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MEMORANDUM T0: Chris Miller and City Council of the City of Roseville FR01��L• Mary L. �ppel and JennyGra� DATE: June 21, 2002 R E: Tax Exempt Financing for Northwestern College Northwestern College has requested that the City of Roseville issue tax exempt bonds to finance a project including residence halls and tl�e classroom portion of a new media center. Briggs and Morgan has had numerous canversations with attorneys for Northwestern College over the course of the past yea'r and a half regarding the proposed financing. Although the facilities proposed to be financed with tax exempt bonds issued by the City would not be used for any religious purposes, we have concluded that we are not comfortable issuing att opinion that bonds can be validly issued by the City to finance this project. The Establishment Clause of �e First Amendment of the United States Constitution prohibits governmental entities from establishing a state religion. Conferring a b�nefit on a religious institution has been interpreted as a violation of the First Amendment under certain circumstances. Courts involved in determining the constitutionality of benefits conferred by governmental entities to religiously affiliated schools have typically applied a test known as the pervasively sectarian test. This test looks at whether the institution receiving the benefit is so pervasively sectarian that any benefit conferred on the institution works to promote the establishment of religion. The determination is based on numerous factors, including whether students and faculty must be members of a particular religion, whcthcr participation in religious services is mandatory, and whether religion is incorporated into the curriculum. Our conversations with representatives of Northwestern College and review of its policies and written materials leads us to believe that a court would probably find Northwestern College to be pervasively sectarian. In our view, the application of the law' to the facts involved in the Northwestern College financing prevents us from giving an unqualified opinion that bonds could be validly issued by the City. There is case Iaw which supports � argument that a governmental entity can confer an indtrect benefit to an institution, even if it is pervasively sectarian, so long as the facilities £iz�anced arc not used for religious purposes. Arguably, tax exempt bond financing is zrzdirect because it is bondholders who receive the b�tieitt of interest income which is not taxed, and it is those private investors who help share the benefit they receive by offering financing to borrowers at lower interest rates. Although Briggs and Morgan has not adopted this view of the law, it is not unreasonable for other bond counsel to take the view that such financing is legal and valid. t4109$Svj ATrACHItENT A