Property Tax Post: New Jersey Taxpayers Gambling on Increased Economic Development Through PILOT Programs


 

Almost every state offers some tax incentive to encourage economic development. Large and small businesses use these incentives to evaluate whether to locate, relocate, or expand within the state’s boundaries, eliminate or proceed with projects, or purchase large equipment. New Jersey might be cashing in on the Payment in Lieu of Tax (PILOT) system for the active casinos in Atlantic City with hope that it will revitalize and bring stability to the city’s tax base.

A measure awaiting the governor’s signature would exempt casinos from local property taxation on real property and improvements including: accessory hotels, conference centers, parking garages, and other appurtenant facilities. In exchange for the exemption, the casinos would pay $120 million annually based on casino gaming revenues for 15 years and additionally pay $30 million dollars for tax years 2015 and 2016.

PILOT programs allow taxpayers to make fixed or percentage based payments in lieu of taxes and are designed to compensate the government for lost revenue from abatements and exemptions applied to property. The New Jersey Legislature determined that casinos are ripe for a PILOT system because they “represent a unique classification of property that can be exempted from normal property taxation by general law,…when it is primarily in the public interest to do so.”

New Jersey’s solution to its economic development problem is the recently passed PILOT Assembly Bill 3981, also known as the Casino Property Taxation Stabilization Act. Much of the strain on the city’s revenue is attributed to not only the performance of casino gaming properties in other nearby states, but also the closing of four casinos in 2014, the burden on the city’s budget by property tax refunds resulting from successful assessment appeals of gaming properties, and decreased property value because of the closed casinos.

A major source of contention about implementing a PILOT program in Atlantic City is whether the revenue generated under the PILOT program will be enough to replace the money received from ad valorem taxes. In January 2016, the New Jersey Office of Legislative Services reported in a Legislative Fiscal Estimate that it was unable to determine whether the amounts received under the PILOT program would be greater or less than what would be collected locally if casino gaming properties were annually assessed. This report took into account the closure of the four casino gaming properties in 2014 that will need to be reassessed to reflect their current status. 

The report states that:

[b]ecause these reassessments are likely to result in a reduction in property values, the total amount of property taxes collected by each local taxing district would be less in 2015 than the amount payable in 2014. Casino payments received under the PILOT program by each will substitute for the ability to levy property taxes on casino properties. To the extent payments received under the bill do not wholly replace property taxes otherwise payable by casino property owners and assuming no change in the general tax rate for all purposes, the municipality, school, and county would experience a decrease in locally generated revenue.

New Jersey Governor Chris Christie conditionally vetoed the original PILOT bill in 2015, stating that he was “[c]oncerned the bill, in its current form, failed to recognize the true path to economic revitalization and fiscal stability in the City.” As of Jan. 17, 2016, the Governor has not yet taken action on the current version of the bill.  Just this past Tuesday Governor Christie vowed to veto the tax bill if “a letter is changed in either bill.” Local news outlet Politico New Jersey quoted the governor saying the bills must be presented to him “in the same form they passed the Senate last week, or face the consequences of Atlantic City running out of money next month.”

The economic vitality and viability of Atlantic City’s casinos means a lot for the city and the state. If this PILOT program works, it could bring new casinos and other businesses to the region and reduce the property tax burden on all property owners.

Continue the discussion on LinkedIn:  Is the PILOT program a good long-term plan for prosperity and economic growth?

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By Cynthia N. Wells