• 1971 Supreme Court case Lemon v. Kurtzman set standard for government funding of religious institutions
• Lemon Test: Does policy create "excessive entanglement" between government and religion?

In 1971, the Court crystallized this logic in Lemon v. Kurtzman when it was asked to rule on programs in Pennsylvania and Rhode Island that provided state money to religious schools for books, materials, and teachers' salaries. The funding for books and materials could be evaluated using the older criteria: were the materials secular, or was religion being advanced by the purchase of, for example, a math book? But the question of funding teachers proved trickier. And so, in resolving the case the Court added a third test: would the aid lead to the "excessive entanglement" of government with religion? In this case, the Court argued that monitoring the teachers’ behavior—ensuring that a little Ecclesiastes did not sneak its way into Algebra class—would require constant surveillance, and thus threaten the necessary separation of church and state.

The "Lemon Test" and the Child Benefit theory have become the primary legal standards for evaluating state assistance to religious schools. Using these criteria, the Court has decided that money could be provided for secular textbooks but not for school maintenance and repair. The Court has allowed states to provide standardized testing to religious school students in school but access to speech, hearing, and psychological assessment by public employees only off campus. The Court has also held that "released time" programs—programs that allow students to be released from school in order to attend religion classes—are permissible only if the classes are held off public school grounds (Zorach v. Clausen). And in recent decades, the Court has tended to be even more tolerant of state aid to religious schools. In 2000, the Court extended the range of permissible public assistance to religious schools by affirming the constitutionality of a Louisiana state program that provided not only books but also computers, lab equipment, televisions, and video tape recorders (Mitchell v. Helms). And whereas in the past, the Court had insisted that public employees provide special services, such as psychological assessment off school grounds, in recent cases, the Court has allowed public school teachers to provide special secular instruction on religious school campuses (Agostini v. Felton) and even a state-paid sign language interpreter for a deaf student at a religious school (Zobrest v. Catalina Foothills School District).

While the courts have moved in one direction on questions relating to state aid to religious schools, they have moved in the opposite on other issues, such as prayer and curriculum content in public schools. That is, while the courts have allowed for increased public financial support for religious schools, they have also drawn more rigid barriers against the encroachment of religious activities into public schools.