No one wanted a fight between Atlantic City and Atlantic County over the payments-in-lieu-of-taxes legislation meant to stabilize local tax bases.
But that’s what they got.
Conflict was inevitable, given the uniqueness of the agreement and its far-reaching consequences, as the bill would provide massive relief to casinos, the largest industry in the region, tax experts said.
“I have studied PILOTs for some time, but I have not run across this type of PILOT,” said Daphne Kenyon, a tax specialist for the Lincoln Institute of Land Policy, a think tank in Cambridge, Massachusetts.
PILOT agreements generally fall into two types: those that generate payments from nonprofits that are tax-exempt but want to be good citizens, or tax incentives designed to entice new businesses into an area.
But this legislation attempts to stabilize the tax base and help rescue an entire industry, Kenyon said.
Also, the bill goes beyond Atlantic City and affects the whole county, stating that the casinos’ payments will be shared with the county and school district. But it doesn’t specify how the county and city should split the money.
“In other PILOTs, only the municipality gets a payment. There is no competition for the additional gain to the tax base,” said Michael Hayes, an assistant professor of public policy and administration at Rutgers University.
A much-celebrated January deal between Mayor Don Guardian and County Executive Dennis Levinson to give the county 13.5 percent of casino payments seemed a sure thing for months, with no one from either side challenging it publicly.
But that agreement began eroding as soon as the state Legislature passed the five-bill package in June and it landed on Gov. Chris Christie’s desk, where it remains.
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In July, Atlantic County Democrats and Atlantic City Council members said the 13.5 percent would give the county too much money, and that the mayor had no authority to make such an agreement.
Advocates for the county and its 22 other municipalities say the legislation leaves taxpayers from outside Atlantic City at risk of paying more than their fair share.
City officials and their supporters respond to that by saying the city has paid an outsized share of the county tax bill for decades.
The city has paid on average a little more than a third of the total county tax bill each year from 2002 to 2012 but since then has paid about 20 percent to 25 percent of it.
It has 40,000 residents, about 14.5 percent of the county’s 275,000, but is home to the county’s biggest industry by far.
Kenyon said the decision not to specify shares is “a contentious issue pushed off to the future.”
Assemblyman Vince Mazzeo, D-Atlantic, a primary sponsor, said he purposely didn’t specify how the money would be shared because he wanted the parties to be able to change the percentage as conditions changed.
Putting the percentage in the bill means any change would require further legislative action, said Mazzeo aide Marshall Spevak. Now, it’s a negotiable figure that could change if the economic fortunes of the city or county change.
But annual negotiations leave the county too much at the mercy of the city, Levinson said.
“You wouldn’t sign a mortgage without knowing the interest rate,” Levinson said.
PILOTs often expand the tax base by bringing in payments from entities such as schools or other nonprofits, which otherwise would pay no taxes, Rutgers’ Hayes said. But the casino PILOT would at best stabilize the tax base, and if casino gaming revenues continue to fall, could shrink it considerably.
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One thing that does make sense is the attempt to stabilize the tax base by lowering the number of tax appeals, Kenyon said.
“Trying to value casino properties for the property tax is a complex thing. Evaluations and contentious appeals — a certain amount of that is just a waste,” she said. “If you could come to agreement and stabilize values, get rid of legal bills, it’s a clear positive.”
By taking casinos off the property-tax rolls, Atlantic City would effectively force the county and other towns to shoulder more of the overall tax burden.
Atlantic County is fighting that.
Kenyon said it’s the norm for PILOTs to remove affected properties from the ratable base.
“To me it makes sense the county would want to do that, because if the casino properties are not counted under the property tax, the other cities in the county are effectively footing some of the rescue package,” she said.