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You are thinking of the 1971 case, Lemon v Kurtzman. In Lemon, the Supreme Court laid out a three part test for whether state government aid for secular activities in religious schools is constitutional. It has always been clear that the Constitution forbids state aid for religious activities.
The 3-part test is:
Is the purpose of the state law authorizing the aid secular? That is, was the intent to further non-religious objectives.
Is the law’s primary effect one that neither advances nor inhibits religion?
Would the law lead to “excessive government entanglement with religion”?
In the Lemon cases, the Court held that providing teachers to religious schools went too far, but that paying for textbooks did not.
The Court has tinkered with the 3-part test over the years. For example, in Meek v. Pittenger (1975), the Court found that providing $12 million worth of maps, charts, films, and audio-visual equipment went too far.
It is important to remember that the current Court has a very different inclination with respect to this sort of issue than it did in the mid-70s!
For an excellent discussion of this issue, go to the link below.
The three part test that is used in this type of situation is typically known as the "Lemon Test." The test got its name because it was created by the Supreme Court of the United States in the case of Lemon v. Kurtzman (1971). This test is used to determine when government actions in general (including aid to parochial schools) violates the Establishment Clause of the First Amendment.
The Establishment Clause tells us that Congress can make no law "respecting an establishment of religion." This means that Congress cannot establish an official national religion. However, the clause has been taken to mean more than that. It has been taken to mean that the government cannot do things that imply that it is supporting religion or that it is supporting any particular church.
The problem is that there are gray areas. The government might have an interest in helping private schools since it wants children to get a good education. In such cases, is it supporting religion? This is what the Lemon Test is supposed to determine. The test says that a court has to ask
- If the intent of the law is secular.
- If the main effect of the law is one that neither advances nor inhibits religion.
- If the law would lead to "excessive government entanglement with religion."
Courts are supposed to use this test, which is of course rather vague, to determine whether government actions are valid under the Establishment Clause.
The Lemon test.
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