Painful and Difficult Decisions to Make on our Casino Tax Break Lawsuit

Liberty And Prosperity sought court orders compelling Atlantic City government, while under state control, to adopt timely balanced budgets for Budget Years 2016 and 2017 pursuant to the NJ Local Budget and Bond Laws.  Assignment Judge Julio L. Mendez repeatedly delayed ruling on our applications until approximately $200 million had been borrowed by the city government in violation of those laws.

Because I am now a candidate for political office, I am not posting as an officer of LibertyAndProsperity.com.  I am posting to inform members of that organization as their attorney for a court case for which I am still their attorney.

Two years ago, LibertyAndProsperity.com and three of its members brought a lawsuit against Atlantic City and State government. We asked the New Jersey Superior Court to do several things:

  1. Force Atlantic City government to adopt a balanced budget for 2016 to comply the New Jersey Local Budget Law.
  2. Stop Atlantic City government from running up debts by spending money it did not have in violation of the Local Budget Law.
  3. Declare that the State PILOT (Payment In Lieu of Taxes) Law was unconstitutional. This 2016 State Law lets Atlantic City casinos pay a fixed amount based on depressed 2010-2015 values for ten years, while all other property owners are taxed based on current values and government spending. The New Jersey State Constitution requires all real estate to be assessed and taxed equally. There are very narrow exceptions for farmers, seniors, veterans, and “economic developmenta” that do not apply to casinos.

“The Quarter” Shops and Restaurants of the Tropicana Casino in Atlantic City.  In 2016, the New Jersey State Legislature declared that all Atlantic City casinos were “blighted areas in need of redevelopment”.  As a result, they were exempt from provisions in the New Jersey State Constitution requiring all real estate to be “assessed by the same method” and “taxed at the same rate”.

When we began the lawsuit two years ago, State Government, under Republican Governor Chris Christie, controlled Atlantic City’s finances. It took over when Atlantic City, under then Mayor Lorenzo Langford refused to cut spending and adopt a balanced budget in 2010 as required by State Law.

I agreed to be the attorney. My fees were to be paid from moneys donated to Liberty and Prosperity specifically for that purpose.  At the time, I thought the issues were simple.  I thought the case would be resolved quickly and inexpensively. I also thought the lawsuit would attract attention and support from business and homeowners all over Atlantic County.  

I was wrong.  State and local government officials and their lawyers spent a fortune to make the simple case complicated and expensive. Top officials for Atlantic City’s Mayor Guardian and New Jersey Governor Chris Christie deliberately hid key budget and expense figures and transactions from the media, the public, most of City Council and even from Judge Mendez!’  By doing this, they completely concealed the true financial condition of Atlantic City government for roughly two years. The State Attorney General filed hundreds of pages of briefs and documents with the court.? Meanwhile the case got very little publicity and public support.  Liberty and Prosperity got roughly $600 in contributions.  This was barely enough to cover filing fees, copying costs, and postage.

We now know that since State government took control of  Atlantic City’s finances in October of 2010, it put Atlantic City taxpayers roughly $500 million into debt!  At that time, more than 11% of Atlantic City properties were already exempt from regular real estate tax increases. Roughly 3,000 units of  low and “affordable” housing were also exempt. Under the new P.I.L.O.T. or Payment In Lieu of Taxes law, Atlantic City casinos which paid roughly half of Atlantic City’s property taxes are also exempt! All these properties are also exempt from all future increases in city, school and cocunty property taxes.  

Some 18 months ago, Judge Mendez dismissed most of our case. He did not order Atlantic City to balance its budget as required by both the State Local Budget and Local Bond Laws.  Judge Mendez did not stop Atlantic City from borrowing more money.  He did not spot Atlantic City government from, or spending more than it took in.

One year ago, Judge Mendez was about to decide the rest of our case.  At that time, I did not have the resources to effectively respond to all the papers filed against us by lawyers for Mayor Guardian and the NJ Attorney General.

          I was only able to continue because Atlantic County government and six suburban towns joined the case last year. They did so because State Government broke its promise to them.

Back in 2016, Atlantic County Executive Dennis Levinson and most mayors in Atlantic County publicly supported the ten year tax break for Atlantic City casinos. That was because Governor Christie promised Atlantic County 13.5% of the casino “PILOT” money. That came to $16.2 million of the $120 million paid by the casinos in the first year. However, after the law was passed, the State paid Atlantic County only 10.4% or $12.48 million. This $3.72 million shortage caused big budget problems for county government.

 We always knew that some point, the County would use our lawsuit as a bargaining chip to get the extra $3.72 million Christie promised them.  This is a big problem. Every extra dollar of casino money paid to Atlantic County to lower property taxes outside Atlantic City raises the taxes of Atlantic City taxpayers.

We reached that point on Friday.  Although Judge Mendez heard arguments on the case last November, he did not yet make a decision.  He instead required County Executive Dennis and the lawyers for all parties involved in the case to meet at the Court House. Last Friday, the County and the State agreed to the obvious compromise.

The State  claimed Atlantic County was entitled to 10.4% of what the casinos would pay “in lieu of” or instead of property taxes.  The County demanded 13.5%.  The State and the County agreed to split the difference.  They agreed that Atlantic County government would get 11.95% of the casino payments.

That means Atlantic County taxpayers get more money and that Atlantic City taxpayers get less. To make up for that, the State is offering Atlantic City extra “discretionary aid” from the state income tax for the next few years.

This is a problem because the NJ State Constitution does not permit State government to make promises for future years without voter approval. The state lawyers claim that if we make a settlement, the State Legislature will honor it, just as it honors many promises that violate our State Constitution.

What should we do?

          1. We can go along with the settlement. If we do that, we defeat the whole point of bringing the lawsuit in the first place–defending the Equal Taxation section of our State Constitution.

2.  We can reject the settlement, and continue to challenge the Constitutionality of the 10 year casino tax break. That creates many four big problems:  

a.  It will not take much work to continue the case before Judge Mendez. We already argued the case, and are just waiting for his decision. However, it is unlikely that a lower level trial judge would throw out a state statute, no matter how strong our case is.  To win the case, we would probably need to go to the New Jersey Supreme Court.  

                 b. The state has many ways to punish us. If we win the case, each casino will again pay taxes based on its actual assessed, fair market value. However, Governor Christie and his top state officials are now running Atlantic City. It would be very easy for State officials to assess or make settlements with the casinos at LESS than what they are paying under the PILOT Law.  They could easily cause massive tax hiked in Atlantic City and Atlantic County–and then blame us for it!  If they do that, we do not have the resources or expertise to challenge how casinos are assessed.

               c.  The state can also punish us by cutting “discretionary aid”. When New Jersey started the state income tax in 1976, politicians promised that this money would go create a “Property Tax Relief Fund”.  That fund was supposed to cut property taxes for everyone.  However, much of that State Income Tax “Property Tax Relief Fund” used as a political slush fund. Most of it goes to a handful of school districts run by Democrats. Much of the rest of it is paid to selected cities as “discretionary aid” This lets state politicians give extra money to towns they like, and take away money from towns they don’t like. If we succeed in getting rid of the casino tax breaks, state officials can take away that “discretionary aid”. This would also cause big tax hikes in Atlantic City.  And again, we would be blamed for them.

               d. The state can also punish us by cutting CRDA money to Atlantic City.  The state skims a special “Casino Reinvestment” tax of 1.25% on what is collected on the casino floor, and 2.5% on online gambling receipts.  That tax was created in 1978 to fund new construction.  Later, some of it was used sponsor things like “free” concerts on the beach and the  “Do AC” advertising campaign.  When the State made the law giving a 10 year tax break to casinos, it also gave some of this CRDA money to Atlantic City for those same 10 years. State officials are suggesting that if we knock out the 10 year tax break for casinos, Atlantic City?s share of this CRDA money will be taken away.  This would also cause big tax hikes in Atlantic City that would be blamed on us.  

             3.We can dismiss the lawsuit, and walk away.? This way, we cannot be blamed if bad things happen. However, if we do that, we have no way of enforcing the State’s promise to give Atlantic City extra “discretionary aid” to make up for the extra money given to the county.

The settlement was put on the record in Open Court last Friday. John Lloyd of Jeff Chiesa’s office will prepare the settlement papers later this week. We have roughly one week to decide what to do.

 Please contact me and let me know your opinion.   Also, please let me know if it is OK for me to share this information with the public. Since all voting and non-voting Liberty and Prosperity members are entitled to this information, it will be we be hard to keep this information confidential even if we wanted to. Thank you for your suggestions.

Seth Grossman

Attorney-at-Law

453 Shore Road

Somers Point, NJ? 08244

(609) 927-7333

sethgrossman49@gmail.com

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