Last December, lame duck New Jersey Senate President Stephen Sweeney painted a grim picture of the South Jersey economy’s future should a tax break for Atlantic City’s largest employers not be signed into law.
“We are risking four casinos closing,” Sweeney told the Senate Budget and Appropriations Committee. “I do not want that to happen. I don’t want to have a situation where it’s, ‘I told you that place was going to close, and it closed.’ I don’t want to get to say I was right.”
With the catastrophic effects of the closure of four Atlantic City casinos in 2014 and another in 2016 fresh in the minds of state lawmakers, the bill cleared the committee as well as the full state Senate and Assembly late last year. Within 24 hours, Gov. Phil Murphy signed the bill into law.
But last week, a state Superior Court judge wiped out the tax break, which was designed to reduce the nine Atlantic City casinos’ collective tax burden by one-third, from $165 million to $110 million.
After the chaotic period of casino closures, each surviving casino sought and received a reduction in their tax bills as the property values declined. Both city officials and casino operators then agreed to a PILOT (payments in lieu of taxes) plan in 2017 so that each side would be clearer on what annual obligations would be.
“There is no evidence to suggest that casinos could not meet their PILOT obligations under the Original Act,” Atlantic County Assignment Judge Michael Blee wrote in his ruling on Aug. 29. Blee added that the casinos actually are a resurging industry.
“This Court finds that the Amendment was enacted to aid the casino industry, and not for a public purpose,” Blee wrote.
Sweeney’s last effort
Sweeney, who lost a November re-election bid in shocking fashion to a little-known Republican truck driver, was long a friend of the casino industry. And there is little doubt that his warning held sway in particular among South Jersey lawmakers who recalled when Atlantic County was saddled with the highest foreclosure rates in the U.S. in the wake of previous casino closings.
No compromise was reached in the tax liability debate, in spite of revenue figures published by the state that aren’t quite reflective of casinos’ bottom lines. For instance, in 2021 the casinos were reported by the state Division of Gaming Enforcement to have collected gross revenue of $4.74 billion.
But that breaks down to $2.55 billion from brick-and-mortar operations, $1.37 billion from online casino play, and $0.82 billion from mobile sports betting.
Casinos executives have complained that it’s misleading to lump the three numbers together, because online casino operators keep about two-thirds of that revenue and mobile sports betting works in a similar way. (Some of the casino businesses are buying stakes in the smaller online operators as a way to keep those numbers in-house.)
The online revenue — which collectively amounts to nearly half of the total — should be entirely exempt from PILOT calculations, casino officials argued, even though a significant portion of that money does flow into casino coffers.
“Failing to adjust the PILOT would have resulted in egregious, inappropriate, and inequitable taxes for any industry, let alone an industry that is still fighting to recover from COVID-19,” the Casino Association of New Jersey said earlier this year.
DGE officials reported gross operating profit for the casinos in 2021 as $766.8 million.
Casinos made a bet — and lost?
Unless an appeal overturns the ruling — a spokesperson for Murphy has said such an attempt will be forthcoming — the casinos will have lost what state Assemblyman Don Guardian called a “gamble” during that same hearing late last year.
That is, the annual PILOT originally was to be $120 million when it was signed five years ago, at a time when Guardian served as Atlantic City’s mayor. That was at a time before sports betting was legal in the state and before online casino revenue began growing exponentially.
The deal was amended so that if the casinos struggled, the financial obligation would be lessened. Instead, revenue has risen to record highs.
“Now we know that was a bad bet [for casino operators], but we shouldn’t be paying for that bad bet,” Guardian said.