## Facts

- In 1988, the City of Searcy, Arkansas created the Public Educational and Residential Housing Facilities Board (the Board), a municipal entity authorized by the Arkansas Public Facilities Board Act to issue revenue bonds for projects serving a public purpose.
- The Board made tax-exempt bond financing available to qualifying educational institutions without regard to religious or nonreligious affiliation.
- Harding University is a private, co-educational liberal arts university in Searcy associated with the Churches of Christ and open to the public.
- The Board issued multiple series of tax-exempt revenue bonds to finance construction and related improvements on Harding’s campus (and related university projects).
- For each bond issuance, Harding agreed by contract to:
  - repay the bonds and pay issuance-related costs from its own revenues;
  - operate and maintain the financed facilities for four-year, degree-granting postsecondary educational purposes;
  - ensure the financed facilities would not be used for sectarian instruction, as a place of worship, or in connection with a divinity school program; and
  - keep its status as a § 501(c)(3) organization.
- Dennis Gillam and other local residents/taxpayers sued Harding University and related entities, the City of Searcy, and the Board, alleging the bond issuances unlawfully supported religion and also violated the Arkansas Constitution.
- Gillam conceded the bond program had a facially secular purpose, but argued the practical effect advanced religion, pointing in part to the fact that Harding was the only institution that had received Board-issued bond financing to date.
- There was no evidence the Board had denied bond financing to any nonreligious institution.
- The parties filed cross-motions for summary judgment.

## Issues

1. Whether the City and Board’s issuance of tax-exempt revenue bonds to finance facilities at Harding University violated the Establishment Clause of the First Amendment.
2. Whether the bond transactions violated Arkansas Constitution article 12, § 5 by appropriating public money for, or loaning municipal credit to, a private corporation.
3. Whether the bond issuances violated Arkansas Constitution Amendment 65’s requirements for lawful revenue bonds issued for a public purpose and payable from non-tax sources.

## Decision

- The court granted defendants’ motion for summary judgment and denied plaintiffs’ motion for summary judgment.
- The court held the bond program, as applied to Harding, did not violate the Establishment Clause.
- The court held the transactions did not violate Arkansas Constitution article 12, § 5 because the City did not appropriate tax funds or pledge its credit; repayment was Harding’s obligation and bondholders had no claim on the City’s taxing power.
- The court held the bonds complied with Arkansas Constitution Amendment 65 as permissible revenue bonds issued for a public purpose and payable solely from non-tax revenues.
- The case was dismissed with prejudice.

## Legal Principles

- Under *Lemon v. Kurtzman* (as refined by later Establishment Clause cases), government action is consistent with the Establishment Clause when it has a secular purpose, its primary effect neither advances nor inhibits religion, and it does not create excessive government entanglement with religion.
- A generally available public financing program that applies neutral eligibility criteria does not become unconstitutional merely because a religiously affiliated institution participates or because it is the only participant so far, absent proof of discrimination against nonreligious applicants.
- Conduit revenue bond financing can be treated as indirect aid: the government issuer facilitates access to the bond market, while the private borrower bears repayment responsibility and the government does not transfer public funds.
- Contractual limits barring sectarian instruction, worship use, or divinity-school use of bond-financed facilities are material in evaluating whether the financing’s effect advances religion.
- Under Arkansas Constitution article 12, § 5, a city does not impermissibly “loan its credit” where revenue bonds are payable only from project revenues or the borrower’s payments and the city’s general taxing power is not pledged.
- Under Arkansas Constitution Amendment 65, revenue bonds may be issued for projects serving a recognized public purpose (including higher-education facilities) when repayment is limited to non-tax revenues.

## Conclusion

In *Dennis Gillam, et al. v. Harding University, et al.*, the federal district court upheld Searcy’s conduit revenue bond financing for Harding’s campus facilities, concluding the neutral, education-based bond program had a secular purpose, did not advance religion in its primary effect given the structure and nonsectarian-use covenants, and did not involve excessive entanglement; the court also rejected related Arkansas constitutional challenges because the City did not pledge tax funds or general credit and the bonds qualified as lawful revenue bonds for a public purpose.


Dennis Gillam, et al. v. Harding University, et al., 2009 U.S. Dist. LEXIS 53609 (2009)