For reversal and remandment -- Chief Justice Weintraub and Justices Jacobs, Proctor, Hall, Schettino and Mountain. For affirmance -- None. The opinion of the Court was delivered by Weintraub, C.J.
Before us for reconsideration is Clayton v. Kervick, 56 N.J. 523 (1970), where we held the statute in question did not offend the church-state provision of the First Amendment to the Federal Constitution. Upon review of that case, the United States Supreme Court handed down this memorandum, 403 U.S. 945, 91 S. Ct. 2274, 29 L. Ed. 2 d 854 (1971):
We called for further argument, written and oral, upon the meaning of that memorandum.
The statute is the New Jersey Educational Facilities Authority Law, N.J.S.A. 18A:72A-1 et seq. As stated in our earlier opinion, 56 N.J. at 526-527:
The statute is designed to provide funds to finance the construction of dormitories and educational facilities for public and private institutions of higher education. To that end, the statute created the New Jersey Educational Facilities Authority (herein Authority), 'a public body corporate and politic.' N.J.S.A. 18A:72A-4(a). It should be stressed at once that the statute does not provide for a gift or grant of State moneys to any institution. Rather the plan
calls for the Authority to operate on a self-sustaining basis. The Authority sells its bonds to private sources and pays the principal and interest out of revenues gained by the use of the moneys so obtained. Secs. 11, 30, and 31. As to private educational institutions, the Authority may lend the moneys to the institution, or the Authority may erect a facility on lands conveyed to it by the educational institution, return the improved property to the institution by a lease, and reconvey title upon full performance of the lease. Either way, the charge the Authority makes must cover the principal of and interest on the bonds the Authority issues for the moneys employed in the transaction. Thus there is no gift or grant of moneys. And the bonds are the obligations of the Authority alone. They are not debts of the State, and the State's credit is not pledged. Secs. 10 and 37. The bonds and property of the Authority are exempt from State and local taxation, sec. 18, and this, together with the exemption of the bonds from federal taxation, reduces the cost of money to the Authority and makes the plan feasible.
In dealing with the church-state issue we applied the test of School District of Abington Township, Pa. v. Schempp, 374 U.S. 203, 222, 83 S. Ct. 1560, 1571, 10 L. Ed. 2 d 844, 858 (1963), that "to withstand the strictures of the Establishment Clause there must be a secular legislative purpose and a primary effect that neither advances nor inhibits religion." We had no doubt, and have none now, that the legislative purpose is wholly secular. The Legislature seeks to advance higher education and to do so whether such education is provided in public or private colleges. 56 N.J. at 527-528. In finding neither aid nor hindrance to religion, we stressed the self-sustaining feature of the program, and although we recognized that something of value was received by the private institution in that moneys were made available at a cost below that of the marketplace, if there available at all, we likened the program to other governmental ventures sustained by revenues paid by users, secular and sectarian. We said, 56 N.J. at 530-531:
A benefit may indeed be conferred upon the sectarian purchaser, for government may well provide services more economically than the private entrepreneur who was supplanted, but the benefit is common to all consumers and is not specially conferred upon the sectarian consumer as a contribution to its sectarian aims. * * *
Here we are dealing essentially with a banking operation conducted by an agency of the State. If the operation were as extensive as a general banking business, it could hardly be urged the establishment clause would bar every sectarian borrower. We see no difference in principle because the State has embarked upon a banking venture in a limited area in which, in words of section 1, 'financial resources are lacking' for the construction of 'required dormitory and other educational facilities at public and private institutions of higher education.' Again, this is not to deny that the sectarian institution will derive a 'benefit' from the governmental service. Obviously there is a benefit in obtaining something not provided by regular commercial sources, or in obtaining it at a lower rate of interest. Here, as in other areas of commercial activity a State may enter, the State has credit and tax advantages which reduce the cost of money to it, and, further, since the State has no stockholders, it may offer its service without a profit. The consumer thereby may enjoy a dollar benefit. But the fact remains that the State furthers a public purpose and the benefit to sectarian interests is as incidental as in the sale of municipally supplied water or electricity. The Legislature, perhaps to avoid constitutional involvement under the establishment clause or perhaps to limit the statute to the furtherance of 'higher education,' expressly excluded 'any facility used or to be used for sectarian instruction or as a place for religious worship' in its definition of 'educational facility.' No one contends this exclusion impinges upon the First Amendment, and we do not suggest that it does. The question is only whether the establishment clause requires government to refuse to sell to a sectarian institution a financing service it offers to others who except for religious identification are similarly situated. We are satisfied the Constitution holds no such mandate.
In thus sustaining the statute on the basis of Schempp, we did not test it by the additional, independent standard which was suggested in Walz v. Tax Commission, 397 U.S. 664, 90 S. Ct. 1409, 25 L. Ed. 2 d 697 (1970), and which later emerged in Lemon and Tilton, that the statute must not foster "an excessive government entanglement with religion."*fn1
We will first search Lemon, DiCenso, and Tilton for some guidance upon this remand.
Lemon involved a Pennsylvania statute which reimbursed private elementary and secondary schools for the cost of teachers' salaries, textbooks, and instructional materials with respect to specified secular subjects. The opinion dealt also with the appeals in Earley v. DiCenso and Robinson v. DiCenso, both of which involved a Rhode Island statute providing for payment by the State directly to teachers in private elementary schools of a supplement up to 15% of their annual salaries. Under both statutes, the private schools included church-related educational institutions. Both statutes were held unconstitutional.
The Court found neither statute was intended to advance religion. The Court agreed the purpose was "to enhance the quality of the secular education in all schools covered by the compulsory attendance laws," and this in pursuit of a State's "legitimate concern for maintaining minimum standards in all schools it allows to operate." 403 U.S. at 613, 91 S. Ct. at 2111, 29 L. Ed. 2 d at 756. The Court pointed out that both statutes contained restrictions designed to guarantee that the State aid would support the secular, but not the religious, educational function. The Court found it unnecessary to say whether those precautions restricted "the principal or primary effect of the programs to the point where they do not offend the Religion Clauses," because "we conclude that the cumulative impact of the entire relationship arising under the statutes in each State involves excessive entanglement between government and religion." 403 U.S. at 613, 91 S. Ct. at 2111, 29 L. Ed. 2 d at 756. The excessive entanglement was found in the "comprehensive, discriminating,
and continuing state surveillance" required by the statutes to confine the State aid to the secular mission of the schools. 403 U.S. at 619, 91 S. Ct. at 2114, 29 L. Ed. 2 d at 759.
The details underlying that finding are evident from a description of the statutory programs.*fn2 We need not discuss them, because the significance here of Lemon reposes in its adoption of the concept of excessive entanglement rather than in the application of that concept to the specific terms of the Rhode Island and Pennsylvania acts. We add that the Court did not speak only of entanglement inherent in the operative provisions of the statute itself. It pointed also to the potential for divisive political impact upon candidates
for office and upon political campaigns, especially because the programs involved annual appropriations of money, and added that it could not be confident that such statutes would not be a first ...