PRELIMINARY STATEMENT
In 2016, the Legislature and Governor of Defendant State of New Jersey enacted the statute they call the “Casino Property Tax Stabilization Act” (hereinafter “Original 2016 CPTSA”). The CPTSA provided that for a ten year period starting with 2017, Atlantic City casino properties would pay “P.I.L.O.T.” (“Payments In Lieu Of Taxes”) instead of real estate taxes based on the fair market values of their properties.
The amounts of the P.I.L.O.T. were to be determined by a formula based on “GGR”, the “Gross Gaming Revenues” of each Atlantic City casino property. The P.I.L.O.T. would be paid each quarter, as with real estate taxes.
This legislation was NOT necessary. The formula used to determine P.I.L.O.T. payments closely approximated the income method used to assess the value of Atlantic City casino properties approved by the Tax Court in 2013 and by this Court in 2015. See Marina Dist. Dev. Co. vs. City of Atlantic City, 27 N.J. Tax 469 (2013), aff’d 28 N.J. Tax 568.
2023-0303-casino-pilot-brief-plaint-filedbShortly after the CPTSA was enacted, Plaintiffs-Respondents challenged its constitutionality by amending their complaint in a previous action in Superior Court involving these parties. That action was captioned Liberty & Prosperity 1776, et als. vs. City of Atlantic City, et als., Docket No. ATL-777-16.
Roughly two years later, Plaintiffs-Respondents dismissed that action pursuant to a consent order filed on June 18, 2018. After observing one full year of the CPTSA in operation, Plaintiffs-Respondents were satisfied that the Original 2016 CPTSA method for determining the P.I.L.O.T. payments of the Atlantic City casino properties closely approximated the amounts those properties would have paid had they been “assessed according to the same standard of value” as all other taxable real estate in Atlantic City, and “taxed at the general tax rate” of the Atlantic City taxing district.
Between 2016 and 2021, the “GGR” or “Gross Gaming Revenue” of most Atlantic City Casinos greatly increased. There were three main reasons for this.
First, the world and national economies recovered from what is often called the “Financial Crisis of 2008”, the Great Recession of 2008” or the “Subprime Mortgage Crisis of 2008”.
Second, each Atlantic City casino that survived the economic crisis and new competition from other states in 2008-2009 now had less competition in Atlantic City. In 2008, there were 12 casino properties in Atlantic City. By 2019, there were only nine.
Third, Atlantic City casino properties earned additional gaming revenue from internet gaming and sports betting which had just been made legal in New Jersey.
It is true that between 2016 AND 2021, Atlantic City casinos faced “new threats from regional competitors” and COVID-19 shutdowns. However, those events are not relevant to any issues in this case. Those events also impacted many other industries and the owners of many other parcels of real estate in Atlantic City and Atlantic County. The Uniformity Clause of our Constitution was adopted in 1875 for the specific purpose of barring the State Government from offering tax relief to one “ailing” industry at the expense of others.
New Jersey law permits only the owners of licensed casinos in approved Atlantic City properties to legally be in the business of both internet gaming and sports betting. gaming. (New Jersey law permits the owners of licensed race tracks to engage in the sports betting only). Therefore, the right to receive income from those sources is an appurtenance of Atlantic City casino properties which increases their values.
There is no basis in law or fact for making a distinction between “gross gaming revenue” from gambling activity on the premises of an Atlantic City casino property, and “gross gaming revenue” from internet gaming or sports betting that can only be earned from ownership of an Atlantic City casino property.
During the years 2016 through 2021, Defendants/Respondents “Division of Gaming Enforcement” (hereinafter referred to as “DGE”) wrongfully calculated the P.I.L.O.T. It taxed the Atlantic City Casino properties far more than what it should have for what they actually received from internet gaming and sports betting. That is because most casinos rely on “Joint Venturers” or “Third Party Vendors” to run their online and sports betting operations. Those Joint Venturers and Third Party Vendors retain or receive roughly half of all gross gaming revenue received from internet operations. The Atlantic City casinos do not receive or benefit from that money. In 2016, the DGE considered excluding those moneys from the “GGR” used to determine the P.I.L.O.T. for Atlantic City. The DGE gave two reasons for not doing so. It claimed that in 2016, “Internet gaming gross revenue was less than $200 million overall and represented less than 8% of total GGR in 2016”. Also, in 2016, most internet gaming “was generated by Atlantic City casino-branded and affiliated web sites”. See Da87-Da88
Those factors have not applied for years. Defendants-Respondents’ DGE should have corrected that serious error long ago. However, this error by the DGE can be easily corrected administratively. It should not be an excuse for the State to arbitrarily exclude all sports betting and internet gaming from the GGR used to calculate the P.I.L.O.T. of the Atlantic City casinos.
The Amended 2021 CPTSA violates Article 8, Section 1, Paragraph 1 (Uniformity Clause) of the New Jersey State Constitution. Unlike the original 2016 CPTSA, the Casino PILOT payments calculated pursuant to the Amended 2021 CPTSA are far less than what Atlantic City casinos would pay if assessed at their fair market values and taxed at the same rate as other taxable real estate in Atlantic City. The Amended 2021 CPTSA arbitrarily and capriciously excludes sports betting and internet gaming receipts from the Gross Gaming Revenue (GGR) used to determine the casino PILOT payments. It also arbitrarily and capriciously changes the method for applying GGR so as to further reduce the amount of the P.I.L.O.T. in other ways. (One of them is changing the upper and lower limits of any potential P.I.L.O.T. from $90 million to $165 million in the Original 2016 CPTSA to a range of $100 million to $120 million in the Amended 2021 CPTSA).
The findings of the Trial Court rebut the presumption that the Amended 2021 CPTSA is Constitutional. It found that:
- The Amended 2021 CPTSA serves no public purpose and is therefore unconstitutional.
- The Gross Gaming Revenue for Atlantic City casino properties for 2021 was more than $4.2 billion—the same level it had been in the year 2000, before the 2008 financial crisis..
- The State Defendants presented no evidence to support the Legislature’s stated concerns that Atlantic City casino properties could not meet their P.I.L.O.T. and IAT obligation for 2022 through 2026 under the original 2016 CPTSA.4.
- There was no rational basis for the Legislature to enact the Amended 2021 CPTSA other than to “aid an ailing industry”, something specifically forbidden by the Uniformity Clause of our State Constitution.
- If Atlantic City casino properties are entitled to special, favored tax treatment because they serve the “public interest”, then any industry, including the railroad industry, would also qualify. That would be absurd, as the Uniformity Clause was specifically added to our State Constitution in 1875 to prevent special tax treatment for the railroad industry.
Finally, from 2010 to 2016, while under State supervision, Atlantic City incurred roughly $400 million of debts to pay for operating expenses. It appears that much, if not all of this debt was incurred because State and/or local officials failed to comply with the Local Budget Act and the Local Bond Act. Plaintiffs-Defendants are not aware of any investigations or discussions by State or Local officials as to who was responsible for incurring this debt, or whether or not the taxpayers of Atlantic City can or should be legally compelled to pay it. They instead enacted the Original 2016 CPTSA to repay most of those debts over a ten year period. It would be unconscionable to shift the burden of repaying most of those debts from casino property owners to other taxpayers during the last five years of the ten year program.
PROCEDURAL HISTORY
Plaintiffs-Respondents previously sued the City of Atlantic City and the State of New Jersey in an action entitled Liberty & Prosperity 1776, Inc., et als. vs. City of Atlantic City, et als. Docket No. ATL-L-777-16. In that action, Plaintiffs-Respondents sought to compel the City of Atlantic City, then under State “supervision”, to comply with the New Jersey Local Budget Law.
On May 27, 2016, Defendant State enacted the Original 2016 CPTSA.
On June 4, 2016, Plaintiffs-Respondents amended their complaint in that previous action to challenge the constitutionality of the Original 2016 CPTSA.
During June of 2017, Atlantic County filed a separate action entitled County of Atlantic, et als. vs. The State of New Jersey, et als., Docket No. ATL-1254-17. Although Plaintiffs in that second action also challenged the constitutionality of the CPTSA, they also sought to enforce an agreement previously made between Atlantic County and State government officials on as to how casino P.I.L.O.T. payments should be allocated.
Both actions were dismissed on April 20, 2018 pursuant to stipulations placed on the record in open court. Those terms were later memorialized in a consent order executed and filed on June 18, 2018.
On December 21, 2021, the State of New Jersey enacted the Amended CPTSA of 2021. The Amended CPTSA of 2021 significantly reduces the P.I.L.O.T paid by Atlantic City casino properties. It does so by excluding sports betting and internet gaming from the GGR (Gross Gaming Revenue) of Atlantic City casino properties. It also changes the formula used to apply GGR to determine their P.I.L.O.T. payments made in lieu of local real estate taxes.
On January 24, 2022, Plaintiffs-Respondents filed this action challenging the constitutionality of the Amended CPTSA of 2021.
STATEMENT OF FACTS
Beginning in 2008, there was a worldwide economic decline commonly called the “Great Recession of 2008”, the “Subprime Mortgage Crisis” and/or the “Collapse of the Housing Bubble”.
- In 2006, casino gambling in the form of slot machines became legal in Philadelphia and other areas of Pennsylvania. Beginning in July of 2010, casino table games also became legal there. This caused a significant decline in visitors to casino and non-casino businesses in Atlantic City.
- In 2006, Atlantic City casinos paid $417,528,000 to the State of New Jersey as their “8% Gross Revenue Tax”. That number dropped to $360,250,000 in 2010, $216,725,000 in 2012, and $174,670,000 (enhanced by $22,354,000 in taxes from online gambling) in 2017. (Pa66)
- In 2006, Atlantic City casinos paid $37,087,000 to the State of New Jersey as “Parking Fees” collected from customers who used their parking lots and garages. That number dropped to $34,398,000 in 2008, $29,816,000 in 2010, $28,782,000 in 2012, $19,807,000 in 2017. (Pa66)
- While the incomes of casino and non-casino property owners in Atlantic City declined between 2006 and 2017, the cost of local government increased substantially. The “Total General Appropriations (Item 9, Sheet 29)” of the Atlantic City municipal budget increased as follows:
2007: $193,157,083 (Pa40)
2008: $199,927,319 ( Pa41)
2009: $201,513,319 (Pa42)
2010: $216,298,131 (Pa43)
2011: $233,696,406 (Pa44)
2012: $234,717,791 (Pa45)
2013: $249,000,000 (Pa46)
2015: $262,943,164 (Pa48)
2016: $242,995,495 (Pa49)
On October 10, 2010, Defendant State of New Jersey assumed supervision of the finances of Atlantic City government pursuant to NJSA 52:27BB-55(6). See “THOMAS H. NEFF, Director of the Division of Local Government Services, etc. vs. CITY OF ATLANTIC CITY”, Docket No. L-5928-10.
In March of 2014, “the scope of supervision” by the State over Atlantic City government “was expanded”. ( Pa75 at Paragraph 6.)
Between 2010 and 2016, the cost of operating Atlantic City’s municipal government continued to increase while under State supervision. (Paragraph 5 above)
On April 1, 2016, Atlantic City government, while under State supervision, failed to introduce a balanced budget as required by the New Jersey Local Budget Law. As a result, Plaintiffs-Respondents filed an action seeking to compel both Atlantic City and the State to comply with the Local Budget Law. That action was captioned Liberty & Prosperity 1776, et als. vs. City of Atlantic City, et. als. and State of New Jersey, Docket No. ATL-L-777-16.
On or about May 27, 2016, Defendant STATE OF NEW JERSEY adopted NJSA 52:27BBBB-18 known as the “Casino Property Tax Stabilization Act”. (CPTSA).
On or about June 9, 2016, Plaintiffs amended their complaint to challenge the constitutionality of that original CPTSA. They claimed it violated the Uniformity Clause of the New Jersey State Constitution.
On June 19, 2017, Atlantic County also filed a suit which inter alia challenged the constitutionality of the Original 2016 CPTSA. That action was captioned County of Atlantic, et. als. vs. State of New Jersey, Docket No. ATL-L-1254-17.
On or about August 17, 2017, both actions were consolidated.
During the course of that litigation, Plaintiffs-Respondents learned that between 2010 and 2016, Atlantic City municipal government, while under State supervision, had incurred debts of roughly $400 million for its operating expenses. (Pa95-Pa99) and (Pa113-Pa114)
It appears that most of those debts of roughly $400 million for operating expenses were incurred in violation of the Local Budget Law and Local Bond Law.
During those seven years, Atlantic City local government, while under State supervision:
Systematically over-assessed all casino and many non-casino properties within the taxing district.
Pursued meritless appeals when its assessments were reduced by the Board of Taxation or Tax Court.
Failed to introduce balanced budgets and hold budget hearings prior April 1 of each calendar year.
Used “emergency” temporary appropriations to pay for expenses until the end of each budget year.
Incurred unlawful debts by failing to make timely payments to state pension and health benefit funds, and to its local school district.
Although business income for casino and non-casino businesses declined dramatically between 2006 and 2013, the Atlantic City Assessor, while under State supervision, refused to reduce assessments to reflect the lower real estate values resulting from that decline in business. As a result, the Total Net Assessed Value of Taxable Real Estate in Atlantic City remained relatively unchanged during those years:
2008: $20,503,172,174 (Pa50)
2009: $20,320,995,673 (Pa51)
2010: $20,480,854,452 (Pa52)
2011: $19,448,465,500 (Pa53)
2012: $18,078,249,000 (Pa54)
Between 2008 and 2012, casino properties made up between 59% to 67% of the total assessed taxable value of Atlantic City and paid that percentage of the tax burden: (Pa70)
2008: $13,733,370,400 (67%)
2009: $13,691,147,093 (68%)
2010: $12,231,902,203 (60%)
2011: $11,476,275,280 (59%)
2012: $10,550,094,000 (59%)
On October 18, 2013, the Tax Court of New Jersey ruled that the Borgata Casino in Atlantic City was “entitled to a significant reduction in the assessments” of its property for tax years 2009, 2010 and later years. See Marina District Development Co., LLC vs. City of Atlantic City, 27 NJ Tax 469 (Tax 2013), aff’d, 28 N.J. Tax 568 (App Div. 2015).
In making that ruling, the Tax Court ruled that for various reasons:
“the income approach is the most reliable method through which to determine the true market value of the subject property on the relevant valuation dates”. Marina, supra, 27 NJ Tax at _____
Between 2013 and 2015, the Tax Court of New Jersey and the Atlantic County Board of Tax Appeals made similar rulings causing significant reductions in the assessments of other casino and non-casino properties in Atlantic City.
As a result of these tax appeals, the total assessed values of all taxable real estate in Atlantic City fell to the following levels in 2015 and 2016:
2015: $7,342,866,355 (Pa57)
2016: $6,509,752,640 (Pa58)
After those tax appeals, casino properties still owned 50% to 54% of the taxable value of Atlantic City, and paid that percentage of the tax burden. (Pa70).
2015: $3,913,600,000 (54%)
2016: $3.232.262,400 (50%)
Atlantic City’s financial crisis and “instability” in 2016 was caused by the failure of Atlantic City, while under State government supervision, to assess casino and non-casino properties at their true reduced values to reflect the economic decline caused by the 2008-2009 recession and competing casinos in Pennsylvania.
On May 27, 2016, Defendant State adopted the Municipal Stabilization and Recovery Act (“MSRA), N.J.S.A. 52:27BBBB-1 through 17 which allowed Atlantic City to substantially reduce municipal spending. It also allowed Investment Alternative Tax (IAT) funds to be diverted away from redevelopment, and used to repay some of the roughly $400 million of debt incurred to pay for Atlantic City’s operating expenses between 2010 and 2016.
On that same day, May 27, 2016, Defendant State also adopted the CPTSA.
An obvious effect, if not purpose of the Original 2016 CPTSA was to create a ten year plan for the repayment of the roughly $400 million of municipal debts for operating expenses while incurred by Atlantic City while under State supervision between 2010 and 2016.
Plaintiffs-Respondents are not aware of any investigations or discussions by State or Atlantic City officials over who was responsible for the decisions that created that $400 million of municipal debts, or whether the taxpayers of Atlantic City would or should be legally required to repay them in full.
On April 18, 2018, Plaintiffs-Respondents, together with Atlantic County, dismissed their previous actions seeking to set aside the original 2016 CPTSA. (Pa2-Pa7)
Although Atlantic County dismissed its action “with prejudice”, Plaintiffs-Respondents in this action dismissed their action “without prejudice”. (Pa2-Pa7)
On April 28, 2018, Plaintiffs-Respondents were satisfied that the P.I.L.O.T. being paid by Atlantic City casino properties closely approximated what those properties would have paid in real estate taxes had they been assessed at their fair market values and taxed at the “general tax rate” of the Atlantic City taxing district.
On or about December 21, 2021, Defendant State enacted the Amended CPTSA of 2021.
The Amended CPTSA of 2021 greatly reduces the P.I.L.O.T. paid by Atlantic City casino properties because it excludes sports betting and internet gaming from their “Gross Gaming Revenue” (GGR) and reduces the P.I.L.O.T. paid by Atlantic City casino properties in other ways.
The New Jersey Office of Legislative Services (OLS) estimated that Atlantic City casinos would pay “$30 million to $65 million per year” less during the years 2022 through 2026. (Ra15)
That would cause other owners of real estate in Atlantic City and Atlantic County to pay significantly more in real estate taxes, or cause county government, the Atlantic City public schools, and the Atlantic City public library to sharply cut spending.
The Amended 2021 CPTSA Law also provides that casino property payments in lieu of taxes to Atlantic City be adjusted upward by “two percent from the preceding year” in years where there is not an upward or down adjustment of the base amount. This amount is not nearly sufficient to keep up with current inflation. If allowed to stand, it likely to unconstitutionally shift the tax burden in Atlantic City from casino property owners to other owners of real estate in Atlantic City and Atlantic County.
LEGAL ARGUMENT
I. PLAINTIFF-RESPONDENTS AGREE WITH AND REPEAT THESE FINDINGS AND CONCLUSIONS OF THE TRIAL COURT:
The stated purpose of the Original 2016 CPTSA was to devise a ten year program:
“that avoids costly assessment appeals for both the casino operators and Atlantic City, and that provides a certain mandatory minimum property-tax related payment by casino properties that Atlantic City can rely upon each year”. Da25
Plaintiff-Respondents agree that the formula of the Original 2016 CPTSA calculated a P.I.L.O.T closely approximated what Atlantic City casinos would have paid had they been assessed according to the “income approach” approved by the Tax Court and this court in Marina Dist. Dev. Co. vs. City of Atlantic City, 27 N.J. Tax 469 (2013), aff’d 28 N.J. Tax 568.
As a direct result of the implementation of the Original 2016 CPTSA, Atlantic City,
“was able to access the municipal bond market three times during 2017 and 2018… In turn, the bond issuances enabled Atlantic City to negotiate, resolve, and fund all outstanding historic property tax appeals filed by casinos and pending prior to the Act’s implementation, and fund repayment of certain pension and health payments the City had deferred during its fiscal crisis. . .” Da29
Despite losses due to brick-and-mortar closures at the early stages of the COVID-19 pandemic,
“Atlantic City casinos experienced unprecedented growth in internet casino gaming and internet sports wagering in 2020 and 2021. Da30
Despite casino gross revenue totaling approximately $4.2 billion in 2021, the Legislature declared in December of that year,
“that there was ‘a compelling public purpose’ to reduce the casinos PILOT obligations for the remaining five years of the program for the purpose of ‘ensuring that Atlantic City continues to receive sufficient PILOT payments and IAT payments to fund its municipal budget’. DA31.
Prior to passing the Amended 2021 CPTSA, the Senate Budget and Appropriations Committee considered the following “Fiscal Impact” statement from the Office of Legislative Services (“OLS) estimating that the Amended 2021 CPTSA,
“will result in a loss of local payment in-lieu of tax (PILOT) revenues in the calendar years 2022 through 2026 likely falling in a range from $30 million to $65 million each year. Removing gross revenues generated by Internet casino gaming and Internet sports wagering will result in lower annual totals of gross gaming revenue (GGR) and reduce the PILOT due (i.e. payable) to the City of Atlantic City, Atlantic County, and the Atlantic County (sic) School District…” Da33
The Trial Court took judicial notice that published DGE reports showing 2021 year to date gross revenue of Atlantic City casinos were available online and that at the end of November, 2021,
“casino gross gaming revenue was approaching $3.9 billion (approximately $2.3 billion in brick-and-mortar gaming revenue, approximately $1.2 billion in internet casino game revenue, approximately $16 million in brick-and-mortar sports wagering revenue, and approximately $264 million in internet sports wagering revenue. . . “ Da35
“The existence of a rational basis for legislation may be assailed by proof of facts beyond the sphere of judicial notice” where “(no) state of facts either known or which could reasonably be assumed” could support the Legislature’s judgment”. Reingold vs. Harper 6 N.J. 182 (1951) at 196. Da53
The Trial Court found that the Amended 2021 CPTSA was “arbitrary, capricious and unreasonable” because
(T)here is no basis on the record for the Legislature’s “concerns” of pandemic-related casino losses, nor any evidence that the newly prescribed PILOT formula would preserve payments for the City, County and State. Da54
The Trial Court instead agreed with other findings of the Legislature declaring that reduction of PILOT payments were needed to “compensate for the impacts that the public health emergency had. . . on casino gaming properties” and were “in the best interest of the casino gaming industry”. . . Then found that,
“while many industries suffered incredible pandemic-related revenue losses, those industries were not provided any legislative property tax relief”.
The Trial Court concluded that Kimmelman, supra at 105 NJ 426 held that the Uniformity Clause barred the Legislature from granting real estate tax relief “to aid an ailing industry”.
II. THE AMENDED 2021 CPTSA IS CLEARLY UNCONSTITUTIONAL BECAUSE THE UNIFORMITY CLAUSE BARS THE LEGISLATURE FROM GRANTING ANY PREFERENTIAL REAL ESTATE TAX REDUCTIONS “TO AID AN AILING INDUSTRY”.
Article VIII of the New Jersey State Constitution states:
“1(a) Property shall be assessed for taxation under general laws and by uniform rules. All real property assessed and taxed locally or by the State for allotment and payment to taxing districts shall be assessed according to the same standard of value, except as otherwise permitted herein, and such real property shall be taxed at the general tax rate of the taxing district in which the property is situated, for the use of the taxing district”.
The unanimous NJ Supreme Court case of New Jersey State League of Municipalities vs. Kimmelman 105 NJ 422 (1987) referred to this section of our State Constitution as “the uniformity clause”.
Kimmelman began by observing the predecessor to this uniformity clause was added to our State Constitution in 1875.
“The dominant industry of that time, the railroads, exerted considerable influence over the Legislature’s taxing power and had obtained for itself virtual exemption from taxation. . . . (citation omitted) Growing sentiment mobilized by Governor Parker led to a constitutional convention that produced the first limited restraint against preferential tax treatment for one industry. . . “
Kimmelmen also cited with approval Roe v. Kervick 42 NJ 191, 199 A2d 834 (1964). Roe, supra recognized at 199 A2d 842 that constitutional prohibitions like the uniformity clause were adopted when “many abuses followed in the wake of” financial aid to encourage the development of a particular industry “ to the serious detriment of the taxpayer. . . “ Roe, supra at 199 A2d 842
Roe, supra, further repeated the timeless wisdom of an 1870 Michigan Supreme Court case which observed,
“When the State once enters upon the business of subsidies, we shall not fail to discover that the strong and powerful interests are those most likely to control legislation, and that the weaker will be taxed to enhance the profits of the stronger. . . “ Roe, supra at 199 A2d 842.
Kimmelman then recited the history of the 1947 New Jersey Constitutional Convention which drafted the uniformity clause in our current state constitution. Kimmelman concluded that the uniformity clause specifically denies the State the “right to classify real estate in different categories” for the purpose of taxation.
Finally, Kimmelman made it clear that whether a tax break is called an “exemption” or a “classification”, the Legislature cannot grant a tax break to “aid an ailing industry”.
2nd Roc-Jersey Associates vs. Town of Morristown, 158 NJ 581 (1999) clearly does not apply to this case. That dealt with a situation where a Special Improvement District (SID) provided certain services mostly to benefit commercial property owners, and there was a rational basis for not charging residential customers fees for services that offered them little benefit.
Town of Secaucus vs. Hudson County Board of Taxation, 133 NJ 482 (1993) also does not apply to this case. There the New Jersey Supreme Court struck down the disparate tax treatment as unconstitutional special legislation. It did not apply the uniformity clause of Article VIII because it found that the term “taxing district” only applied to municipalities. It observed that the Hudson County Board of Taxation was not a “taxing district” as contemplated by the uniformity clause because it was a county agency, and not a municipality.
Town of Morristown v. Woman’s Club of Morristown, 124 NJ 605 (1991) dealt with real estate that was a recognized historic site. That property clearly fell into the “educational” purposes recognized by Article VIII, Section 2 of the New Jersey Constitution. That case does not apply to Atlantic City casino properties.
The State argues that the CPTSA articulates many worthy “public purposes”. However, that argument misses the obvious holding of Kimmelman. The uniformity clause clearly denies the Legislature the power to create different tax classifications of real estate. That can only be done by an amendment to the State Constitution approved by voters.
The State relies on a certification from Novelette Robinson, the Tax Assessor for Atlantic City to claim that casino properties will pay less if they are taxed at their true assessed values. Da112-Da113. That claim is ludicrous. The Assessor in her certification claims that a traditional assessment of casino properties today would start with her last assessed 2016 values based on rock-bottom 2015 casino income, adjusted by yearly increases at the arbitrary rate of 2% per year since then. However, Marina Dist. Dev. Co. vs. City of Atlantic City held that the income method is the best way to assess casino properties. As previously stated, Plaintiffs-Respondents are satisfied that when casino properties are valued by their income, including revenue received from internet gaming and sports betting, the real estate taxes they would pay on that value would closely approximate what they would pay as P.I.L.O.T. under the Original 2016 CPTSA.
It is also absurd for the State to argue that Plaintiffs’ challenge of the amended CPTSA threatens the stability of the tax base and budget process for Atlantic City, Atlantic County, and the casino industry. Plaintiffs consented to the original ten year CPTSA formula and settlement. It is the casino property owners and the Governor and Legislature of New Jersey who seek to scrap the ten year deal they made after only five years.
The argument that hotels, restaurants, retail stores, and parking areas owned by casino operators serve more of a public purpose than those owned by others is inconsistent with the plain language and intent of the uniformity clause. Moreover, if the argument is made that casinos serve more of a public purpose than any other business, it is difficult to conceive of a single industry which could not make the same argument. That would make a total mockery of the uniformity clause.
Finally, the state seems to make an argument that casino properties may qualify for special tax treatment pursuant to Article VIII, Section 3 of our State Constitution. That section states:
“Article VIII, Section III, Paragraph 1: The clearance, replanning, development, or redevelopment of blighted areas shall be a public purpose and public use for which private property may be taken or acquired. . . (P)rivate corporations may be authorized by law to undertake such clearance, replanning, development or redevelopment; and improvements made for these purposes and uses, or for any of them, may be exempted from taxation, in whole or in part, for a limited period of time. . . “
It is hard to image how any licensed casino property in New Jersey can determined to be “blighted” or part of a “blighted” area.
NJSA 5:12-84 adopted in 1977 required and does require each licensed Atlantic City casino property to at all times be “a superior, first-class facility of exceptional quality”.
The New Jersey Legislature on May 27, 2016 did not have any factual basis to declare each licensed casino property in Atlantic City to be a “blighted area” when it enacted the Original 2016 CPTSA.
The Amended CPTSA does not even purport to claim that the casino properties of Atlantic City are blighted areas.
Gallenthin Realty Development Inc. III vs. Borough of Paulsboro, 191 NJ 344 (2007) held that courts, and not the Legislature are to determine whether an area is “blighted” as contemplated by the State Constitution, and that the objective commonly used and understood meaning of the word “blighted” must be used to make that determination.
III: ATLANTIC CITY CASINO PROPERTIES ARE NOT USED FOR RELIGIOUS, EDUCATIONAL, CHARITABLE, OR CEMETERY USES WHICH TRADITIONALLY RECEIVED TAX EXEMPTIONS IN NEW JERSEY.
Kimmelman made it clear that Article 8, Section 2, which gives the legislature the power to grant real estate tax exemptions, only applies to religious, educational, charitable, and cemetery uses which had historically been granted such exemptions.
Exemptions for veterans, farmers, senior citizens, and owners of “blighted areas in need of redevelopment” clearly did not qualify for any legislative exemptions. That is why they required special amendments to the State Constitution approved by voters.
Atlantic City casino properties clearly do not fall within any of those “religious, educational, charitable, or cemetery” exceptions.
IV: IT WOULD BE UNCONSCIONABLE FOR ATLANTIC CITY CASINO PROPERTIES TO PAY A MUCH LESSER PERCENTAGE OF THE ROUGHLY $400 MILLION OF MUNICIPAL DEBTS INCURRED FOR OPERATING EXPENSES BY ATLANTIC CITY GOVERNMENT BETWEEN 2010 AND 2016 WHILE UNDER STATE SUPERVISION, THAN THE SHARE CASINO PROPERTIES PAID IN TAXES WHEN THOSE DEBTS WERE INCURRED.
. It appears that much, if not all of the $400 million in debts incurred by Atlantic City government between 2010 and 2016 were incurred to pay operating expenses. This is because State and/or local officials failed to comply with the Local Budget Act and the Local Bond Act. Plaintiffs-Defendants are not aware of any investigations or discussions by State or Local officials as to who was responsible for incurring this debt, or whether or not the taxpayers of Atlantic City can or should be legally compelled to pay it.
During that time, Atlantic City casino properties owned between 50% to 67% of the City’s taxable value and paid that percentage of the tax burden of that taxing district. It would be unconscionable for the legislature to now arbitrarily and capriciously decree that casino properties should now repay a much smaller portion of that debt.
V. IT IS OF VITAL PUBLIC IMPORTANCE THAT THE CASINO INTEREST HAVE A FINANCIAL INTEREST IN PROMOTING EFFICIENT GOVERNMENT IN ATLANTIC CITY BY DIRECTLY PAYING A PROPORTIONAL SHARE OF LOCAL GOVERNMENT INCREASES, AND BENEFITTING FROM REDUCTIONS.
The Uniformity Clause of our State Constitution has also has an important practical and political purpose. The owners, employees, and suppliers of Atlantic City’s casinos are by far the biggest, richest, and most influential interest group in Atlantic County. If casino property owners are permitted to pay fixed, payments “in lieu of” their regular property taxes, these power groups have little or no self interest in using their influence to limit local government spending and/or tax increases. That would make it easier for other special interests to seek more spending and higher taxes by local government since opposition to those other interests would be weaker.
This may explain why State government did little or nothing to control out of control local government spending and tax increases for ten years from 2006 and 2016. It appears that the full power of state government was not mobilized to address the problem until the powerful casino industry, including owners, employees, and suppliers felt threatened by unsustainable increases in real estate taxes.
Respectfully submitted,
Dated: February 17, 2023 _________________________________
SETH GROSSMAN, Attorney
Attorney for Plaintiffs-Respondents Liberty And Prosperity, 1776, Inc. et als.
