ATLANTIC CITY — Taxpayers spent more than $9 million last year to pay municipal legal costs — a 28 percent increase despite promises of new money-saving policies.
Although spending on litigation has fallen, the city’s total spending on legal expenses has increased, according to records obtained by The Press of Atlantic City through an Open Public Records Act request.
A blend of skyrocketing workers compensation cases, property tax appeals and other legal issues have contributed to the higher overall legal costs, according to the records.
One success story: Sharp cuts in the amount given up because of general litigation against the city.
Spending on fighting and settling lawsuits totaled $3.4 million in 2011, just more than half the $6.4 million annual average spent between 2000 and 2009, the records showed.
City Solicitor Braun Littlefield — on the job just two months — said his cost-cutting effort has been to go after plaintiffs and recoup the municipality’s legal expenses in cases that end in the city’s favor. Before Littlefield, former City Solicitor Bruce Ward flat-out refused to settle any cases and went after the attorneys and clients behind alleged frivolous lawsuits to recoup costs. Ward’s predecessor, Robert Tarver, cut back on using third-party law firms, a change he said let him better track case costs and progress.
Those initiatives appear to be saving money on litigation defense — but not enough to offset the increase in other types of legal expenses.
Tax-appeal cases are expected to demand $1.1 million during 2012 — more than triple the $385,000 spent in 2009, when Atlantic City property owners in large numbers starting contesting their new assessments, records show.
Atlantic City’s fastest-growing legal issue, however, is workers’ compensation: Paying and negotiating public employee workers comp claims cost $2.7 million in 2011, 50 percent more than in 2010, records show.
Atlantic City’s law department has not initiated any policies to curb spending on tax-appeal cases, but it has developed a plan to get control over workers’ compensation payouts, Littlefield said.
Costing taxpayers — twice
Atlantic City spent $785,000 last year fighting tax appeals, 39 percent more than the $565,000 spent in 2010, according to documents obtained through an OPRA request.
Settlements for Resorts Casino and Caesars Entertainment’s four local gambling properties were the main factors behind the resort’s ratable base decreasing during the past year by $2.2 billion — about 11 percent — to $18.1 billion. In addition, Caesars properties got cash payouts to make up for past overpayments.
Officials don’t expect much better outcomes in the still-pending cases involving six other local gambling properties.
Certified Valuations Inc., of Randolph, Morris County, handled the city’s revaluation in 2008 and defended the tax appeals until 2009. The city then began handing over the cases to $130-hourly Tinton Falls-based law firm DeCotiis, Fitzpatrick & Cole, which is still under contract at that rate.
Attorney George Frino, who heads the DeCotiis team, said he suspects the “astounding number” of tax-appeal cases resulted because Certified Valuations inflated its original estimates to generate more business for itself in defending appeals at a $200 hourly rate.
Certified Valuations principal Charles Fermanella denied that. Fermanella said he advised Atlantic City officials to do another revaluation when the real estate market tanked.
“They’re not alone. Every town in the state is experiencing this, and they’re all doing reassessments so they can stop losing tax appeals,” Fermanella said. “By doing nothing, they only created a lot of work for a lot of lawyers. You’ve seen the kind of reductions they’ve handed out — my God.”
Atlantic City still owes Certified Valuations more than than $300,000, so the company is suing the municipality, Fermanella said. The city may countersue to recoup tax appeal defense costs, Littlefield said.
Frino also criticized the administration of former Mayor Bob Levy for choosing Certified Valuations in 2006, calling the decision “incompetent or corrupt” in a recent email.
“Unfortunately the city now has to defend — as best we can —these values in a market that has deteriorated further,” Frino wrote.
Barnegat Township used Certified Valuations for its revaluation in 2006, nearly two decades since it had last reassessed, Township Administrator David Breeden said.
“They delivered a satisfactory product, but ... so much time had elapsed since Barnegat underwent a reval, that as a result people saw their property values triple or quadruple,” Breeden said.
Barnegat’s ratable base nearly tripled, going from $987 million in 2006 to $2.8 billion in 2007. Numerous tax appeals followed. Even more poured in once the housing market crisis began. So Barnegat officials decided to do another reassessment in 2010, which brought the ratable base down about $600 million, or about 21 percent.
“We had no choice. If we didn’t do the reassessment, (the appeals) would have had an adverse effect on the financial position of the township,” Breeden said.
Barnegat did not use Certified Valuations again, but hired West New York, Hudson County-based Realty Appraisal Company to update commercial property values. Existing township staff handled residential properties, Breeden said.
Atlantic City likely will start taking proposals from reval companies before year’s end, said Michael Stinson, Atlantic City’s revenue and finance director.
Normally, the municipality would wait longer, but it wants to readjust property values to minimize appeals by casinos, he said.
City officials have said previously they are lobbying the New Jersey Department of Community Affairs to develop a better way to handle property assessments and tax appeals.
Atlantic City’s tax rate will increase 9 percent as a result of the appeals and ratable base decrease this year, despite $12 million in budget cuts. And because casino property values made up a large proportion of the local ratable base — a previous 77 percent share that their tax appeals reduced to 66 percent — their significant decrease will put more of a burden on noncasino property owners.
Taxpayers also have bankrolled the unsuccessful court battles waged by the city. And they must cover the $3.5 million in interest on $38.5 million borrowed last winter to make additional lump-sum payments that are part of some of the casino tax-appeal settlements.
Workers’ comp costs
Public worker salaries will cost Atlantic City taxpayers more than $93 million collectively this year. The payroll, however, does not include money needed to handle employee lawsuits and workers’ compensation claims against the municipality.
The city spent $2.7 million last year negotiating and paying workers’ compensation claims compared with $1.8 million spent in 2010.
In part, those expenses are unavoidable as Atlantic City’s workforce ages, said Paul Tendler, a Somers Point-based workers compensation lawyer.
But city officials hope they can gain some control by changing perceptions.
“Some of the earlier attorneys who handled this didn’t really know workers’ comp, or didn’t do the job they should have done. And because of that, a lot of people in this town thought, ‘Hey, just file the claim.’ It (was) better odds than at the casino, frankly,” said Tendler, who’s worked with the city for nearly 18 months.
The city will start requiring more documentation, for one, he said.
“We want to truly evaluate those cases where people have incentive to just keep filing re-openers,” said Tendler, referring to claims for progressive injuries. “We’ve been finding there are a lot of repeat offenders ... that’s taking advantage of the system. If they have ... MRIs supporting or studies showing they are getting worse, that’s one thing. But if they’re just filing saying, ‘I feel worse,’ we’re going to investigate those because one, we should, and two, the dollar values justify it.”
with city workers
Municipal workers got $2.4 million of the $8.7 million in lawsuit settlements paid out since 2008, records show.
And all but two of those 14 workers — who include Public Safety Director Willie Glass, Fire Chief Dennis Brooks and Cheryl Banks, a clerk who is Mayor Lorenzo Langford’s sister — remain on the job.
The city did, however, prevail in two cases this year. A claim by former police Chief Arthur Snellbaker was dismissed in February, and a jury ruled 8-0 on April 26 that Fire Capt. Ken Haney’s discrimination claims were without cause.
Within the next two weeks, officials will seek legal expenses from Haney to cover the cost of defending against his lawsuit, Littlefield said.
Littlefield said his team will more often pursue reimbursement for legal fees from plaintiffs — public workers or not.
The city also will try to get third parties to help pay for lawsuits against public employees, he said.
One example: as a condition of hiring off-duty Atlantic City police for security details, casinos would agree to help pay for lawsuits against police stemming from incidents that occur during that detail.
Littlefield said he wants the practices to not only minimize costs, but also to discourage people from filing claims.
Going to trial
Littlefield’s predecessor, Ward, hoped for similar results from policies he implemented while heading the city law department from 2010 through February.
Ward left his seat on Atlantic City Council a year before his term was to end to take over the law department. As a member of the governing body, Ward had to review and approve all of the municipality’s legal bills. He concluded the city could save money if officials abandoned the practice of paying a modest sum — between $10,000 and $30,000 — to settle minor claims instead of fighting them.
So he instructed his office and third-party lawyers to take everything to trial, with the assurance: upon being served with a lawsuit, city attorneys would decide if they thought it was a frivolous claim. If they did, they would respond with a motion putting the plaintiff on notice that if the court agreed the claim was frivolous, the plaintiff — or his attorney — would have to cover the city’s legal costs unless the case was dropped within 28 days.
Ward figured taking more cases to trial would change the city’s reputation for paying claimants to go away. Ultimately, the practice would discourage people from filing lawsuits and cut costs, Ward, now a municipal judge, said at the time.
Even before Ward took over, the Solicitor’s Office had been trying to save money.
Tarver ran the city law department during 2009, when Atlantic City spent $2.2 million on settlements and $1.6 million on legal defense — both 10-year lows. Tarver attributed the savings to engaging fewer, more experienced outside law firms — and making sure all actually held a contract with the city. Those changes let him better track case costs and progress.
“When I came to the city, we had scattered firms who weren’t necessarily under contract and we were not necessarily in compliance with governmental laws. You can’t do that. ... You have to have the proper contractual documentation,” said Tarver, the fifth person in two years to run the city’s law department when he took the job in 2009. “(The solicitor also) needs to be in the position of being able to review and oversee these cases, and you can’t do it when you have 10,000 (lawyers) scattered all over the place. But you’re going to pay legal fees no matter what. It’s an inevitability. It’s the return that’s important.”
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