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City Financed Scholarship Program for City Residents

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Reviewed Date: May 28, 2020

Original Author: 
Hemsley, Sid
Date of Material: 
Sep 7, 2007

Colleges and universities

City Financed Scholarship Program for City Residents

MTAS was asked whether a city can give college scholarships to the citizens for only one particular college.


FROM: Sid Hemsley, Senior Law Consultant

DATE: September 7, 2007

RE: City Financed Scholarship Program for City Residents Attending University “A”

The City has the following question: Can it, either directly, or indirectly give college scholarships to the citizens to attend only University “A”?

The answer is no. The city probably cannot directly or indirectly fund a scholarship for its citizens to attend only University “A”.

A similar question arose to which I responded by e-mail dated July 19, 2007. However, the question then, as I recall, was whether the city could fund a scholarship program to any higher education institution. My answer to that question was that there Tennessee Code Annotated, § 49-7-108 authorized municipalities and counties to make financial gifts to public institutions of higher educations, and appeared to be broad enough to support a city scholarship program. I also pointed out that a Tennessee Attorney General’s opinion opined that the establishment of an educational foundation by the City of Knoxville and Knox County set up under the General Corporation Act to loan money to college students was legal under state law. But for reasons that I do not recall, I did not analyze that opinion.

Because the question now is whether the City can fund a scholarship program only for attendance at University “A”, I will start all over again on the question.

The key to any municipal expenditure (assuming it meets the public purpose doctrine of Article II, Section 29, of the Tennessee Constitution) is statutory authority to support the expenditure. There is no such statutory authority in the general law supporting direct scholarship programs. Tennessee Code Annotated, § 6-54-111, authorizes municipalities to give funds to nonprofit charitable organizations and civic organizations. With respect to the former, the organization must provide “year round services benefitting the general welfare of the residents of municipalities.” I doubt that language contemplates direct scholarships. There are provisions in most municipal charters authorizing the municipality to operate educational institutions, but I have never seen one that authorizes direct scholarship programs.

But even if there were statutory authority for such a municipal program, it would violate the Establishment Clause of the First Amendment to the U.S. Constitution for limiting students to attend only University “A”. It appears to me that is true whether the scholarship program is a direct one under which the scholarships are awarded by the city, or an indirect one under which an educational foundation or other entity of some kind is set up, and that entity awards the scholarships.

Tennessee Code Annotated, § 49-7-108 authorizes counties and municipalities to

contract with and make donations or contributions to any public or tax-supported college, universities or other public institution of higher education, or any nonprofit general welfare private corporation established for the specific purpose of promoting and supporting literary, scientific, educational scholarship, research, charitable and developmental purposes and objects at or under the supervision of such college, university or public institution whereby the college, university or other public institution may provide programs of study and research which will be of benefit to the counties and municipalities and surrounding territory.

That statute appears broad enough to support about any kind of scholarship program, but it plainly limits such municipal support to “public or tax-supported” colleges, universities, etc.
Tennessee Attorney General’s Opinion U91-72 supports the opinion that counties (and by extension, municipalities) cannot fund college scholarship programs absent statutory authority. That opinion overlooks the existence of Tennessee Code Annotated, § 49-7-108, but as pointed out above, that statute is restricted to public and tax-supported higher education institutions.

Tennessee Attorney General’s opinion 85-292 opines that a corporation set up under the General Corporations Act by Knox County to borrow money to make educational loans to college students is legal. I haven't studied this opinion in great detail, but it does no appear to address the question of whether that program is restricted only to public and tax-supported colleges and universities. However, it does acknowledge and warn the reader that while such a program might comply with state law, it may also violate the Establishment Clause of the First Amendment to the U.S. Constitution.

I have studied the question of what constitutes the violation of the Establishment Clause with respect to college scholarship programs. There are surprisingly few cases on that question, and some of those are resolved under the constitutions of the states in which the question was an issue. But the United States Supreme Court has spoken on the issue in Witters v. Washington Department of Services For The Blind, 474 U.S. 481 (1986). In that case, the state’s vocational rehabilitation assistance program denied assistance to a blind person who sought to study at the Inland Empire School of Bible to become a pastor. The question was whether such aid would have violated the Establishment Clause. The Court analyzed the question under its three-pronged “ Lemon Test” [Lemon v. Kurtzman , 403 U.S. 602 (1971)]. Acknowledging the Court’s difficultly in applying that test over the years, it concluded that giving aid to the plaintiff would not violate the Establishment Clause because:

Prong 1- The state’s program must have a secular purpose.

The state’s program in this case plainly met that test; it had an unmistakably secular purpose--the aid of handicapped students.

Prong 2- Its principal or primary effect must be one that neither advances nor inhibits religion.

The state’s program passed test because:

...vocational assistance is paid directly to the student who transmits it to the educational institution of his or her choice. Any aid provided under Washington’s program that ultimately flows to religious institutions does so only as a result of the genuinely independent and private choices of aid recipients. Washington’s program is made available generally without regard to the sectarian-nonsectarian, or public-nonpublic nature of the institution benefitted, [Citation omitted by me] and is no way skewed toward religion. It is not one the “ingenious plans for channeling state aid to sectarian schools that periodically reach this Court,” [Citation omitted by me]. It creates no financial incentive for students to undertake sectarian education, [Citation omitted by me]. It does not tend to private greater or broader benefits for recipients who apply their aid to religious education, nor all the full benefits of the program limited, in large part or in whole, to students at sectarian institutions...In this case, the fact that aid goes to individuals means that the decision to support religious education mis made by the individual, not the state. [At 752]

Furthermore, said the Court, it was not likely that more than a minuscule amount of the state’s aid to handicapped students would go to religious colleges.

Prong 3- The statute must not foster “an excessive government entanglement with religion.”

The Court declined to analyze the state’s program against this prong of the Lemon Test because the court below did not do it. But the Court’s analysis of Prongs 1 and 2 indicate that the program would easily have passed this test as well.

[Ironically, the plaintiff ultimately lost this case in the Washington Supreme Court, which in Witters v. Commission for the Blind, 771 P.2d 1119 (Wash. 1989) held that, notwithstanding the plaintiff’s victory in the U.S. Supreme Court, the state’s aid to him to attend a religious college violated the state constitution, which prohibited any aid to religious instruction. However, there is no such provision in the Tennessee Constitution.]

The city’s scholarship program to University “A” would probably pass Prong 1 of the Lemon Test, but would undoubtedly fail Prong 2 because the scholarship program would be restricted to University “A”; scholarship recipients would have no choice as to where to attend college.

A Tennessee case heard in the U.S. District Court for the Middle District of Tennessee points to the same conclusion. In Americans United for the Separation of Church and State v. Blanton, 433 F. Supp. 97 (M. Dist. Tenn.), judgment aff’d by U.S. Supreme Court, 434 U.S. 803 (1977), the Court upheld Tennessee’s Student Assistance Program against a challenge that it violated the Establishment Clause. That program provided financial aid to needy Tennessee College students who, upon obtaining aid under the program, could attend both public and private higher education institutions. The Court quickly concluded that the program passed the first and third prongs of the Lemon Test, and concentrated on the second prong: Did the program have a “primary effect that neither advances nor inhibits religion”? [At 101]

In declaring that the answer was yes, the Court declared that:

The Tennessee Student assistance Program is not unlike the G.I. Bill. The latter provides that eligible veterans are to receive an educational assistance allowance; “to meet, in part, the expenses of the veteran’s subsistence, tuition, fees’ supplies, books, equipment, and other educational costs.” 38 U.S.C. § 1681. These costs are virtually identical to those termed “educationally related expenses,” under the Tennessee Student assistance Act. [At 104]

The Court further reasoned that:

In the instant case...the emphasis of the aid program is on the student rather than the institution, and the institutions are free to compete for the students who have money provided by the program. No one religion is favored by the program, nor are private or religious institutions favored over public institutions. [At 104.]

Finally, the Court concluded, in enacting the Student Assistance Program:

The Tennessee General Assembly sought to provide needy students with the opportunity to attend the higher education institution of their choice, be it public, private, sectarian, or nonsectarian. To ensure that the neutral purpose would not be compromised, the General Assembly enacted a student aid program rather than an institutional aid program. The statute passes the relevant three-pronged inquiry, and the Court finds that the program on its face in its application, does not offend the values protected by the Establishment Clause. [At 104]

It is important to note here that the same Court in Americans United For the Separation of Church and State v. Dunn, 384 F. Supp. 714 (M.D. Tenn. 1974), had earlier struck down as violating the Establishment Clause Tennessee’s Tuition Grant Program. Under that program, students applied for assistance from the Tennessee Student Assistance Agency for tuition grants, and if they were awarded such aid, the state paid the tuition directly to the public or private (including religious-based) college.

Surprisingly, the Court refused to apply the U.S. Supreme Court’s Lemon Test, and concluded that the program did not pass constitutional muster essentially because the statute which established the program did not restrict the use of the tuition funds to non-religious purposes. The Court reasoned that:

Thus, our constitutional inquiry is reduced to the factual question of whether some of the schools eligible for participation in the Tuition Grant program have this dual secular-sectarian function and engage in religious activity. The evidence in this record overwhelmingly demonstrates that certain of the eligible schools engage in substantial religious activity, and the nature of such religious activity includes compulsory chapel attendance, formal prayer before each class, church membership requirements for faculty, and the like. Given the presence of such activity at certain of the eligible schools and the absence of restrictions in the statute, the only conclusions are that the statute permits the use of State funds for religious activity, and therefore, that the statute is unconstitutional as vocative of the First Amendment. [Citations omitted by me.] [At 713]

It seems to me that the reasoning of that case was questionable even then because students still made the choice as to which college they would attend. Be that as it may, a G.I. bill type student choice is apparently the touchstone for whether a scholarship program will survive an Establishment Clause challenge in Tennessee, and elsewhere, for that matter. Where the scholarship program is restricted to one school with a religious foundation (even where there are no religious requirements imposed on students), the scholarship program will not meet the second prong of the Lemon Test.

Needless to say, a scholarship program restricted to University “A” would not meet that test.

I can think of no reason the Lemon Test, and its outcome under Blanton, above, would not apply to any funds appropriated by the city to a foundation or other entity through which scholarship aid was funneled to students to attend University “A.”

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