Just over two years ago, New Jersey created a special law to cut local taxes for Atlantic City’s nine casinos.  It did so by raising real estate taxes for everyone else in the county.

Lawsuits were filed.  A trial court then struck the law down for violating the “tax uniformity clause” of New Jersey’s state constitution.  Governor Murphy appealed that decision.  An appellate court will soon review the case.

The “tax uniformity clause” requires all real estate to be assessed “according to the same standard of value” and taxed at the same local rate.  It is one of many constitutional provisions adopted by New Jersey and most states after the catastrophic economic collapse in 1837.

During the past 40 years, economic historian John J. Wallis of the University of Maryland published extensive research on this topic.  He wrote that the crash of 1837 was caused by “systemic” corruption and “unsustainable debt” in state and local governments throughout America.

Wallis found that New Jersey and most states later fixed these problems with new state constitutions having two key provisions.  First, they greatly limited the power of state and local officials to borrow money.  Second, they required that all laws and taxes apply equally to everyone.  This made it hard for politicians to enact special laws to reward supporters or punish opponents.  Fewer politicians became corrupt when they were unable to give favors to people who offered them bribes or political support.

Professor Wallis concluded that these new state constitutions were a spectacular success.  They gave Americans efficient state and local governments with little debt, low taxes, and minimal corruption for more than a hundred years.

Sadly, that ended in New Jersey and most of America during the 1960s.  That was when “progressive” politicians began to see their restrictive state constitutions as inconvenient obstacles.

Some repealed and replaced their old constitutions outright.  Others, especially in New Jersey, crafted clever loopholes to avoid them and appointed judges who allowed it.

Governor Murphy and most New Jersey legislators are hoping that this Atlantic City casino case will also end enforcement of the “tax uniformity clause.”

That litigation began when Atlantic City casinos lobbied for and got a special real estate tax break two years ago.

Atlantic City public schools and local government got very expensive when the first casino opened there in 1978.  For thirty years, this was not a problem.  The casinos paid most local taxes.  They did not complain when they were making enormous profits.

That changed after the Wall Street crash of 2008 and the opening of competing casinos in nearby Philadelphia in 2010.

This caused four of Atlantic City’s 12 casinos to close and for real estate values to decline from roughly $22.2 billion to $6.4 billion — a 71% decrease.  Real estate tax collections declined accordingly.

In 2010, Atlantic City’s local government could not balance its budget, and Republican Governor Chris Christie had the state take over.

However, state officials made things even worse.  They increased spending from $216 million in 2010 to $262 million in 2016!  They ran big deficits in violation of state law and broke even more laws to borrow roughly $60 million each year for operating expenses. 

At the time, Governor Christie was running for president.  His main Republican rival was Wisconsin governor Scott Walker.  Walker was relentlessly attacked by Democrats and public employee unions for cutting state and local spending.  Christie bragged that he knew how to deal with unions and Democrats.  Christie could not do that if he had cut salaries or laid off workers to balance Atlantic City’s budget.

Christie finally cut spending and balanced Atlantic City’s budget in 2016, when he stopped running for president. By that time, Atlantic City’s government had borrowed nearly $400 million to cover seven years of illegal deficits while under state control.  Atlantic City is a small town with only 42,000 year-round residents.

New Jersey then adopted a ten-year plan to pay back most of that debt.  It continued to use income rather than construction costs to value casino properties for local tax purposes.  That income included online gambling and sports betting because only licensed casinos with approved properties in Atlantic City could do that business.

The state also applied a separate casino “reinvestment” tax to pay down the city’s debt.  The casinos did not object, since previous “reinvestment” projects were political and did little to help them.

This plan worked well for the first five years.  However, in 2021, the Atlantic City casinos got greedy.  They persuaded Democrat Governor Murphy and most legislators to adopt a new special law to cut their local taxes and raise them for everyone else.

That triggered this lawsuit...and conversations about “tax uniformity,” New Jersey’s state constitution, the economic collapse of 1837, and Chris Christie’s mismanagement of Atlantic City.

Image via Pxhere.