New Jersey Enacts New Changes to the Casino Property Stabilization Act

by: Matthew Erickson
12 Jan 2022

On December 21, 2021, the Governor of New Jersey signed into law S4007, a bill that is meant to address the property tax payments made by Atlantic City Casinos.  Previously, on December 20, 2021, the New Jersey Senate and the New Jersey Assembly had passed the bill with narrow margins.

The Casino Property Stabilization Act (the “Act”) was introduced in 2016 to fix a precarious scenario that Atlantic City (the “City”) had found itself in due to decades of dependence on casino property tax collections.  The twelve casinos had made up a significant portion of the ratable base for the City in the years prior to 2009.  This “ratable base” allowed for significant property tax revenue to sustain the large City budget.  In 2009, however, the financial crisis, and increased competition from neighboring states, had dramatically reduced the value of the Atlantic City casino properties.  This resulted in the Borgata Casino Hotel & Spa filing for refunds for tax years 2009 and 2010 under the case name Marina Dist. Dev. Co. v. City of Atlantic City.  In those matters, the Tax Court ruled that the Borgata’s tax assessment of approximately $2.26 billion was excessive and reduced the value to $880M and $870M for 2009 and 2010, respectively.  This decision was appealed by the City and affirmed by the Appellate Division.  The resulting judgment obligated the City to pay a refund of $165 million to the Borgata.  While this refund was later settled for $72 million and the remaining casino property tax appeals were settled for an unknown number estimated to be close to $80 million, the City was left in a dire financial position.

The Act was adopted to replace the standard New Jersey property tax regime, as it applied to the City’s casinos, and replace that revenue with payments in lieu of taxes or “PILOT” payments.  These PILOT payments were set to a formula based on the gross gaming revenue “GGR” of the casinos in the City.  The intent was that the casino properties would have a method of property taxation that was more in line with their revenues and less prone to over-assessment.  The goal was to avoid a repeat of the multimillion-dollar refunds that nearly bankrupted Atlantic City.

The revised Act seeks to adjust the formula initially laid out in the 2016 passage.  By extending certain provisions and altering how GGR is calculated, the bill’s intent is to further shelter an industry that is now significantly impacted by the COVID-19 pandemic.  Such provisions include the removal of internet and online sports gambling revenues from the calculation of GGR and a cap on how quickly PILOT payment amounts could increase each year of the Act’s application.

The revised Act also includes new provisions which deal with scenarios in which new casinos may open in Atlantic City, while also providing for the possibility of a current casino ceasing to be a “casino gaming property”.

Finally, the revised Act adds provisions for how the PILOT money will be allocated among the various governmental entities that it is intended to fund.  Among these entities are the municipality of Atlantic City, the Casino Reinvestment Development Authority, and the newly created “Clean and Safe Fund” and “Infrastructure Fund”.

If you have a question concerning your property tax assessment or the application of New Jersey PILOT programs, contact McKirdy, Riskin, Olson & DellaPelle, P.C. to speak with an experienced property tax attorney.  A final version of the bill is available here.