Winn v. Garriott

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

KATHLEEN M. WINN, an Arizona 

taxpayer; DIANE WOLFTHAL, an

Arizona taxpayer; MAURICE

WOLFTHAL, an Arizona taxpayer

LYNN HOFFMAN, an Arizona

taxpayer,

Plaintiffs-Appellants, No. 05-15754

v.

 D.C. No.

CV-00-00287-EHC

ARIZONA CHRISTIAN SCHOOL TUITION

ORGANIZATION; ARIZONA SCHOOL OPINION

CHOICE TRUST; LUIS MOSCOSO;

GALE GARRIOTT, in his official

capacity as Director of the

Arizona Department of Revenue;

GLENN DENNARD,

Defendants-Appellees.



Appeal from the United States District Court

for the District of Arizona

Earl H. Carroll, District Judge, Presiding

Argued and Submitted

January 24, 2008—Pasadena, California

Filed April 21, 2009

Before: Dorothy W. Nelson, Stephen Reinhardt and

Raymond C. Fisher, Circuit Judges.

Opinion by Judge Fisher

4587

WINN v. ARIZONA CHRISTIAN SCHOOL 4591

COUNSEL

Marvin S. Cohen (argued), Sacks Tierney, P.A., Scottsdale,

Arizona; Paul Bender, Arizona State University College of

Law, Tempe, Arizona; and Isabel M. Humphrey, Three Gate-

way, Phoenix, Arizona, for the plaintiffs-appellants.

Terry Goddard, Arizona Attorney General, and Paula S.

Bickett (argued), Phoenix, Arizona, for the defendants-

appellees.

Timothy D. Keller (argued) and Clint Bolick, Institute for Jus-

tice, Phoenix, Arizona; and Richard D. Komer, Institute for

Justice, Washington, D.C., for intervenors-defendants-

appellees Arizona School Choice Trust, Glenn Dennard and

Luis Moscoso.

Benjamin W. Bull, Gary S. McCaleb, Jeremy D. Tedesco,

Alliance Defense Fund, Scottsdale, Arizona, for intervenor-

defendant-appellee Arizona Christian School Tuition Organi-

zation.

4592 WINN v. ARIZONA CHRISTIAN SCHOOL

OPINION

FISHER, Circuit Judge:

Arizona law grants income tax credits restricted to taxpay-

ers who make contributions to nonprofit organizations that

award private school scholarships to children. Plaintiffs, cer-

tain Arizona taxpayers, allege that some of the organizations

funded under this program restrict the availability of their

scholarships to religious schools, and that the program in

effect deprives parents, the program’s aid recipients, of a gen-

uine choice between selecting scholarships to private secular

schools or religious ones. We conclude that the plaintiffs’

complaint, which at this stage of the litigation we must view

in the light most favorable to the plaintiffs, sufficiently alleges

that Arizona’s tax-credit funded scholarship program lacks

religious neutrality and true private choice in making scholar-

ships available to parents. Although scholarship aid is allo-

cated partially through the individual choices of Arizona

taxpayers, overall the program in practice “carries with it the

imprimatur of government endorsement.” Zelman v.

Simmons-Harris, 536 U.S. 639, 655 (2002). We therefore

hold, contrary to the district court, that plaintiffs’ allegations,

if accepted as true, are sufficient to state a claim that Arizo-

na’s private school scholarship tax credit program, as applied,

violates the Establishment Clause of the United States Consti-

tution.

BACKGROUND

Plaintiffs allege that Arizona’s Revised Statute § 43-1089

(“Section 1089”), as applied, violates the Establishment

Clause of the First Amendment. Section 1089, first enacted by

the Arizona legislature in 1997, gives individual taxpayers a

dollar-for-dollar tax credit for contributions to “school tuition

organizations” (“STOs”).1 A STO is a private nonprofit orga-

1

A parallel statute, which plaintiffs do not challenge in this action, gives

corporations a dollar-for-dollar tax credit for contributions to STOs. See

Ariz. Rev. Stat. § 43-1183.

WINN v. ARIZONA CHRISTIAN SCHOOL 4593

nization that allocates at least 90 percent of its funds to tuition

grants or scholarships for students enrolled in “a nongovern-

mental primary or secondary school or a preschool for handi-

capped students” within the state. Ariz. Rev. Stat. Ann. § 43-

1089(G)(2)-(3) (2005).2 STOs may not provide scholarships

to schools that “discriminate on the basis of race, color, handi-

cap, familial status or national origin,” but nothing in the stat-

ute precludes STOs from funding scholarships to schools that

provide religious instruction or that give admissions prefer-

ences on the basis of religious affiliation. Id. § 1089(G)(2).

Individual taxpayers can claim a tax credit of up to $500 for

such contributions and married couples filing jointly can

claim a credit of up to $1,000, provided the allowable tax

credit does not exceed the taxes otherwise due. Id. § 1089(A)-

(B). Taxpayers may designate their contribution to a STO that

agrees to provide a scholarship to benefit a particular child, so

long as the child is not the taxpayer’s own dependent. Id.

§ 1089(E). The tax credit is available to all taxpayers in Ari-

zona, regardless of whether they are parents of school-age

children or pay any private school tuition themselves.

Section 1089 requires STOs to provide scholarships or

tuition grants to children “to allow them to attend any quali-

fied school of their parents’ choice,” but also states that STOs

may not provide scholarships while “limiting availability to

only students of one school.” Id. § 1089(G)(3) (emphasis

added). On its face, then, Section 1089 could have been inter-

preted to require all STOs to provide scholarships to any qual-

ified private school in the state, or to permit STOs to provide

scholarships to a limited set of schools, so long as that set was

greater than one. In practice, plaintiffs allege, many STOs

have opted to limit the schools to which they offer scholar-

2

Hereinafter, all cites to “Section 1089” refer to Arizona Revised Stat-

ute Annotated § 43-1089 (2005). Any differences between this current

version of Section 1089 and the version in place as of February 2000,

when plaintiffs’ complaint was filed, are not significant for the purposes

of our analysis.

4594 WINN v. ARIZONA CHRISTIAN SCHOOL

ships, and a number of STOs provide scholarships that may

be used only at religious schools or schools of a particular

denomination. For example, plaintiffs allege that Arizona’s

three largest STOs, as measured by the amount of contribu-

tions reported in 1998, each restricts its scholarships to use at

religious schools. The largest of these, the Catholic Tuition

Organization of the Diocese of Phoenix, restricts its scholar-

ships to use at Catholic schools in the Phoenix Diocese such

as St. Mary’s, which advertises its mission as being “to pro-

vide a quality Catholic education by developing and sustain-

ing a rich tradition grounded in Gospel and family values.”

The second largest STO, the Arizona Christian School Tuition

Organization, expressly restricts scholarships to use at “evan-

gelical” Christian Schools. The third largest, Brophy Commu-

nity Foundation, restricts its scholarships to use at two

Catholic schools, one of which advertises its goal to be “ins-

till[ing] a knowledge of the truths of faith, enlightened by the

post-Conciliar teachings of the Church,” and the other of

which promotes itself as offering students “an intimate rela-

tionship with God” through “the process of nurturing the

soul.”

Arizona does not specify scholarship eligibility criteria or

dictate how STOs choose the students who receive scholar-

ships, and STO-provided scholarships therefore vary consid-

erably. Although STOs may choose to award scholarships

primarily based on financial need, Section 1089 does not

require it. The availability of scholarships to particular stu-

dents and particular schools thus depends on the amount of

funding a STO receives, the range of schools to which it

offers scholarships and the STO’s own scholarship allocation

decisions and eligibility criteria. Therefore, plaintiffs allege,

because the largest STOs restrict their scholarships to sectar-

ian schools, students who wish to attend non-religious private

schools are disadvantaged in terms of the STO-provided

scholarships available to them. Thus, plaintiffs argue, the dis-

parities in the availability and amount of scholarships for use

at religious and secular schools show that the structure of Sec-

WINN v. ARIZONA CHRISTIAN SCHOOL 4595

tion 1089, as applied, favors religious over secular schools,

and thereby violates the Establishment Clause.

Before Section 1089 became operative, the Arizona

Supreme Court, based on its construction of the statute, held

that it did not on its face violate the Establishment Clause or

provisions of the Arizona state constitution. See Kotterman v.

Killian, 972 P.2d 606 (Ariz. 1999) (en banc).3 After the statute

took effect, different plaintiffs filed this suit against the Direc-

tor of Arizona’s Department of Revenue in the United States

District Court for the District of Arizona.4 Plaintiffs do not

contest the facial validity of Section 1089, but rather assert

that it violates the Establishment Clause as applied.5 The dis-

trict court dismissed the suit as barred by the Tax Injunction

Act. See Winn v. Killian, 307 F.3d 1011, 1013 (9th Cir. 2002).

We reversed the dismissal, see id. at 1020, and the Supreme

Court affirmed our decision. See Hibbs v. Winn, 542 U.S. 88,

112 (2004). On remand, the district court allowed two STOs,

the Arizona Christian School Tuition Organization

(“ACSTO”) and Arizona School Choice Trust (“ASCT”), and

two parents of ASCT scholarship recipients, Glenn Dennard

and Luis Moscoso, to intervene as defendants. ACSTO pro-

vides scholarships only to religious schools and the ASCT

3

Significantly, in rejecting the facial challenge, the Arizona Supreme

Court interpreted Section 1089 to require that “[e]very STO must allow its

scholarship recipients to ‘attend any qualified school of their parents’

choice,’ and may not limit grants to students of only one such institution.”

Id. at 614 (quoting Ariz. Rev. Stat. Ann. § 43-1089(E)(2) (2005) (empha-

sis added)). “Thus,” the Arizona Supreme Court concluded, “schools are

no more than indirect recipients of taxpayer contributions, with the final

destination of these funds being determined by individual parents.” Id.

Because plaintiffs in this action allege that, in practice, Section 1089 per-

mits STOs to restrict the use of their scholarships to certain schools, the

structure of the program as applied is notably different from the program’s

structure as it was considered in Kotterman.

4

Current Director Gale Garriott has since replaced former Director

Mark Killian as the named defendant.

5

Plaintiffs’ complaint alleged that Section 1089 is invalid both on its

face and as applied, but they have since abandoned their facial challenge.

4596 WINN v. ARIZONA CHRISTIAN SCHOOL

provides scholarships to any private school of the parents’

choice.6 Defendants again moved to dismiss, contending that

plaintiffs lacked standing, that the suit was barred by res judi-

cata and that plaintiffs had failed to state a claim under the

Establishment Clause. The district court granted defendants’

motion to dismiss for failure to state a claim and plaintiffs

appealed. We have jurisdiction under 28 U.S.C. § 1291 and

we reverse and remand for further proceedings.

STANDARD OF REVIEW

We review the district court’s dismissal for failure to state

a claim de novo, “accept[ing] all factual allegations in the

complaint as true and constru[ing] the pleadings in the light

most favorable to the nonmoving party.” Knievel v. ESPN,

393 F.3d 1068, 1072 (9th Cir. 2005). We affirm the district

court “only if it is clear that no relief could be granted under

any set of facts that could be proved consistent with the alle-

gations.” Enesco Corp. v. Price/Costco, Inc., 146 F.3d 1083,

1085 (9th Cir. 1998) (internal quotation marks omitted).

“Standing is a question of law that we review de novo.”

Salmon Spawning & Recovery Alliance v. Gutierrez, 545 F.3d

1220, 1224 (9th Cir. 2008).

ANALYSIS

I. Taxpayer Standing

[1] Plaintiffs’ only allegation of injury from the allegedly

unconstitutional operation of Section 1089 arises from their

status as Arizona taxpayers. It is well established that individ-

6

We use the term “defendants” to refer to the Director of Arizona’s

Department of Revenue and the intervening defendants ACSTO, ASCT,

Dennard and Moscoso. We use the term “defendant-intervenors” when

referring only to the intervening defendants. At oral argument, plaintiffs

stipulated that they challenge only those STOs that restrict scholarships to

religious schools, and thus we note that ASCT is not being directly chal-

lenged.

WINN v. ARIZONA CHRISTIAN SCHOOL 4597

uals do not generally have standing to challenge governmental

spending solely because they are taxpayers, because “it is a

complete fiction to argue that an unconstitutional federal

expenditure causes an individual federal taxpayer any measur-

able economic harm.” Hein v. Freedom From Religion

Found., Inc., 127 S. Ct. 2553, 2559 (2007) (plurality opinion).

This rule applies with equal force to taxpayer suits challeng-

ing an allegedly unconstitutional state action and those chal-

lenging federal action. See DaimlerChrysler Corp. v. Cuno,

547 U.S. 332, 342-49 (2006); Arakaki v. Lingle, 477 F.3d

1048, 1062-63 (9th Cir. 2007). The Supreme Court, however,

has long recognized “a narrow exception to the general con-

stitutional prohibition against taxpayer standing” when a

plaintiff contends that a use of funds violates the Establish-

ment Clause. Hein, 127 S. Ct. at 2564; see Flast v. Cohen,

392 U.S. 83, 88 (1968). Because plaintiffs have alleged that

the state has used its taxing and spending power to advance

religion in violation of the Establishment Clause, we hold that

they have standing under Article III to challenge the applica-

tion of Section 1089.

[2] As the Supreme Court recently reaffirmed, the Flast

exception to the general bar against taxpayer standing is

rooted “in the history of the Establishment Clause” and is

designed to prevent “ ‘the specific evils feared by [its drafters]

that the taxing and spending power would be used to favor

one religion over another or to support religion in general.’ ”

DaimlerChrysler, 547 U.S. at 348 (alterations in original)

(quoting Flast, 392 U.S. at 103). The exception recognizes

that the “injury” alleged in Establishment Clause challenges

to governmental spending arises not from the effect of the

challenged program on the plaintiffs’ own tax burdens, but

from “the very ‘extract[ion] and spend[ing]’ of ‘tax money’

in aid of religion.” Id. (alterations in original) (quoting Flast,

392 U.S. at 106). Therefore, to satisfy the Flast test for tax-

payer standing, plaintiffs need not show that an injunction

against a particular taxing or spending program would cause

“lawmakers . . . [to] dispose of the savings in a way that

4598 WINN v. ARIZONA CHRISTIAN SCHOOL

would benefit the taxpayer-plaintiffs personally.” Id. at 348-

49. Instead, they need only show that the program challenged

involves “a sufficient nexus between the taxpayer’s standing

as a taxpayer and the . . . [legislative] exercise of taxing and

spending power.” Bowen v. Kendrick, 487 U.S. 589, 620

(1988).

[3] Section 1089 gives Arizona taxpayers a tax credit for

amounts they donate to STOs, up to the statutory cap of $500

for individuals or $1,000 for married couples filing jointly or

the taxpayers’ entire state tax liability. See Ariz. Rev. Stat.

Ann. § 43-1089(A), (C). Tax credits are deducted after tax-

payers’ tax liability has been calculated, thereby giving tax-

payers dollar-for-dollar “credits” against their state taxes for

sums paid to STOs. Tax credits therefore operate differently

from tax deductions; whereas tax deductions allow taxpayers

only to reduce their income subject to taxation, tax credits

allow individuals to make payments to a third party in satis-

faction of their assessed tax burden. As the Supreme Court

explained, “[i]n effect, § 43-1089 gives Arizona taxpayers an

election” to direct a portion of the money they owe the state

to either a STO or to the Arizona Department of Revenue.

Hibbs, 542 U.S. at 95. Accordingly, “[a]s long as donors do

not give STOs more than their total tax liability, their . . . con-

tributions are costless.” Id. Tax credits are therefore a power-

ful legislative device for directing money to private

organizations.7

7

Section 1089’s success is evident from the year-over-year increases in

contributions since the program took effect. Plaintiffs allege that taxpayers

claimed $1.8 million in credits for contributions to STOs in 1998, when

the program was under legal challenge that made it unclear whether

donors would receive the credit, and over $5.9 million in 1999. According

to data on the Arizona Department of Revenue’s public website, these

contributions appear to have further increased since the filing of plaintiffs’

complaint, with taxpayers claiming credits worth over $54 million in

2007. See Arizona Department of Revenue Office of Economic Research

& Analysis, Individual Income Tax Credit for Donations to Private School

Tuition Organizations, 2007, at 3 (April 1, 2008), available at

http://www.revenue.state.az.us/ResearchStats/private_schl_credit_report_

2007.pdf (last visited April 13, 2009).

WINN v. ARIZONA CHRISTIAN SCHOOL 4599

Defendant-intervenors argue that plaintiffs do not have

standing to challenge Section 1089 even under the Flast

exception, because the money directed by taxpayers to STOs

under the tax credit program does not pass through the state

treasury and therefore the program cannot be characterized as

involving any “expenditure” of public funds.8 The Supreme

Court has recognized, however, that state tax policies such as

tax deductions, tax exemptions and tax credits are means of

“channeling . . . [state] assistance” to private organizations,

which can have “an economic effect comparable to that of aid

given directly” to the organization. Mueller v. Allen, 463 U.S.

388, 399 (1983). The Court has therefore refused to make arti-

ficial distinctions between direct grants to religious organiza-

tions and tax programs that confer special benefits on

religious organizations, particularly tax credits such as the one

challenged here. As the Court noted, “for purposes of deter-

mining whether such aid has the effect of advancing religion,”

it makes no difference whether the qualifying individual “re-

ceives an actual cash payment . . . [or] is allowed to reduce

. . . the sum he would otherwise be obliged to pay over to the

state.” Comm. for Pub. Educ. & Religious Liberty v. Nyquist,

413 U.S. 756, 790-91 (1973). In either case, “the money

involved represents a charge made upon the state for the pur-

pose of religious education.” Id. at 791 (internal quotation

marks omitted); see also Arkansas Writers’ Project, Inc. v.

Ragland, 481 U.S. 221, 236 (1987) (Scalia, J., dissenting)

(“Our opinions have long recognized — in First Amendment

contexts as elsewhere — the reality that tax exemptions, cred-

8

ACSTO’s argument that our reasoning is bound by Kotterman’s con-

clusion that the tax credit does not constitute an “appropriation of public

money” within the meaning of the Article II, Section 12 and Article IX,

Section 10 of the Arizona constitution, see 972 P.2d at 617-21, is merit-

less. The Arizona Supreme Court’s holding has no bearing on our analysis

of plaintiffs’ standing in federal court, which turns on the requirements

derived from Article III of the U.S. Constitution. Cf. Hein, 127 S. Ct. at

2562 (“One of the controlling elements in the definition of a case or con-

troversy under Article III is standing.”) (internal quotation marks and

alterations omitted).

4600 WINN v. ARIZONA CHRISTIAN SCHOOL

its, and deductions are a form of subsidy that is administered

through the tax system.”) (internal quotation marks omitted).

In effect, Section 1089 works the same as if the state had

given each taxpayer a $500 check that can only be endorsed

over to a STO or returned to the state. Because Section 1089

does not allow taxpayers to keep the money under any cir-

cumstance — and because it directs how the money will be

spent if it is not surrendered to the state — we reject the sug-

gestion that this money is not publicly subsidized simply

because it does not pass through the treasury.

Nor does Section 1089 lack “a sufficient nexus between the

taxpayer’s standing as a taxpayer and the . . . [legislative]

exercise of taxing and spending power” just because the Ari-

zona legislature does not transfer money to STOs or religious

schools directly. See Bowen, 487 U.S. at 620. The Arizona

legislature promulgated Section 1089 under the power con-

ferred by Article IX of the Arizona constitution, a provision

that is equivalent to the U.S. Constitution’s taxing and spend-

ing clause. See Ariz. Const. art. IX, § 3. By giving taxpayers

a dollar-for-dollar credit for contributions to STOs and then

requiring STOs to “allocate[ ] at least ninety percent of . . .

[their] annual revenue for educational scholarships or tuition

grants to children,” the state legislature has provided only two

ways for this money to be spent: taxpayers will either give the

dollar to the state, or that dollar (or at least 90 percent of it,

after allowable STO administrative expenses) will end up in

scholarships for private school tuition. See Ariz. Rev. Stat.

Ann. § 1089(G)(3) (2005).

[4] By structuring the program as a dollar-for-dollar tax

credit, the Arizona legislature has effectively created a grant

program whereby the state legislature’s funding of STOs is

mediated through Arizona taxpayers. The Court has recog-

nized that taxpayer standing exists even when a legislature

does not directly allocate funds to religious organizations, but

instead mediates the funds through another agency. See

Bowen, 487 U.S. at 618-20. Although the Arizona legislature

WINN v. ARIZONA CHRISTIAN SCHOOL 4601

has chosen an alternative method of allocating the funds that

Section 1089 makes available to STOs, the Court clarified in

Bowen that it was the legislature’s exercise of its taxing and

spending power, rather than the actions of the agency, that

permitted taxpayers to raise an Establishment Clause chal-

lenge. See id. at 619 (“We do not think . . . that appellees’

claim that . . . [appropriated] funds are being improperly used

by individual grantees is any less a challenge to congressional

taxing and spending power simply because the funding autho-

rized by Congress has flowed through and been administered

by the Secretary [of Health and Human Services].”). Accord-

ingly, under Bowen, taxpayers have standing to challenge a

legislature’s exercise of its taxing and spending power even

when the legislature does not use that power to directly fund

religious organizations, but instead uses the power to autho-

rize third parties to fund such organizations.

[5] Consistent with these principles, the Supreme Court has

repeatedly decided Establishment Clause challenges brought

by state taxpayers against state tax credit, tax deduction and

tax exemption policies, without ever suggesting that such tax-

payers lacked Article III standing. See, e.g., Mueller, 463 U.S.

at 390 (state income tax deduction for school expenses that

could be claimed for expenses at religious schools); Nyquist,

413 U.S. at 789-90 (hybrid state tax deduction-tax credit pro-

gram for tuition paid to private schools); Hunt v. McNair, 413

U.S. 734, 737-38 (1973) (state tax exemption for state-issued

revenue bonds that went in part to religious schools); Walz v.

Tax Comm’n, 397 U.S. 664, 666 (1970) (state property tax

exemption for religious nonprofit organizations). The

Supreme Court has also repeatedly decided challenges

brought by state taxpayers to indirect aid programs — where

the ultimate decision to confer aid rested with a private indi-

vidual and not the government — and again never suggested

that taxpayers lacked standing. See, e.g., Zelman, 536 U.S. at

645 (state tuition grants to parents for public or private

schools); Nyquist, 413 U.S. at 781 (state tuition grants to par-

ents for private schools). Although we acknowledge that “the

4602 WINN v. ARIZONA CHRISTIAN SCHOOL

[c]ourt’s exercise of jurisdiction . . . is not precedent for the

existence of jurisdiction,” Doe v. Madison Sch. Dist. No. 321,

177 F.3d 789, 795 (9th Cir. 1999) (en banc) (internal quota-

tion marks omitted; alteration in original), we also note that

the Court has rejected the suggestion that its consistent past

practice of exercising jurisdiction amounts to “mere ‘sub

silentio holdings’ ” that “command no respect,” Hibbs, 542

U.S. at 94. We therefore hold that plaintiffs have standing as

taxpayers to challenge Section 1089 for allegedly violating

the Establishment Clause.

II. The Establishment Clause

[6] “The Establishment Clause of the First Amendment,

applied to the States through the Fourteenth Amendment, pre-

vents a State from enacting laws that have the ‘purpose’ or

‘effect’ of advancing or inhibiting religion.”9 Zelman, 536

9

Defendants argue that plaintiffs’ as-applied challenge is barred by “res

judicata” in light of Kotterman. In Hibbs v. Winn, however, the Supreme

Court observed that “Kotterman, it is undisputed, has no preclusive effect

on the instant as-applied challenge to § 43-1089 brought by different

plaintiffs.” 542 U.S. at 95. Insofar as we are free to call this observation

into question, we nonetheless find defendants’ argument unpersuasive.

Under the full-faith-and-credit statute, 28 U.S.C. § 1738, “[w]e give to

a state-court judgment the same preclusive effect as would be given that

judgment under the law of the State in which the judgment was rendered.”

Coeur D’Alene Tribe of Idaho v. Hammond, 384 F.3d 674, 688 (9th Cir.

2004) (internal quotation marks omitted). Kotterman upheld Section 1089

on a facial challenge before the statute was implemented. Plaintiffs allege

that Section 1089 violates the Establishment Clause because STOs have

not provided scholarships in a way that is neutral toward religion and that

offers parents true private choice; this allegation is predicated on evidence

that was not available prior to Section 1089’s implementation. Plaintiffs’

as-applied challenge thus does not, as defendants argue, implicate Arizo-

na’s doctrine of virtual representation. See El Paso Natural Gas Co. v.

State, 599 P.2d 175, 178 (Ariz. 1979). Arizona law bars cases under res

judicata only where “no additional evidence is needed to prevail in the

second action than that needed in the first.” Phoenix Newspapers, Inc. v.

Dep’t of Corr., 934 P.2d 801, 804 (Ariz. App. 1997) (emphasis added). In

WINN v. ARIZONA CHRISTIAN SCHOOL 4603

U.S. at 648-49 (citing Agostini v. Felton, 521 U.S. 203, 222-

23 (1997)).

A. Secular Purpose

The first prong of this standard requires us to consider

whether the statute was “enacted for . . . [a] valid secular pur-

pose.” Id. at 649. “[A]lthough a legislature’s stated reasons

will generally get deference, the secular purpose required has

to be genuine, not a sham, and not merely secondary to a reli-

gious objective.” McCreary County, Ky v. ACLU, 545 U.S.

844, 864 (2005).

[7] The legislative history of Section 1089 shows that its

primary sponsor’s concern in introducing the bill was provid-

ing equal access to a wide range of schooling options for stu-

dents of every income level by defraying the costs of

educational expenses incurred by parents. See Ariz. House of

Rep. Comm. on Ways & Means, Minutes of Meeting, Tues.

Jan. 21 1997. Plaintiffs do not contest that this purpose, if

genuine, is both secular and valid. Plaintiffs argue, however,

that Section 1089’s design and scope reveal this purpose to be

a sham. Specifically, plaintiffs argue that Section 1089’s oper-

ation shows that the program, which provides aid only to stu-

dents who attend private schools, was enacted not to give

low-income children a meaningful opportunity to attend those

schools, but to advance the legislature’s religious aims.

determining whether a program’s secular purpose is genuine, and whether

a program has the primary effect of advancing religion, we may consider

additional evidence as to how the program operates in reality. See, e.g.,

McCreary County, Ky. v. ACLU, 545 U.S. 844, 862 (2005) (holding the

“implementation of the statute, or comparable official act” are relevant in

examining a program’s secular purpose (internal quotation marks omit-

ted)). We therefore agree with the Supreme Court that “Kotterman . . . has

no preclusive effect on the instant as-applied challenge . . . .” Hibbs, 542

U.S. at 95.

4604 WINN v. ARIZONA CHRISTIAN SCHOOL

[8] Plaintiffs are correct that the nature of a program’s

operation may, in some instances, reveal its ostensible pur-

pose to be a sham. See McCreary, 545 U.S. at 862 (stating

that, in some cases, “the government action itself bespoke the

purpose” of a program that violated the Establishment Clause)

(citing Sch. Dist. of Abington Twp. v. Schempp, 374 U.S. 203,

223-24 (1963)). As the Court held in McCreary, the inquiry

whether a program’s putative purpose is genuine and “not

merely secondary to a religious objective,” id. at 864, is

undertaken from the perspective of “an ‘objective observer,’

one who takes account of the traditional external signs that

show up in the ‘text, legislative history, and implementation

of the statute,’ or comparable official act.” Id. at 862 (quoting

Santa Fe Indep. Sch. Dist. v. Doe, 530 U.S. 290, 308 (2000)

(internal quotation marks omitted)). Plaintiffs’ allegations

concerning Section 1089’s operation are therefore relevant to

whether the program has a genuine secular purpose.

As we discussed above, for example, Section 1089 could,

on its face, be interpreted to require each STO to provide

scholarships for use at any qualified private school, religious

or secular. Plaintiffs allege, however, that in practice STOs

are permitted to restrict the use of their scholarships to use at

certain religious schools. Such allegations, if proved, could

belie defendants’ claim that Section 1089 was enacted primar-

ily to provide Arizona students with equal access to a wide

range of schooling options.

[9] At the same time, we are mindful of the Supreme

Court’s “reluctance to attribute unconstitutional motives to

the states, particularly when a plausible secular purpose for

the state’s program may be discerned from the face of the

statute.” Mueller, 463 U.S. at 394-95. The Court has held that

programs that direct benefits exclusively to private schools, as

Section 1089 does, may be “adequately supported by legiti-

mate, nonsectarian interests,” including “promoting pluralism

and diversity among [the state’s] public and nonpublic

schools.” Nyquist, 413 U.S. at 773. The question before us,

WINN v. ARIZONA CHRISTIAN SCHOOL 4605

however, is not whether Section 1089 in fact has a genuine,

secular purpose, but whether plaintiffs could prove, on the

facts alleged in the complaint, that it does not. Accordingly,

we conclude that plaintiffs’ allegations, if accepted as true,

leave open the possibility that plaintiffs could reveal the legis-

lature’s stated purpose in enacting Section 1089 to be a pre-

tense.

B. Effect

We next consider whether Section 1089 “has the forbidden

‘effect’ of advancing or inhibiting religion.” Zelman, 536 U.S.

at 649. In “refin[ing] the definition of governmental action

that unconstitutionally advances religion,” the Supreme Court

has “paid particularly close attention to whether the chal-

lenged governmental practice either has the purpose or effect

of ‘endorsing’ religion, a concern that has long had a place in

our Establishment Clause jurisprudence.” County of Alle-

gheny v. ACLU, 492 U.S. 573, 592 (1989). Guided by the

Court’s opinion in Zelman, we conclude, for reasons set forth

below, that plaintiffs have alleged facts sufficient to state an

as-applied Establishment Clause claim under this endorse-

ment test.

Section 1089 is an indirect aid program, under which the

state gives tax credits to individuals who contribute to STOs,

which in turn use the money to provide private school schol-

arships. Plaintiffs allege that many of these STOs in fact exist

to promote the funding of religious education. If the state of

Arizona were to allocate funds directly to these religious

STOs, the state would plainly violate the Establishment

Clause. See Bowen, 487 U.S. at 609-10 (noting that “direct

government aid” impermissibly advances religion “if the aid

flows to institutions that are ‘pervasively sectarian’ ”). As

defendants correctly argue, however, STOs are private chari-

table organizations — albeit funded by taxpayer contributions

4606 WINN v. ARIZONA CHRISTIAN SCHOOL

that the state will reimburse through dollar-for-dollar tax cred-

its.10

[10] We nevertheless hold that if plaintiffs’ allegations are

accepted as true, Section 1089 violates the Establishment

Clause by delegating to taxpayers a choice that, from the per-

spective of the program’s aid recipients, “deliberately skew[s]

incentives toward religious schools.” Zelman, 536 U.S. at

650; see id. at 652 (emphasizing that in the educational assis-

tance programs the Court has upheld, “[t]he incidental

advancement of a religious mission, or the perceived endorse-

ment of a religious message, is reasonably attributable to the

individual recipient, not to the government, whose role ends

with the disbursement of benefits”). In practice, plaintiffs

allege, the choice delegated to taxpayers under Section 1089

channels a disproportionate amount of government aid to sec-

tarian STOs, which in turn limit their scholarships to use at

religious schools.11 The scholarship program thus skews aid in

favor of religious schools, requiring parents who would prefer

a secular private school but who cannot obtain aid from the

few available nonsectarian STOs to choose a religious school

to obtain the perceived benefits of a private school education.

Accordingly, Section 1089’s delegation to taxpayers operates

to deprive these parents, as the program’s aid recipients, of

“ ‘genuinely independent and private choices’ ” to direct the

program aid to secular schools. Id. at 651 (quoting Witters v.

Wash. Dep’t of Servs. for the Blind, 474 U.S. 481, 487

10

Plaintiffs do not argue that STOs are state actors, so we do not decide

whether the STOs’ conduct, in itself, could support an Establishment

Clause claim.

11

This allegation is distinct from plaintiffs’ contention that Section

1089’s design reveals its putative secular purpose to be a sham. As we

shall discuss below, the Supreme Court has frequently held that state poli-

cies enacted for a valid secular purpose violate the Establishment Clause

when they are not effectively designed to achieve that purpose. See, e.g.,

Nyquist, 413 U.S. at 788 (“In its attempt to enhance the opportunities of

the poor to choose between public and nonpublic education, the State has

taken a step which can only be regarded as one ‘advancing’ religion.”).

WINN v. ARIZONA CHRISTIAN SCHOOL 4607

(1986)). Unlike indirect aid programs the Supreme Court has

upheld, Section 1089 is not a “neutral program of private

choice,” and a reasonable observer could therefore conclude

that the aid reaching religious schools under this program

“carries with it the imprimatur of government endorsement.”

Id. at 655.

Defendants dispute this conclusion on two grounds: First,

that as private institutions who do not receive direct govern-

ment funding, they are no different from other nonprofit, reli-

gious institutions that are funded through tax-deductible

contributions. Second, that under the program, “government

aid reaches religious schools only as a result of the genuine

and independent choices of private individuals.” Zelman, 536

U.S. at 649. We address each of these arguments in turn.

1. Aid to Private Institutions

Defendants first argue that because STOs do not receive

direct government funding, Section 1089 is no different from

other programs that accord tax benefits to individuals who

contribute to nonprofit, religious institutions. See, e.g., Her-

nandez v. Comm’r, 490 U.S. 680, 695 (1989) (upholding fed-

eral tax deduction for contributions to charitable and religious

organizations); see also Walz, 397 U.S. at 666-67 (upholding

state property tax exemption for religious and secular non-

profit organizations). As with any program of government aid,

however, whether such programs violate the Establishment

Clause depends on whether they have “either . . . the purpose

or effect of ‘endorsing’ religion.” County of Allegheny, 492

U.S. at 592; see Texas Monthly, Inc. v. Bullock, 489 U.S. 1,

17 (1989) (plurality opinion) (holding sales tax exemption

exclusively available to religious periodicals violated Estab-

lishment Clause because it “lack[ed] a secular objective that

would justify this preference along with similar benefits for

nonreligious publications or groups, and because it effectively

endorses religious belief”); Nyquist, 413 U.S. at 783 (holding

program including grants and tax deductions for private

4608 WINN v. ARIZONA CHRISTIAN SCHOOL

school tuition had valid secular purpose, but violated Estab-

lishment Clause because “the effect of the aid [wa]s unmis-

takably to provide desired financial support for nonpublic,

sectarian organizations”). The parallels defendants contend

exist between Section 1089 and tax deduction programs that

the Supreme Court has held “easily pass[ ] constitutional mus-

ter,” Hernandez, 490 U.S. at 695, are therefore instructive, but

only to the extent they shed light on the secular objectives, if

any, that Section 1089 was enacted to promote.

[11] The secular objectives defendants argue Section 1089

promotes differ significantly from those advanced by tax

deduction programs the Supreme Court has upheld. The fed-

eral system addressed in Hernandez, for example, permits tax

deductions for “any charitable contribution” to a qualified

entity “organized and operated exclusively for religious, char-

itable, scientific, literary, or educational purposes, or to foster

national or international amateur sports competition.” 26

U.S.C. §§ 170(a), (c)(2)(B); see also Regan v. Taxation with

Representation of Wash., 461 U.S. 540, 544 (1983) (observ-

ing Congress’ system of tax deductions and exemptions pro-

vides “subsidy to non profit civic welfare organizations

generally”). This system, the Court held, makes deductions

available for contributions to an array of religious and secular

organizations, and thus has “the primary effect of . . . encour-

aging gifts to charitable entities, including but not limited to

religious organizations.” Hernandez, 490 U.S. at 696. Section

1089, by contrast, offers narrowly targeted, dollar-for-dollar

tax credits designed to fully reimburse contributions to STOs,

most of which restrict recipients’ choices about how to use

their scholarships. Although defendants contend these credits

were enacted to provide Arizona schoolchildren equal access

to a wide range of schooling options, defendants do not —

and could not — suggest the credits are designed to promote

donations of individual wealth or charitable giving to a broad

array of institutions.12 Likewise, defendants do not suggest

12

As the Court recognized in Hernandez, 490 U.S. at 696, tax deduc-

tions promote the secular purpose of encouraging individuals to use their

WINN v. ARIZONA CHRISTIAN SCHOOL 4609

that Section 1089 has a secular purpose in common with laws

granting tax exemptions to a broad range of nonprofit organi-

zations, including churches. See Walz, 397 U.S. at 672-75

(holding law granting property tax exemptions to array of reli-

gious and secular nonprofit institutions served to promote

“beneficial and stabilizing influences in community life” and

minimize “[t]he hazards of churches supporting govern-

ment”); see also id. at 678 (noting the “unbroken practice of

according . . . exemption[s] to churches, openly and by affir-

mative state action, not covertly or by state inaction, is not

something to be lightly cast aside”). Thus, we are not per-

suaded that Section 1089 conforms with the Establishment

Clause simply because it bears some superficial resemblance

to programs that do.

own private wealth to make charitable gifts. By contrast, the one-to-one

tax credits offered under Section 1089 encourage individuals to give

money to private STOs, but allow them to obtain full reimbursement from

the state for their contributions. See Nyquist, 413 U.S. at 789 (explaining

that “the usual attribute of a tax credit” is that it is “designed to yield a

predetermined amount of tax ‘forgiveness’ in exchange for performing a

specific act which the State desires to encourage”). In this respect, the tax

credits offered under Section 1089 resemble those that encourage individ-

uals to provide public financing for the Federal Election Commission’s

Presidential Election Campaign Fund (“PECF”) but which do not, by

design, encourage private charitable donations to the PECF. See 26 U.S.C.

§§ 9001-13. As we explained in our prior opinion in this litigation:

a tax credit differs from a tax deduction in that where a tax

deduction is involved, giving money to a religious institution is

not, as is the case of a tax credit, a free gift. In the case of a tax

credit, the taxes due are reduced by the full amount of the gift.

In contrast, when a taxpayer is entitled to a tax deduction, the tax-

payer must in most if not all instances still pay a majority of the

tax involved: it is only his taxable income that is reduced by the

amount of the gift, and, thus, his tax liability is reduced only by

a percentage of the gift that is equal to the tax rate applicable to

his income bracket.

Winn v. Killian, 307 F.3d at 1015 n.5, aff’d Hibbs v. Winn, 542 U.S. 88.

The tax credits offered under Section 1089 therefore do not promote the

same secular purpose as the tax deductions upheld in Hernandez.

4610 WINN v. ARIZONA CHRISTIAN SCHOOL

2. Private Choice

The Supreme Court has “drawn a consistent distinction

between government programs that provide aid directly to

religious schools, and programs of true private choice, in

which government aid reaches religious schools only as a

result of the genuine and independent choices of private indi-

viduals.” Zelman, 536 U.S. at 649 (citations omitted). Defen-

dants argue that Section 1089, like other religiously neutral

educational assistance programs the Supreme Court has found

constitutional, is a “program of true private choice . . . and [is]

thus constitutional.” Id. at 653.

The nature of the choices provided under Section 1089,

however, differs significantly in structure from those under

educational assistance programs the Court has held to be

“programs of true private choice.”13 Id. In each of those pro-

grams, the government “provid[ed] assistance directly” to par-

ents or individual students, “who, in turn, direct[ed] the

government aid to religious schools wholly as a result of their

own genuine and independent private choice.” Id. at 652.

Under the voucher program upheld in Zelman, for example,

the state distributed tuition aid directly to eligible parents,

who were free to use the aid to send their children to any par-

ticipating public or private school, and those wishing their

children to remain enrolled in public school received tutorial

aid to accommodate that choice. Id. at 645.

Under Section 1089, by contrast, the state does not provide

aid directly to parents. Instead the aid is mediated first

through taxpayers, and then through private scholarship pro-

13

See Zelman, 536 U.S. 639; Zobrest v. Catalina Foothills Sch. Dist.,

509 U.S. 1 (1993) (upholding federal program providing sign-language

interpreter to student attending Catholic school); Witters, 474 U.S. 481

(upholding state vocational assistance program paying state aid directly to

student attending religious college); Mueller, 463 U.S. 388 (upholding

state tax deduction available to parents for their children’s public and pri-

vate school expenses).

WINN v. ARIZONA CHRISTIAN SCHOOL 4611

grams. Under Section 1089, all Arizona taxpayers are eligible

for a tuition tax credit, and those whose tax liability is large

enough to use the credit may apply it toward a contribution

to any STO, regardless of whether that STO provides scholar-

ships exclusively for use at religious schools. In turn, any Ari-

zona parent who wishes to send her child to a private school

may apply for a STO scholarship, provided that the child

meets the STO’s eligibility criteria for the use of that scholar-

ship.

[12] Unlike parents’ choices under the program in Zelman,

or aid recipients’ choices under other programs the Court has

upheld, parents’ choices are constrained by those of the tax-

payers exercising the discretion granted by Section 1089. For

example, by choosing to give state-reimbursed money to the

Catholic Tuition Organization of the Diocese of Phoenix,

which plaintiffs allege to be the largest STO, taxpayers can

make their portion of the program aid available only to par-

ents who are willing to send their children to Catholic

schools. Although anyone may form a new STO devoted to

funding scholarships at secular private schools, Section 1089

prohibits taxpayers from earmarking contributions for their

own children. Thus, it is taxpayers who decide which STOs

to fund and, consequently, who is eligible to receive STO-

provided scholarships according to the criteria of the desig-

nated STO.

Defendants acknowledge the differences between parents’

choices under Section 1089 and those afforded under indirect

aid programs that the Supreme Court has previously upheld.

They contend, however, that because Section 1089 offers

“genuine and independent choices” to the taxpayers who fund

STOs, these differences are irrelevant to whether Section

1089 violates the Establishment Clause. We disagree.

a. Parental choice

The parties do not contest that notwithstanding its structural

differences from indirect aid programs the Court has upheld,

4612 WINN v. ARIZONA CHRISTIAN SCHOOL

Section 1089 would satisfy the Establishment Clause if the

program made scholarships available to parents on a reli-

giously neutral basis and gave them a true private choice as

to where to utilize the scholarships. Plaintiffs allege, however,

this is not how the program works in practice. In Zelman, the

Court identified several circumstances relevant to whether the

indirect aid program at issue, which gave tuition grants to par-

ents to apply toward private and fee-charging public schools,

was “a program of true private choice . . . and thus constitu-

tional[:]”

[T]he . . . program is neutral in all respects toward

religion. It is part of a general and multifaceted

undertaking . . . to provide educational opportunities

to the children of a failed school district. It confers

educational assistance directly to a broad class of

individuals defined without reference to religion, i.e.,

any parent of a school-age child who resides in the

. . . School District. The program permits the partici-

pation of all schools within the district, religious or

nonreligious. Adjacent public schools also may par-

ticipate and have a financial incentive to do so. Pro-

gram benefits are available to participating families

on neutral terms, with no reference to religion. The

only preference stated anywhere in the program is a

preference for low-income families, who receive

greater assistance and are given priority for admis-

sion at participating schools.

There are no financial incentives that skew the

program toward religious schools. Such incentives

are not present . . . where the aid is allocated on the

basis of neutral, secular criteria that neither favor

nor disfavor religion, and is made available to both

religious and secular beneficiaries on a nondiscrimi-

natory basis.

Id. at 653-54 (emphasis added) (citations, alterations and

internal quotation marks omitted).

WINN v. ARIZONA CHRISTIAN SCHOOL 4613

y13Under this rubric, Section 1089 falls short. The vast

majority of the scholarship money under the program — over

85 percent as of the time of plaintiffs’ complaint — is avail-

able only for use at religious schools.14 Because this aid is

available only to parents who are willing to send their chil-

dren to a religious school, the program fails to “confer[ ] edu-

cational assistance directly to a broad class of individuals

defined without reference to religion.” Id. at 653. Moreover,

because a disproportionate amount of the program aid is ear-

marked for use at religious schools before parents receive the

aid, Section 1089 is not, from the parents’ perspective, “neu-

tral in all respects toward religion” and does not equally “per-

mit[ ] the participation of all schools . . . religious or

nonreligious” in the program. Id. Additionally, because Sec-

tion 1089 does not make aid equally available to parents “on

the basis of neutral, secular criteria that neither favor nor dis-

favor religion,” id. (alterations in original) (quoting Witters,

474 U.S. at 487-88), the program creates “ ‘financial incen-

tive[s]’ ” for parents that “ ‘ske[w]’ the program toward reli-

gious schools.” Id. (quoting Witters, 474 U.S. at 487-88); see

Zobrest, 509 U.S. at 10 (upholding program because it “cre-

ate[d] no financial incentive for parents to choose a sectarian

school”). Thus, parents who wish to place their children in a

private secular school, but who could not otherwise afford to

do so, are at a disadvantage compared to parents who are will-

ing to accept a scholarship for private religious schooling —

14

We recognize the Supreme Court in Mueller, 463 U.S. at 401, cau-

tioned that such statistics lack constitutional import when a law is facially

neutral. This case is different from Mueller, however, because Section

1089 does not allocate scholarship funds based on parents’ choices of

schools, but instead mediates financial aid through taxpayers’ allocations

to scholarship programs of their choice. As a result, a parent seeking

scholarship aid does not have a “genuine and independent private choice”

under the program because the parent’s choices are constrained by those

of taxpayers. Zelman, 536 U.S. at 652. Facts showing the skewed concen-

tration of funds in sectarian school scholarship programs would therefore

support the claim that parents are financially incentivized to choose a reli-

gious school.

4614 WINN v. ARIZONA CHRISTIAN SCHOOL

either by choice or out of financial necessity. Although par-

ents would, of course, have the option of leaving their chil-

dren in public school, we reject the suggestion that the mere

existence of the public school system guarantees that any

scholarship program provides for genuine private choice. For

parents wait-listed for scholarships to secular schools,15 the

range of educational choices the STO-administered scholar-

ship programs offer do not realistically include “obtain[ing] a

scholarship and choos[ing] a nonreligious private school.”

Zelman, 536 U.S. at 655. Section 1089, as applied, thereby

creates incentives that pressure these parents into accepting

one of the scholarships that are readily available under the

program for use at a religious school. Therefore, Section

1089, as applied, “fails to provide genuine opportunities for

. . . parents to select secular educational options for their

school-age children.” Id.

b. Taxpayer choice

Defendants argue that despite this failure, Section 1089

does not violate the Establishment Clause because it provides

a tax credit to all Arizona taxpayers, without respect to reli-

gion, and gives taxpayers a genuine choice between directing

their money to religious or secular STOs. Therefore, as Zel-

man requires, “government aid reaches religious schools only

as a result of the genuine and independent choices of private

individuals.” Id. at 649. Plaintiffs do not contest that Section

1089 is neutral with respect to the taxpayers who direct

money to STOs, or that any of the program’s aid that reaches

15

Data in the record, the veracity of which defendants do not challenge,

show that in 2004, the Arizona School Choice Trust — the largest of the

STOs that provides scholarships to any private secular or religious school

— reported a waiting list of at least 700 students. If accurate, it would be

the kind of information that would further support plaintiffs’ allegation

that “parents choosing to send their children to non-religious, non-public

schools may be unable to locate an STO willing and able to make a tuition

grant to a student attending the non-religious school of the parents’

choice.”

WINN v. ARIZONA CHRISTIAN SCHOOL 4615

a STO does so only as a result of the genuine and independent

choice of an Arizona taxpayer. See Mueller, 463 U.S. at 398-

99. Plaintiffs argue, however, that Section 1089 violates the

Establishment Clause precisely because the individual taxpay-

ers’ choices available under the program serve to restrict par-

ents’ opportunities to select secular educational options for

their school-age children, skewing parents’ incentives to send

their children to religious schools. As such, the program is not

“neutral in all respects toward religion” and, concomitantly,

is not a “program of true private choice.” Zelman, 536 U.S.

at 653.

Defendants argue that it is irrelevant, under Zelman,

whether an indirect aid program offers true private choice to

parents, or instead, like Section 1089, offers true private

choice to another broadly defined class of individuals. In

describing what constitutes “true private choice,” however,

the Court in Zelman frequently emphasized that the choice is

one offered, on a neutral basis, to parents or students, as the

beneficiaries of the program’s aid. See, e.g., id. at 652 (“A

program . . . [like those the Court has upheld] permits govern-

ment aid to reach religious institutions only by way of the

deliberate choices of numerous individual recipients.”); id. at

653 (concluding one of the features of “true private choice”

in the Ohio voucher program is that “[p]rogram benefits are

available to participating families on neutral terms”); id. at

669 (O’Connor, J., concurring) (“Courts are instructed to con-

sider two factors: first, whether the program administers aid

in a neutral fashion, without differentiation based on the reli-

gious status of beneficiaries or providers of services; second,

and more importantly, whether beneficiaries of indirect aid

have a genuine choice among religious and nonreligious orga-

nizations when determining the organization to which they

will direct that aid.”). Defendants contend this emphasis is

simply because parental choice was the only private choice

offered under those programs.

Defendants’ argument, however, disregards the Court’s

analysis of how the true private choice described in Zelman

4616 WINN v. ARIZONA CHRISTIAN SCHOOL

ensures that government aid flowing to religious institutions

does not have “the forbidden ‘effect’ of advancing . . . reli-

gion,’ ” id. at 649, even though the aid would have such an

effect under a program of direct funding. See Bowen, 487 U.S.

at 609-10 (noting “direct government aid” impermissibly

advances religion “if the aid flows to institutions that are ‘per-

vasively sectarian’ ”). The function of true private choice, the

Court explained, is to eliminate the perception that the gov-

ernment is endorsing religion through the money that is chan-

neled to sectarian institutions: “The incidental advancement

of a religious mission, or the perceived endorsement of a reli-

gious message, is reasonably attributable to the individual

recipient, not to the government, whose role ends with the dis-

bursement of benefits.” Zelman, 536 U.S. at 652. The Court

expressly linked its “true private choice” analysis to the “rea-

sonable observer” inquiry as to whether the government is

perceived to endorse the religious organizations that benefit

from its aid. See id. at 655 (holding, with respect to the paren-

tal choice the Court was addressing, that “no reasonable

observer would think a neutral program of private choice,

where state aid reaches religious schools solely as a result of

the numerous independent decisions of private individuals,

carries with it the imprimatur of government endorsement”).

In drawing this link, the Court adopted Justice O’Connor’s

position in Mitchell v. Helms, 530 U.S. 793 (2000), that “ ‘[i]n

terms of public perception, a government program of direct

aid to religious schools . . . differs meaningfully from the gov-

ernment distributing aid directly to individual students who,

in turn, decide to use the aid at the same religious schools.’ ”

Zelman, 536 U.S. at 655 (quoting Mitchell, 530 U.S. at 842-

43 (O’Connor, J., concurring in judgment)). Under this frame-

work, the question central to the endorsement inquiry is

whether “the reasonable observer would naturally perceive

the aid program [in question] as government support for the

advancement of religion.” Mitchell, 530 U.S. at 843

(O’Connor, J., concurring in the judgment) (discussing effect

of programs providing direct aid to religious schools).

WINN v. ARIZONA CHRISTIAN SCHOOL 4617

“ ‘[T]he reasonable observer in th[is] endorsement inquiry

must be deemed aware’ of the ‘history and context’ underly-

ing a challenged program.” Zelman, 536 U.S. at 655 (quoting

Good News Club v. Milford Cent. Sch., 533 U.S. 98, 119

(2001) (internal quotation marks omitted)); see also Capitol

Square Review and Advisory Bd. v. Pinette, 515 U.S. 753, 773

(1995) (O’Connor, J., concurring in part and concurring in

judgment) (“[T]he endorsement test necessarily focuses upon

the perception of a reasonable, informed observer.”) (empha-

sis added). We impute this knowledge to the reasonable

observer because “the endorsement inquiry is not about the

perceptions of particular individuals or saving isolated nonad-

herents from . . . discomfort,” but instead concerns “the politi-

cal community writ large.” Id. at 779; accord Good News

Club, 533 U.S. at 119 (adopting this position); see also Capi-

tol Square, 515 U.S. at 779-80 (O’Connor, J., concurring in

part and concurring in judgment) (“[T]he applicable observer

is similar to the ‘reasonable person’ in tort law, who is not to

be identified with any ordinary individual, who might occa-

sionally do unreasonable things, but is rather a personification

of a community ideal of reasonable behavior, determined by

the [collective] social judgment.”) (internal quotation marks

omitted; alteration in original).

[14] Accordingly, to assess whether the taxpayer choice

offered under Section 1089 has the same constitutional effect

as the parental choice Zelman upheld, we must consider the

Court’s application of the reasonable observer inquiry to the

program at issue in that case. Specifically, we must consider

the circumstances the Court deemed relevant to why a reason-

able, informed observer looking at the program upheld in Zel-

man would conclude that “[t]he incidental advancement of a

religious mission, or the perceived endorsement of a religious

message” resulting from a program “is reasonably attributable

to the individual recipient, not to the government, whose role

ends with the disbursement of benefits.” 536 U.S. at 652. The

Court’s guidance in earlier cases also sheds light on two cir-

4618 WINN v. ARIZONA CHRISTIAN SCHOOL

cumstances that seemed particularly important to the reason-

able observer analysis in Zelman.

First, a reasonable, informed observer would consider what

role the person making the choice occupies in the structure of

the program. See Larkin v. Grendel’s Den, Inc., 459 U.S. 116,

127 (1982) (holding statute allowing a church or school to

veto a liquor license for establishments in their proximity vio-

lated the Establishment Clause); Zelman, 536 U.S. at 652. In

Larkin, the Court determined there was no “ ‘effective means

of guaranteeing’ ” the veto power delegated to churches over

liquor licenses “ ‘[would] be used exclusively for secular,

neutral, and nonideological purposes.’ ” Id. at 125 (quoting

Nyquist, 413 U.S. at 780).16 “In addition,” the Court contin-

ued, “the mere appearance of a joint exercise of legislative

authority by Church and State provides a significant symbolic

benefit to religion in the minds of some by reason of the

power conferred.” Id. at 125-26. Of course, the delegation of

scholarship funding to individual taxpayers, such as in Sec-

tion 1089, does less to promote religion than the delegation of

zoning authority to churches. Larkin’s holding, however,

illustrates that when a statute delegates “a power ordinarily

vested in agencies of government” to a private party, see id.

at 122, without reasonable assurance that the party’s choices

will advance the secular purposes of the statute, any ensuing

“perceived endorsement of a religious message” may be “rea-

sonably attribut[ed]” to the government. See Zelman, 536 U.S.

at 652.

16

In Zelman, the Court held “Nyquist does not govern neutral educa-

tional assistance programs that, like the program here, offer aid directly to

a broad class of individual recipients defined without regard to religion.”

536 U.S. at 662. As discussed above, Section 1089 does not “offer aid

directly to individual recipients,” but rather mediates the aid through tax-

payers and STOs. Insofar as Section 1089 is not a “program of true private

choice,” within the meaning of Zelman, the Court’s holding in Nyquist is

relevant to determining whether a reasonable observer would conclude the

tax credit program endorses religion.

WINN v. ARIZONA CHRISTIAN SCHOOL 4619

By contrast, the educational assistance programs addressed

in Zelman were structured so that parents were permitted to

choose how to best use the program aid to assist their chil-

dren. The parents’ decisive role in the program gave them

incentives to apply the program’s aid based on their children’s

educational interests instead of on sectarian considerations,

such as whether to promote the religious mission of a particu-

lar school. Accordingly, by delegating a choice that “ensured

that parents were the ones to select a religious school as the

best learning environment” for their children, the government

did not appear to endorse religion. Id. (stating how federal

special education program providing sign-language interpreter

to student attending Catholic school ensured that “the circuit

between government and religion was broken, and the Estab-

lishment Clause was not implicated”).

Second, a reasonable, informed observer would consider

whether the choice delegated under a program has the effect

of promoting, or hindering, the program’s secular purpose.

See id. at 655. In Larkin, the Court recognized that the statute

delegating veto power to churches and schools had the valid

secular purpose of “protect[ing] spiritual, cultural, and educa-

tional centers from the ‘hurly-burly’ associated with liquor

outlets.” 459 U.S. at 123 (internal quotation marks omitted).

The Court noted, however, that “these valid secular objectives

can be readily accomplished by other means,” id. at 123-24,

and that the veto power conferred by the statute could “be

used by churches to promote goals beyond insulating the

church from undesirable neighbors,” id. at 125. The Court

concluded that the delegation could “be seen as having a ‘pri-

mary’ and ‘principal’ effect of advancing religion.” Id. at 126.

Similarly, in Nyquist, the Court invalidated a program provid-

ing tuition grants and tax credits to parents sending their chil-

dren to private schools because, although the program had a

valid secular purpose, “the effect of the aid [wa]s unmistak-

ably to provide desired financial support for nonpublic, sec-

tarian institutions.” 413 U.S. at 783; see id. at 788 (“In its

attempt to enhance the opportunities of the poor to choose

4620 WINN v. ARIZONA CHRISTIAN SCHOOL

between public and nonpublic education, the State has taken

a step which can only be regarded as one ‘advancing’ reli-

gion.”). Nyquist illustrates that if an educational assistance

program provides individual choice through tax credits, but

those tax credits hinder the program’s ability to achieve its

valid secular goals, a reasonable observer could well conclude

that the tax credits are simply masking an Establishment

Clause violation. Cf. Hibbs v. Winn, 542 U.S. at 93-94 (dis-

cussing school desegregation cases invalidating use of tuition

grants and tax credits to circumvent Brown v. Board of Edu-

cation, 347 U.S. 483 (1954)); see also Bd. of Educ. of Kiryas

Joel v. Grumet, 512 U.S. 687, 690 (1994) (invalidating statute

creating school district coextensive with religious community

that had valid purpose of providing special education services,

but was unnecessarily tailored to promote sectarian aims);

Norwood v. Harrison, 413 U.S. 455, 465 (1973) ( “[I]t is . . .

axiomatic that a state may not induce, encourage or promote

private persons to accomplish what it is constitutionally for-

bidden to accomplish.”) (internal quotation marks omitted)

(invalidating state program providing textbooks to racially

discriminatory private schools).

[15] The choices delegated to parents under Zelman, by

contrast, may have advanced — and at least did not thwart —

the secular purpose of the program, which was to “provid[e]

educational assistance to poor children in a demonstrably fail-

ing public school system.” 536 U.S. at 649. The best educa-

tional environment for a particular child within a failed school

system may depend on qualitative considerations that could

not easily be assessed at a policymaking level. See, e.g., id.

at 674-75 (O’Connor, J., concurring) (suggesting metrics

other than formal academic achievement that may play a role

in parents’ educational choices in a failed school district). The

choice offered under the program may have therefore helped

ensure that the program achieved its secular aims by delegat-

ing funding decisions to a class of persons — parents — who

were better positioned than a state policymaking body to

WINN v. ARIZONA CHRISTIAN SCHOOL 4621

make educational choices for individual students in a failing

school system.

[16] Drawing upon these two circumstances — the role the

person making the choice occupies in the structure of a pro-

gram and whether delegating the choice promotes the secular

purpose of the program — we turn to defendants’ argument

that the individual, taxpayer choice provided under Section

1089 necessarily has the same constitutional effect as the

parental choice upheld in Zelman. Under Section 1089, indi-

vidual taxpayers may constrain the scholarship options of

other parents’ children by choosing to direct their state-

reimbursed contributions to sectarian STOs. Yet unlike par-

ents, whose choices directly affect their children, taxpayers

have no structural incentives under Section 1089 to direct

their contributions primarily for secular reasons, such as the

academic caliber of the schools to which a STO restricts aid,

rather than for sectarian reasons, such as the religious mission

of a particular STO. Thus, the taxpayers’ position in the struc-

ture of Section 1089 provides no “ ‘effective means of guar-

anteeing’ ” that taxpayers will refrain from using the program

for sectarian purposes. Larkin, 459 U.S. at 125 (quoting

Nyquist, 413 U.S. at 780). Significantly, plaintiffs’ allegations

suggest the taxpayers’ role in the structure of Section 1089,

as applied, encourages them to use the tax credits to promote

sectarian goals, and that taxpayers have in fact used the pro-

gram aid to this end.

[17] Relatedly, the taxpayer choice provided under Section

1089 does little to advance — indeed, it appears to thwart —

the secular purpose of the program, which is to provide equal

access to a wide range of schooling options for students of

every income level by defraying the costs of educational

expenses incurred by parents.17 Defendants do not suggest

17

Even if we assumed that taxpayer choice does, in some respect,

advance the secular objectives of Section 1089, plaintiffs may be able to

demonstrate that “these valid secular objectives can be readily accom-

plished by other means,” and therefore that the program nevertheless

“could be seen as having a ‘primary’ and ‘principal’ effect of advancing

religion.” Larkin, 459 U.S. at 123-24, 126.

4622 WINN v. ARIZONA CHRISTIAN SCHOOL

taxpayers are better positioned than government administra-

tors to allocate program aid in a manner that will expand

schooling options, and plaintiffs’ allegations suggest the

demand for STO-provided scholarships available for use at

secular schools markedly outstrips their supply. This mis-

alignment between parents’ interests and taxpayers’ desires

suggests that by vesting individual taxpayers with funding

authority, Section 1089’s design works against its purpose of

providing Arizona students with equal access to a wide range

of schooling options. Although Section 1089 leaves individual

parents free to create new STOs that cater to their educational

preferences, this freedom provides little benefit to parents

who do not have the time or capital to get others to support

their STO, given that these parents cannot use their tax credits

to fund scholarships for their own children.

[18] Accordingly, we conclude that there is a meaningful

constitutional distinction between the individual, taxpayer

choice provided under Section 1089 and the parental choice

upheld in Zelman.18 Section 1089, as claimed to operate in

practice, is not a program of true private choice, immune from

further constitutional scrutiny. We therefore hold that plain-

tiffs have alleged facts upon which a reasonable, informed

observer could conclude that Section 1089, as applied, vio-

lates the Establishment Clause even though the state does not

directly decide whether any particular sectarian organizations

will receive program aid.

18

In Green v. Garriott, ___ P.3d ___, 2009 WL 623346 (Ariz. Ct. App.

March 12, 2009), the Arizona Court of Appeals in a 2-1 decision rejected

an Establishment Clause challenge to Ariz. Rev. Stat. § 43-1183, which

gives dollar-for-dollar tax credits to corporations for contributions to

STOs. The Green majority did not consider, as we do here, whether any

lack of religious neutrality in the actual operation of Section 1183 “carries

with it the imprimatur of government endorsement,” Zelman, 536 U.S. at

655, and we are unpersuaded by the analysis of whether § 1183 is a pro-

gram of “true private choice” for the reasons we have already discussed

at length.

WINN v. ARIZONA CHRISTIAN SCHOOL 4623

The district court’s order dismissing plaintiffs’ complaint is

reversed and remanded for further proceedings consistent

with this opinion.

REVERSED and REMANDED for further proceedings.