The city of Miami has notified its bondholders that it is facing a legal challenge that could add to its financial woes.

In a notice last week, the city said that on April 9 the Catholic Archdiocese of Miami filed a lawsuit against it seeking $89 million in damages, plus interest, attorneys' fees, and expenses under the Bert J. Harris Jr. Private Property Rights Protection Act.

The act is a Florida law protecting private property rights enacted in 2004 that provides relief or compensation when a new law, rule, regulation, or ordinance of the state or a municipality "unfairly" affects real property.

The Catholic Archdiocese claims that four parcels of land that it owns in south Florida suffered diminution of property values when the "Miami 21 Zoning Code" was enacted. The code was designed to protect surrounding historic properties from the effects of high-rise development.

The church, which pays no property taxes on the parcels in question, issued a statement that said the city's zoning code "has unduly burdened the Archdiocese in such a manner as to substantially reduce the present value of the property and limit the uses for which the Archdiocese could develop the property."

The property in question is currently being used for a church, a shrine, a high school, and an elderly living facility. One property was previously used for an AIDS ministry.

"The Archdiocese of Miami has moved forward with this lawsuit to protect its assets, as any other landowner would do, because they are dedicated to the mission of the church," the statement said.

The market notice to investors said the city could not predict the outcome of the case.

Miami has suffered significant financial problems since the economic downturn due largely to the loss of property tax income from reduced values.

The city is also under investigation by the Securities and Exchange Commission purportedly for failing to disclose its financial condition to bondholders in several bond sales.

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