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Summary of Position of� Briggs & Morgan; - The Establishment Clause of the First Amendment of the United States Constitution prohibits governmental entities from establishing a state religion. Conferring a benefit on a religious institution has been interpreted as a violation of the First Amendment under certain circumstances. Bond Counsel is of the opinion that Northwestern College is a religiously �liated school, which is likely to be considered "pervasively sectarian" by a court. Previous court rulings have stated that any benefit conferred on a"pervasively sectarian" institution works to promote the establishment of religion. The `benefit' is derived from the issuance of tax-exempt financing, which provides the institution with lower borrowing costs than could be obtained otherwise. The City's Bond Counsel acknowledges that recent court rulings support the argument that a governmental entity can confer an indirect benefit to an institution even if it is pervasively sectarian, as long as the facilities to be financed are not used for religious purposes. In addition, recent court rulings have provided further support for government participation in `faith-based' education. However, these rulings have dealt with benefits granted to individuals who then applied the aid at a religiously affiliated institution. Because the City would be lending the bond proceeds directly to Northwestern College, the City's Bond Counsel does not think these rulings give it a legal basis to provide an unqualified opinion with respect to the validity of the bonds issued. • As was noted above, the City will be relying upon the legal opinion of separate Counsel as to the legality of the bond issuance. With the exception noted above, Briggs & Morgan will be reviewing and/or preparing a11 other legal documents with respect to this issue. The City Council is required to approve any issuance of tax-exempt financing by the City. There is no fiscal impact on the part of the City. All costs of debt issuance will be paid by the applicant. In addition, the City does not intend to issue any direct debt in 2002. As a result, this issuance will not jeopardize the "bank-qualification" Status of any new City debt issues. Staff Recommendation Staff remains concerned with the need to obtain a legal opinion from a law firm other than the City's Bond Counsel, which is a departure from past practices. However, if the Council is supportive of the public purpose, and is comfortable with the opinion provided by other Counsel, the additional provisions noted above should minimize any potential public exposure risk Staff recommends the Council set a public hearing to consider the issuance of tax-exempt bonds for Northwestern College. Council Action Requested Motion to establish a public hearing for September 23, 2002, for the purposes of issuing up to $1 0,000,000 in tax-exempt revenue bonds, for Northwestern College.