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AUGUST 2002 UPDATE To "Tax-Exempt Financing For Faith Based Organizations: The New Constitutional Climate" Re: Steele v. Industrial DeVelOprilellt Board of 1�'Ietropolitan Government of Nashville, et.al. (Sixth Circuit, August 14, 2002) On August 14, 2002 the Sixth Circuit Court of Appeals reversed the decision of the District Court for the Middle District of Tennessee which had granted summary judgment, enjoining the issuance of bonds for David Lipscomb University and other pervasively sectarian institutions. The Court of Appeals instead granted summary judgment for the governmental units and the university and denied summary judgment for the plaintiffs in their challenge to the bond issue. According to the court, the issue presented "is whether the issuance of tax-exempt revenue bonds violates the Establishment Clause, if the bonds are for the benefit of an institution found by the District Court to be pervasively sectarian." The Sixth Circuit ruled that there was no violation —"regardless of whether the pervasively sectarian test is still the law, we conclude that, given the nature of the aid in question, the issuance of the bonds does not offend the Establishment Clause." The Sixth Circuit based its decision on a line of Supreme Court cases dealing with tax exemptions and tax deductions benefiting or involving religious entities. In particular, the court relied upon the Walz, Mueller and Hernandez as well as Zelman to conclude that the particular benefit conferred upon Lipscomb - the issuance of tax-exempt bonds • was indirect in nature and was analogous to an indirect financial benefit conferred by a religiously neutral tax or deduction. The Court further went on to note that religious organizations unquestionably may receive "general government benefits consistent with the Establishment Clause," (quoting Zobrest and Widmar) and concluded "that the issuance of tax-exempt bonds on a neutral basis is the conference of a generally available governmental benefit." The court further concluded that the proposed issuance of industrial revenue bonds for the benefit of Lipscomb University was part of a neutral program which served valid economic development and education purposes and conferred "at best only an indirect benefit" to sectarian institutions such as Lipscomb. Going on, the court stated "� sum, the nature of the institution is not the relevant inquiry in the special type of aid at issue in this appeal. The nature of the aid conferred by the tax free revenue bonds is not direct aid. Instead, it is analogous to an indirect financial benefit conferred by a religiously neutral tax or charitable deduction and is indistinguishable from that expressly approved in N'alz ... The funding vehicle is available on the neutral basis. No government funds will be expended. Nor does any holder of a bond have recourse against the Board or Metro in the event of non-payment. The benefit to be obtained by Lipscomb University is the same provided to private companies which create identical economic opportunities.