LAKE ELSINORE - Attorneys for the city have dropped a Supreme Court appeal and paid more than $1.2 million to a church that was denied permission to open up a new sanctuary on Main Street.

A lawsuit brought by Elsinore Christian Center in 2001 was closely watched by local government agencies and church groups alike as a test of the Religious Land Use and Institutionalized Persons Act, passed by Congress and signed by President Bill Clinton in 2000, which granted churches broad exceptions to local zoning laws.

Under a settlement finalized Wednesday, the city's insurer, the California Joint Powers Insurance Authority, paid out $1.2 million to the church, Pastor Jim Hilbrant said.

"The money will go to the same things that we've been doing for the last 21 years," Hilbrant said. "We're going to continue to preach the gospel. We're going to sit down and look at the big picture."

The church, which Hilbrant founded in 1986 as an offshoot of a Rancho Cucamonga ministry, planned in 2000 to buy a former grocery store and move from a leased space in a commercial building on East Graham Avenue. But city officials denied its request for a permit, saying they wanted a tax-paying business - not a nonprofit organization - to occupy the site.

The church sued in federal court in June 2001, arguing that the city had violated the land-use law.

The court agreed, but asked a federal appellate court to rule on the constitutionality of the law. The U.S. Ninth Circuit Court of Appeals upheld the law in August 2006 with twin rulings on the Lake Elsinore church and a Sikh temple in the Sacramento area.

Lake Elsinore appealed in January to the U.S. Supreme Court, which never decided whether to take the case. Legal experts said it probably would not do so partly because lower courts had uniformly upheld the law.

Separately, the church's attorneys asked the district court to award $1.9 million in damages. With appeals pending, the church paid monthly fees to keep the land deal alive, according to its attorney. The owner eventually sold it, and a Latino grocery store now occupies it.

The $1.2 million payment to the church is intended to cover its permit fees, expenses from the deal's complications and the higher price it eventually paid for a building, Tyler said. The church moved out of the East Graham location and met in a succession of local schools before buying a smaller church building on nearby South Kellogg Street in January 2005.

"We're going to get that building painted," Hilbrant said.

Hilbrant declined to say how much the church paid for the building, but real estate values had roughly doubled across much of western Riverside County in the intervening five years.

The settlement also calls for payments to four law firms that had taken up the case under the banner of religious freedom. Bob Tyler, an attorney with Advocates for Faith and Freedom in Murrieta, declined to say how much the firms would receive, but said the amount is intended to cover more than six years of attorneys' fees. That could easily put it in the hundreds of thousands of dollars.

Tyler said the law - and its validation by the appellate court - has given him leverage in negotiating several other land-use cases on behalf of churches.

"This is exactly what (the law) was meant to address," Tyler said. "This case had a huge bearing on whether the law is constitutional. It's a beacon in the legal community."

Even so, Elsinore Christian Center would have had to convince the district court that the city had actually prevented its members from practicing their religion, said Ed Richards, the Irvine attorney who represented the insurance authority.

"We were looking at two pieces of additional litigation and the cost and time that would have been involved in that," Richards said.

Lake Elsinore City Councilman Thomas Buckley took issue with the settlement.

"This decision by our insurance provider is absolutely wrong," Buckley said. "This could potentially set a disastrous precedent. Government should not discriminate against religious establishments, but to say that religious institutions, in any form, are exempt from any planning requirements would be a disaster for cities."

- Staff writer Nicole Sack contributed to this report. Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.