The separation of church and state is an important pillar of the American legal system. Under the U.S. Constitution, the government cannot infringe on someone's religion - but it also cannot favor one religion over another. In light of this, government entities often have to keep faith-based organizations at arms length.
What the First Amendment Says
"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof..."
Religious Groups and Government Power
United States Library of Congress, The Constitution of the United States of America: Analysis and Interpretation
In Larkin v. Grendel’s Den,1 the Court held that the Establishment Clause is violated by a delegation of governmental decision-making to churches. At issue was a state statute permitting any church or school to block issuance of a liquor license to any establishment located within 500 feet of the church or school.
Although the statute had a permissible secular purpose of protecting churches and schools from the disruptions often associated with liquor establishments, the Court indicated that these purposes could be accomplished by other means, e.g., an outright ban on liquor outlets within a prescribed distance, or the vesting of discretionary authority in a governmental decisionmaker required to consider the views of affected parties.
However, the conferral of a veto authority on churches had a primary effect of advancing religion both because the delegation was standardless (thereby permitting a church to exercise the power to promote parochial interests), and because 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.2
Moreover, the Court determined, because the veto enmeshes churches in the exercise of substantial governmental powers, it represented an entanglement offensive to the core rationale underlying the Establishment Clause [—] preventing ‘a fusion of governmental and religious functions.’3
Using somewhat similar reasoning, the Court in Board of Education of Kiryas Joel Village v. Grumet,4 invalidated a New York law creating a special school district for an incorporated village composed exclusively of members of one small religious group. The statute failed the test of neutrality, the Court concluded, since it delegated power to an electorate defined by common religious belief and practice, in a manner that fails to foreclose religious favoritism. It was the anomalously case-specific nature of the legislature’s exercise of authority that left the Court without any direct way to review such state action for conformity with the neutrality principle. Because the village did not receive its governmental authority simply as one of many communities eligible under a general law, the Court explained, there was no way of knowing whether the legislature would grant similar benefits on an equal basis to other religious and non-religious groups.
More on the First Amendment
1. 59 U.S. 116 (1982).
2. 459 U.S. at 125–26. But cf. Marsh v. Chambers, 463 U.S. 783 (1983), involving no explicit consideration of the possible symbolic implication of opening legislative sessions with prayers by paid chaplains.
3. 459 U.S. at 126, quoting Abington v. Schempp, 374 U.S. 203, 222 (1963).
4. 512 U.S. 687 (1994). Only four Justices (Souter, Blackmun, Stevens, and Ginsburg) thought that the Grendel’s Den principle applied; in their view the distinction that the delegation was to a village electorate rather than to a religious body lack[ed] constitutional significance under the peculiar circumstances of the case.