A state inspector has been asked to review whether Yeshiva University, which is in a court battle with a group of L.G.B.T.Q. students over whether it must recognize their campus club, should have received $230 million in taxpayer funds after the university has said that it is a religious institution.
The referral could lead to a significant escalation in a complex case in which the university has argued in court that it is a Modern Orthodox Jewish religious institution, which would exempt it from anti-discrimination laws and allow it to reject the club. Before the 2021 lawsuit, Yeshiva described itself as an educational institution, which made it eligible for taxpayer funds but obliged it to follow city and state nondiscrimination laws.
Earlier this year, state lawmakers said the university’s legal argument raised alarm bells because it had for decades accepted public funds to pay for the construction and renovation of its facilities. The lawmakers accused Yeshiva of misrepresenting itself to obtain at least $230 million and asked the university to provide a full account within 30 days of how it had spent those funds.
Yeshiva declined to do so, said Brad Hoylman-Sigal, the chairman of the State Senate Judiciary Committee. In a letter sent last week, he asked the New York State inspector general, Lucy Lang, to investigate whether the university had misled the government “to qualify for low-cost, tax-exempt bond financing.”
The college’s “discriminatory behavior and claimed status appear to be at odds with the statements Y.U. made to obtain state bond financing,” Mr. Hoylman-Sigal said in the letter. David King, a spokesman for the inspector general’s office, said on Thursday that it had received the referral and would review it.
In an interview, Mr. Hoylman-Sigal said, “Regardless of anyone’s motives, misrepresentation to procure public money is dishonest and could potentially violate state law.”
In a statement on Monday, Andrew Lauer, the university’s vice president for legal affairs and general counsel, instead said lawmakers were laboring under “a fundamental misunderstanding of the facts and the law.”
He declined to respond to questions about whether the university had misled the state or why it declined to comply with lawmakers’s request for documents.
“Religious institutions are not precluded from receiving financing from” the state, Mr. Lauer said.
He added that it was “false and offensive” to say the university discriminated against L.G.B.T.Q. students because administrators founded a religiously-based club for members of the community last year. The lawsuit’s plaintiffs rejected that compromise, saying it imposed rules on their club to which other clubs were not subjected.
“Yeshiva has already established a path forward to continue providing loving and supportive spaces for its L.G.B.T.Q. students,” he said. “Well-meaning politicians are kindly asked to learn the facts before attacking Jewish education.”
The case has brought a heated national debate over the interplay of religious liberty and civil rights to one of the most politically liberal cities in the United States.
It also raises the specter that the university, which has more than 6,000 students on four campuses in Manhattan and the Bronx, could jeopardize its ability to receive state funds.
The court battle is part of a larger nationwide dispute over whether companies and organizations that are religiously affiliated — or even individuals, like bakers or county clerks — must provide services and public accommodations to people whose views or way of life they disapprove of.
Many Jewish congregations support L.G.B.T.Q. rights, bless same-sex weddings and employ rabbis who are gay or transgender. Still, many Orthodox leaders interpret the Jewish faith in a way that promotes more traditional ideas of gender and sexuality.
The central question in the legal dispute involving Yeshiva is whether it should be considered an educational corporation that is governed by state education law, which is what it says in the university charter, or whether it should be granted the First Amendment protections of a religious corporation, which is what the university has argued in court.
Judges have so far rejected the university’s argument.
In a ruling against Yeshiva last June, Justice Lynn R. Kotler of the State Supreme Court in Manhattan pointed to the university’s charter, which describes it as “an educational corporation under the education law of the State of New York” that was “organized and operated exclusively for educational purposes.”
After that ruling, Yeshiva made an emergency appeal to the U.S. Supreme Court, which has taken a broad view of religious liberty in recent years and almost never ruled against a religious freedom claimant since Justice Amy Coney Barrett joined the bench in 2020.
But the high court rejected Yeshiva’s request last year. It ordered the university to recognize the club, known as the Pride Alliance, and to exhaust its appeals at the state level.
In response, the university said it would suspend all student clubs rather than recognize one for L.G.B.T.Q. students, a threat that was retracted when the Pride Alliance agreed to remain officially unrecognized while its court case remained pending. Yeshiva lost one appeal at the state level, but it may appeal again.
If Yeshiva succeeds at being recognized as a religious institution, more legally akin to a seminary than to a college, that would raise a tricky new question: What should be done about the large amount of public money it has received in recent years?
In his letter to the inspector general on Monday, Mr. Hoylman-Sigal said lawmakers’ concerns centered on at least three separate instances in 2009, 2011 and 2022 when the Dormitory Authority of the State of New York issued bonds on behalf of Yeshiva to raise money for construction projects.
The Dormitory Authority is a public finance and construction agency that works with health care and education institutions across the state. The authority has a long history of working with religiously affiliated colleges, said Jeffrey Gordon, an authority spokesman, but not religious institutions like Catholic seminaries.
Such institutions have leeway to do things like create admissions criteria that limit enrollment to heterosexual Catholic men, for instance.
Mr. Gordon said he could not recall another instance when an institution like Yeshiva had transitioned from an institution governed by state education law to a religious institution.