The state of New Jersey and Borgata Casino in Atlantic City have agreed to a settlement in a longstanding tax dispute. To end the dispute, New Jersey agreed to pay Borgata $72 million.
It was not New Jersey which owed the money to Atlantic City's most successful brick-and-mortar casino. It was Atlantic City itself, which kept a huge tax bill paid by Borgata, which held onto the money even after it was determined by a court that Borgata overpaid on its taxes.
New Jersey's former attorney general and senator, Jeff Chiesa, said that the payment represented less than one-half of the amount Atlantic City owed Borgata. Chiesa, who was appointed by Gov. Chris Christie to oversee Atlantic City's finances, said, "The settlement took both sides working closely together to find common ground."
Repayment of 2009 to 2015 Taxes
Borgata won successful tax appeals from the year 2009 to the year 2015. In all, it was determined that Atlantic City owed Borgata $165 million in overpaid taxes. The problem was, Atlantic City was effectively bankrupt. Without the funds to repay Borgata, Atlantic City simply drew out the dispute.
For its part, Borgata had pending appeals for 2013 to 2015. Those appeals likely would have added another $65 million to Atlantic City's tax bill. To tighten the screws, Borgata announced in 2016 that it might not pay its property taxes for 2016 -- essentially taking those costs out of the price tag Atlantic City owed Borgata.
Why Casinos Won Their Tax Appeals
The tax appeals had to do with the constriction of the Atlantic City casino industry. From 2014 to 2016, five of Atlantic City's twelve casinos closed, mainly due to increased competition from Pennsylvania casinos and racinos.
Because of the lack of business, Atlantic City casino lawyers were able to argue in court that the property tax assessments from previous year's taxes were too high. The annual tax appeals were successful. Since Borgata represents almost half of Atlantic City's casino revenues these days, Borgata's tax case was key for Atlantic City.
Jeff Chiesa Criticizes Local Officials
In his press conference announcing the settlement, Jeff Chiesa touted the savings his negotations had achieved for Atlantic City taxpayers. Chiesa also was critical of Atlantic City's leadership.
Chiesa said, "The city administration, despite all the time and opportunity given to them, failed to accomplish this goal as they have with so many others. This agreement saves $30 million more for taxpayers than what Atlantic City had anticipated settling for under its five-year plan."
Jeff Chiesa failed to mention that Mayor Don Guardian and the AC city council did not have access to $72 million to come to the agreement. While the leaders of Atlantic City should take their share of the blame for the city's financial troubles, Chiesa had the resources of the state behind his negotiations.
Borgata Statement on $72 Million Deal
Borgata's spokesperson chose not to involve the company in recriminations about the past. Instead, the company focused on its role in settling the dispute. Borgata spun the settlement as an act of charity on its part, for the sake of Atlantic City's betterment.
John McManus, EVP of MGM Entertainment (which owns Borgata), said, "With this agreement we are assured the relative certainty of payment, and the avoidance of additional cost and time related to further litigation. MGM Resorts and Borgata believe this was the right deal for all parties concerned and is in the best interests of MGM's shareholders."
Atlantic City Casino PILOT Bill
The Borgata-New Jersey settlement is a case where the resources of a state government come in handy. By agreeing to pay a large sum of money, New Jersey was able to end a bruising and expensive court battle, while also saving residents tax expenses. Borgata received a windfall without spending several more years in court.
To avoid such appeals in the future, New Jersey's legislature passed a PILOT bill in 2016. A "PILOT", or "payment in lieu of taxes", sets a specific amount for the Atlantic City casinos to pay in property taxes. The rigid amount means that the yearly tax appeals did not have to occur, saving the state and casinos millions in legal bills. The PILOT bill also allows casino operators to fix costs, so they can better plan their economic future.
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