A lawsuit has been filed against a Texas town by three Christian churches who are alleging that while the town isn’t allowed to charge them property taxes, it is trying to make up the lost revenue by charging them “excessive” fees to have water connections to their properties.
The case is being brought in district court in Montgomery County by First Liberty Institute on behalf of Magnolia Bible Church, Magnolia’s First Baptist Church and Believers Fellowship.
The city is the defendant.
“Texas law clearly exempts religious and non-profit organizations from taxation,” said Mike Berry, chief of staff for First Liberty. “Magnolia’s water fee scheme hinders these churches from providing many vital services to the community because of the government’s unquenchable thirst for taxpayer money. These churches offer a multitude of services to their communities, and over-charging their water limits the services they can provide the community.”
The city last year announced it would begin charging the churches with “institutional” water and wastewater fees, which are “significantly higher” than the rates for commercial businesses.
“Previously, the city had treated churches and businesses equally. In one case, a church’s water bill increased 178 percent for similar water usage,” the institute reported.
There appears not to be a question about the motive of the city, either.
City Administrator Paul Mendes said, “Implementing an institutional rate would allow the city to collect funds from these entities in place of taxes or other fees,” the Institute reported.
The churches charge, “The Institutional Water Rate is a thinly veiled property tax on a tax-exempt entity, and, as such, it is preempted by state law.”
They also allege the move violates the Texas Religious Freedom Restoration Act because “it places a real and significant – i.e., substantial – burden on the churches’ and their members’ free exercise of religion.”
“Magnolia officials in search of new revenue have singled out churches and other non-profits with a rate that dwarfs commercial users in a transparent effort to circumvent the law,” said Aaron Streett, partner at Baker Botts.
The claims aren’t complicated. The complaint itself states, “The city of Magnolia has singled out city churches (and other institutions geared toward the public good) with a water rate that dwarfs that of similarly situated commercial users. The city took this unprecedented action to recoup property tax revenue form churches, notwithstanding that the city is prohibited by law from imposing a property tax on churches.”
The exemption from property taxes, the complaint explains, is “part of this state’s very fabric; the original Texas Constitution gave the Texas Legislature the option to ‘exempt from taxation … actual places of religious worship, [along with] any property owned by a church or by a strictly religious society for the exclusive use as a dwelling place for the ministry of such church or religious society..”
When the city was faced with a funding shortfall in its water system, it was expected to raise rates uniformly.
“What emerged …. However, was something entirely different,” the complaint states.
It created a new water rate for “institutions” that targeted churches, religious nonprofits and Magnolia Independent School District high fees.
Those groups were ordered to pay water rates “up to nearly 75 percent greater than commercial users.”
For 5,000 gallons, an institutional user must pay $52.50, while a commercial user would pay only $30 for that water.
The city never claimed the wide variance in the rates had anything to do with the cost of delivery.
“Indeed the city was transparent from the outset that this disproportionate rate increase had everything to do with the identity of the end users – tax-exempt entitites,” the complaint explains.
“In other words, the city had grown frustrated with its inability to collect property taxes from the churches and other similar entitites. It chose to make up for the ‘lost’ revenue by creating a new classification for such entities and imposing upon that new class a significantly higher water rate,” the legal team charged.
Mendes said at one point, “What we’re trying to do is even it out where the burden isn’t just on the homeowners – basically, everyone pays their fair share.”
For Magnolia Bible, its monthly water bill jumped from $385 to $1,071, and the other churches’ increases were similar.
That meant they had to cut down on their ministries.
The filing explains the city’s institutional water rate is void because it is “a thinly veiled property tax on a tax-exempt entity,” it is void as a discriminatory, arbitrary utility rate, and nearly tripling the churches’ water bills violates the state’s religious freedom act.
The filing requests an injunction halting the fees schedule.