Liberty And Prosperity Lawsuit: NJ State Constitution And 2018 Settlement Bar Latest Real Estate Tax Breaks For Atlantic City Casinos

Since 1875, the New Jersey State Constitution required that All real property assessed and taxed locally. . . shall be assessed 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”.  The exceptions listed in our State Constitution include (1) More than 5 acres of active farmland, (2) property used for religious, educational, charitable, or cemetery purposes, (3) homes of war veterans and widows, (4) homes of residents and citizens who are over age 65 or disable, (5) homes of certain homeowners and tenants, (6) properties in “blighted” areas “in need of redevelopment”.  We claim that Atlantic City casinos do not fall within any of those exceptions, and are therefore not entitled to real estate tax breaks.  The original 2016 state legislation suggested that all Atlantic City casinos were in “blighted areas in need of redevelopment”.  Above is a photo of “The Quarter” shopping and restaurant area of the Tropicana Casino.

Last January, we filed a lawsuit against Governor Murphy and New Jersey State Government.  We claimed that the new state law enacted last December violates our State Constitution and a negotiated settlement made with Atlantic County in 1918.  When it appeared the State was late in filing responding papers, I requested judgment based on these arguments.  Because It now appears there was a misunderstanding as to when the State’s response was due, these arguments will be presented in new papers to be filed with the court.

The caption of the case is Liberty And Prosperity 1776, Inc. et als. vs. State of New Jersey, Superior Court of New Jersey, Law Division Docket Number ATL-L-170-22.  The case has been assigned to Judge Michael Blee.

1. The CITY OF ATLANTIC CITY (hereinafter “ATLANTIC CITY”) at all times relevant to this complaint is and was a municipality of New Jersey with a resident population of 39,558 in 2010 and 38,497 in 2020.
2. On October 10, 2010, Defendant STATE OF NEW JERSEY (hereinafter referred to as “STATE”) supervised and/or controlled the finances of ATLANTIC CITY pursuant to an order of this court issued pursuant to N.J.S.A. 52:27BB-55(6) in the matter of THOMAS H. NEFF, Director of the Division of Local Government Services, etc. vs. CITY OF ATLANTIC CITY, etc. Docket No. L-5928-10.
3. During the seven calendar and budget years from 2010 through 2016, while under said STATE supervision and/or control, ATLANTIC CITY failed to adopt and implement cash based, balanced budgets as required by NJ Statute 40A:4-1 known as the Local Budget Law.
4. During the seven calendar and budget years from 2010 through 2016, ATLANTIC CITY incurred debts for operating expenses in an aggregate amount of approximately $400 million to $600 million.
5. All of said $400 million to $600 million of debts incurred by ATLANTIC CITY while under STATE control or supervision between 2010 and 2016 were for operating expenses , and were debts not lawfully incurred pursuant to either the Local Budget Law or NJ Statute 40A:2-1 known as the Local Bond Law.
6. On May 27, 2016, Defendant NEW JERSEY enacted NJSA 52:27BBBB-1, et. Seq. which the Legislature had named the “Casino Property Tax Stabilization Act”. It is hereinafter referred to as the “Casino PILOT Law”.
7. The Casino PILOT law provided that for the next ten calendar and budget years (2017 through 2026),
   1. All real estate owned by licensed casinos in Atlantic City and “utilized in connection with casino gaming”, would be “exempt from local real estate taxes” and instead make “payments in lieu of property taxes owed to Atlantic City”, and
   2. Those payments “in lieu of property taxes” would equal $120 million per year in 2017, plus either a yearly increase of “two percent per year” or additional moneys based on increases “Gross Gaming Revenue (GGR), that is “the total amount of revenue raised through casino gaming from all of the casino gaming properties located in Atlantic City”.
   3. A portion of those payments “in lieu of property taxes” would “be remitted to the county and school district. . . in the same manner as property taxes are paid to counties and school districts. . . “
8. In adopting the Casino Pilot Law, the Legislature of Defendant NEW JERSEY Legislature made the following “findings” and “declarations”:

•  “(C)ompetition from other states. . . in casino gaming” caused the “closing of four. . . casinos operating in Atlantic City. . . and “a strain on Atlantic City’s municipal budget due to property tax refunds required by successful assessment appeals of casino gaming properties; and an increased property tax burden on Atlantic City and Atlantic County residents based on the decreasing value of casino gaming properties. . .
• “(F)our New Jersey cities with the lowest median family income based on the 2009 American Community Survey. . . were designated as Garden State Growth Zones. . .” Atlantic City was also designated a “Garden State Growth Zone for purposes of incentive programs” because it “contains a tourism district”.
• “A municipality which contains a tourism district. . . and is regulated by the Casino Reinvestment Development Authority is hereby declared a blighted area and area in need of redevelopment. . . “
• “The accurate assessment of casino gaming properties is especially difficult because they are unique properties and their year-to-year value is greatly influenced by the performance of casino gaming properties in other nearby states and by extreme weather events like Super Storm Sandy. . .
• To devise “a program that avoids costly assessment appeals for both the casino operators and Atlantic City. . . “

9. The Casino PILOT Law is, and at all times was, forbidden by Article VIII, Section I, Paragraph 1 of the New Jersey State Constitution which states:

“Property shall be assessed for taxation under general laws and by uniform rules. All real property assessed and taxed locally. . . 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.”

10. Article VIII, Section I, Paragraph 1 of the New Jersey State Constitution provides exceptions for:
    1. Land of not less than 5 acres in area actively devoted to agricultural or horticultural use. (Article 8, Section 1, Paragraph 1(b))
    2. Real and personal property used exclusively for religious, educational, charitable, or cemetery purposes owned by non-profit associations or corporations. (Article 8, Section 1, Paragraph 2)
    3. Certain war veterans and widows (Article 8, Section 1, Paragraph 3)
    4. Certain residential units for residents who are disabled or age 65 or older. (Article 8, Section I, Paragraph 4)
    5. Certain homeowners and residential tenants (Article 8, Section 1, Paragraph 5)
    6. Land, buildings and structures in areas declared in need of rehabilitation in accordance with statutory criteria, not to exceed 5 years. (Article 8, Section 1 Paragraph 6).
11. None of the “real estate owned by licensed casinos in Atlantic City and “utilized in connection with casino gaming” described in the Casino PILOT Law were or are entitled to any of the above described exemptions from real estate taxes.
12. None of the “findings” or “declarations” recited by the NEW JERSEY Legislature in the Casino Pilot Law supported exceptions to the State constitutional requirement that property be assessed by the same method, and taxed at the same rate. In particular:
    1. “Competition from other states in casino gambling” caused the closing of many non-casino businesses, and the rapid decline in value of almost all real estate in Atlantic City, not just casino gaming properties.
    2. The creation of a “Tourism District” in Atlantic City did not cause every casino gaming property to become “a blighted area in need of redevelopment”.
    3. The assessment of every property and every business is unique. Other states such as Nevada have proven that there are long established, routine, and accurate methods for assessing the value of casino gaming properties.
    4. There were thousands of costly tax appeals involving both casino and non-casino properties alike between 2010 and 2016. This had nothing to do with any special qualities of casino properties. It was because while ATLANTIC CITY was under state supervision and/or control, its tax assessor unconscionably and systematically refused to adjust her real estate tax assessments to reflect the declines in value for almost any taxable property in the city, and the city pursued appeals of Tax Court and Board of Taxation decisions that correctly determined the true values of both casino and non-casino properties.
13. On or about June 9, 2016, Plaintiffs filed an amended complaint in a prior action entitled Liberty & Prosperity 1776, et als vs. City of Atlantic City, et als. and State of New Jersey, Docket No. ATL-L-777-16. That action is hereinafter referred to as “Plaintiffs’ Initial Lawsuit”.
14. The Second Count of the amended complaint of Plaintiffs Initial Lawsuit demanded judgment:

• “Finding and declaring that the (sic) all or part of the Casino PILOT Act does not comply with the requirements of Article VIII of the New Jersey State Constitution, and is therefore null, void, and of no effect, and
• (sic) “For such other and further relief as the court finds just and equitable under the circumstances”.

 

15.  On October 20, 2017, Plaintiffs moved for summary judgment that the Casino PILOT Act was null and void on said Second Count of its amended complaint.

16. Plaintiffs filed supplemental briefs, correspondence and/or certifications in support of their motion for summary judgment, and/or in opposition to Defendant’s motions to dismiss on October 25, 2017 and November 13, 2017.

17. We refer to, rely on and incorporate all of certifications, attachments, briefs and other documents submitted by Plaintiffs on October 20, 2017, October 25, 2017, and November 13, 2017 in support of their motion for summary judgment in Plaintiffs Initial Lawsuit, in lieu of duplication and repetition.

18.  The court did not decide Plaintiff’s motion for summary judgment in 2017. It instead encouraged settlement discussions between the STATE OF NEW JERSEY, COUNTY OF ATLANTIC, and ATLANTIC CITY.

19.  On April 20, 2018, the STATE OF NEW JERSEY, COUNTY OF ATLANTIC, and ATLANTIC CITY reached a comprehensive settlement agreement on all issues which concerned them.

20.  Shortly afterwards, Plaintiffs agreed to dismiss said action with upon the specific representation by Defendant STATE OF NEW JERSEY that its settlement with the COUNTY OF ATLANTIC “does not negatively impact Atlantic City, so the Atlantic City taxpayers will not be asked to pay more . .. for the additional increased payments on the PILOT for the County”. Transcript of Settlement Conference of April 20, 2018 in matter of COUNTY OF ATLANTIC vs. STATE OF NEW JERSEY, Docket No ATL-L-1254-17 at Page 22, Lines 5-10.

21.  On or about June 18, 2018, Hon. Julio L. Mendez, the Assignment Judge of this court who presided over this case executed and filed an order, consented to by all parties, memorializing the settlement agreement of all parties on April 20, 2018. The terms of that agreement of interest to Plaintiffs were:

• The Atlantic City casino properties made aggregate PILOT payments of $120 million for 2017. (emphasis added)
• The Atlantic City casino properties would make aggregate PILOT payments of $130 million for 2018. (emphasis added)
• To the best of Plaintiffs’ knowledge, the “gross gaming revenue” (GGR) used to determine those numbers included revenue from Internet gaming.
• The settlement as put on the record in open court on April 20, 2018 (as reflected by the Transcript of Settlement Conference) were incorporated into the order. That included the provision that “the settlement between the COUNTY OF ATLANTIC and STATE OF NEW JERSEY “does not negatively impact Atlantic City, so the Atlantic City taxpayers will not be asked to pay more . .. for the additional increased payments on the PILOT for the County”.

22. When Plaintiffs agreed to dismiss their lawsuit without prejudice to allow the above described settlement agreement of April 20, 2018 to move forward, Defendant STATE OF NEW JERSEY represented, and Plaintiffs believed, and had good reason to believe, that the amounts of aggregate PILOT payments paid and to be paid by the Atlantic City casino properties based on their “GGR” or “Gross Gaming Revenue” as enhanced by additional state aid to ATLANTIC CITY to compensate ATLANTIC CITY for additional PILOT payments paid to ATLANTIC COUNTY, roughly equaled, and would roughly equal through 2026, the amounts ATLANTIC CITY, its school district, and ATLANTIC COUNTY would have received had the Atlantic City casino properties not been “exempt from local property taxation” pursuant to Section 3b of the Casino PILOT Act.
23. On or about December 21, 2021, Defendant State of New Jersey adopted a new statute known as L2021 c315 s1, and 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 amends various sections of NJSA 52:27BBBB-18 et. seq. and is hereinafter referred to as the “Amended Casino PILOT Law”.

24. Section 3a of the Amended Casino PILOT Law amended Section 3a of the original Casino PILOT Law to provide that:

“Gross gaming revenue (GGR). . . shall not (emphasis added) include revenue derived from Internet casino gaming and Internet sports wagering during calendar years 2021 through 2026. . .

25. Section 3b(e) of the Amended Casino PILOT Law added a section 3b(e) to the original Casino PILOT Law to provide that:

“(e) The total amount of the payment in lieu of property taxes owed to Atlantic City for calendar year 2022 shall be $110 million.” (emphasis added)

 

26. Section 3b(f) of the Amended Casino Pilot Law continued to provide 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 or the normal yearly increases in the cost of local government and public schools, 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.
27. Sections 3b(g) and 3b(h) of the Amended Casino Pilot Law added additional sections designed to reduce the amounts of payments in lieu of property taxes by casino gaming properties in Atlantic City.
28. 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 (emphasis added) 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.”

29. The Amended Casino PILOT Act does NOT purport to in any way offset any revenue loss to Atlantic County government, or the Atlantic City public school district or library.
30. By enacting the Amended Casino PILOT Law, Defendant STATE OF NEW JERSEY breached promises it made on April 20, 2022 which induced Plaintiffs to dismiss their initial lawsuit.
31. Plaintiffs believe that the amounts of aggregate PILOT payments paid and to be paid by the Atlantic City casino properties based on their reduced $110 million base amount and reduced “GGR” or “Gross Gaming Revenue” without Internet casino gaming and without Internet sports wagering, and without sufficient state aid to compensate ATLANTIC CITY for additional PILOT payments paid to ATLANTIC COUNTY,  are, and will be substantially less than what those Atlantic City casino properties would pay in local property taxation based on their true assessed values at the regular municipal tax rate.
32. Plaintiffs believe that the Amended Casino PILOT Law violates Article 8, Section 1, Paragraph 1 of the New Jersey State Constitution by giving the owners Atlantic City casino properties preferences in local property taxation at the expense of every other owner of taxable real estate in Atlantic City and Atlantic County.

Dated:   April 7, 2022

SETH GROSSMAN

Attorney for Plaintiffs

Docket No. ATL-01-000170-22