CONSTITUTIONALITY OF THE PROPOSED NEW YORK STATE EDUCATION INVESTMENT TAX CREDIT ASSEMBLY BILL NO AND SENATE BILL NO. 1976

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1 CONSTITUTIONALITY OF THE PROPOSED NEW YORK STATE EDUCATION INVESTMENT TAX CREDIT ASSEMBLY BILL NO AND SENATE BILL NO BY KEVIN T. BAINE C.J. MAHONEY, WILLIAMS & CONNOLLY LLP F E B R U A RY TO THE POINT The Foundation for Opportunity in Education Brief overview of the proposed NYS Education Investment Tax Credit; T he proposed NYS Education Investment Tax Credit is constitutional under the U.S. Constitution s Establishment Clause; T he proposed NYS Education Investment Tax Credit is consistent with New York s Blaine Amendment.

2 TABLE OF CONTENTS Introduction...3 Brief Overview of the Education Investment Tax Credit...4 The Education Investment Tax Credit is Constitutional Under the Establishment Clause... 5 The Education Investment Tax Credit Passes the Lemon Test...6 The Supreme Court Has Long Approved Measures Like the Education Investment Tax Credit that Have the Incidental Effect of Benefitting Religious Schools...7 New York s Blaine Amendment Is Not a Barrier to the Education Investment Tax Credit... 9 The Blaine Amendment Itself Is Constitutionally Suspect and Has Been Narrowly Construed...9 The Education Investment Tax Credit Is Valid Under the Blaine Amendment In Any Event...12 The Education Investment Tax Credit Does Not Involve Public Money...12 The Education Investment Tax Credit Does Not Involve Use of Public Funds Directly or Indirectly To Aid Religious Schools...13 Conclusion...14 About the Authors , Foundation for Opportunity in Education The Foundation for Opportunity in Education is classified as a Section 501(c)(3) organization under the Internal Revenue Code of Nothing in this document should be construed as an attempt to aid or hinder the passage of any bill or measure on the ballot or pending before the State Legislature or U.S. Congress.

3 INTRODUCTION This memorandum addresses the question whether the proposed New York Education Investment Tax Credit (New York State Assembly Bill No and Senate Bill No. 1976) passes muster under both the Establishment Clause of the First Amendment to the U.S. Constitution and Article XI, Section 3 of the New York Constitution (the so-called Blaine Amendment ). The New York Education Investment Tax Credit would provide a tax credit for, among other things, donations to education scholarship organizations (ESOs) that fund scholarships for students attending public and nonpublic schools, some of which may be religiously affiliated. Some might argue that this presents a constitutional problem, because these tax credits would provide an indirect benefit to religiously affiliated schools. But the Supreme Court has stated unequivocally that [o]ne fixed principle in this field is our consistent rejection of the argument that any program which in some manner aids an institution with a religious affiliation violates the Establishment Clause. Mueller v. Allen, 463 U.S. 388, 393 (1983) (quoting Hunt v. McNair, 413 U.S. 734, 742 (1973)). Consistent with this principle, the Education Investment Tax Credit should not present constitutional problems for at least two reasons. First, the Education Investment Tax Credit does not spend public money; it merely incentivizes private donations. New York, like most other states and the federal government, has long used its tax code to incentivize individuals to make donations to private secondary and elementary schools including to religiously affiliated schools by allowing taxpayers to deduct contributions to such schools from their taxable income. Indeed, contributions made directly to churches, synagogues, and mosques have long been exempt from taxation under both New York and federal law. No one questions the constitutionality of these deductions. And the Supreme Court has held that individual taxpayers do not even have standing to challenge tax credits like those provided under the Education Investment Tax Credit. Second, in the educational context, the Supreme Court has drawn a distinction between government programs that aid religious schools and programs like the Education Investment Tax Credit, which aid students at such schools. The Court consistently has upheld programs of the latter variety including programs like school vouchers, which involve the direct use of public money to assist students attending religious schools. Because the Education Investment Tax Credit simply facilitates the flow of private donations to fund scholarships, it is less vulnerable to constitutional challenge than some of the aid programs the Court has upheld. New York s Constitution contains a provision, the so-called Blaine Amendment, which contains more explicit, and arguably stricter, language than the Establishment Clause. But that provision only prohibits the use of public funds for the aid or maintenance of religious schools, and, as explained below, even that language has been construed to permit public expenditures that benefit students regardless of where they attend school. 3 FEBRUARY 2015 CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT

4 1. Brief Overview of the Education Investment Tax Credit. The Educational Investment Tax Credit passed the State Senate on January 21, 2015, on a bi-partisan vote of 40-to-16. Under this legislation, a state tax credit would be authorized for individual and corporate taxpayers for donations to a variety of public and private educational-related entities. The tax credit could amount to no more than $1 million of a taxpayer s individual or corporate state tax bill. In the aggregate, $150 million in state tax credits would be authorized for the first year of implementation, $225 million for the second year of implementation, with $300 million per year authorized thereafter. Half of this allocation would be set aside for donations to nonprofit organizations education scholarship organizations (ESOs) that provide scholarships to students attending nonpublic schools, including religious schools, or public schools outside their home school district. The other half of the allotted credits would be for donations to district schools and nonprofit organizations that provide educational programming in public schools. 1 Additionally, public school teachers also would be eligible for a tax credit of up to $200 to reimburse them for out-of-pocket classroom expenses. If the legislation is enacted, New York would join 14 other states that already have similar programs. 2 Twelve of these other states have Blaine Amendments. 3 If the legislation is enacted, New York would join 14 other states that already have similar programs. Twelve of these other states have Blaine Amendments. CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT FEBRUARY

5 II. The Education Investment Tax Credit Is Constitutional Under the Establishment Clause. The Education Investment Tax Credit is an extension of the long tradition of state and federal tax preferences, not just for religious schools, but also for entities like churches, synagogues, and mosques, which have a purely and explicitly religious mission. Religious organizations are fully exempt from taxation under Section 501(c)(3) of the Internal Revenue Code and Section 1116 of the New York Tax Code. Indeed, Article XVI, Section 1 of the New York Constitution forbids the legislature from taxing churches. Tax preferences such as these have survived Establishment Clause challenges, because, as the Supreme Court noted in upholding New York s law exempting churches from property taxes over forty years ago, [t]here is no genuine nexus between tax exemption and establishment of religion. Walz v. Tax Comm n of City of N.Y., 397 U.S. 664, (1970). The only difference between the Education Investment Tax Credit and the existing tax preferences given to individual taxpayers is that, in the case of the education tax credit proposal, the preference takes the form of a credit rather than a deduction. And unlike the property tax exemption upheld in Walz, the tax credits made available by the Education Investment Tax Credit inure, not directly to religious organizations, but to individual taxpayers. That the preferences take the form of a credit, not a deduction, is of no constitutional significance for the reasons discussed below. The fact that the Education Investment Tax Credit merely incentivizes private donations to scholarships at religious schools would substantially undermine the strength of any Establishment Clause challenge to the legislation under controlling Supreme Court precedent. As an aside, it is worth noting that New York State has been a key battleground in litigation that has come to define modern Establishment Clause doctrine. In addition to Walz, several other leading Supreme Court precedents in this area of the law (which are discussed in greater detail below) arose from Establishment Clause challenges to New York laws i.e., Board of Education v. Allen, 392 U.S. 236 (1968) (upholding New York law requiring school districts to loan textbooks to children in religious schools); Committee for Public Education and Religious Liberty v. Nyquist, 413 U.S. 756 (1973) (invalidating measure providing building funds for religious schools and tuition reimbursement and tax benefits for parents sending their children to such schools); Aguilar v. Felton, 473 U.S. 402 (1985) (Establishment Clause barred New York City Board of Education from sending public school teachers into parochial schools to provide remedial education to disadvantaged children); and Agostini v. Felton, 521 U.S. 203 (1997) (overruling Aguilar and approving publically funded remedial education in parochial schools). It is further worth noting that while the three opinions in this list that upheld the challenged legislation Walz, Allen, and Agostini remain good law, Aguilar was expressly overruled (by Agostini), while Nyquist has been implicitly overruled or, at the very least, sharply limited by intervening precedent, see note 5 infra. 5 FEBRUARY 2015 CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT

6 A. THE EDUCATION INVESTMENT TAX CREDIT PASSES THE LEMON TEST. The touchstone of Establishment Clause analysis is the so-called Lemon test, named after the Supreme Court s decision in Lemon v. Kurtzman, 403 U.S. 602 (1971). The continued viability of the Lemon test is questionable, given that a four-justice plurality essentially repudiated it in McCreary County v. American Civil Liberties Union, 545 U.S. 844 (2005), in favor a test that would be more permissive of government aid to religious schools, id. at 902. But for the time being, Establishment Clause challenges are evaluated under the three-part Lemon test: First, the statute must have a secular legislative purpose; second, its principal or primary effect must be one that neither advances nor inhibits religion... finally, the statute must not foster an excessive government entanglement with religion. Lemon, 403 U.S. at (quoting Walz, 397 U.S. at 674). The Education Investment Tax Credit easily passes the first prong of the Lemon test, because it has an undeniably secular purpose to assist children in attending the school of their choice. The fact that some children who receive scholarships funded by donations spurred as a result of the Education Investment Tax Credit may choose to use these funds to attend religious schools does not change the fundamentally secular character of the legislation. As the Supreme Court has noted: Parochial schools, quite apart from their sectarian purpose, have provided an educational alternative for millions of young Americans; they often afford wholesome competition with our public schools; and in some States they relieve substantially the tax burden incident to the operation of public schools. The State has, moreover, a legitimate interest in facilitating education of the highest quality for all children within its boundaries, whatever school their parents have chosen for them. THE EDUCATION INVESTMENT TAX CREDIT IS ENTIRELY CONSISTENT WITH THIS PRINCIPLE. FAR FROM INVITING GOVERNMENT ENTANGLEMENT WITH RELIGION, THE PLAN SIMPLY FACILITATES THE PRIVATE CHOICES OF PARENTS ABOUT WHAT SCHOOLS WILL BEST MEET THEIR CHILDREN S NEEDS. Mueller, 463 U.S. at 395 (quotation marks omitted) (quoting Wolman v. Walter, 433 U.S. 229, 262 (1977) (Powell, J., concurring in part, concurring in judgment in part, and dissenting in part)). The Education Investment Tax Credit passes the second prong of the Lemon test, because it does not have the principal or primary effect of advancing religion. Lemon 403 U.S. at 612 (emphases added). To the extent that the Education Investment Tax Credit could be said to advance religion at all, that effect is only incidental to the legislation s secular purpose. Religious schools ultimately will benefit from the plan, but so will public and non-religious private schools whose students receive financial assistance from ESOs. And as the Supreme Court has long noted, an indirect and incidental effect beneficial to religious institutions has never been thought a sufficient defect to warrant the invalidation of a state law. Nyquist, 413 U.S. at 775. Finally, the Education Investment Tax Credit easily passes the third prong of the Lemon test, which requires that the statute must not foster an excessive government entanglement with religion. Lemon 403 U.S. at 613 (quoting Walz, 397 U.S. at 674). The Lemon Court explained that the rationale behind prohibiting government entanglement with religion lies in the notion that religion must be a private matter for the individual, the family, and the institutions of private choice. 403 U.S. at 625. The Education Investment Tax Credit is entirely consistent with this principle. Far from inviting government entanglement with religion, the plan simply facilitates the private choices of parents about what schools will best meet their children s needs. CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT FEBRUARY

7 B. T HE SUPREME COURT HAS LONG APPROVED MEASURES LIKE THE EDUCATION INVESTMENT TAX CREDIT THAT HAVE THE INCIDENTAL EFFECT OF BENEFITING RELIGIOUS SCHOOLS. The Supreme Court repeatedly has held that government programs, like the Education Investment Tax Credit, which are intended to benefit students, regardless of whether they attend religious schools, are fully consistent with the Establishment Clause. Indeed, the Court has approved measures, which, unlike the Education Investment Tax Credit, involve the direct transfer of public money to students for the purpose of facilitating their attendance at religious schools. The Court has allowed states and the federal government to 1) r eimburse parents for expenses incurred in transporting their children to religious schools, Everson v. Board of Education, 330 U.S. 1 (1947); 2) l oan secular textbooks to students at religious schools, Allen, 392 U.S. at 249; 3) s end public school teachers into parochial schools to provide remedial education to disadvantaged children, Agostini, 521 U.S. at 2354 ; see also Zobrest v. Catalina Foothills Sch. Dist., 509 U.S. 1 (1993); 4) p rovide financial assistance to a disabled student to complete a bible studies degree at a Christian college, Witters v. Wash. Dep t of Servs. for the Blind, 474 U.S. 481 (1986); 5) loan educational materials and equipment to private religious schools, Mitchell v. Helms, 530 U.S. 793 (2000); and 6) p rovide publicly funded scholarship vouchers that students may use to pay for tuition at religious schools, Zelman v. Simmons-Harris, 536 U.S. 639 (2002). Likewise, the Court has approved measures designed to support students at religious schools using the less direct mechanism of tax incentives. The Court s opinion in Mueller v. Allen is particularly instructive in this regard. There the Court specifically rejected an Establishment Clause challenge brought against a Minnesota tax preference that, in relevant aspects, is indistinguishable from the Education Investment Tax Credit. The Minnesota law created a tax deduction for parents who chose to send their children to private schools, including religious schools. 463 U.S. at 388. In upholding the measure, the Court explained that even though financial assistance provided to parents ultimately has an economic effect comparable to that of aid given directly to the schools attended by their children, it was also true that under Minnesota s arrangement public funds become 7 FEBRUARY 2015 CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT

8 available only as a result of numerous, private choices of individual parents of school-age children. Mueller, 463 U.S. at 399. The only meaningful distinction between the Education Investment Tax Credit and the Minnesota law in Mueller is that here the tax preference comes in the form of a credit rather than a deduction, resulting in a greater indirect cost to the state. The increased impact on the state s treasury does not affect how the Education Investment Tax Credit would fare under the Lemon test, and there is no suggestion in Mueller itself that the Court s holding applies only to tax deductions but not to credits. To the contrary, the Supreme Court s decision in Zelman would appear to foreclose any argument that the increased impact on the public fisc is of any constitutional significance. Zelman involved a direct expenditure of public funds to fund tuition scholarship vouchers for students to attend private elementary and secondary schools; the vast majority of the scholarship vouchers were used by students to attend religious schools. 536 U.S. at 647. The Court determined that the school voucher program presented no risk of unconstitutional establishment of religion, because an intervening private choice was necessary before state funds could reach parochial schools: [W]here a government aid program is neutral with respect to religion, and provides assistance directly to a broad class of citizens who, in turn, direct government aid to religious schools wholly as a result of their own genuine and independent private choice, the program is not readily subject to challenge under the Establishment Clause. Id. at 652. Because the program permitted families to send children to the school of their choice (public or private), it was a neutral program of private choice that no reasonable observer would think... carries with it the imprimatur of government endorsement [of religion]. Id. at Like the laws at issue in Mueller and Zelman, the Education Investment Tax Credit is neutral with respect to religion i.e., the credits at issue can go to fund scholarships at all schools, both public and private, religious and non-religious. The benefits go directly to a broad class of citizens i.e., to any New York taxpayer (on a first-come, first-served basis). And the incidental benefit religious schools will receive as a result of the legislation will be wholly as a result of the[]... genuine and independent choice[s] of individual donors and parents. Id. at 652. For these reasons, the Education Investment Tax Credit does not run afoul of the Establishment Clause. 5 Indeed, the Supreme Court has held that taxpayers do not even have standing to challenge laws like the Education Investment Tax Credit that provide a tax credit for contributions that may indirectly aid religiously affiliated schools. In Arizona Christian School Tuition Organization v. Winn, 131 S. Ct (2011), the Court held that taxpayer standing under the Establishment Clause is limited to cases challenging the exercise of Congress s spending power and does not extend to cases challenging the very kind of tax credits contained in the Education Investment Tax Credit. THE SUPREME COURT REPEATEDLY HAS HELD THAT GOVERNMENT PROGRAMS, LIKE THE EDUCATION INVESTMENT TAX CREDIT, ARE FULLY CONSISTENT WITH THE ESTABLISHMENT CLAUSE. CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT FEBRUARY

9 III. New York s Blaine Amendment Is Not a Barrier to the Education Investment Tax Credit. Article XI, Section 3 of the New York Constitution forbids the state from us[ing] its property or credit or any public money, or authoriz[ing] or permit[ting] either to be used, directly or indirectly, in aid or maintenance, other than for examination or inspection, of any school or institution of learning wholly or in part under the control or direction of any religious denomination, or in which any denominational tenet or doctrine is taught. Id. While this provision is more explicit than the Establishment Clause in prohibiting state aid to religious schools, its language contains an important limitation it only applies to public money, not to tax benefits. Moreover, as interpreted by the New York Court of Appeals, the Amendment contains another important qualification it does not prohibit even the use of public money to support students generally, as opposed to the religious schools that some of them attend. For these reasons, the Blaine Amendment should not be seen as an impediment to the enactment of the Education Investment Tax Credit, even assuming that the Blaine Amendment itself is valid under the federal constitution a question that is not free from doubt. A. THE BLAINE AMENDMENT ITSELF IS CONSTITUTIONALLY SUSPECT AND HAS BEEN NARROWLY CONSTRUED. Any discussion about whether a law is invalid under the Blaine Amendment must begin with an acknowledgment of the Amendment s dubious history a history which renders the Amendment vulnerable to challenge under the Free Exercise Clause of the First Amendment to the federal constitution. The Blaine Amendment should be not be seen as an impediment to the enactment of the proposed NYS Education Investment Tax Credit. Numerous states, including New York, passed Blaine Amendments at the height of an anti-immigrant (and, specifically, anti-catholicimmigrant) frenzy in the late nineteenth century. These laws are named after former Speaker of the House James G. Blaine, who unsuccessfully sought to include an amendment in the federal constitution that would have prohibited public education funds from landing in the hands of any religious sect. H.R.J. Res. 1, 44th Cong., 4 Cong. Rec. 205 (Dec. 14, 1875). That the federal amendment as well as its state equivalents was motivated by anti-catholic bias is welldocumented and, indeed, has been acknowledged by the Supreme Court. The four-justice plurality opinion in Mitchell v. Helms noted that [o]pposition to aid to sectarian schools acquired prominence in the 1870 s with Congress consideration (and near passage) of the Blaine Amendment.... [It] arose at a time of pervasive hostility to the Catholic 9 FEBRUARY 2015 CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT

10 The proposed NYS Education Investment Tax Credit is consistent with both federal and state constitutional provisions relating to the establishment of religion and the use of public money in aid of religious schools. Church and to Catholics in general, and it was an open secret that sectarian was code for Catholic. 530 U.S. at 828. The three dissenting justices in Zelman likewise recognized that state Blaine Amendments were fueled by the desire to make certain that government would not help pay for sectarian (i.e., Catholic) schooling for children. 536 U.S. at 721 (Breyer, J., dissenting). Although Blaine Amendments were outwardly neutral, they had the effect of privileging Protestantism over other religions, given that public schools of the day routinely incorporated Protestant teachings and prayer into their curriculums. See Mark Edward DeForrest, An Overview and Evaluation of State Blaine Amendments: Origins, Scope, and First Amendment Concerns, 26 Harv. J. L. & Pub. Pol y 551, 559 (2003) (noting that public schools in the late 1800s were actually propagators of a generic Protestantism ). This history renders Blaine Amendments vulnerable to challenge under the Free Exercise Clause. The Supreme Court has held that even facially neutral provisions like New York s Blaine Amendment can be found unconstitutional if they were born of religious animus. The leading case on point is Church of Lukumi Babalu Aye, Inc. v. City of Hialeah, 508 U.S. 520 (1993), where the Court invalidated a local ordinance prohibiting animal sacrifice on the grounds that it was designed to suppress the religious practices of a Santeria church. In doing so, the Court explained that [t]he Free Exercise Clause protects against governmental hostility [to religion] which is masked, as well as overt. Id. at 534. Because Blaine Amendments were enacted in part out of religious animus against Catholics, several scholars 6 and advocates 7 have suggested that these measures are unconstitutional under the reasoning of Lukumi 8. CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT FEBRUARY

11 The New York Court of Appeals has had few opportunities to construe this state s Blaine Amendment. But perhaps to avoid federal constitutional questions courts in this state have eschewed strict interpretations of it. For example, in College of New Rochelle v. Nyquist, 326 N.Y.S.2d 765 (App. Div. 1971), the court allowed state grants to go to the College of New Rochelle, a liberal arts college for women under Catholic auspices that was administered by a Catholic religious order, the Community of Ursuline Nuns, whose members comprised one-third of the faculty and a substantial minority of the board of trustees. Id. at The court held that the Blaine Amendment was inapplicable, given that the school offered instruction in secular subjects and that the nuns who administered and taught at the college were not controlled by religious affiliation insofar as their professional and academic activities are concerned. Id. In so holding, the court rejected a literal[] interpret[ation] of the Blaine Amendment under which any... institution... in which [a] ny denominational tenet or doctrine is taught is prohibited from State aid. Id. at 770 (quoting Canisius Coll. of Buffalo v. Nyquist, 320 N.Y.S.2d 652, 656 (App. Div. 1972) (ellipses in original)). Such an interpretation would be absurd, in the court s view. Id. Indeed, a literal interpretation of the amendment would prevent a state-funded fire unit from responding at the scene of a burning parochial school such action literally would involve the use of state property or public money directly or indirectly, in aid or maintenance of a religious school. The proposed Education Investment Tax Credit is valid under the Blaine Amendment. 11 FEBRUARY 2015 CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT

12 B. THE EDUCATION INVESTMENT TAX CREDIT IS VALID UNDER THE BLAINE AMENDMENT IN ANY EVENT. Even if New York s Blaine Amendment would survive a federal constitutional challenge, the Education Investment Tax Credit remains valid for at least two reasons. First, under a literal reading of the provision, the legislation does not involve the expenditure of public money. Second, even if the tax credits made available by the Education Investment Tax Credit were considered public money, under the interpretation adopted by the New York Court of Appeals, there is no expenditure directly or indirectly in aid of a religious school, because the tax-credited donations to ESOs go, in the first instance, to the students and are intended to benefit the students, not the religious schools that some of them attend. 1. THE EDUCATION INVESTMENT TAX CREDIT DOES NOT INVOLVE PUBLIC MONEY. The Education Investment Tax Credit does not run afoul of the Blaine Amendment for the simple reason that it does not involve the expenditure of public money. The money that will be used to fund ESOs, which, in some cases, may provide scholarships to students attending religious schools, will come not from the state s own coffers, but from the pockets of private individuals. New York would be incentivizing private individuals to contribute to ESOs in the same way that existing state and federal tax preferences encourage donations, not simply to religious schools, but also to churches, synagogues, and mosques. But that does not transform the private individual s money into public money. The Arizona Supreme Court adopted this reasoning in a case challenging a tax credit measure that is indistinguishable from the Education Investment Tax Credit in relevant respects under Arizona s Blaine Amendment, which, in turn, is indistinguishable from New York s Blaine Amendment: As respondents note... no money ever enters the state s control as a result of this tax credit. Nothing is deposited in the state treasury or other accounts under the management or possession of governmental agencies or public officials. Thus, under any common understanding of the words, we are not here dealing with public money. Kotterman v. Killian, 972 P.2d 606, 618 (Ariz. 1999). The court went on to acknowledge and reject the argument that because taxpayer money could enter the treasury if it were not excluded by way of the tax credit, the state effectively controls.. CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT FEBRUARY

13 . it. Id. Such an expansive interpretation of the phrase public money was unjustified, in the court s view, because under such reasoning all taxpayer income could be viewed as belonging to the state because it is subject to taxation by the legislature. Id. The tax credit was again upheld in See Green v. Garriott, 212 P.3d 96, 107 (Ariz. Ct. App. 2009), as amended (Apr. 15, 2009). The Supreme Court of the United States voiced a similar view as Kotterman in a case arising from a federal court challenge to the Arizona tax credit measure: When Arizona taxpayers choose to contribute to [student tuition organizations (STOs) the Arizona equivalent to ESOs], they spend their own money, not money the State has collected from respondents.... The STO tax credit is not tantamount to a religious tax or tithe.... Ariz. Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436, 1447 (2011). 9 Virginia s attorney general reached the same conclusion when considering the legality of that state s scholarship tax credit legislation under Virginia s Blaine Amendment. Op. Va. Att y Gen (May 25, 2012) (Virginia scholarship tax credit law does not constitute an appropriation of public funds under Virginia s Blaine Amendment). Save for a single Alabama trial court opinion which is now on appeal to the Alabama Supreme Court we are aware of no case in which a court has struck down legislation analogous to the Education Investment Tax Credit THE EDUCATION INVESTMENT TAX CREDIT IS VALID UNDER THE BLAINE AMENDMENT IN ANY EVENT. Because the Education Investment Tax Credit does not involve the expenditure of public funds, it is unnecessary to consider whether it directly or indirectly aids religiously affiliated schools. If that issue is considered, however, the New York Court of Appeals decision in Board of Education v. 13 FEBRUARY 2015 CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT

14 a collateral effect of the statute, and, therefore, [could not] be properly classified as the giving of aid directly or indirectly. Id. 11 The same can be said of the Education Investment Tax Credit its intent is not to aid parochial schools as such, but to aid children regardless of their school affiliations. And so long as that is the case, under Allen the Education Investment Tax Credit does not provide aid to parochial schools directly or indirectly for purposes of the Blaine Amendment, even if the tax credits were considered public money. Allen, 20 N.Y.2d 109 (N.Y. 1967), aff d 392 U.S. 236 (1968), is instructive. Consistent with the general practice of New York courts to construe the Blaine Amendment narrowly, the Court of Appeals emphasized in that case that not every State action which might entail some ultimate benefit to parochial schools is proscribed. 20 N.Y.2d at The law at issue in Allen directed school districts to purchase and loan textbooks upon request to students at private schools, including religious schools. Unlike the Education Investment Tax Credit, the law in Allen involved a direct appropriation of public money and, in that sense, was more vulnerable to attack under the Blaine Amendment. The Court of Appeals upheld the law, however, drawing a distinction between what the Blaine Amendment prohibits the use of public money directly or indirectly, in aid or maintenance... of any [religious] school, N.Y. Const. Art. XI, 3 (emphasis added) and the textbook law, which was intended to benefit the student, not the school. Allen, 20 N.Y.2d at 116. In explaining its holding, the court noted that the statute [was] meant to bestow a public benefit upon all school children, regardless of their school affiliations. Id. And, [s]ince there [was] no intention to assist parochial schools as such, any benefit accruing to those schools [was deemed] CONCLUSION For the foregoing reasons, the Education Investment Tax Credit is consistent with both federal and state constitutional provisions relating to the establishment of religion and the use of public money in aid of religious schools. CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT FEBRUARY

15 ABOUT THE AUTHORS KEVIN T. BAINE Kevin Baine practices primarily in the areas of First Amendment, media and general civil litigation. He has successfully defended more than 100 libel cases and has litigated a variety of cases raising issues of freedom of speech, freedom of the press, and freedom of religion. In his three decades at the firm, he has also handled a broad range of civil litigation at the trial and appellate levels - including tort, contract, copyright, trademark, employment, and other commercial disputes. Mr. Baine has represented major corporations, universities, religious organizations and government agencies in a variety of civil cases. For 20 years he defended a series of Establishment Clause challenges to the provision of Title I remedial instruction to children in church-related schools throughout the country. That work culminated in the U.S. Supreme Court s decision in Agostini v. Felton, 521 U.S. 203 (1997), upholding the provision of Title I services on the premises of church-related schools and overruling (for the first time in the Court s history) a prior decision in the same case (Aguilar v. Felton, 473 U.S. 400 (1985)). C.J. MAHONEY C.J. Mahoney is an associate at Williams & Connolly LLP. He has worked on a variety of litigation matters, including white collar criminal defense, securities, appellate, and arbitration matters. In addition, he has represented churches and religious organizations in cases involving the Religion Clauses of the First Amendment, the Religious Freedom Restoration Act (RFRA), and the Religious Land Use and Institutionalized Persons Act (RLUIPA). He is a graduate of Harvard College and Yale Law School, where he served as Editor-in-Chief of The Yale Law Journal. Prior to joining Williams & Connolly, Mr. Mahoney clerked for Chief Judge Alex Kozinski on the United States Court of Appeals for the Ninth Circuit and Associate Justice Anthony M. Kennedy at the Supreme Court of the United States. Mr. Baine is a member of the Board of Overseers of the University of Pennsylvania Law School, Chairman of the Board of the St. Albans School of Public Service, and a member of the Board of Directors of the Cristo Rey Network, a national network of urban secondary schools serving low-income families. He has served as Co-Chair of the First Amendment and Media Litigation Committee and Co-Chair of the Resource Development Committee of the ABA s Section of Litigation. He has also been a member of the Board of Governors of St. Albans School and Chairman of the Board of Beauvoir School. 15 FEBRUARY 2015 CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT

16 ENDNOTES 1. The Senate version of the proposed bill differs from the Assembly version in that it would authorize up to $200 for home school parents to cover instructional expenses. The Senate bill also makes public charter schools eligible to receive charitable donations funded by tax credit dollars; the Assembly bill contains no such provision. 2. The 14 states are: Alabama (corporate and individual donations) (Ala. Code 16-6D-8; Ala. Code 16-6D-9); Arizona (Ariz. Rev. Stat. Ann ; (2005 & Supp. 2012) (corporate and individual donations)); Florida (Fla. Stat (2011) (amending and renumbering Fla. Stat ) (corporate donations)); Georgia (Ga. Code Ann (2010) (corporate and individual donations)); Indiana (Ind. Code (West Supp. 2011) (corporate and individual donations)); Iowa (Iowa Code Ann S (Supp. 2011) (corporate and individual donations)); Kansas(corporate) (Kan. Stat. Ann a03 (West)); Louisiana (La. Rev. Stat. Ann. 47: 6301 (2012) (corporate and individual donations)); New Hampshire (N.H. Rev. Stat. Ann. 77-G:1-G:10 (2012) (corporate donations)); Oklahoma (Okla. Stat. tit. 68, (2011) (corporate and individual donations)); Pennsylvania (72 Pa. Cons. Stat. Ann F (West Supp. 2011) (corporate donations)); Rhode Island (R.I. Gen. Laws (2011) (corporate donations)); South Carolina (corporate and individual donations) (Educational Credit for Exceptional Needs Children: see Tax Legislative Update for 2013, 2013 WL , at *7); Virginia (Va. Code ) (West 2014) (corporate and individual donations)). 3. These 12 states are: Alabama (Ala. Const. art. I, 263); Arizona (Ariz. Const. art. IX, 10); Florida (Fla. Const. art. 1, 3); Indiana (Ind. Const. art. 1, 6); Iowa (Iowa Const. art. 1, 3); Oklahoma (Okla. Const. art. II, 5); Georgia (Ga. Const. art. I, II); Kansas (Kansas Const. Art. 6, 6(c)); New Hampshire (N.H. Const. art. 83); Pennsylvania (Const. art. III, 15); South Carolina (S.C. Const. art. 11); and Virginia (Va. Const. art. IV, 16). 4.. Agostini explicitly overturned the earlier case of Aguilar. Both cases dealt with New York City s use of federal aid received under the Title I program of the Elementary and Secondary Education Act of 1965, which funded remedial education programs intended to benefit low-income students. See Agostini, 521 U.S. at Approximately 10 percent of students eligible for Title I services in New York City attended private schools, 90 percent of which were sectarian. Id. at 210. New York City assigned public school instructors to teach Title I classes at these private schools. Id. The Aguilar Court originally held that the New York City Title I program represented an excessive entanglement of church and state because it introduced the ongoing presence of state personnel in private schools. 473 U.S. at 413. But the Court reversed that decision twelve years later in Agostini, holding that Aguilar was not consistent with subsequent Establishment Clause decisions most notably, Zobrest, which had permitted a public school district to pay the salary of a sign-language interpreter for a deaf student attending a Roman Catholic high school. Agostini, 521 U.S. at 208. As the Agostini Court explained, [A]fter Zobrest we no longer presume that public employees will inculcate religion simply because they happen to be in a sectarian environment. Id. at 234. Therefore, the Court reasoned, New York City s Title I program does not result in governmental indoctrination... or create an excessive entanglement. Id. 5.. In Committee for Public Education and Religious Liberty v. Nyquist, 413 U.S. 756 (1973), the Court struck down a New York law that provided tuition grants and tax benefits for parents who sent their children to private schools, including religious schools. On its face, Nyquist would seem to be a good citation for opponents of the Education Investment Tax Credit. But in the years since that decision was handed down the Court has departed from the rule... that all government aid that directly assists the educational function of religious schools is invalid. Agostini, 521 U.S. at 225. And, in so doing, the Court has sharply limited Nyquist if not abrogated the opinion entirely. See Simmons-Harris v. Goff, 711 N.E.2d 203, 208 (Ohio 1999) ( The Nyquist holding has been undermined by subsequent case law.... ). To the extent Nyquist remains good law, the Education Investment Tax Credit is distinguishable from the law at issue there in the same ways that the Court found the laws at issue in Mueller and Zelman to be distinguishable. In Mueller, the Court seized upon the fact that the tax benefits at issue in Nyquist were available only to parents with dependents in private (and, as practical matter, predominantly sectarian) schools, whereas the Minnesota law created tax benefits for educational expenses incurred at either public or private schools. 463 U.S. at 398. The Education Investment Tax Credit is more like the Minnesota law at issue in Mueller than the New York law at issue in Nyquist in this regard: Tax credits under the Education Investment Tax Credit are available for donations used to fund scholarships at either public or private schools. In Zelman, the Court upheld a school voucher program that, on its face, was quite similar to the tuition reimbursement program at issue in Nyquist. The Court determined that Nyquist was CONSTITUTIONALITY OF THE PROPOSED NYS EDUCATION INVESTMENT TAX CREDIT FEBRUARY

17 ENDNOTES distinguishable because the law at issue there effectively favored religious schools over non-religious schools. While enacted for ostensibly secular purposes, the function of the tax benefits at issue in Nyquist was unmistakably to provide desired financial support for nonpublic, sectarian institutions. Zelman, 536 U.S. at 661 (quoting Nyquist, 413 U.S. at , 783). Moreover, [the law s] genesis... was that private religious schools faced increasingly grave fiscal problems. Id. (emphasis added) (quoting Nyquist, 413 U.S. at 795). In addition, the Zelman Court noted that Nyquist had specifically reserved the question whether the Establishment Clause would permit a state-funded scholarship program made available generally without regard to the sectarian-nonsectarian, or publicnonpublic nature of the institution benefited. Id. at 662 (quoting Nyquist, 413 U.S. at , n.38). Like the voucher program at issue in Zelman, the Education Investment Tax Credit is neutral with regard to the sectarian-nonsectarian or public-nonpublic nature of the institutions whose students will benefit from the legislation. 6. See, e.g., DeForrest, supra. 7. The Becket Fund for Religious Liberty, for instance, has filed amicus curiae briefs challenging the legality of Blaine Amendments in several cases, including: Locke v. Davey, 540 U.S. 712 (2004); Zelman v. Simmons-Harris, 536 U.S. 639 (2002); Mitchell v. Helms, 530 U.S. 793 (2000); Bush v. Holmes, 919 So.2d 392 (Fla. 2006); State ex rel. Gallwey v. Grimm, 48 P.3d 274 (Wash. 2002). 8. The Supreme Court has not ruled on the constitutionality of a Blaine Amendment but has specifically left the issue open for review in a future case. See Locke, 540 U.S. at 723 n The Court did not reach the question whether the Arizona law was consistent with the Establishment Clause, holding instead that the taxpayer challenging the law did not have standing to do so. 131 S. Ct. at Other pending cases challenging state scholarship tax credits and school choice programs include the cases detailed below: In Boyd v. Magee, an Alabama trial court struck down that state s scholarship tax credit on procedural grounds, but did not consider whether the tax credit violated the Blaine Amendment or the Establishment Clause. That decision is now on appeal to the Alabama Supreme Court. See Ala. Supreme Court hears state s Accountability Act case, December 4, 2014, montgomeryadvertiser.com/story/news/politics/southunionstreet/2014/12/03/al-supreme-court-hears-al-accountability-actcase/ /. See also Brief of Amicus Curiae Pacific Legal Foundation in Support of Defendants and Intervenor-Defendants, available at In Florida, Plaintiffs (the state school boards association, Florida Congress of Parents and Teachers, and Florida Education Association, among others) in August 2014 filed suit in the Circuit Court of the Second Judicial Circuit for Leon County, against Governor Rick Scott, the Florida Department of Education, and others, requesting that the court declare Florida s Tax Credit Scholarship Program unconstitutional. A group of parents responded in October seeking to defend the program. Parents Intervene in Lawsuit to Defend Florida Tax Credit Scholarships, October 14, 2014, org/2014/10/florida-parents-intervene-defend-tax-credit-scholarships-lawsuit/. The case is McCall v. Scott, and the court is yet to issue a ruling. In Georgia, in April 2014, four Georgia residents and the Southern Education Foundation filed a suit in Fulton County Superior Court against the Georgia scholarship tax-credit program, arguing that it violates the state constitution. Later that month, the Institute for Justice filed a motion on behalf of four Georgia families to intervene in defense of the program. The case is Gaddy v. Dep t of Revenue, and the court is yet to rule. See Gaddy v. Dep t of Revenue Georgia School Choice, Note that the plaintiffs in Allen later petitioned the Supreme Court for review on the question of whether the law violated the Establishment Clause, and, as indicated above the Court determined that it did not. See 392 U.S. 249.

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