Key point 7-11. Eminent domain refers to the power of the government to take private property for a public purpose without the owner’s consent. A property owner whose property is taken by a governmental exercise of eminent domain is entitled to compensation. Church property is not immune from eminent domain.
1. IN GENERAL
Eminent domain refers to the power of the government to take private property for a public purpose without the owner’s consent. It often is referred to as condemnation. A property owner whose property is taken by a governmental exercise of eminent domain is entitled to compensation. Obviously, attempts to take church property by this process have generated controversy. The relatively few courts that have addressed this issue generally have concluded that church property is not immune from a proper exercise of eminent domain.201 See, e.g., First English Evangelical Lutheran Church v. Los Angeles County, 482 U.S. 304 (1987); United States v. Two Acres of Land, 144 F.2d 207 (7th Cir. 1944); Redevelopment Agency v. First Christian Church, 189 Cal. Rptr. 749 (Cal. App. 1983); State Highway Department v. Augusta District of North Georgia Conference of the Methodist Church, 154 S.E.2d 29 (Ga. App. 1967); State Highway Department v. Hollywood Baptist Church, 146 S.E.2d 570 (Ga. App. 1965); First Baptist Church v. State Department of Roads, 135 N.W.2d 756 (Nebr. 1965); Gallimore v. State Highway and Public Works Commission, 85 S.E.2d 392 (N.C. 1955); Trustees of Grace and Hope Mission v. Providence Redevelopment Agency, 217 A.2d 476 (R.I. 1966); Assembly of God Church v. Vallone, 150 A.2d 11 (R.I. 1959).However, they also have concluded that the government’s power of eminent domain must be balanced against the interests of the church, and that in some cases the church will prevail. For example, the Colorado Supreme Court rejected an attempt by a municipal urban renewal authority to condemn a church building that served as “the mother church and fountainhead” of a religious sect.202 Pillar of Fire v. Denver Urban Renewal Authority, 509 P.2d 1250 (Colo. 1973).The court observed:
The First Amendment protects freedom of religion, which has its roots in the hearts and souls of the congregation, not in inanimate bricks and mortar. Yet, religious faith and tradition can invest certain structures and land sites with significance which deserves First Amendment protection. We recognize that church property is private property which can be taken by eminent domain for paramount public use, just as religious conduct is subject to appropriate regulations for the public good. When regulating religious conduct, however, the state may be challenged to justify its infringement of the totally free exercise of religion. We hold that under these circumstances, the state may be so challenged to justify a use of its power of eminent domain. The [trial court] must weigh the plans and goals of the [city] as they bear on the particular land in question, against the right of the [church] to maintain a brick structure which the church claims is unique and does not conform to the general plan for development of the block or the area. …
The only conclusion which we can draw is that we must balance the interests involved in the controversy before us and recognize that the state must show a substantial interest without a reasonable alternate means of accomplishment if the state is to be constitutionally allowed to take the birthplace of the [sect].
The same court later rejected an attempt by a city to condemn the parking lot of a church that had been declared a historic landmark.203 Order of Friars Minor v. Denver Urban Renewal Authority, 527 P.2d 804 (Colo. 1974).The court emphasized that the trial court had
a duty to weigh and balance the competing interests, public and religious. Only after such a hearing and upon finding that there is a substantial public interest involved which cannot be accomplished through any other reasonable means, can the court proceed with the condemnation of [church] property.
Assuming that the government has the authority, in a particular case, to take church property through the process of eminent domain, the Fifth Amendment to the United States Constitution requires that the church be given “just compensation” for its property. The United States Supreme Court has noted that “the Fifth Amendment provides ‘nor shall private property be taken for public use, without just compensation,’ and applies to the states through the Fourteenth Amendment.”204 First English Evangelical Lutheran Church v. Los Angeles County, 482 U.S. 304, 310 n.4 (1987).But what is “just compensation”? In many cases, cities and churches come to widely differing interpretations of this critical term. Most courts have rejected “fair market value” as the standard for computing just compensation.The United States Supreme Court has observed that just compensation means “the full and perfect equivalent in money of the property taken,” and, that “[w]here, for any reason, property has no market, resort must be had to other data to ascertain its value.”205 United States v. Miller, 317 U.S. 369, 373-374 (1943).
In a leading case, a California state appeals court was asked to determine the value of an old but ornately-decorated, 2,000-seat sanctuary that had been condemned by a city government for urban renewal purposes.206 Redevelopment Agency v. First Christian Church, 189 Cal. Rptr. 749 (Cal. App. 1983).The city’s appraiser valued the church at $1 million, a figure obtained by reducing the replacement cost of the building by a “depreciation” factor of 75 percent. The appraiser used a 75 percent depreciation factor since the only other comparable church in the community had sold for little more than the value of the land on which it stood. The church’s appraiser valued the church at $4.6 million, a figure obtained by reducing the replacement cost by a depreciation factor of 40 percent. The court agreed with the trial court’s finding that a fair value of the property was $3 million. It observed:
The ultimate goal in any eminent domain proceeding is of course to determine constitutionally required “just compensation.” That compensation is to be measured by what the owner lost and not what the condemnor has gained. … Generally speaking, the most widely used and perhaps most easily applied concept is that of “fair market value.” But even that test, which is described as what a willing buyer would pay to a willing seller under circumstances totally free from external pressures, may not, in every case achieve a correct result. … The economic reality of course is that certain types of buildings such as churches are not, as such, regularly bought and sold in the commercial market and to ordinary buyers of real estate have no greater value than the use which can be made of the land free of the building. The constitutional mandate of just compensation, of course, would not be met if public agencies could thus exercise the power of eminent domain by simply paying for the value of the raw land when it is occupied by some special type of building. … Recognized alternatives to the market data approach to valuation are reproduction or replacement costs less depreciation or obsolescence. These methods, in reality, provide a more just and equitable approach in evaluating special use buildings such as churches.207 Id. at 753-754. The court added: We hasten to point out, however, that in our view depreciation and obsolescence should not be used as a “back door” method of nullifying the reproduction and replacement approach to valuation. For example, a large ornate church, as here, because it was used by only a small congregation [average weekly attendance was 200] might be viewed by some as obsolete and having no value beyond that of the land itself. The church, however, does have value to the congregation and the congregation is entitled to compensation therefore. A property owner should not be penalized by application of a concept of locational or functional obsolescence simply because it happens to be in the wrong place at the wrong time when a condemning agency decides to make its move. Id. at 754.
Similarly, another court has observed that
Where there is proof that there is no market value of property with a specialized use, such as a church … the general rule is that resort may be had to some other method of fixing the value of property. … Depending on the nature of the property, the authorities have supported different methods of determining value in these situations. Expert testimony as to reproduction of replacement cost, less depreciation, has been approved in many cases as competent foundation evidence to support an opinion as to valuation.208 State Highway Department v. Hollywood Baptist Church, 146 S.E.2d 570, 759-760 (Ga. App. 1965).
A federal appeals court has noted that
In the case of nonprofit, religious or service properties, cost of replacement is regarded as cogent evidence of value although not in itself the only standard of compensation. But people do not go about buying and selling country churches. Such buildings have no established market values. Consideration must be given to the elements actually involved and resort had to any evidence available, to prove value, such as the use made of the property and the right to enjoy it.209 United States v. Two Acres of Land, 144 F.2d 207, 209 (7th Cir. 1944).
Occasionally, a church’s property is “taken” by a city or governmental agency through a process known as “inverse condemnation.” This refers to some regulatory action, short of a formal condemnation proceeding that has the effect of making a church’s property of little or no value. The United States Supreme Court addressed this issue in an important ruling.210 First English Evangelical Lutheran Church v. Los Angeles County, 107 S. Ct. 2378 (1987).In 1957, a Lutheran church in California purchased a 21-acre parcel of land in a canyon along the Mill Creek. The church constructed several buildings on the property, including a dining hall, two bunkhouses, a lodge, and a chapel, and used the improved property as a campgrounds known a “Lutherglen.” In 1977, a fire destroyed the forest upstream of the campgrounds, creating a serious flood hazard. A severe storm in 1978 flooded Lutherglen and destroyed its buildings. In response to the dangerous conditions in the area, the County of Los Angeles adopted a temporary ordinance prohibiting anyone from building any structure within a flood zone that included Lutherglen. The church thereafter sued the state of California, arguing that the state’s prohibition of any further use of the campgrounds violated the Fifth Amendment to the United States Constitution, which specifies that “private property [shall not] be taken for public use, without just compensation.” The Fifth Amendment, argued the church, does not require that the government seize private property by condemnation. It can also be violated by governmental regulations that effectively deny a landowner the use of his land, even on a temporary basis. The California state courts rejected the church’s contention, but the United States Supreme Court agreed that the county’s ban on further development of the campgrounds amounted to a “regulatory taking” of the church’s property without compensation in violation of the Fifth Amendment.
Eminent Domain Proceeds and the Unrelated Business Income Tax
Many churches have had their property converted to a public use through eminent domain (sometimes called “condemnation”). For example, a state government acquires property (including church properties) for a new highway. Of course, property holders must be paid a fair amount for their property. Does a charity have to pay the unrelated business income tax on such proceeds? No, said the IRS in a private letter ruling, so long as the charity did not acquire and hold the land for resale.211 IRS Letter Ruling 9629032.
2. SEIZING PRIVATE PROPERTY TO EXPAND THE TAX BASE OR PROMOTE ECONOMIC DEVELOPMENT
The Fifth Amendment to the United States Constitution states simply, “Nor shall private property be taken for public use, without just compensation.” There are three important principles embodied in this phrase. First, government agencies have the authority to acquire private property, even if the property owner objects. Second, government agencies can only acquire private property for a public use. Third, government agencies must provide “just compensation” to private property owners whose land is seized. The taking of private property by an act of government for a public use is commonly called “eminent domain” or “condemnation.”
Just what is a “public use?” The definition of this term is critical, since it describes the purposes for which private property can be seized by an act of government. In the Kelo case, the United States Supreme Court defined the concept of “public use” very broadly.212 Kelo v. City of New London, 545 U.S. 469 (2005).
The Kelo Case
In 2000, the city of New London, Connecticut approved a development plan that was “projected to create in excess of 1,000 jobs, to increase tax and other revenues, and to revitalize an economically distressed city, including its downtown and waterfront areas.” In assembling the land needed for this project, the city purchased property from willing sellers, and sought to use the power of eminent domain to acquire the remainder of the property from unwilling owners in exchange for just compensation.
One property owner whose property the city sought to acquire was born in her home in 1918 and had lived there her entire life. Her husband had lived in the house since they married some 60 years ago. This couple, along with other property owners, went to court to block the seizure of their property by the city. They claimed that the concept of “public use” did not include expanding the tax base or the promotion of economic development. The state supreme court ruled that the city was pursuing a public purpose and dismissed the landowners’ claims. The case was appealed directly to the United States Supreme Court.
The Court began its opinion by observing, “The disposition of this case therefore turns on the question whether the city’s development plan serves a public purpose.” It noted that “without exception, our cases have defined that concept broadly, reflecting our longstanding policy of deference to legislative judgments in this field,” and that “for more than a century [we] have eschewed rigid formulas and intrusive scrutiny in favor of affording legislatures broad latitude in determining what public needs justify the use of the takings power.” The Court continued,
The city has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including—but by no means limited to—new jobs and increased tax revenue. As with other exercises in urban planning and development, the city is endeavoring to coordinate a variety of commercial, residential, and recreational uses of land, with the hope that they will form a whole greater than the sum of its parts. To effectuate this plan, the city has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development. … Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the public use requirement of the Fifth Amendment.
The private property owners who opposed the seizure of their property insisted that economic development and expansion of the tax base never qualify as a public use. The Court disagreed, noting that “clearly, there is no basis for exempting economic development from our traditionally broad understanding of public purpose,” and that “the public end may be as well or better served through an agency of private enterprise than through a department of government.” Further, “any number of cases illustrate that the achievement of a public good often coincides with the immediate benefiting of private parties.” The Court also observed:
It is further argued that without a bright-line rule nothing would stop a city from transferring citizen A’s property to citizen B for the sole reason that citizen B will put the property to a more productive use and thus pay more taxes. Such a one-to-one transfer of property, executed outside the confines of an integrated development plan, is not presented in this case. While such an unusual exercise of government power would certainly raise a suspicion that a private purpose was afoot, [such] hypothetical cases can be confronted if and when they arise. They do not warrant the crafting of an artificial restriction on the concept of public use.
The Court insisted that it did not “minimize the hardship that condemnations may entail, notwithstanding the payment of just compensation.” And, it stressed that
nothing in our opinion precludes any state from placing further restrictions on its exercise of the takings power. Indeed, many states already impose public use requirements that are stricter than the federal baseline. Some of these requirements have been established as a matter of state constitutional law, while others are expressed in state eminent domain statutes that carefully limit the grounds upon which takings may be exercised. … The necessity and wisdom of using eminent domain to promote economic development are certainly matters of legitimate public debate. This Court’s authority, however, extends only to determining whether the city’s proposed condemnations are for a “public use” within the meaning of the fifth amendment to the federal Constitution. Because over a century of our case law interpreting that provision dictates an affirmative answer to that question, we may not grant petitioners the relief that they seek.
Four of the Court’s nine justices dissented from this ruling. One of the dissenting justices’ opinions concludes with these remarks:
The consequences of today’s decision are not difficult to predict, and promise to be harmful. So-called “urban renewal” programs provide some compensation for the properties they take, but no compensation is possible for the subjective value of these lands to the individuals displaced and the indignity inflicted by uprooting them from their homes. Allowing the government to take property solely for public purposes is bad enough, but extending the concept of public purpose to encompass any economically beneficial goal guarantees that these losses will fall disproportionately on poor communities. … [The Court’s decision in this case] encourages those citizens with disproportionate influence and power in the political process, including large corporations and development firms, to victimize the weak.
relevance to churches and other religious organizations
Does this ruling mean that city and state governments can seize church property to promote an economic development plan, or to increase the tax base? To illustrate, could a city “take” a church’s property (for just compensation) in order to allow a developer to demolish the church and construct a commercial building that will provide property tax revenue to the city? It is important to remember that churches are different from other private property owners in three important respects.
- The First Amendment guaranty of religious liberty provides churches with some enhanced protection that would not be available to other property owners. While this protection has been diminished by the Supreme Court in recent years, it retains some vitality.
- State constitutions also provide churches with guarantees of religious liberty. These protections vary widely from state to state. They may provide churches with additional protections when a city wants to take their property.
- The federal Religious Land Use and Institutionalized Persons Act states that “no government shall impose or implement a land use regulation in a manner that imposes a burden on the religious exercise of a person, including a religious assembly or institution, unless the government demonstrates that imposition of the burden on that person, assembly, or institution—(A) is in furtherance of a compelling governmental interest; and (B) is the least restrictive means of furthering that compelling governmental interest.” This law may provide churches with additional protections when confronted with an attempt by a city government to take their property for economic development or to increase the tax base.213 See § 7-06.4, supra.
the Cottonwood Christian Center case
In the Cottonwood Christian Center case, a federal district court in California ruled that a city could not seize a church’s property through eminent domain in order to allow a discount warehouse to be constructed that would generate more tax revenues.214 Cottonwood Christian Center v. Cypress Redevelopment Agency, 218 F.Supp.2d 1203 (C.D. Cal. 2002).A church grew rapidly from 50 members to more than 5,000. As a result of this growth, the church outgrew its 700-seat sanctuary and the church was forced to conduct six services each weekend and “bus” parishioners from remote parking areas. But even with the buses and multiple weekend services, the church was unable to accommodate all the people that wanted to attend its services and it was unable to conduct outreach to potential new members. The physical constraints of its facility also limited the church’s ability to conduct many of its different programs including youth conferences, women’s ministries, daycare facilities, English language classes for native Spanish speakers, and missionary training.
The church eventually purchased 18 acres of property, and developed detailed plans to use the property. Its proposed church center included a 300,000 square foot worship center with more than 4,700 fixed seats, multiple classrooms and a multi-purpose room for youth and other ministries. The proposed center also included a youth activity center, gymnasium, and study rooms for after school youth programs. The facility included a daycare facility for church members and the surrounding community and a religious bookstore. The proposed center had sufficient space for all of the church’s current ministries, community service programs, and worship services. The church contacted city officials to obtain a conditional use permit allowing it to build its new facility.
What the church did not know was that city officials had other plans for the church’s property. Initially, the city planned a 45-acre development that included the church’s property, and that would have three major retail anchor stores and a mix of restaurants, smaller retail stores, and movie theaters. This plan was eventually abandoned, and a modified plan was adopted that only pertained to the church’s 18 acres. The city planned on allowing a large discount warehouse (such as Costco) to locate on the property. The city then offered to buy the property from the church at a specified price. When the church rejected this offer, the city instituted eminent domain proceedings to compel the church to sell its property to the city.
The church filed a lawsuit in federal court, claiming that the city’s refusal to issue the conditional use permit and the eminent domain proceeding violated the Religious Land Use and Institutionalized Persons Act (RLUIPA) as well as federal and state constitutional protections of religious liberty.
RLUIPA prohibits any government agency from imposing or implementing “a land use regulation in a manner that imposes a substantial burden on the religious exercise of a person, including a religious assembly or institution, unless the government demonstrates that imposition of the burden on that person, assembly, or institution—(A) is in furtherance of a compelling governmental interest; and (B) is the least restrictive means of furthering that compelling governmental interest.”
The court concluded that the city’s refusal to grant the church a conditional use permit “involves a land use regulation or system of land use regulations, under which a government makes, or has in place formal or informal procedures or practices that permit the government to make, individualized assessments.” The court also concluded that the city’s attempt to seize the church’s property through eminent domain “falls under RLUIPA’s definition of land use regulation which is defined as a zoning or landmarking law, or the application of such a law, that limits or restricts the claimant’s use or development of land. The city’s authority to exercise eminent domain … would unquestionably limit or restrict the church’s use or development of land.”
The court also ruled that the city’s actions violated the First Amendment guaranty of religious freedom. In 1990 the United States Supreme Court ruled that “neutral laws of general applicability” that impose burdens on religious practice do not violate the First Amendment guaranty of religious freedom, and need not be based on a “compelling government interest.” However, the federal district court noted that the city’s refusal to grant the church’s conditional use permit was an “individualized assessment” for which a compelling government interest must be proven. It observed: “The city’s land-use decisions here are not generally applicable laws. [Its] refusal to grant the conditional use permit invites individualized assessments of the subject property and the owner’s use of such property, and contain mechanisms for individualized exceptions.” Even the city’s eminent domain proceeding constituted an individualized assessment, the court concluded.
The court ruled that the city’s actions were not neutral, but instead specifically aimed at discriminating against the church’s religious uses. It observed:
Why had the city, so complacent before the church purchased the property, suddenly burst into action? Although some innocent explanations are feasible—such as new leadership or robust economic growth—the activity suggests that the city was simply trying to keep the church out of the city, or at least from the use of its own land. This suspicion is heightened by the nature of the projects. The city’s plan called for the church’s property to be used as business offices. Yet, while the city has been insistent that a church would be inconsistent with this plan, it has proceeded to plan a shopping/entertainment center and a strip mall anchored by Costco, neither of which are [sic] consistent with a business park. … Similarly, the city’s claim that it needs the tax revenue of a retail store is dubious. In her state of the city address [the mayor] trumpeted [the city’s] good fiscal condition, stating that the city continues to set aside 25 percent in reserves annually while still delivering the highest quality of service to our community.
There can be no violation of RLUIPA or the First Amendment unless government action imposes a substantial burden on core religious beliefs. The court concluded that this requirement was met: “Preventing a church from building a worship site fundamentally inhibits its ability to practice its religion. Churches are central to the religious exercise of most religions. If a congregation could not build a church it could not exist.” The court also concluded that no compelling governmental interest supported the city’s actions. In rejecting the city’s argument that “revenue generation” (having a Costco store on the church’s property) was a compelling interest, the court observed, “If revenue generation were a compelling state interest, municipalities could exclude all religious institutions from their cities.”
The Cottonwood Christian Center case is a useful precedent for any church that is encountering resistance from city officials in building a new sanctuary. Here are the main points:
(1) A city’s refusal to grant a conditional use permit is a “land use regulation” that is subject to the protections of RLUIPA.
(2) A city’s attempt to seize church property through the exercise of eminent domain is a “land use regulation” that is subject to the protections of RLUIPA.
(3) “Neutral laws of general applicability” can impose burdens on the exercise of religion without offending the First Amendment whether or not they are supported by a compelling government interest. However, the court concluded that a compelling governmental interest was required to sustain the city’s actions in this case because (a) the city’s actions were not “neutral” but rather were hostile to religion, and (b) the city’s actions amounted to “individualized assessments.”
(4) The city’s desire for additional tax revenue is not a compelling governmental interest that would justify its denial of the church’s conditional use permit or its attempt to seize the church’s property through eminent domain.