June 4 (Reuters) - An atheist activist had no right to sue Illinois over $20,000 in state funds used to refurbish a towering Christian cross, a federal appeals court ruled on Monday.

The Chicago-based U.S. Court of Appeals for the 7th Circuit found that the state legislature did not violate the separation between church and state by funding restoration costs for the 111-foot-high Bald Knob Cross of Peace in Alto Pass, Illinois.

The state had given Friends of the Cross a $20,000 grant after the monument, a popular tourist attraction, fell into disrepair.

Retired radio-talk-show host Robert Sherman, an atheist, accused the state of violating the Establishment Clause of the U.S. Constitution, which prevents the government from supporting one religion over another. The district court rejected his challenge, and a three-judge panel of the 7th Circuit agreed, finding that the grant was not a legislative act.

"The $20,000 grant to Friends was not the result of legislative action; rather, it can be traced at most to the initiative of a single legislator," Judge Diane Wood wrote for the panel.

The court found that the state assembly set aside a lump sum of $5 million to fund the pork-barrel projects of individual legislators. In this case, Democratic Illinois legislator Gary Forby had secured $20,000 for Friends of the Cross.

Taxpayers like Sherman only have a right to challenge congressional enactments, not discretionary expenditures, the panel concluded, citing the Supreme Court's 2007 ruling in Hein v. Freedom from Religion Foundation Inc.

Dmitry Feofanov, a lawyer for Sherman, said Illinois legislators had found a technical loophole and that the grant violated the Constitution.

"The First Amendment prohibits the government from giving support to any particular religion, denomination or godless atheists, for that matter," he said.

The Illinois Attorney General's Office welcomed the decision.

Sherman previously challenged a law requiring a moment of silence in Illinois public schools. The 7th Circuit also rejected that suit, in 2010, finding that the law served a secular purpose to calm children before the start of their day.

The latest case is Sherman v. State of Illinois, U.S. Court of Appeals for the 7th Circuit, No. 11-1566.

For Sherman: Dmitry Feofanov of Chicago Lemon Law.

For Illinois: Christopher Turner of the Illinois Attorney General's Office.

(Reporting By Terry Baynes)

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