LEGISLATIVE FISCAL ESTIMATE

[Second Reprint]

SENATE, No. 2572

STATE OF NEW JERSEY
216th LEGISLATURE
DATED: DECEMBER 19, 2014

SUMMARY

Synopsis:

Casino Property Tax Stabilization Act

Type of Impact:

Indeterminate impact on local revenues.

Agencies Affected:

City of Atlantic City, Atlantic City School District, Atlantic County

Office of Legislative Services Estimate

Fiscal Impact
Local Revenue

Year 1

Year 2

Year 3

Indeterminate Impact See comments below

The Office of Legislative Services (OLS) concludes that the enactment of Senate Bill No.
2572 (2R) would have an indeterminate net effect on the revenues of the City of Atlantic
City, the Atlantic City School District, and Atlantic County.

This legislation exempts casino gaming properties from ad valorem property taxation and
requires casino property owners to fulfill their financial obligations to all local governments
serving Atlantic City through formula-based annual payments in lieu of taxes.

The estimate of local property taxes payable by casino properties in 2014 is about $210
million. The OLS notes that the closure of four casino gaming properties in 2014 will
require the value of those properties to be reassessed to reflect their current status. Because
these reassessments are likely to result in a reduction in the value of these properties, the total
amount of property taxes collected, assuming no change in the tax rates, each local taxing
district will be less in 2015 than the original amount payable in 2014.

Property tax revenues will be replaced by PILOT payments, as set forth in the bill. The
reduction in property tax revenues will be offset, in part, by casino payments in lieu of taxes
of $120 million in 2015, adjusted for inflation and other factors thereafter, and other casino
non-tax payments in 2015 and 2016 of $30 million. The OLS cannot determine whether the

Office of Legislative Services

State House Annex
P.O. Box 068
Trenton, New Jersey 08625

Legislative Budget and Finance Office

Phone (609) 292-8030
Fax (609) 777-2442
www.njleg.state.nj.us

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PILOT amount will be greater than or less than what would be collected locally if casino
gaming properties were assessed for ad valorem taxation at current tax rates.

BILL DESCRIPTION
Senate Bill No. 2572 (2R) of 2014, the Casino Property Tax Stabilization Act, is intended
to address the Atlantic Citys financial difficulties following the recent closure of several casinos
and declining taxable value of casino properties resulting from successful tax appeals. The bill
requires that beginning with tax year 2015, and for the next succeeding 14 tax years, casino
gaming properties located in the City of Atlantic City and operated by casino license holders
would be exempt from local property taxation on real property and improvements, including
accessory hotels and parking garages. For this 15-year period, casinos would be required to
fulfill their property tax liabilities by making annual payments in lieu of taxes (PILOT), the
amount of which would be based on casino gaming revenues.
In exchange for the property tax exemption granted in the bill, casino gaming operators must
sign a financial agreement with the City of Atlantic City promising to make quarterly payments
to the city totaling $120 million in 2015. In 2016 and in each tax year thereafter, the total PILOT
amount would be determined based on gross gaming revenue which is defined in the bill as the
total amount of revenue raised through casino gaming from all casino gaming properties in
Atlantic City. Increases or decreases in the PILOT payment are capped at no more than two
percent per year. The city is required to allocate an unspecified portion of the PILOT to the
Atlantic City School District and Atlantic County.
The bill requires the owners of casino gaming properties holding casino gaming licenses to
collectively organize as the Casino Operators PILOT Council for the purpose of determining
each casinos share of the annual PILOT payment and to convey that payment to the City of
Atlantic City. The amount owed by each casino gaming property will be determined using a
formula that gives equal weight to three criteria: (1) the geographic footprint of the real property
owned by each casino gaming property; (2) the number of hotel rooms in each casino gaming
property; and (3) the gross gaming revenue of the casino in each casino gaming property. If a
new casino property is added or an existing casino property closes, the financial agreement must
be amended to reallocate the PILOT amount among the casino gaming properties.
If, during 2015 to 2019, a casino gaming property is allocated a share of the PILOT that is
greater than its property tax liabilities in 2014, that property would receive a credit for the
difference against its investment alternative tax obligations for that year. If, after the credit is
applied, the casino gaming property would still be liable for a PILOT in excess of its 2014
property taxes, the additional amount will be added, by proportional share, to the PILOT
amounts owed by every other casino gaming property for that tax year. In tax years 2015 and
2016, the council would be required to make a separate additional payment of $30 million to
Atlantic City. Each casinos liability, paid through the council would be based on the proportion
of gross gaming revenue generated by each casino gaming property in the prior year. The bill
also provides that PILOT payments constitute a lien on the casino gaming property.
The legislation also establishes, on January 1, 2028, a 7-member Atlantic City Review
Commission. The commission is charged with reviewing and determining: (1) the efficacy of
the PILOT program, (2) the economic vitality and viability of Atlantic Citys casinos; (3) the
vitality and viability of the Atlantic City municipal government; (4) the effect of the PILOT
program on the economic vitality of the casinos, Atlantic Citys ability to fund its municipal
government and provide services to its residents; and (5) the feasibility of continuing the PILOT

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program. The commission is required to issue its findings and recommendations in writing to the
Governor, President of the Senate, and Speaker of the General Assembly by July 1, 2028.

FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS concludes that the enactment of Senate Bill No. 2572 (2R) would have an
indeterminate net effect on local revenues. This legislation exempts casino gaming properties
from the regular system of assessment used to determine the value of property for ad valorem
taxation. Under that system, the assessed value of all casino property in Atlantic City in 2014
was approximately $6.275 billion (approximately 55.6 percent of Atlantic Citys property tax
base). By applying the total tax rate (the sum of the property tax rates for all taxing districts and
dedicated levies) to that amount, the OLS estimates the total amount of property taxes assessed
against casino property to be approximately $210 million. Of that amount, approximately $112
million was due Atlantic City for general municipal purposes; approximately $75 million was
due to the Atlantic City School District, and $22 million was due to Atlantic County. The OLS
notes that some assessments are the subject of tax appeals, so the amounts actually due from
casino property owners may be less than $210 million.
Instead, in 2015, the City of Atlantic City would receive a maximum of $150 million from
the owners of casino gaming properties. Of that amount $120 million would be provided
through a PILOT payment and $30 million would be paid as an additional payment from casino
property owners, based on the total amount of gross gaming revenues (GGR) generated by each
casino gaming property in 2014. The total amount due from the PILOT payment and the GGRbased payment in 2016 would range from $147.6 million to $152.4 million ($117.6 million to
$122.4 million from the PILOT and $30 million from the GGR-based payment). In 2017 the
GGR-based payment is no longer required and the PILOT amount due would range from $115.2
million to $124.8 million. The PILOT ranges show the maximum and minimum amounts due,
based on an increase or decrease in inflation of 2 percent per year and assuming no change in
total GGR in 2016 and 2017. In testimony before the Senate Budget and Appropriations
Committee on December 8, 2014, the Mayor of Atlantic City indicated that the total PILOT
payment is comparable to the total amount of property taxes that would have been assessed
against casino gaming properties following the adjustment of property values following the
closure of four casinos in 2014.
The impact of this bill on the property tax revenues of the City of Atlantic City, Atlantic
County, and Atlantic City School District is uncertain. The OLS notes that the closure of four
casino gaming properties in 2014 will require the value of those properties to be reassessed to
reflect their current status. Because 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 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

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municipality, school, and county would experience a decrease in locally generated revenue. The
OLS is unable to determine whether the PILOT amount will be greater than or less than what
would be collected locally if casino gaming properties were assessed for ad valorem taxes.
Neither current law nor the provisions of this bill prohibit the municipality, school district, or
county from adjusting their tax rates, in effect reallocating the tax levy among all other property
taxpayers, in order to make up any revenue differential resulting from the changes in payments
made by casino property owners. (Although current law limits annual increases in the total
property tax levy to 2 percent per year, local governments are permitted to increase rates in order
to raise that amount when there is a decline in the value of ratables.) Other actions, such as the
awarding of additional State aid to the school district and municipal government, reductions in
appropriations by all affected governmental entities, or the redirection of existing State revenues
to the municipal government may also ameliorate the effect of any revenue loss.
It is likely that the Atlantic City municipal government will not retain the entire PILOT
payment because the bill requires the municipality to remit a portion of the PILOT payment to
Atlantic County and the Atlantic City School District. The OLS notes that the combined
property tax levies for county and school district purposes comprised 47 percent of the total tax
levy for the City of Atlantic City in 2014. Casino property tax liabilities accounted for
approximately 56 percent of the total school levy and 56 percent of the municipalitys portion of
the total county levy in 2014 (prior to any impact of pending tax appeals). Because the bill does
not establish a specific formula for determining the amount to be paid to Atlantic County and the
Atlantic City School District, any projection regarding how the enactment of Senate Bill No.
2572 (2R) may effect school and county finances would be speculative.
The OLS also notes that Atlantic City operates the Atlantic City Free Public Library.
Current law (R.S.40:54-8) requires municipalities that operate their own libraries to raise by
taxation a sum equal to one-third of a mill on every dollar of assessable property within the
municipality based on the equalized value of such property as certified by the Director of the
Division of Taxation in the Department of the Treasury. According the citys adopted municipal
budget for 2014, the total amount to be raised by taxation for the municipal library was
approximately $5 million. Casino property tax liabilities accounted for $2.8 million of that
amount. If casino gaming property is exempt from the regular system of ad valorem taxation, the
municipal library levy for the support of the Atlantic City Free Public Library would decrease
significantly. Notwithstanding this decrease, the municipality would have the option of funding
the library at any level above the minimum tax levy through its annual budget.

Section:

Local Government

Analyst:

Scott A. Brodsky
Senior Fiscal Analyst

Approved:

David J. Rosen
Legislative Budget and Finance Officer

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).