NJ Court Axes Law Giving Atlantic City Casinos Millions in Tax Breaks

On Monday, Judge Michael Blee of the New Jersey Superior Court ruled against a state legislation that granted Atlantic City casinos tax breaks amounting to tens of millions in dollars. In his ruling, Judge Blee noted that the law signed last year by Gov. Phil Murphy was passed on questionable grounds and violated the New Jersey constitution. Part of Judge Blee's  ruling stated:

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“This Court finds that the Amendment was enacted to aid the casino industry and not for a public purpose.”

The ruling was a big blow to Gov. Murphy and the Garden State’s legislators, who had fast-tracked the legislation through the state’s Legislature last year. Additionally, the decision will also potentially affect the gaming industry immensely as the law was to alleviate their struggles during the COVID-19 pandemic.

A $55 Million Sigh of Relief for the Garden State

The controversial legislation was to make changes to the popular local taxing program known as PILOT (payment in lieu of property taxes). State lawmakers enacted the PILOT program in 2016 to reduce disputes between Atlantic City and casinos over property assessments that almost bankrupted the city.

So, since the passing of the PILOT program law, Atlantic City casinos were assigned a percentage to pay based on an industry-wide assessment instead of paying property taxes. The amount allocated is usually calculated based on the previous year’s gaming revenue and is distributed to Atlantic City, its districts, and the county to fund their operations.

However, in December last year, the gaming industry won a key legislation that excluded online gambling from the PILOT program. As a result, NJ’s gaming scene saw a total PILOT reduction of $55 million. When the bill legislators passed the bill, gambling industry leaders and lawmakers insisted that despite the increase in gaming revenue, it was the law was vital to avert financial risk to the casinos. Without providing specifics, Steve Sweeney, the former state Senate president, maintained that the legislative changes had come at a good time when four casinos were at risk of closing.

Though they declined to comment after Judge Blee’s decision, in an earlier statement, The Casino Association of New Jersey told The Press of Atlantic City and ProPublica that the legislative changes made late last year were essential to the gaming industry. The group highlighted:

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“Failing to adjust the PILOT would have resulted in egregious, inappropriate, and inequitable taxes for any industry, let alone an industry that is still fighting to recover from COVID-19.”

Meanwhile, even though NJ’s gaming sector is insisting they are facing financial turmoil in 2021, it recorded its best year in a decade, reporting a gross operating revenue of $767 million. Additionally, in the first half of 2022, the gross operating revenue from the city’s nine casinos amounted to $339 million, a 17% increase from the same period last year.

The Tax Breaks Had Faced a Mammoth of Opposition

Liberty and Prosperity 1776, a non-profit lobby group, called into question the constitutionality of the new legislation, noting that New Jersey’s constitution prevents discriminatory tax treatment. However, the state objected and insisted that the new legislation was exempt from the said clause because it was passed for the public’s good.

So, come Monday, Judge Michael Blee sided with Liberty and Prosperity, potentially increasing casino taxes and sending millions of dollars into local government coffers. Additionally, Judge Blee claimed that there was no evidence to prove that the casinos were incapable of not meeting their PILOT program tax obligations under the original law.

On Tuesday, the founder of Liberty and Prosperity, Seth Grossman, expressed his contentment with Judge Blee’s decision to revert to the original law on the PILOT program. He stated:

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“The bottom line is when you have tough economic times, every business is affected. So, to say you’re going to give one industry a break by making everybody else pay more, that’s not helping the economy. It’s just helping one ‘ailing’ industry.”

Dennis Levinson, the Atlantic County Executive who had earlier shared his concerns about the proposed legislative changes to the PILOT program with Gov. Murphy, also chimed in on Tuesday. In his statement, he mentioned that the court ruling this week was a sign that lawmakers should not interfere with the program. Levinson said in part:

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“Had the governor responded to our concerns about the PILOT amendment prior to and after its passage during a lame duck session, four days before Christmas, this could have all been avoided, saving the taxpayers of New Jersey hundreds of thousands of dollars.”

Unfortunately, in recent months, this ruling has not been the first blow the amended PILOT program has received in the recent months. A Judge had earlier sided with Atlantic City in a different lawsuit against the casino sector. The suit claimed that the Garden State had breached the terms of a 2018 consent agreement that gave the county a percentage of the gaming industry’s PILOT payments.

Gov. Murphy’s spokesperson on Tuesday told ProPublica and The Press of Atlantic City that the New Jersey state would be appealing Judge Michael Blee’s ruling, and they are hopeful the judgment will be overturned.