NJ Constitution Says No Special Tax Breaks For Atlantic City Casinos. . . Or Anyone Else!

The idea of exempting Atlantic City casinos from real estate taxes, and allowing them to pay less than homeowners and other businesses began in 2016.  At that time we were in court trying to force Atlantic City government to adopt a timely balanced budget as required by state law.  New Jersey’s hundred year old “Local Budget Law” requires every city, town, and county to introduce a balanced budget showing its expected expenses for the year, and the taxes, grants, and fees needed to pay for them by mid January.  That budget is to then be published and reviewed by the public and local councils or commissioners in February.   A final budget is to be adopted by March after the public, council and the commissioners have a chance to propose changes.  The real estate tax rate is then set based on those final numbers.

We filed suit against Atlantic City government in 2016 because it did not even introduce its budget by March.  This was after state government under Governor Chris Christie had taken control of the city’s finances six years earlier.   In October of 2010, the State took over because Atlantic City had failed to adopt a balanced budget that year.

We expected our lawsuit to be very simple, routine, and inexpensive.  However, we were shocked to learn that  Atlantic City had failed to adopt a legal, balanced budget during each of the nearly six years it was under State control!  Because of that, Atlantic City government had incurred debts of more than $400 million for operating expenses. This was strictly forbidden by both the state’s Local Budget Law and its Local Bond (Borrowing) Laws.  These laws make it clear that local governments can only borrow money to buy land, buildings, equipment, or other things of value.  This debt, and the taxes needed to pay it back were unsustainable for a town of only 42,000 full time residents.  Dozens of businesses, including four of the City’s twelve casino hotels closed, in part because high real estate taxes.

During this time, the casino industry and its lobbyists did nothing to challenge the city’s out of control spending, unlawful budgets or debt.  They instead lobbied for and got special tax breaks for just the casinos, paid for by everybody else.  As our lawsuit was in progress, the State adopted a new law that allowed Atlantic City casinos to make special “Payments In Lieu of Taxes” instead of property taxes.  This was a blatant violation of New Jersey’s State Constitution.

Since 1844, New Jersey’s State Constitution has stated:

“All real property assessed and taxed locally. . . shall be assessed according to the same standard of value. . . and taxed at the same general tax rate of the taxing district in which the property is situated”.

After World War II, the State Constitution was amended several times to give special tax breaks for military veterans, farmers and senior citizens.  Later, an additional tax breaks was permitted for “blighted areas in need of redevelopment”

We then amended our lawsuit to challenge these blatantly unconstitutional tax breaks for the casinos.  However, we dismissed that lawsuit two years later “without prejudice”.  That meant we reserved the right to reinstitute the lawsuit if necessary.

We dismissed our lawsuit in 2018 because the State and the casinos made an offer that the taxpayers of Atlantic City and Atlantic County could not refuse.  The casinos offered a ten year deal to include receipts from online gaming as part of their “Payments In Lieu of Taxes”.  The State offered to pay Atlantic County a higher share of the casino payments than what they were entitled to.  Finally, the State also offered to pay Atlantic City millions of dollars from its “Property Tax Relief Fund”.  That Fund comes from the state incomes tax which is dedicated to lowering real estate taxes throughout the state.

For the past five years, these extra payments gave Atlantic City and County taxpayers roughly the same amount of money they would have received if the casinos paid full real estate taxes.  This is partly because the casinos earned much more money than they expected from online gambling.  It is also because state government gave extra “Property Tax Relief Fund” money to Atlantic City because it did not want the City to default on its debt payment.  Both Republican Governor Chris Christie and Democratic Governor Phil Murphy had close ties to the Wall Street banks that issued the bonds for this debt.

If the State and the casinos kept their ten deal, we would have no reason to revive our lawsuit.  We simply did not have the resources or support to maintain a lawsuit for only principle.  However, last month the casinos and the State broke the deal they made.  The State adopted a new law that no longer requires the casinos to use online gaming in calculating their  “Payments In Lieu of Taxes”.  This would allow Atlantic City’s eight casinos to pay roughly $55 million less each year than what they are paying now.  Every other taxpayer in Atlantic City and Atlantic County would pay more to make up the difference.  Now, serious money as well as principle are involved.

Two weeks ago, Atlantic County filed a lawsuit to set aside the new law.  The County is claiming that the State has no right to break the ten year deal it made.  However, the County cannot claim the new law is unconstitutional.  That is because Atlantic County gave up that claim when it settled its case in 2018.  We did not.  We dismissed our lawsuit “without prejudice” and kept our right to pursue our constitutional claims.

This Saturday, January 8, the membership of LibertyAndProsperity.com authorized and directed me to revive the 2016 lawsuit, and force State government to comply with our State Constitution.

Below are some details on how we got here:

Starting in 2008, there was a big decline in the Atlantic City casino business.  Much was caused by the worldwide mortgage and stock market collapse that year.  Some was caused by new casino competition in Philadelphia and elsewhere. This caused a big and rapid decline in income and property values of real estate in Atlantic City.  Atlantic City’s total real estate tax assessments fell from $20.5 billion in 2010 to $7.3 billion in 2015.  Atlantic City delayed the decline in official real estate tax assessments to match the decline in value by refusing to reduce property tax assessments as real estate values fell.  The City instead forced property owners, including its eight casino hotels, to bring 36,395 tax appeals between 2008 and 2016.  Another another 5,358 tax appeals were brought in 2017.  Almost all of these appeals resulted in big decreases in tax assessments.  Since Atlantic City government and its public schools had already spent the money taxed on those inflated assessments, Atlantic City had to borrow roughly $210,000 between 2012 and 2015.

Atlantic City government and its Board of Education both refused to cut spending to match the reduction in tax collections.  When Atlantic City failed to adopt a balanced budget by October of 2010, Republican Governor Chris Christie had the state take over Atlantic City’s finances.  At that time, we, like most people in Atlantic City thought the state had fixed the problem.  However it did not even begin to address the problem.

Governor Christie’s budget “monitors” allowed Atlantic City government and public schools to keep spending at pre-crisis levels–together with  “cost of living” increases!  At that time, Christie was running for President.  Christie’s main rival was Republican Governor Scott Walker of Wisconsin.  Walker was dealing with a similar budget crisis in Wisconsin.  Walker and a newly elected Republican majority in the Wisconsin legislature responded by cutting or freezing government spending.  This included cuts to salaries, pensions, and benefits of union public school teachers and government employees.  Walker was viciously attacked by Democrats and public school and government employee unions across America.  There were months of massive protests, riots, threats, and vandalism at the Wisconsin State Capitol in Madison during much of 2011.

Christie claimed he was a different type of Republican who could win Democrat support.  For the next six years, we assumed Atlantic City’s “budget crisis” was under control.  There was no hint of a budget crisis in the state or local newspapers.

When we sued to force Atlantic City to comply with state law and adopt a balanced budget, we were shocked to learn that state officials had blatantly defied state law.  They also dishonestly hid what they had done from the public, the media,  and most members of City Council. 

For example, in 2015, the State secretly approved a budget which unlawfully assumed the City would receive $33.5 million from a proposed state law that was never adopted.  The State secretly gave the City permission to spend that money it never got by using $20,276,082 budgeted for employees’ health insurance and $18,646,339 budgeted for mandatory employee pension contributions.

The State did not disclose this until July of 2016, when we were demanding financial details through our lawsuit.  The State did this when it publicly demanded that Atlantic City immediately Atlantic City agree to a $74 million “Bridge Loan” agreement to pay this money back with interest.  The State also demanded the City’s water utility as collateral!

 

“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”.

During the seven years between the State takeover of Atlantic City in October of 2010 and October, 2017, Atlantic City’s local government, while under New Jersey State supervision and control, put  Atlantic City taxpayers roughly $500 million into debt!  Roughly $300 million of that debt remains unpaid.  In this smaller, post coronavirus economy, even that reduced amount is unsustainable.

To make things worse, roughly 11% of Atlantic City properties, besides the casinos, get tax breaks and make “Payments In Lieu of Taxes” (P.I.L.O.T.) instead of paying regular real state taxes.    They included the 110 shops of “The Walk” and the Bass Pro Shop.  Roughly 3,000 units of low and “affordable” housing were also exempt. Since the casinos own roughly half of the taxable real estate in Atlantic City, only about 39% of all properties in Atlantic City pay full real estate taxes!

 LibertyAndProsperity.com is a tax-exempt, non-political education organization of roughly 200 citizens who mostly live near Atlantic City, New Jersey.  We formed this group in 2003. We volunteer our time and money to maintain this website. We do our best to post accurate information. However, we admit we make mistakes from time to time.  If you see any mistakes or inaccurate, misleading, outdated, or incomplete information in this or any of our posts, please let us know. We will do our best to correct the problem as soon as possible. Please email us at info@libertyandprosperity.com or telephone (609) 927-7333.

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Seth Grossman, Executive Director

LibertyAndProsperity.com

info@libertyandprosperity.com

(609) 927-7333

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