In 2016, the local government of Atlantic City was bankrupt. He couldn’t pay his employees or fund his public schools. Republican Gov. Chris Christie and the Democratic-majority state legislature responded with two drastic new laws.
A “Municipal Stabilization Act” created a new state office with the power to override union contracts and civil service rules. He then cut wages and laid off employees.
A “Casino Property Tax Stabilization Act” exempted Atlantic City‘s eight casinos from local property taxes for 10 years. He made them pay their share for public schools and local government with “payments in lieu of taxes” (PILOT) based on their gross gambling income.
I was then a lawyer and executive director of a local organization called Freedom and Prosperity. One of our primary missions is to promote awareness and respect for federal and state constitutions.
We did not oppose the Municipal Stabilization Act of 2016. It was consistent with the state constitution and was long overdue. Deep cuts in government spending were needed to offset steep declines in taxpayer incomes after the subprime mortgage slump and competition from Pennsylvania casinos in 2008.
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However, we opposed the Casino Property Tax Act. We filed a lawsuit saying it was unconstitutional. Since 1875, the state Constitution has required that all real estate be valued and taxed the same. Exceptions can only be made by changing the constitution – not just by passing a new law.
Two years later, we settled that lawsuit. The Municipal Stabilization Act reduced spending and balanced the city budget with sustainable taxes. Its annual budget increased from $262 million in 2015 to $225 million in 2018.
We have also seen over two years of actual tax collections that the PILOT law did not reduce what casinos would have paid in property taxes. Rising Internet gambling revenue has made the alternative tax method work.
Eventually, when the case was about to be decided, the state agreed to a very fair legal settlement. The state has promised it will not allow the 10-year PILOT Act to “negatively impact” taxpayers in Atlantic City or Atlantic County.
The eight Atlantic City casinos were not parties to this lawsuit or the settlement. However, they were actively involved in the drafting of the PILOT legislation. They also followed the litigation closely. They never objected to what the state was doing in public or in court.
If the state kept its promises, the PILOT program would have quietly continued until it expires at the end of 2026. By then, most of Atlantic City’s debt from its 2010-2018 financial crisis would have been paid off. . The Atlantic City casino properties would then be taxed like all other real estate, as required by the state constitution.
However, the state broke its promise. Last December, the state amended the casino property tax law so that casinos no longer include internet gambling in the calculation of casino PILOT payouts. The casinos would pay about $5 million less to the Atlantic City government in 2022 and about $19.3 million less to the Atlantic County government over the next five years.
That’s why we’re back in court. We want the state to once again use internet gambling revenue to calculate casino PILOT payouts. If that can’t be done, we want the court to apply the state constitution. We want casinos to pay regular property taxes like everyone else again.
Atlantic City’s nine casinos are worth more than half of the total value of all real estate in Atlantic City. They would have to pay more than half the cost of public schools and local government.
Furthermore, the casinos and their employees, professionals and suppliers carry far more political clout than any other group in Atlantic City. They should be financially motivated to demand honest and efficient local government that benefits all taxpayers – not special deals for themselves. This is why the equal taxation provision was added to the state constitution in 1875.
Finally, state mismanagement has created Atlantic City’s financial mess. The state took over Atlantic City’s finances in 2010, but waited seven years to cut spending. During this time, the state broke its own balanced budget laws for local government. This left Atlantic City taxpayers over $400 million in debt. The state and the casinos have a legal and moral obligation to pay their share.
The case is now before Judge Michael Blee. He must decide this case on August 5.
Seth Grossman of Atlantic City leads Liberty and Prosperity 1776. He was the unsuccessful Republican candidate for the 2nd Congressional District in 2018.