U.S. District Judge Avern Cohn ruled Wednesday that most of the grants were allowed because any downtown property owner was eligible to apply. He noted that the churches used the grants on lighting, parking lots, sanctuaries and landscaping.

But Cohn said some of the money the churches spent on improving large signs and stained glass windows containing religious imagery violated the separation of church and state.

It wasn't clear exactly how much grant money would be disallowed under Cohn's ruling. The judge gave both sides until Aug. 28 to discuss how much of the money won't be paid to the churches.

New Jersey-based American Atheists, which sued the city, said it may appeal.