Superior Court Michael Blee (above) today issued this “Final Judgment”:
“(F)or the reasons set forth in the accompanying thirty-nine (39) page Memorandum of Decision (below) and for good cause shown, IT IS on this 29th day of AUGUST, 2022, ORDERED and ADJUDGED that. . . (4) The 2021 Amendment to the Casino Tax Stabilization Act is hereby DECLARED NULL, VOID, AND OF NO EFFECT.” MICHAEL J. BLEE, Assignment Judge Superior Court.”
In 2016, we sued to stop special real estate tax treatment for Atlantic City casinos. We settled that case two years later because State officials and Legislators promised that the “Payments In Lieu Of Real Estate Taxes (P.I.L.O.T.) of Atlantic City casinos would include a share of their income from sports betting and online gambling for 10 years. Last December, Governor Murphy broke that promise, and cut out that income after only 5 years! We filed a new lawsuit to force stop them. Today, Judge Michael Blee ruled in our favor.
Our case has the caption Liberty And Prosperity 1776, Inc. vs. State of New Jersey. The Case Number is ATL-000170-22. The two page Final Judgment and 41 page Memorandum of Decision are posted on the New Jersey Superior Court website. Click here for the link. We will post them here shortly. Meanwhile, here are the reasons Judge Blee gave for his decision in the last ten pages of his Memorandum of Decision.
V. The 2021 Amendment (Excluding Online Gambling & Sports Betting Income From County, School, and Local Real Estate Taxes) is Not Rationally Related to a Legitimate Purpose.
The stated purpose and anticipated effects of the 2021 Amendment cannot support a finding that the statute was enacted for a “permissible public purpose.” Although the record reflects casino revenue loss in 2020 due to brick-and-mortar closures at the early stages of the pandemic, the record also demonstrates that Atlantic City casinos experienced exponential growth in internet casino gaming and internet sports wagering in 2020 and 2021 which decreased the economic impact of the brick and mortar losses.
At the time the Amendment was passed on December 21, 2021, casino revenue was nearing its year-end total of $4.2 billion, with brick-and-mortar casino gaming revenue alone totaling approximately $2.6 billion, and internet gaming and sports wagering totaling around $1.6 billion. Pl.’s Ex. EE (“DGE Summary of Gaming and Atlantic City Taxes and Fees”). By comparison, the 2021 revenue rivaled the gross revenue of the casino industry at its peak in the early 2000s.
In fact, the Original Act did not contemplate a scenario in which casino gross gaming revenue exceeds $3.8 billion. See N.J. Stat. § 52:27BBBB-20 (2016) (in which the highest tier of GGR contemplated is $3.4 to $3.8 billion, with a corresponding PILOT payment of $165 million). In spite of near record-breaking gross gaming revenue, the Legislature expressed concern in December 2021 that:
[D]ue to the State’s public health emergency declared in response to the Covid-19 pandemic, which negatively impacted tourism in Atlantic City by restricting the public’s right to travel; closing casino gaming properties for months on end and then allowing them to open only partially for another extended period of time; and closing other businesses that would have been visited by tourists to the city for months as well; requiring each casino gaming property to make an annual PILOT payment, as calculated under the current version of the [Act], and also satisfy its full IAT obligations for calendar years 2022 through 2026 may create financial difficulties for those gaming properties.
Similarly, the Legislature is also concerned with the impact on the casino gaming properties in Atlantic City of the total amount of PILOT payments, as calculated under the current version of the
[Act], owed by those casino properties, as well as the current manner of determining each individual casino gaming property’s PILOT payment responsibility, due to all of the issues experienced in Atlantic City resulting from the public health emergency limitations on Atlantic City’s casino gaming properties will affect the finances of those casinos for the foreseeable future, and thereby impact their ability to pay the required PILOT payment to the City and impact their ability to contribute to the quality of life of the State’s senior and disabled residents who rely on casino revenue deposited into the Casino Revenue Fund to fund programs that reduce property taxes as well as utility assistance programs benefiting those residents.
Based on gross revenue taxes paid, casino gross revenue was approximately $4.2 billion in 2000. In 2006, gross revenue peaked at approximately $5.2 billion. Pl.’s Ex. EE (DGE Summary of Gaming and Atlantic City Taxes and Fees”) (reporting that, in 2006, casinos paid 8% tax on $417,528,000). Thereafter, revenue steadily declined to a low of $2.5 billion in 2016. Id. Even with pandemic-related losses, gross revenue in 2020 was approximately $2.6 billion. In the words of the state, there was an “explosion of internet gaming and sports betting” during the pandemic. Def.’s Br. In Support of Motion to Dismiss at p. 17. [N.J. Stat. § 52:27BBBB-19.1e.]
To ameliorate the purported effects of the pandemic, the State amended the Act “to compensate for the impacts that the public health emergency… has had and will continue to have on in-person and internet gaming,” and “lessen the financial impact of the end of the IAT crediting mechanism at the end of 2021 on the casino gaming properties.” N.J. Stat. § 52:27BBBB-19.1f.
The Legislature also stated that the Amendment would “ensure that Atlantic City continues to receive sufficient PILOT payments and IAT payments to fund its municipal budget.” Id. The Legislature further declared that the Amendment was “in the best interest of the casino gaming industry…, the best interests of Atlantic City, and in the best interests of the State’s senior and disabled residents who rely on casino revenue… to reduce property taxes as well as rentals, telephone, gas, electric and utility charges…” N.J. Stat. §
52:27BBBB-19.1f.
Prior to passing the Amendment, the Senate Budget and Appropriations Committee considered a “Fiscal Impact” statement from the OLS which reported that the proposed legislation would “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.” OLS “Legislative Fiscal Estimate” Report on SB 4007, December 21, 2021. The fiscal report notes that “a portion” of the loss would be offset by the continuation of the $5 million per year “additional payments” through 2026, and the “reallocation of investment alternative tax (IAT) revenues not required to the [CRDA] and municipal debt service.” Id. The report also finds that, under the Amendment,
“[t]he State may also receive additional revenues because the bill requires a portion of the excess IAT revenues to be distributed to the CRDA.” Id. However, the OLS noted that “IAT revenue
collections change annually” and for this reason OLS could not “project the amount of unreserved funds that may be available to the State and the City of Atlantic City.” Id.
At oral argument, the Court asked counsel for the State whether Atlantic City residents would benefit more under the Amendment than the Original Act. The State submitted that, even
if the Amendment is not in “the best interest” of the City, it is a permissible policy because the City’s municipal debt is completely funded by IATs. Counsel for the State argued that the
Legislature ensured that, under the Amendment, the City and County budgets received “at least
what they had to date.”
Under the appropriate standard of review, the Court must presume that the Legislature’s judgment was based on factual support where there is no evidence to the contrary. Reingold, 6 N.J. at 196. However, “the existence of a rational basis for the 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.” Id. In other words, if there are any facts on the record to support the Legislature’s stated “concerns” that the casinos would not be able to fulfill their PILOT and IAT obligations from 2022 through 2026, the Court is required to defer to the judgment of the Legislature under a rational basis review. In
that case, an Amendment to preserve payments for the City, County, and State (albeit lower than those prescribed by the Original Act) would not only be rationally related to a legitimate State objective, but also conceivably in the best interest of the public, and thus constitutionally permissible.
However, the facts on the record contradict the Legislature’s stated concerns that the casinos would not be able to fulfill their obligations under the Original Act due to (1) the expiration of the IAT crediting mechanism at the end of 2021, and (2) losses due to pandemic-related brick-and-mortar closures. N.J. Stat. § 52:27BBBB-19.1d-e.
The sparse legislative history before the Court demonstrates that, at the very least, the Legislature knew that the Amendment was likely to result in PILOT losses between $150 million and $345 million over the remaining five years of the program (from 2022 through 2026). OLS “Legislative Fiscal Estimate” Report on SB 4007, December 21, 2021. Additionally, the actual gross revenue reported at the time the Amendment was enacted demonstrates a remarkable rebound in brick-and-mortar casino revenue and exponential growth in internet casino gaming and sports wagering revenue. At the time Amendment was passed, November 2021 revenue reports for the year 2021 had been submitted to the DGE. Those reports demonstrate year-to-date gross revenue from brick-and-mortar and internet casino gaming and sports wagering revenue 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).
In sum, there 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. For this reason, the Court finds that the enactment of the 2021 Amendment was arbitrary, capricious and unreasonable.
VI. The Amendment Constitutes an Unlawful Exemption for the Benefit of an Ailing Industry.
Even if the Court were to find that the Legislature acted rationally in enacting the Amendment, the Amendment would not pass constitutional muster on the basis of its stated public purpose and repeated declarations that the Amendment is “in the best interest of the casino industry.” The stated purpose of the Amendment is to:
“(1) adjust policies to… compensate for the impacts that the public health emergency… has had and will continue to have on in-person and internet gaming, (2) lessen the financial impact of
the end of the IAT crediting mechanism at the end of 2021 on casino gaming properties, and (3) ensure that Atlantic City continues to receive sufficient PILOT payments and IAT payments to fund its municipal budget.” [N.J. Stat. § 52:27:BBBB-19.1f (2021) (emphasis added)]
Additionally, the 2021 Amendment declares that revisions made to PILOT calculations are:
… in the best interest of the casino gaming industry which serves a vital part of the economy of the state, in the best interests of Atlantic City, and in the best interests of the State’s senior and
disabled residents who rely on casino revenue…The Legislature further declares that it is in the best interests of the casino gaming industry to revise the calculation of the PILOT payment each casino is required to pay under the [CPTSA] in order to lessen the impact of these payments on the casino’s finances during and after the public health emergency.
***
…[T]he Legislature also has the authority, by law, to revise the PILOT program to thereby address the impact of the expiration of the IAT credit mechanism and its effects on the casino gaming
industry in the state… [N.J. Stat. § 52:27BBBB-19.1f-g (2021) (emphasis added)]
While the Court appreciates the unique role of the casino industry and the flow of its tax revenue in our State, as was discussed previously, the Constitution “explicitly forbids preferential [tax] treatment” to aid an industry. Kimmelman, 105 N.J. at 436. The Court notes that while many industries within the State suffered incredible pandemic-related revenue losses, those industries were not provided any legislative property tax relief. When the statute at issue in Kimmelman was enacted, the legislative history demonstrated that the Legislature was attempting to alleviate the “the effect of double digit inflation and a recession” to aid the then-suffering housing industry. Id. at 431. The Kimmelman court noted that the legislation at issue “came about as a result of recommendations by the Housing Emergency Action Team (HEAT), a committee of the New Jersey State Assembly… formed in March 981 to seek solutions to a severe housing shortage in the State.” Id. at 425. In Kimmelman, the record contained a statement from the Governor “recogniz[ing] the purposes of the legislation and concur[ring] in the conclusion [of the Legislature] that no unfairness [would] result[] to municipalities and other taxpayers” from the tax exemption. Id. at 426. Despite the Legislature’s good intentions, the Court struck the exemption as unconstitutional because the clear purpose of the statute, as demonstrated by the extensive legislative history, was “to aid an ailing industry.” Id. at 436. Here, it is unclear whether the Legislature acted with such noble intentions in passing the Amendment. The record preceding the Amendment’s enactment is remarkably thin. In Kimmelman, the statute at issue was borne after a legislative committee’s extensive findings and recommendations. Here, the record is devoid of any such findings or recommendations.
At oral argument, the Court asked counsel for the State whether further discovery was needed regarding the impetus for the 2021 Amendment. Counsel for the State acknowledged that the Legislature’s “analysis is concededly not in the record,” but represented that there was no need for further discovery. The only inference that can be drawn from this representation is that the legislation at issue was passed by the Legislature on the sparse record now before the Court. The Legislature declares that the Amendment is “in the best interest of the casino industry.” N.J. Stat. § 52:27BBBB-19.1f-g (2021). As discussed above, if the record contained any evidence that the Amendment was designed to achieve public purpose with an incidental benefit to the casino industry (as the Original Act was), it would be constitutionally permissible. However, the record belies the Legislature’s findings that the casinos were suffering pandemic-related losses at the time the Amendment was passed. There is no evidence to suggest that casinos could not meet their PILOT obligations under the Original Act.
Additionally, the record demonstrates that the Amendment is detrimental to the interests of the taxpayers of City, County and State. From this, the Court must conclude that the Amendment was enacted not to further a public purpose, but to aid what was actually a resurging industry. Such an exemption is “forever barred” under Article VIII, § 1 of our State’s Constitution. Kimmelman, 105 N.J. at 435.
The decision of this court shall not be interpreted to suggest that the Legislature is prohibited from taking legislative action in the future concerning the Atlantic City casino industry that is solely enacted for a public purpose. The 1976 Amendment to the New Jersey Constitution authorized casino gaming in Atlantic City solely for the purpose of providing funding for reduction in property taxes, rental, telephone, gas, electric and municipal utility charges or eligible senior citizens and disabled residents of the State and for additional or expanded health services or benefits or transport services or benefits to eligible senior citizens and disabled residents. N.J. Const., Art. IV, §7, 2D.
At the time MRSA was enacted in June 2017, the City of Atlantic City was deemed a municipality in need of stabilization and recovery. The original CPTSA enacted in May of 2016 specifically states that is a primary public purpose to grant casino gaming properties an exemption from normal property taxation for a limited period of time in exchange for a guaranteed mandatory minimum payment in lieu of property taxes because Atlantic City would be able to depend on a certain level of revenue from casino gaming properties each year, making the local property tax rate and need for State aid less volatile.
The expectations of Atlantic City and Atlantic County taxpayers of a certain level of revenue from gaming properties over a ten-year period were breached by the 2021 Amendment
just five years into the ten-year plan.
The OLS “Legislative and Fiscal Estimate” projects a loss of PILOT revenue from 2022 through 2026 at $30 million to $65 million per year. See OLS “Legislative and Fiscal Estimate.” This, in turn, will have a direct detrimental economic impact to the City of Atlantic City, Atlantic County and the Atlantic County School District. Such a decrease in payments is not justified by the mere “perception” that the casino industry was devastated by the pandemic.
Moreover, the purported offsets under the Amendment ($5 million per year “additional payments” in calendar years 2024 through 2026, and the reallocation of a portion of the IAT not required to the CRDA and municipal service) does not counterbalance the significant reduction in the yearly payments under the Amendment. The facts before the Court demonstrate that the
casino industry stands to gain a windfall under the Amendment that was not present in the original legislation. Further, the amount of any unreserved IAT revenue allegedly for the benefit
of the State and City of Atlantic City is unpredictable, and, therefore not stabilizing. See OLS “Legislative and Fiscal Estimate” (“IAT revenue collections change annually and the OLS cannot project the amount of unreserved IAT funds that may be available to the State and the City of Atlantic City”). This Court finds that the Amendment was enacted to aid the casino industry and not for a public purpose. The raw economic data does not support a finding that the Amendment advances purposes generally beneficial to society by reducing the PILOT payments so drastically from the Original Act.
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