ATLANTIC CITY — Recent tax-appeal settlements with Caesars Entertainment Corp. have cut property values for three casinos by 35 percent — a development that could affect public finances if a similar degree of reduction results from pending appeals filed by seven other gambling halls.
“It’s a major concern to the city’s administration and to everybody. It’s 11 (casino) properties, and they make up 38 (percent) or 39 percent of the (city’s) ratable base, and 25 percent of the county’s (ratable base). So having these drops doesn’t just affect the city, it affects the county as well,” city finance director Michael Stinson said Friday.
The city has agreed to give back $26.96 million to Caesars for taxes paid from 2009 to 2011 on Bally’s Atlantic City — one of four local casinos the company operates — because those tax bills were based on the property’s value being $1.5 billion, which tax court negotiations have since reduced to $700 million, he said.
Stinson spoke two days after City Council approved more than $27 million in refunds for Bally’s and nine other, smaller commercial properties in the resort. The rebates are intended to make up for owners paying taxes on properties whose values have been determined to be lower than calculated in 2008, when the resort underwent its first citywide revaluation in three decades.
Caesars contested assessed values for all four of its local casinos, although Showboat Casino Hotel’s appeal was resolved previously. Settlements for Harrah’s Resort and Caesars Atlantic City were also approved Wednesday but do not provide for any refunds, according to city documents summarizing the settlements.
Casinos previously were assessed solely on their land and buildings, but opted to have their assessments take financial performance into account when the economic downturn started — and while legal, it’s unfair, Mayor Lorenzo Langford said Friday.
“If the state of New Jersey really wants to assist the city, they should mandate that the casinos be assessed in the same way and manner as residential properties,” Langford said. “Property taxes are not reduced on the residential side if a property owner suffers a reduction in income or mismanages their financial affairs. Why should casinos be treated differently?”
Caesars Atlantic City now has an assessed value of $1.05 billion, down 38 percent from $1.7 billion. Harrah’s now has an assessed value of $1.55 billion, down 18 percent from $1.9 billion, the documents show.
Atlantic City officials have not yet introduced the 2012 budget. But for 2011, Caesars would have paid $49.3 million in municipal taxes on the Bally’s, Harrah’s and Caesars properties, a figure that would drop by 35 percent to $31.9 million with the new, lower assessed values.
That would leave the city with $17.4 million — 7 percent of 2011’s $234 million budget — to make up. That likely would result in increased taxes for other local property owners.
The 2011 municipal tax rate is $0.967 per $100 assessed value. If everything else stayed the same, the tax rate would increase to $1.06 per $100 assessed value to make up for the ratable base reduction resulting from adjustments to the three Caesars properties’ values.
That means the owner of a $100,000 house would have paid $1,060 in municipal taxes versus $967, which is an increase of $93, or nearly 10 percent.
Still more losses could result from the resolution of pending appeals by other casinos.
Revel, Borgata Hotel Casino & Spa, Tropicana Casino and Resort, Trump Entertainment Resorts Inc., Golden Nugget Atlantic City and Atlantic Club Casino Hotel each has appealed.
Stinson, who was not at Wednesday night’s meeting, later clarified details of the settlements with Caesars, which were discussed in closed session. The terms include the company’s pledge to refrain from filing tax appeals this year or next year on any of its local properties.
Last fall, Resorts Casino Hotel and Pinnacle Entertainment Inc. also agreed they would not contest property values through 2013.
That’s significant, because casinos and other large companies automatically file tax appeals every year, figuring the cost of the process is worth potential savings on taxes based on property values of millions or billions of dollars.
City Council agreed Nov. 2, 2011, to borrow $38.5 million to settle tax appeals — including those filed by Resorts and Pinnacle — involving overpayments made as long as 15 years ago.
Officials could have issued a tax credit but instead felt it would be easier from a budgeting perspective to settle up, start collecting taxes and allow that revenue to cover the related interest payments, which would be figured into the city budget, Stinson said.
That convenience will cost the city about $3.5 million in interest over five years, Stinson estimated at the time.
If interest rates remain as competitive as then, the city likely will do the same for the $27.1 million approved Wednesday for settlements with the three Caesars properties and nine others, Stinson said.
Improved borrowing rates also prompted City Council to agree Wednesday to refinance two debts: $16.2 million borrowed at 4 percent interest in 2003 for capital improvements and $6.1 million in deferred pension payments, for which the state is charging 7 percent interest, Stinson said.
Stinson expects to get a 2 percent rate on the $16.2 million bond and a 4.75 percent rate on the pension debt. The changes should save the city about $670,000 over five years, he said.
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