Judge Strikes Down New Jersey’s Casino Property Stabilization Act

by: Matthew Erickson
28 Sep 2022

On August 31, 2022, Atlantic County Assignment Judge Michael Blee ruled that a recent state law, which revised the property tax agreement between the Atlantic City casinos, Atlantic County, and Atlantic City, violated New Jersey’s Constitution.  The law, originally passed as “S4007” (hereafter the “2021 Act”), was signed into law on December 21, 2021, and was designed to adjust the formula for assessing and dividing casino property tax revenue initially laid out in the 2016 Casino Property Stabilization Act (“2016 Act”).  With the Judge’s ruling in effect, the provisions of the 2016 Act will control unless his ruling is stayed while the matter proceeds through appellate review.

The Judge’s ruling relied upon a finding that the 2021 Act violated the State Constitution’s prohibition on preferential tax treatment in property tax matters. The Court’s ruling was based on the finding that the 2021 Act did not serve a public purpose and was made solely to benefit the casino industry in Atlantic City.  This article on NJ.com discusses Judge Blee’s decision.  The State of New Jersey disputes the court’s decision and recently filed a motion for a stay of the Judge’s August 31 ruling.  The State’s motion for a stay argues that there is a public purpose that overrides the Constitutional issues mentioned in the Judge’s ruling. The State suggests that not only does the 2021 Act serve the public interest by ensuring the more than twenty-two thousand workers employed by the casinos have job stability, but also argues that the 2021 Act better aligns the PILOT program with traditional property tax methods of valuation. A counter-motion, filed by the plaintiffs challenging the law, Liberty and Prosperity 1776, Inc., seeks to enforce the Judge’s ruling and force the PILOT program to use the 2016 Act calculation method for the final quarter of this year.

The 2021 law’s intent was to further shelter an industry that was significantly impacted by the Covid-19 pandemic.  Its provisions included the removal of internet and online sports gambling revenues from the payment calculation and a cap on how quickly “PILOT” (Payment In Lieu Of Taxes) payment amounts could increase each year of the 2021 Act’s application.  The 2021 Act also included new provisions which dealt with scenarios in which new casinos would open in Atlantic City, while also providing for the possibility of any of the current casinos closing.  The 2021 Act added provisions on how the PILOT money is allocated among the various governmental entities that would otherwise receive the property tax revenue.  Among these entities are the municipality of Atlantic City, Atlantic County, the Casino Reinvestment Development Authority, and the newly created “Clean and Safe Fund” and “Infrastructure Fund”.  The 2021 Act was projected to result in far less income going to the City and the County due to the exclusion of internet and sports gambling revenues from the payment calculation.

The 2016 Act was introduced in 2016 to fix a precarious scenario that Atlantic City had found itself in due to decades of dependence on casino property tax collections.  When various property tax appeals were filed and won by the casinos, the total property tax revenue collected by the city was drastically reduced, causing a significant strain on Atlantic City’s budget.  In order to fix this issue, the 2016 Act was adopted to replace the standard New Jersey property tax regime, as it applied to the City’s casinos, and replaced that revenue with payments in lieu of taxes or “PILOT” payments.

We’ll track what happens next with this important decision and the 2021 Act as they both could have a significant impact upon the fiscal health of the City of Atlantic City and Atlantic County.

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.