A New Jersey Superior Court judge struck down a state law giving Atlantic City casinos tens of millions of dollars in tax breaks, saying the measure was passed on questionable grounds and violated the Constitution of State.
The ruling, released on Monday, is a blow to Gov. Phil Murphy and the state’s legislative leaders, who fast-tracked the legislation last year. It’s also a rebuke to the gaming industry, which had argued the bill was necessary as it struggled amid the COVID-19 pandemic.
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At issue in the case were changes to a local taxation program known as PILOT, or payment in lieu of property taxes. Since 2016, instead of paying property taxes, each casino has paid a share of an industry-wide assessment that has been distributed to Atlantic City, its school district, and the county to fund various operations. The number was calculated based on total gaming revenue from the previous year. But last year the industry lobbied for a key legislative change to that formula, excluding online gaming – a rapidly growing sector of its business – from the scheme. The amendment reduced gaming companies’ total PILOT liability this year by $55 million — revenue cuts that disproportionately impacted Atlantic City, one of the state’s most struggling cities.
A conservative nonprofit group called Liberty and Prosperity 1776 challenged the constitutionality of the law, saying the state’s founding document prohibited preferential tax treatment. The state countered that the new law was exempt from this ban because it served a “permitted public purpose.” On Monday, Atlantic County Assignment Judge Michael Blee sided with the nonprofit, potentially raising casino tax bills and sending tens of millions more into the coffers local.
“This Court finds that the amendment was enacted to assist the casino industry and not for a public purpose,” Blee said in its ruling.
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At the time the bill was passed, state lawmakers and industry leaders argued that despite skyrocketing online gaming revenues, the change was necessary to avoid financial peril. “We are at risk of closing four casinos,” then-Senate Speaker Steve Sweeney said, without providing details.
But, as The Press of Atlantic City and ProPublica reported in June, the casino industry was already recovering from a pandemic crisis as it argued for tax relief. Even though the industry has claimed financial difficulties, it had its best year in more than a decade: Atlantic City casinos reported gross operating income of around $767 million in 2021. The reports financials show that in-person gambling revenues have surpassed pre-pandemic levels. . In the first six months of 2022, the most recent data available, the city’s nine casinos reported $339 million in gross operating profits, up 17% from the same time last year. .
“There is no evidence to suggest that casinos could not meet their PILOT obligations under the original law,” Blee wrote. The legislation, he concluded, was brought forward “to help what was in effect a resurgent industry”. This echoes the findings of The Press of Atlantic City and ProPublica survey, which calculated what each casino’s tax liability would have been had the PILOT law remained unchanged.
Gambling analysts and former regulators then looked at this analysis and told us that all nine Atlantic City casinos could have withstood their increases and remained open.
The Casino Association of New Jersey declined to comment on the decision, citing its policy of not discussing pending litigation. The organization previously told The Press of Atlantic City and ProPublica that last year’s changes to the PILOT Act were necessary. “Failure to adjust PILOT would have resulted in gross, inappropriate and unfair taxes for any industry, let alone an industry still struggling to recover from COVID-19,” the group said in a statement.
Liberty and Prosperity’s Seth Grossman said Tuesday he was pleased with the judge’s decision to strike down the PILOT program amendments and leave the original law in place. “The bottom line is that when you go through tough economic times, all businesses are affected,” he said. “So to say you’re going to give an industry a break by making everyone pay more, that doesn’t help the economy. It simply helps a “struggling” industry.
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He also said he expects “intense litigation” to take place over the judge’s decision.
Indeed, Alyana Alfaro Post, spokeswoman for Murphy, told The Press of Atlantic City and ProPublica on Tuesday that the state “plans to appeal Judge Blee’s ruling and is optimistic that it will be overturned.”
This decision is the second rendered against the PILOT law in recent months. A judge previously sided with Atlantic County in a separate lawsuit alleging the state violated the terms of a 2018 consent agreement that guaranteed the county a certain percentage of the industry’s overall PILOT payout. . The county had claimed that changing the PILOT formula would cost it about $5 million a year.
This month, Blee awarded millions in damages to Atlantic County and demanded that the state cover attorneys’ fees and other costs. The state is appealing that ruling and on Monday won a court stay for damages while the case progresses through the appeals process.
Taken together, the decisions in both cases leave the impending tax liabilities of the casino industry unclear. State regulators, which bill and collect PILOT payments, did not immediately return a request for clarification.
Atlantic County Executive Dennis Levinson, who urged Murphy to veto the PILOT bill last year, said this week’s court ruling is another signal that state lawmakers should have leave the PILOT program alone.
“Had the Governor addressed our concerns about the PILOT Amendment before and after it was passed in a lame duck session four days before Christmas, this could all have been avoided, saving New Jersey taxpayers hundreds of dollars. thousands of dollars,” Levinson said in a statement Tuesday.
JOURNALIST: Michelle Brunetti