Subsidizing religious groups
Q: Our city owns a public center, which is heavily subsidized with taxpayer dollars. The center rents space to nonprofits at half the rate it charges commercial groups. It considers nonprofits as having 501(c)3 status and being located in the city limits. We were wondering whether there might be any issue with a city subsidizing a religious group under this program? Or is a church 501(c)3 no different than, say, a ballet troupe?
A: There are all kinds of nuances to this, of course, but looking at two key, albeit now slightly dated, Supreme Court cases, I think we get to that answer.
It is pretty well settled that churches are allowed to take advantage of tax exempt status. That was the Court's ruling, by a vote of 8-1, in the 1970 case of Walz v. Tax Commission of the City of New York. After a case filed by taxpayers who felt they were subsidizing houses of worship wound its way through the judicial system, the Court ruled that the tax exempt status granted to all houses of worship is the same privilege given to other nonprofit organizations. Here's a bit of what they said:
"The legislative purpose of a property tax exemption is neither the advancement nor the inhibition of religion; it is neither sponsorship nor hostility. New York, in common with the other States, has determined that certain entities that exist in a harmonious relationship to the community at large, and that foster its 'moral or mental improvement,' should not be inhibited in their activities by property taxation or the hazard of loss of those properties for nonpayment of taxes. It has not singled out one particular church or religious group or even churches as such; rather, it has granted exemption to all houses of religious worship within a broad class of property owned by nonprofit, quasi-public corporations which include hospitals, libraries, playgrounds, scientific, professional, historical, and patriotic groups. The State has an affirmative policy that considers these groups as beneficial and stabilizing influences in community life and finds this classification useful, desirable, and in the public interest. Qualification for tax exemption is not perpetual or immutable; some tax-exempt groups lose that status when their activities take them outside the classification and new entities can come into being and qualify for exemption."
So if a church or other house of worship can be tax exempt, then the next question is whether a city must extend to churches all other benefits it extends to tax exempt organizations. The Court has taken this on a rather piecemeal basis, that is to say that there could still be specific challenges based on the exact type of benefit conveyed, but I think that the general idea that a subsidy given to one must be given to all.
That was more or less the issue in Rosenberger v. Rector and Visitors of the University of Virginia. In that case, the Court held 5-4 that the University of Virginia could not deny funding to a student publication called "Wide Awake: A Christian Perspective." The Court agreed with the publication that denying funding due to the content of the publication's message imposed a financial burden on its speech and amounted to viewpoint discrimination.
The Court noted that no matter how scarce university publication funding may be, if it chooses to promote speech at all, then it must promote all forms of it equally. In addition, because the university promoted publications in the past regardless of their religious content, the Court found the university's publication policy to be neutral toward religion and therefore, not in violation of the establishment clause.
I think Rosenberger covers this situation, as well. If all 501(c)(3)'s are given a benefit, then you cannot exclude only those religious organizations.