Mack-Cali Realty Corp. v. State

Decision Date15 March 2019
Docket NumberCIVIL ACTION DOCKET NO. L-4903-18
PartiesMACK-CALI REALTY CORP.; CAL-HARBOR V URBAN RENEWAL ASSOCIATES LP; CAL-HARBOR VII URBAN RENEWAL ASSOCIATES LP; ROSELAND RESIDENTIAL TRUST; GARY WAGNER; IVAN BARON; H.P. ROOSEVELT URBAN RENEWAL COMPANY LLC; CAMBRIDGE CORPORATE SERVICES, INC.; LOCAL 621, UNITED CONSTRUCTION TRADES INDUSTRIAL UNION; LOCAL 365, UNITED EMPLOYEES OF SERVICE WORKERS; SP PLUS CORPORATION; LOS CUERNOS CORP.; EXCHANGE PLACE ALLIANCE DISTRICT MANAGEMENT CORPORATION; SPARTAN SECURITY SERVICES, INC; NEW JERSEY BUSINESS & INDUSTRY ASSOCIATION; and HUDSON COUNTY CHAMBER OF COMMERCE & INDUSTRY, Plaintiff(s), v. STATE OF NEW JERSEY; CITY OF JERSEY CITY; MAYOR AND COUNCIL OF THE CITY OF JERSEY CITY; DONNA MAUER, in her Official Capacity as Director and Chief Financial Officer of the City of Jersey City; and BRIAN PLATT, in his Official Capacity as Business Administrator of the City of Jersey City, Defendant(s).
CourtSuperior Court of New Jersey

NOT TO BE PUBLISHED WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS

OPINION

Clark E. Alpert, Esq. and Stephen J. Edelstein, Esq., attorneys for plaintiffs (Weiner Law Group).

Jean P. Reilly, Esq., attorney for defendant State of New Jersey (Office of the Attorney General).

Vito A. Gagliardi, Jr., Esq., attorney for defendants City of Jersey City, Mayor and Council of Jersey City, Donna Mauer, and Brian Platt (Porzio, Bromberg, & Newman, P.C.)

Craig A. Long, Esq., attorney for amici curiae (Zazzali, Fagella, Nowak, Kleinbaum, & Friedman, P.C.)

PETER F. BARISO, JR., A.J.S.C.

This action in lieu of prerogative writs challenges the constitutionality of a recent amendment to the Local Tax Authorization Act (the "LTAA" or the "Statute"), N.J.S.A. 40:48C-1 to -42, as amended by L. 2018, c. 68. As amended, the LTAA empowers cities of the first class with the ability to enact a payroll tax on businesses located within the city. The core issue presented in this action is whether Jersey City has the right to tax the payroll of Jersey City businesses under the LTAA in order to satisfy its school funding obligations. In order to answer that question, three separate questions must be determined: (1) is the Statute constitutional; (2) is the implementing ordinance valid; and (3) does the legislative scheme violate the thorough and efficient education clause of the New Jersey Constitution.

For the reasons that follow, this court concludes that plaintiffs failed to join an indispensable party and, hence, the amended complaint will be dismissed. Substantively, the court further concludes that (1) the Statute is constitutional, (2) the implementing ordinance is valid, and (3) the legislative scheme does not violate the thorough and efficient clause of the New Jersey Constitution. Defendants' motion to dismiss the amended complaint is granted, and plaintiffs' cross-motion for summary judgment is denied.

FACTUAL BACKGROUND

In 1970, the New Jersey Legislature enacted the LTAA, which authorized municipalities to collect local taxes on, among other things, parking, alcoholic beverages, motor fuels, sales of goods, and business payroll. See L. 1970, c. 326 (codified at N.J.S.A. 40:48C-1 to -42). In the nearly fifty years since, the Legislature has amended the LTAA several times, typically to adjust the population level that makes a municipality eligible to impose local taxes. As a result, Jersey City's eligibility to impose a payroll tax has changed. As originally enacted, the LTAA granted the right to enact a payroll tax to municipalities with a population of 350,0001, making Newark the only qualifying municipality. See L. 1970, c. 326.

In 1975, the Legislature amended the LTAA population threshold so that cities with a population of 225,000 to 350,000 may adopt a payroll tax. This amendment made Jersey City eligible for a substantially similar 2 percent employer payroll tax. See L. 1975, c. 20. As the legislative history explains, "the Mayor and other officials of Jersey City" maintained that a payroll tax was "the only viable solution to their fiscal problems." Assem. Taxation Comm. Statement to A. 3080 (Feb. 13, 1975). Due to "the exigencies of the fiscal situation in Jersey City," the Legislature reluctantly amended the LTAA and allowed Jersey City to impose the tax. Ibid. (noting that solution was "bad" but necessary). However, Jersey City neglected to take advantage of its eligibility under the amended statute, and did not implement a payroll tax.

In 1981, the Legislature again amended the LTAA and set the population threshold to impose a payroll tax at 300,000, again effectively making Newark the only eligible municipality. L. 1981, c. 507. In 1990, the Legislature reduced the qualifying population limit to 200,000, and Jersey City once again was eligible to impose a payroll tax. L. 1990, c. 9. Jersey City did notenact an implementing ordinance until December 26, 1995. The ordinance, which imposed regulations and implementation mechanisms for a payroll tax on businesses, was to become effective on January 27, 1996.

However, on June 17, 1996, the Legislature amended the LTAA to provide that, regardless of whether a municipality met the threshold requirement, the city could not impose a payroll tax unless it had done so within the two years prior to July 1, 1995. N.J.S.A. 40:48C-19, as amended by L. 1996, c. 33, § 2.. This provision -- known as the "longevity provision" -- was retroactive to January 1, 1996, thus effectively voiding Jersey City's Ordinance, which had been in effect for almost five months prior to the amendment. The Legislature purposely manipulated the dates to preserve Newark's power to impose the payroll tax but eliminate Jersey City. See Sponsors' Statement to A. 1566 (Feb. 15 1996).

Because the retroactive amendment singled out one municipality, Jersey City challenged the longevity provision as special legislation. City of Jersey City v. Farmer, 329 N.J. Super. 27 (App. Div. 2000), certif. denied, 165 N.J. 135 (2000). The Appellate Division, reversing the trial court, upheld the longevity provision, holding that it did not constitute special legislation even though it retroactively nullified Jersey City's ordinance and resulted in Newark being the only municipality eligible to impose the tax. Even though Jersey City properly adopted a payroll tax in December 1995, it was unable to enforce a payroll tax until 2018, when the Legislature again amended the LTAA by removing the longevity provision.

From 1989 until October 2017, the Jersey City School District was under full or partial State supervision. In addition, Jersey City was receiving large amounts of aid to fund its schools, pursuant to the School Funding Reform Act ("SFRA"), N.J.S.A. 18A:7F-1 to -70. Under the SFRA, every school district has an "adequacy budget," which is the budget required to fund theschool district and is calculated by looking at the number of students projected to enroll in the school district, with adjustments for student grade level and at-risk categories like subsidized lunches. To reach the adequacy budget, the municipality must provide its "local fair share," which is funded through property taxes and assessed to school districts based on the property, wealth, and income of their taxpayers. If the local fair share is not enough to cover the adequacy budget, the State must supplement the budget with "equalization aid," that is, the difference between the adequacy budget and the local fair share. The purpose of state equalization aid is to bring the poorest school districts up to par with the wealthiest by forcing the State to fund those poor districts. The goal of the SFRA formula is to guarantee that school districts across the state become equally funded so the poorer districts can increase their staff ratios, procure more experienced teachers, increase course offerings, and maintain facilities. Abbott v. Burke, 119 N.J. 297, 376 (1990) ("Abbott II").

For the 2018-2019 school year, Jersey City's adequacy budget was calculated at $590,163,255. Dehmer Certification ¶ 4. The City's local fair share was calculated at $398,895,043, after accounting for property, wealth, and income of the taxpayers. Id. at ¶ 5. To make up for the deficit between the calculated local fair share and adequacy budget, Jersey City was entitled to receive $191,268,212 as equalization aid from the State. But, because Jersey City did not fully fund its local fair share, the State actually provided $270,661,365, or $79,393,153 more than the SFRA formula required. Id. at ¶ 7.

Recently, the Legislature announced substantial cuts in state aid to New Jersey school districts, leaving municipalities, particularly Jersey City, with large budget deficits. The significant reduction in state aid meant that, if Jersey City did not fund its local fair share, there not only would be significant layoffs of teachers and administrators but also several importantdistrict programs would be eliminated. For that reason, the Legislature stepped in and gave Jersey City the right to impose a payroll tax by amending the LTAA. The amendment, codified in L. 2018, c. 68 ("Chapter 68" or "the Statute") rendered Jersey City eligible to adopt a payroll tax because it eliminated the longevity requirement at issue in Farmer, 329 N.J. Super. 27. Even though Jersey City's unenforceable 1995 payroll tax "remained on the books," it decided to enact a new ordinance to comply with the latest amendments to the LTAA; Jersey City looked to the language of Newark's ordinance for guidance.

In addition to repealing the longevity requirement, the LTAA was amended to include an income sub-classification. Municipalities now may use revenues derived from the payroll tax "for general municipal purposes" unless the municipality "has a median household income of $55,000 or greater." N.J.S.A. 40:48C-15. If a municipality meets both the population requirement and the income threshold, that municipality shall deposit the tax...

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