Why We Filed Lawsuit To Stop Casino Tax Breaks

Last Tuesday, we and three Atlantic County taxpayers filed a lawsuit against Governor Murphy and New Jersey State government.  We are trying to knock out the new state law that would cut the payments of Atlantic City’s nine casino hotels “in lieu of” real estate taxes by roughly $30 to $60 million each year for the next five years. The new law is very unfair and unconstitutional.

Click Here For Full Text of Complaint Filed On January 25, 2022 as Liberty And Prosperity 1776, etc. and et als. vs. State of New Jersey, et als., Docket No. ATL-L-000170-22.

This will cause big tax hikes on all home and non-casino business owner in Atlantic City and Atlantic County.  Atlantic City’s nine casino properties are roughly half the real estate tax base of Atlantic City, and a fourth of Atlantic County.  Every dollar saved by the casinos must be paid by other property owners.

These 110 commercial stores in and around “The Walk/Tanger Outlets” in Atlantic City pay “P.I.L.O.T. (Payments In Lieu of Taxes) in lieu of real estate taxes.  These payments are fixed and do not go up with government spending increases.  They did not go up to pay any of the $500 million to $600 million debt incurred by Atlantic City government while under state control since 2010.

The problem is worse in Atlantic City because only about a third of property owners pay full property taxes.  In 2015, some 1,476 housing units of the Atlantic City Housing Authority did not pay any real estate taxes.  Another 3,076 housing units and 110 commercial stores in and around “The Walk/Tanger Outlets” shopping center made reduced payments “in lieu” of property taxes. Those are fixed payments that do not increase when government spending increases.

The new law goes against a core provision of New Jersey’s State Constitution since 1844. 

Article VIII, Section One states that all local real estate “shall be assessed according to the same standard of value. . . and taxed at the general tax rate of the taxing district in which the property is situated.”

Over the years, our State Constitution was amended to give special tax breaks to farmers, veterans, senior citizens, and “blighted areas in need of redevelopment”.  None of these exceptions apply to Atlantic City casinos.

The shops and restaurants of The Quarter in the Tropicana Hotel/Casino are structurally identical to every other shop and restaurant in Atlantic City that pays full real estate taxes based on its assessed value.

The hotel rooms, shops, restaurants, parking garages and other real estate owned by Atlantic City’s nine casinos are identical in every way to those owned by non-casino businesses.

Governor Murphy and the State Senators and Assembly members who voted for this new law “found and declared” that casino owners need special real estate tax breaks because they face “a dire financial circumstance”.  They said this was caused by casino competition from nearby states since 2010, and two years of the coronavirus pandemic.

However, every property owner in Atlantic County suffers from those same hardships.  They and casino owners also suffered alike from the same 2008-2009 collapse of the stock and mortgage securities markets in 2008-2009.

The New Jersey State Constitution is deliberately designed to stop politicians from rigging tax laws to protect their friends from hardships that affect everybody, while making everyone else pay more.

Our lawsuit also points out that the cause of today’s property tax crisis in Atlantic City was state officials who blatantly defied the state’s Local Budget Law for seven years.

According to court records, state officials took over Atlantic City government in October of 2010 because of the City’s “gross failure” to comply with the state’s Local Budget Law.  That law requires every local and county government to have a “cash based” balanced budget.  It does not allow long term borrowing to pay for current operating expenses.

When the state took over in 2010, Atlantic City’s local government could not make payroll without borrowing.  That is because it had continued business as usual spending and salary hikes when its tax collections fell.

However, the state officials who took over made things even worse.  For the next seven years, the state did nothing to cut spending.  It continued the same “gross violations of the Local Budget Act” the state claimed caused it to take over Atlantic city in the first place.  From 2010 to 2017, Governor Christie’s state officials failed to adopt balanced budgets at the beginning of the year, and unlawfully spent some $80 million more each year than the city took in.  This put Atlantic City, a small town with its 42,000 residents,  some $560 million in debt.

Republican Governor Christie had his reasons. He was running for re-election in 2013, and for President in 2016.  Christie said he was the only Republican who could win Democrat votes by getting the support of Democrat run public employee unions.  In 2011, Christie’s main Republican rival, Wisconsin Governor Scott Walker, was viciously attacked by those unions for putting taxpayers first. By avoiding embarrassing layoffs and cutbacks in Atlantic City, Christie got the support of Democrat public employee unions and was re-elected Governor in 2013 by a landslide.  That made Christie a top contender for the Republican nomination for President.

This $560 million unlawful debt is what caused today’s property tax crisis in Atlantic City.

Governor Christie did not address that debt or the need for government spending cuts in Atlantic City until May of 2016 when he was no longer a candidate for President.

In May of 2016, Christie and Democrat Senate President Steve Sweeney finally took action to “stabilize” Atlantic City.  First, they adopted new laws allowing state officials to drastically cut spending by suspending civil service and other laws affecting public employees.  Second, they adopted a new law allowing casinos to pay a percentage of their casino and online income “in lieu of” real estate taxes.  (P.I.L.O.T. stands for “Payment In Lieu Of Taxes”.)  Other laws redirected various state funds to help pay down Atlantic City’s debt.

We immediately filed a lawsuit to block the special tax treatment for casino properties.  We said it was a blatant violation of the New Jersey State Constitution.  (Search “casino” in search bar, or click here for posts on the lawsuit we brought in 2016).

While our lawsuit was pending, Atlantic City used the new laws to dramatically cut its spending. It then operated under sustainable, balanced budgets.  At the same time, the income-based method used to determine casino payments “in lieu of” real estate taxes,  plus the additional state aid for debt payments, roughly equaled the what casinos would have paid as property taxes.

In April of 2018, both Atlantic County and Atlantic City officials told us they were satisfied with this arrangement.  They asked us to dismiss our lawsuit.  We agreed.  We did not have the resources to defend the New Jersey Constitution alone as a matter of pure principle.

Hon. Julio Mendez As Assignment Judge For Atlantic/Cape May Counties Presided Over Our First Case Against Casino Tax Breaks from 2016 to 2018.

That month, we appeared in court with lawyers for Atlantic City, Atlantic County, and the State of New Jersey.  Theyadvised Judge Julio Mendez on the record that the casinos and the State would fund Atlantic City and Atlantic County government and the Atlantic City public schools this way for the next ten years.

Had they done this, most of the $500 to $600 million of unlawful debt incurred by Atlantic City during the state takeover would have been paid back by the end of 2025.  Casino real estate would again be taxed like all other real estate.

However, last month, Governor Murphy, the Legislature, and the casinos changed that ten year deal after just five years.  They adopted a new state law that no longer requires casinos to pay a share of their online gambling “in lieu of” real estate taxes.

According to the NJ Office of Legislative Services, the casinos will now pay $30 million to $50 million less each year for the next five years.  Every business and homeowner in Atlantic City and Atlantic County must pay more to make up this difference.

Since the State and casinos broke their own deal, we are now suing to end the ten year “Payment In Lieu Of Taxes” (P.I.L.O.T.) law.

We believe that every non-casino taxpayer in Atlantic City and Atlantic County would be better off  if all casino owners again paid taxes on the full value of their real estate just like everybody else.  This is what our New Jersey State Constitution requires.  We also believe that every citizen in New Jersey would be better off if our politicians understood, respected, and followed that Constitution.

 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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