Neutrality, RLUIPA, and "Mitigation Fees"

[A.E. Brownstein]

I have learned more about the RLUIPA issue I raised earlier regarding fees
imposed on a church. Apparently the city has given up on a fee to replace
the money they would lose from property taxes.

  "The fees in question are not related to bond issues, as discussed in the
response to your inquiry. Specifically, there are two fees being challenged
right now. Originally, [the city] sought to impose a PILOT fee, a payment
in lieu of taxes, to recoup their 60% share of the ad valorem property tax
they would lose. The land is in a redevelopment district, hence the high
share of local control of the tax. This tax was eventually abandoned under
pressure. The remaining two are 1) a Public Facilities Fee of $132,000 and
2) annual Community Facilities District Fees of about $5,000, primarily for
police and fire services, landscape and lighting. The first fee is
primarily for highway expense, parks and the like. The second is an annual
supplement to the ad valorem tax, for cost of certain municipal services.
This is a small church of 60 members with an annual budget of about
$30,000, and a building fund of about $400,000. With additional mitigation
measures, the total up front fees are more than $200,000, or more than half
the cost of the building itself. The annual CFD assessment represents about
1/6 of the annual church budget."

My original inquiry and Daniel Bort's response are posted below.


      Alan Brownstein

      UC Davis

>A city in California has set up a land use system that imposes fees on
>non-profit institutions locating in industrial or commercial areas (maybe
>residential areas too, I'm not sure) in order to recap the tax revenue the
>town will lose if property in these areas is dedicated to non-commercial
>uses. A church seeking to locate in such an area has been told it must pay
>thousands of  dollars in fees under this standard. I suspect that religious
>institutions will make up a disproportionately large part of the class of
>organizations burdened by this system. I also suspect that these fees will
>make it extremely difficult for any religious group (certainly any religious
>group of modest size) to locate a religious institution in these areas. Two
>questions.
>1. Does this violate RLUIPA? Should it violate the free exercise clause
>(assuming a pre-Smith understanding of that provision)?
>2. How would those who advocate a "neutrality theory" for the religion
>clauses evaluate this system. I recall arguments on this list and elsewhere
>analogizing tax exemptions and deductions to tax credits and subsidies and
>suggesting that religious organizations should receive subsidies that are
>generally available to all non-profit entities just as exemptions and
>deductions are generally available to all non-profit entities whether they
>are religious or not. Does this argument for formal neutrality extend to
>fees and fees in lieu of taxes? If an exemption from a fee constitutes a
>subsidy for constitutional purposes, is the church seeking an exemption from
>this fee asking for a preferential subsidy prohibited by the Establishment
>Clause under neutrality theory? Does the question change if we are talking
>about a religious school rather than a house of worship?
>         Alan Brownstein
>         UC Davis
>
>As recently as four years ago I was practicing municipal finance law in
>California.  (My son attends UC Davis and Yolo County was a sometime
>client.)  It would be important to know whether the "fee" you describe is
>designed to replace ad valorem property tax revenue, or whether it is
>designed to pay off a special assessment lien or special tax lien.  These
>governmental liens are frequently imposed (usually with the encouragement of
>the developer) on property in industrial park, commercial, and residential
>developments in California as security for bonds, the proceeds of which are
>used to pay for public infrastructure necessary to serve the new
>development.  They are very analogous (except for their statutory priority)
>to private deeds of trust (mortgages, in many states) securing loans used to
>improve property.  These liens are typically apportioned among the
>developing parcels in proportion to "benefit conferred" on each parcel by
>the public improvements.  To allow the liens to be extinguished because the
>property happened to be purchased by a non-profit entity would severely
>prejudice the bondholders by depriving them of their security and, of
>course, severely impact the marketability of such land-secured municipal
>bonds.  Note that this does not treat the non-profit any worse than anybody
>else.  Even governmental agencies (including, I once successfully argued,
>the federal government) taking land subject to such liens must either pay
>the annual assessments (or special taxes) or pay off the liens.  Sometimes
>"mitigation fees" are imposed instead of special assessments.  These are
>generally for the same purpose but may be without the financing element  -
>more of a "pay as you go" system (for example "school impact fees" or "sewer
>capacity impact fees that are eventually used to expand the school or sewer
>systems).  But they would also be levied on all properties, not just
>non-profits.
>
>On the other hand, if the fee really is designed take back with one hand
>what the tax-exemption has granted with the other, it would seem that this
>would be a local attempt to overrule a state statute in an area where the
>state has pre-empted local action.
>
>Daniel C. Bort
>General Counsel
>The First Church of Christ, Scientist