Still, it's perfectly legal for a municipality to display Christmas trees (I can see the City and County of Denver display from my window). What would have landed SeaTac in trouble is if they displayed trees but told the Jews they couldn't display a menorah.
They made the best argument they could for taking it down, I think. It wasn't that they did not want to put up a Menorah. They claim that they were concerned that the Muslims would be next, then the Hindus, etc.