools, “and that the schools are ‘organized primarily or exclusively for religious purposes,’ ‘restrict[ing] admission of students by religious criterion,’ ‘discriminat[ing] on the basis of religion in hiring faculty,’ and ‘integrat[ing]’ ‘[r]eligion into classroom instruction,’ notwithstanding the restricted use covenants, the proposed bond financings would impermissibly provide aid for religious projects.”

Following the CSCDA decision allowing for bonds to be issues to the three Southern California Christian schools, in May 2008, the Board of Trustees of La Sierra University, in a manner that the university states was moved through all of the appropriate channels of the Seventh-day Adventist Church and university leadership, voted to issue a $24,405,000 tax-free bond (See “LSU Bond” document). The bond was used to complete several campus improvement projects and to refinance the debt and reduce payments on the recently constructed Price Science Complex. (See “La Sierra University Responds to Speculative Postings on Independent Websites.”)

La Sierra University signed the same restrictive covenants as in the CSCDA case, and in particular the university “has covenanted that no portion of the proceeds of the Bonds shall be used to finance and refinance any facility, place or building used or to be used for sectarian instruction or study or as a place for devotional activities or religious worship or in connection with any part of the programs of any school or department of divinity for the duration of the useful life of the project financed with the proceeds of the Bonds.” (LSU Bond at page 27).

As a result, La Sierra is presumably subject to monitoring by the state authority governing the bonds to ensure compliance with the non-religious use covenant.

There are several unresolved questions regarding what the bond means for the university. In January 2013, Spectrum’s blog published an article by T. Joe Willey, Ph.D., noting that “according to the prohibited use covenants in the bond the science building is therefore off limits for religious purposes.” Religion could be only taught to the extent that it is taught in public universities according to the language of the California Supreme Court ruling.

Indeed it could apply around campus—any place where the bond funding was used to enhance a facility could potentially be deemed religion-free zones.

When it comes to the issue of hiring, as indicated by the dissenting justices in CSCDA, La Sierra may no longer be able to legally discriminate on grounds of religion or sexual orientation. In Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC (2012), the U. S. Supreme Court found that a relatively broad category of employees could be considered “ministers,” but La Sierra may have contracted around these prohibitions, at least on bond-funded parts of campus. Ultimately, La Sierra may find that it no longer has the ability to terminate or impose professional discipline on faculty and staff for reasons related to their religious practice or belief, or lack thereof.

Finally, when it comes to allowing student clubs on campus, La Sierra may be prohibited under the contract that it voluntarily signed that it can no longer legally prohibit recognition for a gay and lesbian club. This issue made news in November 2012 when a gay and lesbian club was denied recognition because, in the words of the campus spokesperson, the club “does not align with Seventh-day Adventist beliefs on sexuality. La Sierra is a Seventh-day Adventist university, so we support the values of the SDA Church. That is why they were turned down.”

It does not appear that the bond has been used by any parties to expand their rights on campus, but the bond would seem to give many groups a right of legal action in the event that they feel discriminated against by the university because of their religious beliefs. From a religious liberty angle, religious institutions have long held the “right to discriminate” in order to protect their interests and religious missions, but what the California Supreme Court seems to be saying is that they also have the right to contract away some of these protections in return for tax-exempt bond funding.

All that we can be sure of now is that the restrictive covenant against religious use is applicable for the duration of the useful life of the facilities financed with the bond.

—Michael Peabody, an alumnus of La Sierra University, is an attorney in Los Angeles and the editor of

Read La Sierra University’s response here. As part of this simultaneously published point/counterpoint series, and in an effort to facilitate fairness and understanding in this conversation, all comments will be centralized on a third blog post, available here.

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