A decision earlier this month by the Clarksville Indiana Town Council raises an interesting church-state issue. The Terre Haute Tribune Star yesterday reported that the town agreed to issue $1.5 million in tax-free economic development bonds to finance the expansion of the First Southern Baptist Church of Clarksville. The bonds will finance part of the $2.5 million cost of the church's new Family Life Center that will contain a kitchen, an office suite, educational space and a gymnasium. The Center will not be used for worship services. The town's Economic Development Commission concluded that the new building, which can be utilized by the entire community, will benefit the economy by creating jobs and providing space for community outreach programs.
Special provisions in the Internal Revenue Code permit states and cities to issue bonds that offer tax-exempt interest to investors where the borrowings are used to finance property owned by a 501(c)(3) charitable organization. (For details, see IRS Publication 4077.) The arrangement does not involve using local tax monies for building of the new facility. Instead, the city borrows money from investors, contributes those funds to the construction of the building, and repays investors through payments from the church to the city made over the life of the building.
