The Free Exercise Clause Meets the Public Purse: SCOTUS Poised to Force Religious Exemptions in Public Preschool Funding

The Collision Course

The Supreme Court appears ready to detonate another cornerstone of the administrative state’s regulatory apparatus—this time at the intersection of religious liberty and public education funding. On November 3, the justices heard arguments in a challenge by Catholic preschools to Colorado’s nondiscrimination requirements for publicly funded pre-K programs, and the tea leaves suggest a majority is prepared to side with the religious institutions. If the Court rules as expected, it will mark the most significant expansion of Trinity Lutheran Church of Columbia, Inc. v. Comer, 582 U.S. 449 (2017), and Espinoza v. Montana Department of Revenue, 140 S. Ct. 2246 (2020), to date—potentially rendering religious organizations immune from neutral, generally applicable regulations whenever they accept government contracts.

The case presents a deceptively simple question with labyrinthine implications: May a state condition participation in a public benefits program on compliance with LGBTQ antidiscrimination mandates, or does the Free Exercise Clause require the state to exempt religious objectors even when they take the government’s money? Based on the tenor of oral argument, the Court’s conservative majority seems inclined to answer the latter question in the affirmative, effectively creating a constitutional right to public funding without public obligations.

Beyond Trinity Lutheran: From Playgrounds to Pedagogy

To understand why this case matters, recall the trajectory of the Court’s recent Free Exercise jurisprudence. In Trinity Lutheran, the Court held that Missouri violated the Free Exercise Clause by excluding churches from a public program that provided grants for playground resurfacing. Chief Justice Roberts emphasized that the state had put the church to a choice: participate in an otherwise available public benefit or remain true to its religious identity. Three years later, in Espinoza, the Court extended this logic to strike down Montana’s “no-aid” provision barring religious schools from tax-credit scholarship programs, holding that once a state decides to subsidize private education, it cannot disqualify some private schools solely because they are religious.

But those cases involved what might be termed “status-based” exclusions—rules that barred religious entities from funding streams merely because of their religious character. The Colorado case presents a far more aggressive theory: that religious institutions have a constitutional right to accept public funds while refusing to comply with the regulatory conditions attached to those funds, provided those conditions conflict with religious doctrine. This is not about keeping religious schools out of the public trough; it is about letting them feed at the trough while ignoring the dietary restrictions.

The Smith Problem and the “Most Favored Nation” Theory

The legal vehicle for this expansion is likely the “most favored nation” theory of Free Exercise articulated in Fulton v. City of Philadelphia, 141 S. Ct. 1868 (2021). Under Employment Division v. Smith, 494 U.S. 872 (1990), neutral laws of general applicability typically survive Free Exercise challenges even if they incidentally burden religious practice. However, Fulton held that a law is not “generally applicable” if it contains a mechanism for individualized exemptions—such as a waiver provision—and the government denies an exemption to a religious objector while allowing secular exemptions.

Colorado’s preschool program almost certainly contains various waiver provisions, as most regulatory schemes do. If the Court applies Fulton’s logic strictly, the existence of any discretionary exemption mechanism could trigger strict scrutiny, effectively transforming every government contract into a potential Free Exercise lawsuit. The implications for administrative law are staggering: agencies would be forced to choose between eliminating all flexibility in their programs (to avoid the “individualized exemption” trap) or granting religious exemptions from any regulation that burdens religious exercise.

This represents a fundamental restructuring of the relationship between religious liberty and the regulatory state. Under the regime the Court seems poised to create, religious organizations would enjoy a constitutional veto over the terms of their public contracts. A Catholic preschool could accept state funds while refusing to admit children of same-sex couples; a Baptist homeless shelter could take federal grants while declining to serve transgender individuals; a Methodist adoption agency could receive government contracts while excluding Jewish prospective parents. The common thread would be the government’s inability to enforce its own rules when those rules conflict with religious doctrine.

The Death of the “Neutrality” Principle

What makes this development particularly radical is its departure from the traditional understanding of government funding conditions. Since Rust v. Sullivan, 500 U.S. 173 (1991), the Court has generally held that the government may “selectively fund a program to encourage certain activities it believes to be in the public interest, without at the same time funding an alternative program.” The government speech doctrine and the spending power have historically allowed Congress and state legislatures to define the contours of public programs without running afoul of the First Amendment.

But the Court’s recent Free Exercise jurisprudence is quietly dismantling this framework. By treating the denial of funding to religious objectors as constitutionally equivalent to penalizing religious exercise, the Court is effectively constitutionalizing a right to government subsidies on the recipient’s own terms. This is not neutrality between religion and non-religion; it is affirmative protection for religious entities to operate outside the rules that govern everyone else.

Practical Implications for Practitioners

For lawyers representing religious organizations, the Colorado case offers a roadmap for challenging any regulatory condition attached to public funding. The key will be identifying “individualized exemption” mechanisms in the governing statute or regulation—provisions that allow administrators to waive requirements for secular reasons. Once such a mechanism is identified, Fulton arguably triggers strict scrutiny, and the government will bear the burden of proving that granting a religious exemption would undermine a compelling state interest.

Conversely, counsel for state and local governments must now draft funding conditions with surgical precision. To avoid Fulton’s “most favored nation” trap, agencies may need to eliminate discretionary waiver provisions entirely, creating rigid, one-size-fits-all regulatory schemes that allow no exceptions for anyone. Alternatively, governments may attempt to justify their nondiscrimination requirements as compelling interests under strict scrutiny—a burden that, while not insurmountable, requires substantial evidentiary support.

The case also raises difficult questions about the Establishment Clause. If the government must fund religious institutions that discriminate, does this constitute state endorsement of religious discrimination? The Court’s recent Establishment Clause jurisprudence, particularly Kennedy v. Bremerton School District, 142 S. Ct. 2407 (2022), suggests a majority is untroubled by such entanglements, preferring a “history and tradition” test that tolerates significant government support for religious exercise.

A Constitutional Two-Step

The Court appears to be executing a careful two-step: first, expanding the definition of “discrimination” against religion to include any denial of funding conditioned on regulatory compliance; second, applying strict scrutiny to such denials while simultaneously narrowing the compelling interests that can justify them. The result is a constitutional architecture where religious entities enjoy privileged access to the public fisc, free from the regulatory strings that bind secular recipients.

If the Court rules as expected in the Colorado preschool case, we will have crossed a Rubicon. The Free Exercise Clause will have been transformed from a shield against governmental persecution into a sword for capturing public resources while evading public obligations. For an administrative state already reeling from Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), and the removal-power cases, this represents yet another transfer of power from democratically accountable regulators to unaccountable private actors—this time, in the name of religious freedom.