Thursday, October 11, 2012

Court Remands USDA Loan Denial for Religion Clause Evaluation

Judge Reggie Walton (D.D.C.) remanded a religious service organization's appeal of its denial of a USDA loan to the agency for review of the constitutional claims involved in the appeal.  The ruling in Care Net Pregnancy Center v. USDA means that the agency will take the first crack at the Free Exercise and Establishment Clause and free speech claims in the case.

Care Net applied for a USDA loan through the Community Facilities Loan Program, which makes and guarantees loans to non-profits and others for essential services in rural areas.  Care Net intended to use the loan to purchase property for its "Learn to Earn" program, including classes that help clients prepare for parenthood and option Bible study.  Care Net proposed to host its optional Bible study after hours in the same space as its parenting classes and thus claimed that its optional Bible study--the only religious aspect to its program--added no cost to the purchase and renovation of the property.  In short, the religious aspect of the program merely piggy-backed on the secular aspect.

The USDA nevertheless denied the application, stating that the project was not eligible under agency regs.  Care Net appealed to a USDA hearing officer, arguing, among other things, that the denial violated free speech and the Free Exercise Clause; the agency said that granting the application would violate the Establishment Clause. 

The hearing officer affirmed the agency's denial of Care Net's application based on an agency reg that reads in relevant part,

Where a structure is used for both eligible and inherently religious activities, direct USDA assistance may not exceed the cost of those portions of the acquisition, construction, or rehabilitation that are attributable to eligible activities in accordance with the cost accounting requirements applicable to USDA funds.

7 C.F.R. Sec. 16.3(d)(1).  The hearing officer wrote that Care Net failed to provide sufficient information about its program to allow the USDA "to realistically separate the eligible activities from the inherently religious activities either by time or space, thereby creating an excessive entanglement between Government and religion."  The officer rejected Care Net's argument that the regulation allowed the agency to issue a loan for the full amount of the project, when the religious portion of the project merely piggy-backed on the secular portion (and didn't add anything to the cost).  The officer declined to address any constitutional claim, however, beyond the statement that Care Net's proposed use would cause excessive entanglement with religion.  (The officer wrote that his role was simply to apply agency regs, not to rule on their constitutionality.)

Judge Walton affirmed the hearing officer's interpretation of the regulation--that the regulation prohibited loans for projects that didn't sufficiently segregate the costs of religious and secular components--but remanded the case for consideration of the religion clause claims and the free speech claim.  Quoting D.C. Circuit law, Judge Walton wrote that "[a]gencies . . . have 'an obligation to address properly presented constitutional claims which . . . do not challenge agency actions mandated by Congress,'" in order to ensure against premature or unnecessary constitutional adjudication and to give the courts teh benefit of the agency's first-crack analysis.

SDS

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