FFRF sues over unconstitutional exemption
The Freedom From Religion Foundation and three Madison residents filed a lawsuit in mid-January against an unconstitutional law exempting rental properties owned by two religious entities in their hometown.
The action challenges an exemption that was created and then amended to benefit specific church-owned rental properties in the city of Madison, Wis., to the tune of hundreds of thousands of dollars annually. This forces all other Madison property owners to pay more in property taxes. The Pres House and Lumen House Apartments, both catering to student renters and owned by two of the defendants, are explicitly relieved of paying their share of taxes. No other properties in Wisconsin can ever qualify under the special exemption.
The exemption is unlawful under the Wisconsin Constitution on several counts, the plaintiffs contend. The exemption harms property tax-paying plaintiffs Annie Laurie Gaylor and Dan Barker, FFRF co-presidents, and David Peterson, by forcing them and all other city of Madison property taxpayers, to pay higher property taxes to make up for the unlawful omission of these properties from the tax rolls. Further, the exemption harms plaintiff FFRF, since it favors rental properties owned by two religious nonprofit organizations to the exclusion of all other nonprofits that may desire to run student apartments in the future. The plaintiffs seek a declaratory judgment that the exemption violates the Wisconsin Constitution.
The problem started in 2009 when the Wisconsin Legislature enacted this property tax exemption to benefit the Pres House Apartments, owned by the Presbyterian Student Center Foundation. Then-state Rep. Spencer Black explained that he introduced the measure because he believed the Pres House Apartments should be property tax exempt. In 2011, then-state Sen. Alberta Darling, co-chair of the Joint Finance Committee, referred to the exemption as “an aberration and earmark.” The Joint Finance Committee voted to repeal the exemption, but then-Gov. Scott Walker vetoed the repeal.
The Legislature approved an amendment in 2013 to benefit the Lumen House Apartments, owned by a Catholic congregation within the Diocese of Madison. The Legislature at that time adopted language to prevent additional properties from ever qualifying for this property tax exemption. The local Catholic Diocese of Madison recognized that the amendment was created for its benefit. No other properties in Madison or Wisconsin can ever benefit, and the exemption specifically targets properties serving University of Wisconsin-Madison students to the exclusion of students at all other colleges.
The Pres House and Lumen House Apartments are extremely profitable commercial rental properties that would owe the city hundreds of thousands of dollars in property taxes annually if not for the exemption, FFRF points out. The Pres House Apartments’ current market value likely exceeds $25 million, with estimated property taxes owed in excess of $300,000 annually. The Lumen House Apartments’ current market value likely exceeds $7.6 million, with estimated property taxes exceeding $94,000 annually. Based on their combined estimated $33 million in value, omitting these properties from the tax rolls is approximately the equivalent of exempting an entire neighborhood from paying property taxes, FFRF asserts in the legal complaint.
The city of Madison, which is also named as a defendant in the suit, is unwilling to cease applying this unlawful tax exemption. On April 4, 2024, FFRF’s counsel sent a letter to the city of Madison assessor, Michelle Drea, laying out the legal reasons why the exemption is unlawful under the Wisconsin Constitution. Within hours, Drea replied, strongly disagreeing. In an effort to resolve the unlawful omission of these properties from the city’s property tax rolls, plaintiffs Gaylor, Barker and Peterson filed objections to their most recent property tax assessments.
The exemption violates the Uniformity Clause of the Wisconsin Constitution, which states, in part, “The rule of taxation shall be uniform.” Uniformity is violated when a statute imposes arbitrary methods of assessment and unequal taxation of comparable properties. This exemption benefits only a handful of grandfathered-in rental properties located in Madison that primarily rent to UW students. The exemption breaches, too, the Equal Protection Clause set forth in Article I, Section 1 of the Wisconsin Constitution by creating a distinct classification, student rental properties meeting extremely specific criteria, and treating this class significantly differently from all other similarly situated properties.
The exemption also infringes Article I, Section 18, of the Wisconsin Constitution, which states that no “preference” shall “be given by law to any religious establishments or modes of worship.” The exemption was enacted to benefit for-profit commercial apartments owned by a religious organization and the 2013 amendment specifically benefits another church-owned apartment.
And the exemption is in contravention of Article IV, Section 18, of the Wisconsin Constitution, which states: “No private or local bill which may be passed by the Legislature shall embrace more than one subject, and that shall be expressed in the title.” The circumstances under which the exemption was enacted in 2009 bear the hallmarks of an unconstitutional private bill because the exemption was passed in order to benefit a specific property and only properties in Madison qualify for the exemption. The Legislature is meant to pass laws that benefit and apply to the entire state, not just preferred cities or districts.
