Atheist group sues to end tax exemptions for church-owned apartments in Madison

The Freedom From Religion Foundation calls this "the equivalent of exempting an entire neighborhood from paying property taxes"

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The Freedom From Religion Foundation has filed a lawsuit arguing that two apartment complexes in Madison, Wisconsin that are owned by religious schools should have to pay property taxes. Right now, those apartments are tax-exempt, a move that FFRF says raises everyone else’s taxes (to make up for the lost revenue). Furthermore, current state law favors religion and prohibits groups like FFRF from getting equal treatment.

All of this centers around two buildings: Pres House, owned by the Presbyterian Student Center Foundation, and Lumen House Apartments, owned by St Raphael's Congregation.

As the lawsuit says, in 2009, the state legislature passed a special statute that said certain kinds of student housing were eligible for tax exemptions. If the building was owned by a non-profit, housed no more than 300 students and at least 90% of them were students at the University of Wisconsin-Madison, and the facility offered “support services and outreach programs” to residents and the community, great! No taxes for you.

But the way that new statute was worded, it only applied to one place: Pres House. (The original draft of the statute was much broader, but lawmakers narrowed it down.) One state lawmaker even said he added the wording to help out that one group because “common sense would say it should be tax exempt as a religious-based residence, but the tax code was unclear.”

Pres House (via Google Maps)

Before the statute went into effect, Pres House paid about $160,000 in taxes.

After the statute went into effect, they paid nothing.

There were two problems with that: Madison missed out on those property taxes, and the other taxpayers in the city had to pay higher amounts to make up the difference. The Milwaukee Journal Sentinel found that tax bills were driven up “nearly 20%” for average homeowners: “That's close to $800 for a Milwaukee property-tax payer with a home assessed at $175,000.”

The tax exemption for Pres House was eliminated in 2011 (by Republicans!) but that move was soon vetoed by then-Gov. Scott Walker. So the tax exemption for Pres House remained in place.

In 2013, the Republican legislature made another change to the property tax exemption rules. They said a building could qualify for the exemption if:

(1) It met all those earlier requirements…

(2) … and it existed on July 2, 2013…

(3) … unless it was a "municipally designated landmark” in which case the deadline to exist was over a year later.

And wouldn’t you know it: Lumen House Apartments, a complex owned by the Catholic Diocese of Madison and considered a local landmark, finished construction in 2014.

Lumen House Apartments (via Google Maps)

The bottom line was that the 2013 rule change was made so that the two religiously affiliated apartment buildings—and virtually no other student housing buildings in the future—could get the tax exemptions. The Diocese even bragged about that in a press release, thanking Republican lawmakers for the rule change, saying “Their efforts… resulted in language that now clearly stipulates that Lumen House… will be tax-exempt, as was envisioned from the beginning.”

FFRF’s lawsuit claims that the 2013 change created an “arbitrary date-of-existence requirement that grandfathers-in the four then-exempt properties to the exclusion of all other similarly situated properties.”

In addition to the rule changes, FFRF says there were no public hearings about this change, no committee reports, no serious debate over whether this change was good or legal, etc.

Wait, it gets worse: Both buildings charge market rates for students renting their apartments; those spaces are not free or cheaper for residents. So while they offer some programming for tenants, they’re hardly “charitable.” They’re just commercial properties that get away with not paying taxes because they fall under some religious umbrella.

The lawsuit says:

Based on their combined estimated $33 million in value, omitting the Pres House and Lumen House Apartments from the property tax rolls is approximately the equivalent of exempting an entire neighborhood from paying property taxes.

With that valuation, it boils down to those properties not paying nearly $400,000 in taxes every year. (Pres House apparently pays $15,000 a year for city services under a charge called “Payment in Lieu of Taxes.” That’s nice, but it’s a bargain considering how much more they’d be paying if they had to play by the same rules as everybody else.)

FFRF says it attempted to challenge these rules last year, but their inquiries were rebuffed. FFRF co-presidents Annie Laurie Gaylor and Dan Barker, along with another plaintiff David Peterson, filed objections to their own property tax assessments as a form of protest—saying they were higher than they should have been because of the breaks given to Pres House and Lumen House—but those objections were also rejected. So that’s what led to this lawsuit:

For over a decade, Ms. Gaylor & Mr. Barker, and Mr. Peterson have been paying higher property taxes, along with all other Madison property taxpayers, in part to make up for the unconstitutional omission of these properties from the City’s tax rolls.

Further, the Exemption was created and later amended to unlawfully favor two religious organizations to the exclusion of all other religious or non-religious organizations, including plaintiff FFRF. FFRF is unable to ever qualify for the Exemption if it were to invest in rental properties aimed at renting to UW-Madison students.

The tax exemption that the Pres House and Lumen House Apartments benefit from is unconstitutional and the City cannot bestow unconstitutional exemptions to preferred religious property owners or any other property owners.

Will this lawsuit be successful? Who knows. Everyone involved in making those tax exemptions a reality made it explicitly clear that they changed the rules specifically to benefit those two apartment complexes affiliated with religious groups… But the statutes themselves are written so narrowly, they don’t actually mention religion. They don’t need to. The winks come through loud and clear.

So what matters more? The words on the page that exclude nearly everyone except those two religious facilities… or the intent behind those words?

Right now, the only defense offered by the director of Pres House is that the tax exemption is legal because it’s… the law.

… Pres House Executive Director Rev. Erica Liu told The Daily Cardinal their exemption status does not violate the state constitution.

“The Wisconsin Legislature enacted the property tax exemption statute at issue through conventional, appropriate and lawful means,” she said. “The Legislature and defendant parties each believe the exemption is constitutional, and the allegations which contend the exemption has improper or unlawful origins are inappropriate and highly disputed.”

Legislatures pass illegal laws all the time. Just because they fill out the paperwork and go through the motions doesn’t make it okay. Challenging illegal laws isn’t “inappropriate” either.

The legislature could easily have said all properties designed for college students that provide certain services can be tax exempt. They could have denied those exemptions to everyone, too. But by carving out special perks for those two religiously affiliated complexes, this was always an illegal law. FFRF is just trying to correct the state’s mistake after their polite requests for a change were turned down.

Quick note: FFRF says it’s suing the city of Madison and not the state because the city actually provides the exemptions.

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