The legal battle surrounding Atlantic City’s controversial PILOT (Payment in Lieu of Taxes) program for casinos has reached a standstill, leaving taxpayers to foot the bill for millions in legal fees and potential refunds. As the state gears up for an appellate court hearing in late March to challenge a previous ruling against the program, Atlantic County Executive Dennis Levinson has voiced concerns over the opportunity cost of the ongoing legal battle.
Levinson stated that the funds tied up in the appeal process could have been used to offset taxpayer obligations in the annual budget, underscoring the program’s increasingly burdensome impact on residents.
The program, initially touted as a solution to stabilize tax payments from the city’s gaming industry, has become a source of contention and financial strain for the local community.
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A brief history of the PILOT program
In 2016, the New Jersey legislature introduced the PILOT program (formerly called Casino Property Tax Stabilization Act) as a means to provide financial stability for Atlantic City’s casinos. The city had long grappled with the challenge of fluctuating property tax assessments, which often resulted in costly tax appeals and refunds.
In essence, the program replaced traditional property taxes for Atlantic City casinos and allowed them to contribute a set amount based on their gross revenue. According to founding bill A5587, the gaming operators saw a reduced total property tax bill of $125 million for the year 2022. The ten-year PILOT bill aimed to establish a fixed annual payment for each casino, calculated based on a percentage of their gross gaming revenues (GGR).
Proponents of the bill argued that the program would provide much-needed financial stability for the casinos, allowing them to reinvest in their properties and attract visitors. However, critics have argued that the PILOT program shortchanges Atlantic County and taxpayers.
Under the current system, the amount casinos contribute is significantly lower than what they would pay in traditional property taxes. This disparity translates to millions of dollars in lost revenue for the county, which relies on tax dollars to fund essential services like education, public safety, and infrastructure.
A controversial compromise and the rise of the legal challenge
While the program was designed to bring predictability to the city’s budget and prevent costly tax appeals, it quickly drew criticism from various stakeholders. Casino operators welcomed the relief from unpredictable property tax bills, but some local officials and taxpayers argued that the program unfairly shifted the burden onto residents and small businesses.
The perceived unfairness of the tax break led to legal action. The first lawsuit came in 2019 when a group of Atlantic City residents and the libertarian nonprofit Liberty and Prosperity filed a lawsuit challenging the constitutionality of the PILOT program.
The plaintiffs alleged that the program violated the state’s uniformity clause, which requires all properties to be taxed at the same rate. The lawsuit sought to invalidate the program and potentially recoup millions in alleged overpayments made by casinos.
The tax law provision was amended in 2021, altering the taxation of casinos in the state. A key change involved removing online casinos and sports betting revenues from the gross calculation, ultimately reducing casinos’ tax obligations.
Atlantic County officials, led by County Executive Dennis Levinson, filed another lawsuit against the state in 2021, challenging the amendments. Nonetheless, their lawsuit also contends that the program violates the state constitution’s requirement for uniform property taxation.
The court initially sided with the county, ruling that the PILOT program was unconstitutional. However, the state of New Jersey appealed the decision, leading to the current stalemate.
Still at a standstill
The legal impasse surrounding the AC PILOT program remains unresolved, possibly extending into mid-2024 with no clear path toward a resolution. During the recent budget presentation, Atlantic County Executive Dennis Levinson acknowledged the ongoing stalemate, echoing the same sentiments he expressed to the Board of County Commissioners the previous year.
While the county is slated to receive approximately $18.3 million from the controversial property tax program this year, a marginal increase from $17.9 million in 2023, the true financial implications hinge on the outcome of the state’s appeal. This comes when Atlantic City casinos and sports betting operators are posting record monthly revenues and profits.
Should the court reject the appeal, Levinson estimates the county could be owed an additional $14.1 million for the current fiscal year. However, due to the glacial pace of the judicial process, these potential funds have yet to be factored into the 2024 budget.
Amidst the legal tangle, Levinson unveiled a $262.1 million budget for the year, providing a glimmer of relief for taxpayers in Atlantic County through a proposed tax cut. It is worth noting that in New Jersey, annual property taxes are a cumulative total derived from three taxing entities: county, municipal, and school.
Appellate court to decide the future of the Atlantic City PILOT program
The future of the PILOT program and its impact on Atlantic City and Atlantic County remains uncertain. The upcoming state appellate court hearing in March 2024 could be a turning point.
If the court upholds the lower court’s decision, the PILOT program may require significant revisions or even complete restructuring. This could lead to increased casino contributions, potentially alleviating the financial strain on taxpayers.
However, if the court rules in favor of the state’s appeal, the current program could remain in place. This scenario will likely prompt continued legal challenges and force Atlantic County to explore alternative revenue streams to offset the property tax shortfall.
Wrap-up
As the legal standstill persists, the financial burden on Atlantic City’s taxpayers continues to mount. The PILOT program once heralded as a solution to the city’s fiscal woes, has become a source of contention and uncertainty.
Resolving the legal challenge swiftly is crucial to provide clarity for all stakeholders and mitigate the mounting costs borne by taxpayers. Ultimately, the outcome of this legal battle will shape the future of Atlantic City’s gaming industry and the city’s financial stability for years to come.
