LIBERTY AND PROSPERITY 1776 INC. vs. STATE OF NEW JERSEY. Docket No. ATL-L-000170-22. COMPLAINT FILED WITH COURT TO CHALLENGE CASINO TAX BREAKS.

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SETH GROSSMAN

Attorney ID# 013331975

Attorney at Law

453 Shore Road

Somers Point, NJ  08244

Tel.  609-927-7333

Attorney for Plaintiff

____________________________________                   SUPERIOR COURT OF NEW JERSEY

                                                                          LAW DIVISION

LIBERTY & PROSPERITY 1776, INC.,                  ATLANTIC COUNTY

a non-profit corporation of New Jersey,   

JAMES MCLEAN, a taxpayer                               Docket Number:  ATL-01-000170-22

of Atlantic City and Atlantic

County, New Jersey, and KAREN

BOREK and JANIS HETRICK, residents

and taxpayers of Atlantic County,

New Jersey

Plaintiffs

vs.

The STATE OF NEW JERSEY and           COMPLAINT IN LIEU

PHILIP D. MURPHY in his capacity         OF PREROGATIVE WRITS

As GOVERNOR OF THE STATE             AND FOR DECLARATORY

OF NEW JERSEY                                        JUDGMENT

Defendant(s)

LIBERTY & PROSPERITY 1776, INC., located at 453 Shore Road, in Somers Point, KAREN BOREK, residing at 1105 Delmar Court, in Absecon, and JANIS HETRICK, residing at 110 Burk Ave., in Egg Harbor Township, all within Atlantic County, and JAMES McLEAN, now residing at 80 Oak Ridge Lane, in Stafford Township, in Ocean County, all in the State of New Jersey, by way of complaint in lieu of prerogative writs and for declaratory judgment, say:

PARTIES

1.     Plaintiff LIBERTY & PROSPERITY 1776, INC. is a non-profit corporation of the State of New Jersey, with principal offices at 453 Shore Road, in Somers Point, Atlantic County, New Jersey.

2.     Plaintiff JAMES MCLEAN is the owner of taxable real estate within the City of Atlantic City, New Jersey.

3.     Plaintiffs KAREN BOREK and JANIS HETRICK are residents and owners of taxable real estate within Atlantic County, New Jersey.

4.     Defendant STATE OF NEW JERSEY (hereinafter referred to as “NEW JERSEY”) is the government of New Jersey established by its State Constitution of  1947 as amended which defines and limits its powers.

5.     Defendant PHILIP D. MURPHY is the Governor of Defendant STATE OF NEW JERSEY.

BACKGROUND

6.     The City of Atlantic City is, and at all relevant times was, a municipality of New Jersey within Atlantic County subject to New Jersey Statute 40A:4-1 known as the “Local Budget Law”.

7.     Defendant STATE OF NEW JERSEY has, and at all relevant times had, broad powers to compel the City of Atlantic City and all municipalities in New Jersey to comply with the Local Budget Law pursuant to State Statute 52:27BB-1 known as the “Local Government Supervision Act (1947)”.

8.     On or about October 4, 2010, Defendant STATE OF NEW JERSEY filed a lawsuit in the Law Division of the Superior Court seeking a judicial determination pursuant to N.J.S.A. 52:27BB-55(6) of the Local Government Supervision Act.  Defendant STATE OF NEW JERSEY alleged that,

“there has been a gross failure on the part of the City of Atlantic City to comply with the provisions of the Local Budget Law. . . which substantially jeopardizes the fiscal integrity of the City. . . “

9.     Said lawsuit was captioned “THOMAS H. NEFF, Director of the Division of Local Government Services, etc. vs. CITY OF ATLANTIC CITY”, Docket No. L-5928-10.

10.  On October 10, 2010, the Superior Court of New Jersey issued a Consent Order finding that

“the condition set forth in N.J.S.A. 52:27BB-55(6) currently exists within the City of Atlantic City, specifically that there has been a gross failure on the part of the City to comply with the provisions of the Local Budget Law, N.J.S.A. 40A:4-1 et seq”.

11.  That finding by the Superior Court on October 12, 2010 gave Defendant State of New Jersey through its Division of Local Government Services (DLGS) and Local Finance Board (LFB) extraordinary powers to compel the City of Atlantic City to comply with the Local Budget Law.

12.  A key feature of the Local Budget Law is, and at all times relevant to this complaint was, a mandate that every municipal government adopt a “cash basis budget” at the beginning of each calendar year.  That budget is to be a balanced budget where specifically identified reliable sources of taxes and other income reasonably expected to be received during the calendar year are  are shown to be sufficient to fully pay for specifically identified expenses to be incurred by the municipality during the budget year.

13.   The Local Budget Law specifically prohibits and prohibited the borrowing of money to pay for current (operating) expenses.

14.  The City of Atlantic City is and at all times relevant to this complaint, was also subject to New Jersey Statute 40A:2-1 known as the Local Bond Law”.  That statute sets forth the purposes for which municipalities may borrow funds.  That statute also specifically prohibits municipal governments from borrowing money for “current expenses and payment of obligations (other than those for temporary financing)”.

15.  Section 52:27BB-10 of the Local Government Supervision Act (1947) gives, and at all relevant times gave, the LFB “powers and duties” to compel and enable municipalities like the City of Atlantic City to comply with the Local Budget Law.  They included “powers and duties”:

“to. . . promulgate reasonable rules and regulations for the interpretation and administration of State laws included within the jurisdiction of the Division of Local Finance of the Department of Community Affairs”.

16.  Section 52:27BB-54  gives, and at all relevant times gave, the LFB power to impose:

“special restraints upon municipalities in, or in danger of falling into, unsound financial condition”.

17.  Section 52:27BB-57 and 58 specifically give, and at all times relevant to this complaint, gave the LFB the power to:

“require that the municipality and its special districts shall not borrow any moneys, make any purchase, enter into any arrangements or contracts requiring the expenditure of any revenues or engaging the credit of  the municipality in any way or undertake any financial liabilities or indebtedness whatsoever unless expressly authorized by the director.  (the administrative head of the Division of Local Finance of DCA)”.

18.  ATLANTIC CITY was subject to supervision and/or control by Defendant STATE OF NEW JERSEY pursuant to the Local Government Supervision Act (1947)” and other later adopted statutes from October 12, 2010 to the present.

19.  On or about April 13, 2016, Plaintiffs in this action filed a verified complaint in lieu of prerogative writ in the Law Division of the Superior Court of New Jersey.  That complaint demanded relief that would compel the City of Atlantic City and Defendant STATE OF NEW JERSEY to comply with the Local Budget Law and to adopt a balanced “cash basis” budget for Atlantic City for Calendar Year 2016. 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.

20.  On or about May 27, 2016, Defendant STATE OF NEW JERSEY adopted NJSA 52:27BBBB-18 known as the “Casino Property Tax Stabilization Act”.  That Act is hereinafter referred to as the “Casino PILOT Law”.

21.  On or about June 9, 2016, Plaintiffs filed an amended complaint in that prior action with Docket No. ATL-777-16.  The Second Count of that Amended Complaint alleged that the Casino PILOT Law violated Article VIII, Section 1(a) of the New Jersey State Constitution and was therefore “null, void, and of no effect”.

22.  Article VIII of the New Jersey State Constitution states:

“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”.

23.  On June 19, 2017, ATLANTIC COUNTY filed a separate complaint claiming that the STATE OF NEW JERSEY violated an agreement with ATLANTIC COUNTY, and that the Casino PILOT Law violated Article VIII, Section 1(a) of the New Jersey State Constitution.  That action was captioned County of Atlantic, et. als. vs. State of New Jersey, Docket No. ATL-L-1254-17.

24.  On or about August 17, 2017, the action of ATLANTIC COUNTY was consolidated with the previously filed action of Plaintiffs as Docket No. ATL-L-777-16.

25.  Shortly after said cases were consolidated, plaintiffs discovered that the CITY OF ATLANTIC CITY failed to adopt a balanced, cash based budget and failed to comply with the Local Budget Law during the seven years it had been under the supervision and/or control of Defendant STATE OF NEW JERSEY.

26.  Shortly after said cases were consolidated, Plaintiffs discovered that while under the supervision and/or control of Defendant STATE OF NEW JERSEY between October 10, 2010 and the latter part of 2017, the City of Atlantic City incurred total aggregate new debts of $500 million to $600 million, and that this debt had been incurred to pay for operating expenses in violation of both the Local Budget Law and the Local Bond Law.

27.  Shortly after said cases were consolidated, defendants STATE OF NEW JERSEY, COUNTY OF ATLANTIC, and CITY OF ATLANTIC CITY requested mediation.  The Court approved that request by Order dated September 1, 2017.

28.  On or about April 20, 2018, that mediation resulted in a comprehensive settlement between the STATE OF NEW JERSEY, COUNTY OF ATLANTIC, and CITY OF ATLANTIC CITY.

29.  Although Plaintiffs were not parties to that settlement, they agreed to dismiss their claims so long as the COUNTY OF ATLANTIC and CITY OF ATLANTIC CITY were satisfied with it, and so long as Defendant STATE OF NEW JERSEY kept its promises to Atlantic City taxpayers.

30.  Plaintiffs dismissed their complaint challenging the constitutionality of the original Casino PILOT Act on April 18, 2018 because they believed that the “PILOT” or “Payments In Lieu Of Taxes” made by the Atlantic City casino properties during the first two years the Act was operational, together with additional “transitional aid” paid and to be paid by Defendant STATE OF NEW JERSEY to Atlantic City government, closely approximated, and would continue to closely approximate, what the casinos would have paid, and would pay, in real estate taxes to the taxing districts of Atlantic County, Atlantic City, and Atlantic City Public Schools taxing districts had the casino properties been properly assessed and taxed as other taxable real estate in Atlantic City.

31.  Numbered Paragraph 9 of the Consent Order for Settlement issued by this Court on April 18, 2018 stated:

“Each of the Complaints filed by Liberty & Prosperity1776, Inc., Karen Borek, Janis Hetrick and James McLain are hereby dismissed without prejudice (emphasis added) as to all Defendants, including Donald Guardian, former Mayor of Atlantic City”.

32.  During the colloquy approving the settlement in open Court on April 18, 2018, Judge Mendez and all counsel specifically agreed that an essential part of the settlement was the continuing obligation of Defendant STATE OF NEW JERSEY to protect “Atlantic City taxpayers”. It was also agreed that Plaintiffs would have “an enforcement mechanism” to “hold them (Atlantic City taxpayers) harmless’.

CURRENT CAUSE OF ACTION

33.  On or about December 21, 2021, Defendant State of New Jersey adopted a new statute entitled

“An Act concerning the operations and obligations of casino gaming properties, and the finances of the municipality in which they are located, amending P.L. 1977, and amending and supplementing P.L. 2016, c.5.”

That statute is hereinafter referred to as the “Amended Casino PILOT Law”.

34.  The Senate Budget And Appropriations Committee included the following  “Fiscal Impact” statement from the Office of Legislative Services to describe the effect of that Amended Casino Pilot Law on the owners of taxable real estate in Atlantic County and Atlantic City:

“The bill will result in a loss of local payment in-lieu of tax (PILOT) revenues in 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 School District.

“A portion of the municipal revenue loss will be offset by: 1) Other casino-non-tax payments of $5 million per year in calendar years 2024 through 2026, and 2) the reallocation of a portion of investment alternative tax (IAT) revenues not required to pay the Casino Reinvestment Development Authority (CRDA) and municipal debt service.”

35.   The Amended Casino Pilot 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, and is 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.

36.  WHEREFORE, Plaintiffs demand judgment:

A.    Finding and declaring that Article VIII, Section 1 of the State Constitution of NEW JERSEY does not permit its Governor and Legislature to exempt casino properties of Atlantic City from being “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 such taxing district.”

B.    Finding and declaring that the amendments to the above described Casino PILOT Act are null, void, and of no effect.

C.    For such other and further relief as the court finds just and equitable under the circumstances.

D.    For costs.

SECOND COUNT

37.  All allegations of the First Count are repeated and deemed incorporated herein in lieu of repetition.

38.  Article VIII, Section 1(a) of the New Jersey State Constitution provides:

39.  “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 such taxing district.”

40.  Article VIII, Sections 1(b), 2, 3, 4, and 5 of  the New Jersey Constitution allows the New Jersey Legislature to enact laws to provide reduced tax assessments and/or taxes for certain lands “actively devoted to agricultural or horticultural use”, properties lawfully exempted from taxation prior to the adoption of the 1947 Constitution, homes of military veterans and their widows or widowers, residents who are disabled or age 65 or older, and “homestead rebates” to certain homeownes and residential tenants.

41.  Article VIII, Section 6 of the New Jersey Constitution allows the Legislature to grant certain “exemptions or abatements from taxation on buildings and structures in areas declared in need of rehabilitation”.

42.  Section 2f of the original Casino PILOT Law adopted on May 27, 2016 stated in part as follows:

“(A) municipality which contains a tourism district as established pursuant to Section 5 of P.L. 211, c18 (C.5:12-219) and is regulated by the Casino Reinvestment Development Authority is hereby declared a blighted area and area in need of redevelopment. . . “

 

43.  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”.

44.  The original Casino PILOT Law declaring every licensed casino property in Atlantic City to be “a blighted area and in need of redevelopment” was patently ridiculous.  Had the case not been settled in April of 2018, it is very likely that Plaintiffs would have prevailed in persuading this court that the original Casino PILOT Law violated Article VIII, Section 6 of the New Jersey State Constitution.

45.  The Amended Casino PILOT Law does not purport to claim that the casino properties of Atlantic City are blighted areas.

46.  None of the reasons stated by the Legislature of NEW JERSEY in support of its Amended Casino PILOT Law constitute a valid or recognized exception to the requirements of Article VIII, Section 6 of the New Jersey State Constitution.

47.  WHEREFORE, Plaintiffs demand judgment:

A.     Finding and declaring that Article VIII, Section 1 of the State Constitution of NEW JERSEY does not permit its Governor and Legislature to exempt casino properties of Atlantic City from being “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 such taxing district.”

B.    Finding and declaring that the amendments to the above described Casino PILOT Act are null, void, and of no effect.

C.    For such other and further relief as the court finds just and equitable under the circumstances.

D.    For costs.

Dated:  January24, 2022                                   /s/ Seth Grossman

SETH GROSSMAN

Attorney for Plaintiffs

SETH GROSSMAN

Attorney ID# 013331975

Attorney at Law

453 Shore Road

Somers Point, NJ  08244

Tel.  609-927-7333

Attorney for Plaintiff

____________________________________  SUPERIOR COURT OF NEW JERSEY

                                                                          APPELLATE DIVISION

LIBERTY & PROSPERITY 1776, INC.,     ATLANTIC COUNTY

 

Plaintiffs                                                        Docket No: 

 

vs.

 

CITY OF ATLANTIC CITY,                                   CERTIFICATION OF OTHER

                                                                          ACTIONS, ETC. (RULE 4:5-1(b))

SETH GROSSMAN,  of full age, hereby certifies:

1.     I am the attorney for Plaintiff, and I have personal knowledge of the facts set forth in this certification.

2.     The matter in controversy IS the subject of the following actions pending in the Superior Court of New Jersey, Law Division in Atlantic County.  Those actions are Liberty & Prosperity 1776, Inc., et als. vs. City of Atlantic City, Docket NO. ATL-L-777-16 and County of Atlantic vs. State of New Jersey, Docket NO. ATL-L-1254-17. Both matters are consolidated and presently assigned to Hon. Joseph L. Marczyk, Presiding Judge of the Civil Division in Vicinage I.  I am not aware of any other actions or arbitrations having the same subject matter or involving the same parties.

3.     I am not aware of any other person who should be joined in this action pursuant to Rule 4:28, or who is subject to joinder pursuant to Rule 4:29-1(b) because of potential liability to any party on the basis of the same transactional facts.

I certify that the foregoing statements made by me are true.  I am aware that if any of the foregoing statements made by me are willfully false, I am subject to punishment.

Dated:  January 24 2022                       /s/ Seth Grossman

SETH GROSSMAN

Attorney for Plaintiffs

 

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