Atlantic City’s patchwork of tax agreements that lets casinos and outlet stores pay lower rates is unconstitutional and should be overturned, according to a Tea-Party-affiliated group that is seeking to bring a lawsuit to challenge the system known as Payment In Lieu of Taxes (PILOT).
The Somers Point-based group is working to persuade Atlantic County officials and suburban mayors to join a lawsuit against the PILOT, since it strips the whole county of tax revenue, said the organization’s executive director Seth Grossman.
“The plan is to try to persuade the county government and the suburban mayors to join our lawsuit to put an end to this tax abatement and to win allies around the state to support this,” he said, in an interview at his office on Monday. “This problem is affecting every city and state government.”
The PILOT program, which Grossman likes to call Peanuts In Lieu of Taxes, was originally designed to spur development. “Atlantic City takes the concept of tax abatements to its logical absurdity,” Grossman said. PILOT agreements with Tanger Outlets’ The Walk and the casinos, combined with Atlantic City’s swathes of public housing and untaxed land owned by the Casino Reinvestment Development Authority, leave about “35 percent of the suckers” paying an outsize share of city taxes, by his estimates. “You can see how it’s devastating the property values and yet nobody talks about it,” he added.
Atlantic County’s ratable base has fallen by more than a third since 2010 and the city has lost more than two thirds of its tax base over the same period, largely due to casino valuations declining as gambling competition from neighboring states increased.
Grossman, a former Atlantic City councilman and county freeholder, has long railed against excessive borrowing and spending by local government. “The whole idea of abatements, where you say that someone with political influence pays less taxes than someone without political influence, that’s despicable,” he said.
The benefit of the casino PILOT payment set out in legislation earlier this year is that it provides Atlantic City with payments that are guaranteed for ten years. When the casinos paid regular property taxes, the city had to shell out a small fortune in legal fees fighting the casinos’ tax appeals. The cost of that litigation and the resulting multi-million dollar tax settlements with the casinos were so high that the city was forced to borrow substantially. In fact, most of its outstanding debt was issued to pay back casino tax money.
It is not clear how much support there might be for wider litigation against tax abatements in Atlantic City. While some members of Atlantic City’s Democrat-controlled council have expressed concern about the city’s tax base erosion and high borrowing, only three members last month voted against a plan to sell former airstrip Bader Field to the water authority for $110 million, thereby allowing the city to proceed with a recovery plan that hinges around issuing more debt and keeping taxes flat. A spokesman for the city did not immediately respond to a request for comment.
A judge last week rejected – mostly – a lawsuit that Grossman’s Liberty and Prosperity group filed earlier this year, questioning the legality of the city’s $73 million emergency loan from the state and other issues related to the city’s cash crunch. The judge ruled the emergency loan was legal but accepted that the city had to present its 2016 budget. It will do that at a public meeting on Wednesday. Grossman could appeal but he said that he will wait to see how the recovery plan proceeds.
Grossman’s views are shared by many small property owners in Atlantic City who do not have access to the Trenton megaphones the casinos do. And some politicians have been sympathetic in the past. Atlantic County executive Dennis Levinson, a Republican, last year raised objections to the proposal to shift the city’s casinos’ tax payments to a PILOT system, since it could result in less revenue for the county.
For more on Atlantic County’s tax problem, see our video:
You can read Judge Mendez’ order in response to Grossman’s original lawsuit here: