Hunt v. McNair

• Citation: 187 S.E.2d 645,258 S.C. 97
• Decision Date: 02 March 1972
• Docket Number: No. 19378,19378
• Parties: Richard W. HUNT, Individually and representing all of the taxpayers of the State of South Carolina, Appellant, v. Robert E. McNAIR, Governor of the State of South Carolina, et al.,Respondents.
• Court: United States State Supreme Court of South Carolina

Page 645

187 S.E.2d 645

258 S.C. 97

Richard W. HUNT, Individually and representing all of the taxpayers of the State of South Carolina, Appellant, v. Robert E. McNAIR, Governor of the State of South Carolina et al.,Respondents.

No. 19378.

Supreme Court of South Carolina.

March 2, 1972.

Bryant & Fanning, Orangeburg, and Robert McC. Figg, Jr., of Robinson, McFadden, Moore & Pope, Columbia, for appellant.

Atty. Gen. Daniel R. McLeod and Asst. Atty. Gen. C. Pinckney Roberts, Columbia and Sinkler, Gibbs & Simons, Charleston, for respondents.

PER CURIAM:

This case was initially decided by the Court of Common Pleas for Charleston County. The order of that court was appealed. This Court heard the same, and by opinion filed on October 22, 1970, affirmed the order of the lower court. See Hunt v. McNair, et al., 255 S.C. 71, 177 S.E.2d 362 (1970).

Thereafter an appeal was taken to the Supreme Court of the United States. On June 28, 1971, 403 U.S. 945, 91 S.Ct. 2276, 29 L.Ed.2d 854, that Court remanded the case to us for 'reconsideration in the light of . . . decisions in Lemon, et al. v. Kurtzman et al., 403 U.S. 602, 91 S.Ct. 2105, 29 L.Ed.2d 745; Tilton et al. v. Richardson et al., 403 U.S. 672, 91 S.Ct. 2091, 29 L.Ed.2d 790; Earley et al. v. DiCenso et al., 403 U.S. 602, 91 S.Ct. 2105, 29 L.Ed.2d 745, and Robinson et al. v. DiCenso et al., 403 U.S. 602, 91 S.Ct. 2105, 29 L.Ed.2d 745, decided June 28, 1970.' All of these cases deal with freedom of religion, the establishment clause and the first amendment to the Constitution of the United States.

By reason of the directive of the Supreme Court of the United States we must now determine in the light of these cases whether the Educational Facilities Authority Act (enacted by the General Assembly of South Carolina in 1969) and its proposed use and application, violates the first amendment to the Constitution of the United States.

Under the provisions of the Educational Facilities Authority Act (herein referred to as the Act), the Budget and Control Board of the State of South Carolina (the Board), acting as the Educational Facilities Authority (the Authority) is authorized to provide financing for institutions of higher learning by its issuance of revenue bonds payable solely out of the revenues derived by the Authority from the particular project or institution for which they are issued. The bonds are secured by a mortgage on the project so financed.

The Act states that it shall not include 'any facility used or to be used for sectarian instruction or as a place of religious worship nor any facility which is used or to be used primarily in connection with any part of the program of a school or department of divinity for any religious denomination.'

The Act declares the Authority to be a body politic, and declares its purpose to be 'to assist institutions for higher education in the construction, financing and refinancing of projects.' It empowers the Authority to adopt rules and regulations for the conduct of its affairs.

The defendant, Baptist College at Charleston, a South Carolina eleemosynary corporation (the College) has petitioned the Authority seeking the preliminary approval of the Authority for the issuance of revenue bonds not exceeding $3,500,000 pursuant to the said Act for the purpose of (a) paying off outstanding indebtedness of the Baptist College Foundation incurred for the purposes of acquiring certain equipment and trailers utilized as a part of the College's educational plant (the payment for which the College is responsible) in the amount of approximately $275,000; (b) reimbursing in part the College's Current Fund for moneys advanced to the College's Plant Fund used to purchase school equipment and other capital improvements and for the payment of the aforesaid obligation of the Baptist College Foundation; and (c) refunding an outstanding indebtedness of the College in the amount of approximately $2,500,000 represented by the College's first mortgage serial bonds dated July 1, 1966.

In accordance with the provisions of the Act the College proposes to convey substantially all of its campus to the State of South Carolina at no cost to the State. The Authority would then lease the property so conveyed to the College under a lease agreement by which the College would be obligated to operate and maintain it as an institution of higher learning and to pay to the Authority or a designee, rentals in an amount sufficient to meet the payments of principal and interest as they become due on the proposed revenue bonds. The Authority would issue the revenue bonds and make the proceeds available to the College for the purposes aforesaid and the bonds would be repayable solely from the rentals to be paid by the Baptist College under the lease agreement. The bonds would be further secured by a Trust Indenture (mortgage) between the Authority and a bank, as trustee, (acting in lieu of the Authority) which would constitute a foreclosable lien on the property conveyed to the State. When the bonds are paid the Authority would deed the property back to the College subject to restrictions as required by the rules set forth hereinafter. The debt is not a debt or obligation of the State.

Excluded from the property to be conveyed by the College to the State is the library which is being financed in part by a loan from the Department of Health, Education and Welfare; a dormitory which is being financed in part by a loan from the Department of Housing and Urban Development; a dormitory which is currently under lease to the College, and the Physical Education Building where facilities which are used for religious worship are located. Excluded also are approximately 50 acres of land forming a part of the College campus.

By petition to the Authority the College has sought to avail itself of the Act. The Authority, by resolution, has given preliminary approval to the financing arrangement. Thereafter, this action was commenced by the plaintiff to enjoin the defendants from further pursuit of the plan.

The overall purpose of the Act is to permit colleges to borrow funds advantageously by using the State's income tax-free basis as relates to the issuance of bonds. Bondholders are not required to pay income tax on dividends or interest from bonds issued by the State; accordingly, a lower rate of interest is available which inures to the benefit of the College. Under the plan the State issues the bonds, but the money goes to the College. The College, and not the State, pays the bonds through rentals paid the Authority or trustee. There is no cost to the State incident to the entire plan of financing.

Pursuant to the power given to the Authority to adopt rules, the Authority has adopted rules as follows:

'1. Each Lease Agreement must contain a covenant obligating the Institution that neither the leased land, nor the facility located thereon, shall be used for sectarian instruction or as a place of religious worship, or in connection with any part of the program of a school or department of divinity of any religious denomination.

'2. Each Lease Agreement shall contain a provision permitting the Authority or any agent of the Authority to conduct such inspections as may be necessary to determine whether the leased premises, or any portion thereof, or any facility located thereon, is being used or has been used for sectarian instruction or as a place of religious worship, or in connection with any part of the program of a school or department of divinity for any religious denomination.

'3. Each Lease Agreement shall contain an appropriately worded provision providing that the covenant referred to in Paragraph 1 above may be enforced at the instance of the Authority, the Attorney General of South Carolina, or any taxpayer of South Carolina by a proceeding in any court of competent jurisdiction, by injunction, Mandamus or other means.

'4. If the Lease Agreement contains a provision permitting the Institution to repurchase the project upon payment of the bonds, then in such instance the Lease Agreement shall provide that the Deed of reconveyance from the Authority to the Institution shall be made subject to the condition that so long as the Institution, or any voluntary grantee of the Institution, shall own the leased premises, or any part thereof, that no facility thereon, financed in whole or in part with the proceeds of the bonds, shall be used for sectarian instruction or as a place of religious worship, or used in connection with any part of the program of a school or department of divinity of any religious denomination. The condition may provide, at the option of the Institution, that if the leased premises shall become the subject of an involuntary judicial sale, as a result of any foreclosure of any mortgage, or sale pursuant to any order of any court, that the title to be vested in any purchaser at such judicial sale, other than the Institution, shall be in fee simple and shall be free of the condition applicable to the Institution or any voluntary grantee thereof.'

In our previous opinion, Hunt, Supra, we said: 'Having held that neither the credit of the State nor the property of the State is involved, it follows that this constitutional provision (the establishment clause) is not violated. There is no conflict between the preservation of religious freedom and the preservation of higher education under the Educational Facilities Authority Act.'

Pursuant to the ruling of the Supreme Court of the United States on June 28, 1971, counsel for plaintiff and defendants have re-argued the case and submitted additional briefs in the light of Lemon, Tilton, Earley and Robinson.

Plaintiff now submits three questions for the consideration of this Court:

'QUESTION I

'Under the Educational Facilities Authority Act and the proposed transaction thereunder between the Baptist College at Charleston and the State of South Carolina acting through the State Budget and...