Atlantic County in New Jersey is facing a financial hurdle due to the state’s ongoing legal battle regarding the tax contributions of Atlantic City casinos. The battle over Atlantic City’s casino tax break legislation, better known as the PILOT (Payment in Lieu of Taxes) program, has reached an impasse.
Formerly called the Casino Property Tax Stabilization Act, the PILOT program was implemented in 2016 and ties casino property taxes directly to their annual gross gaming revenue. However, a 2021 amendment to the program excluded revenue from online casinos and sports betting from the tax calculation, effectively reducing the casinos’ tax burden.
This change sparked separate legal challenges from Atlantic County and a local political organization, Liberty & Prosperity (L&P). According to Atlantic County Executive Dennis Levinson, the state’s refusal to accept court rulings against the controversial program has led to a protracted legal standoff with no resolution in sight.
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The Contentious History of the Tax Break Bill
The origins of the PILOT program can be traced back to 2016 when the Casino Property Tax Stabilization Act was signed into law by the Governor of New Jersey, Phil Murphy. The legislation directly tied the amount of property taxes owed by casinos to their annual gross gaming revenue, a move intended to provide financial stability for Atlantic City’s gaming industry.
Under this program, the amount of taxes owed by casinos fluctuates based on their annual performance. This ensured that casinos contributed a fair share to the county’s coffers while also reflecting economic fluctuations within the industry.
However, the program quickly drew criticism from various stakeholders, with some local officials and taxpayers arguing that it unfairly shifted the burden onto residents and small businesses. The controversy shifted to another gear in 2021 when the tax break bill was amended.
One significant change made to the PILOT program in 2021 was the exclusion of gaming revenue from online casinos and internet sportsbooks from the gross calculation. This adjustment resulted in a marked decrease in tax obligations for the nine Atlantic City casinos.
The amendments also led to heated discussions and fueled the long-standing legal tussle between Atlantic County and the state, as the impact of iGaming on New Jersey’s gaming earnings has continued to rise. Nearly half of the state’s record gaming revenue of $5.77 billion for 2023 was attributed to online sports betting and casinos.
With the exclusion of online gambling revenue, a rapidly growing segment of the industry, the tax burden on casinos lessened, creating a financial strain for Atlantic County.
Legal Challenges against the Amended Program
Atlantic County filed one of two legal challenges against the amended PILOT legislation, while the local political organization Liberty & Prosperity (L&P) brought the other. Although both plaintiffs filed separate lawsuits against the amended PILOT program, their legal arguments challenged the legality of the changes.
With Executive Dennis Levinson at the helm, Atlantic County argued that the amendments to the PILOT program violated a previous court-ordered settlement that guaranteed a minimum tax amount from the revenues earned by Atlantic City casinos.
L&P, on the other hand, contested the program’s constitutionality, claiming it violated equal property tax assessment principles. While the courts have thus far ruled in favor of both Atlantic County and L&P, the state of New Jersey has appealed these decisions.
Budget and Constitutional Concerns
The lawsuit filed by Atlantic County sought to block the 2021 amendments to the PILOT program, which would have modified a court-ordered settlement established under the original law. This settlement ensures that the county receives a specific sum of money for the ten-year duration of the PILOT law.
The county argues that the amendments could cost local taxpayers as much as $26 million over the five-year period, a figure that may be significantly outdated given the annual growth of online casino and sports gambling in New Jersey. With the delay in implementing the court ruling, Atlantic County must look elsewhere for tax money to plug its budget gaps since the state takes a cut from winnings made by gamblers.
However, taxpayers in Atlantic County don’t have to worry, as Levinson has proposed a $262.1 million budget for the next year, which incorporates a tax cut. In New Jersey, yearly property taxes consist of funds from three separate taxing entities, namely the school district, municipality, and county.
Meanwhile, L&P argued that the tax break bill is unconstitutional on the grounds that it violates a requirement that all real estate be assessed and taxed equally. The organization had previously settled a lawsuit against the original PILOT but resumed its legal opposition after the 2021 amendments.
While both lawsuits resulted in initial rulings in favor of the challengers, the state of New Jersey has chosen to appeal these decisions. This ongoing legal battle has created a standstill, preventing a resolution and leaving Atlantic County without access to potentially significant tax revenue.
Financial Strain for Atlantic County Taxpayers
AC Executive Dennis Levinson has been vocal in his criticism of the state’s decision to appeal court rulings against the PILOT program, saying the current situation is putting a strain on Atlantic County taxpayers. He argues that the delay is preventing the county from utilizing funds that could alleviate taxpayers’ obligations in the annual budget.
The county anticipates receiving approximately $18.3 million from the PILOT program this year, a marginal increase from $17.9 million in 2023. The potential for additional funds hinges on the outcome of the state’s appeal.
Levinson estimates that the county could be receiving an additional $14.1 million for the current fiscal year if the court rejects the state’s appeal and upholds the initial rulings. However, due to the sluggish pace of the judicial process, these potential funds have been excluded from the 2024 budget.
Wrapping Up
Levinson emphasizes the financial burden this situation places on county residents. He argues that the state’s appeal not only denies Atlantic County its rightful tax revenue but also prolongs the legal battle, incurring costs borne by taxpayers across the entire state.
