Title: 2nd Roc-Jersey Associates v. Town of Morristown
Citation: N/A
Docket Number: a-137-97
State: new-jersey
Issuer: new-jersey Supreme Court
Date: May 13, 1999

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). HANDLER, J., writing for a unanimous Court. The issue in this appeal is whether assessments imposed on real property in a municipal Special Improvement District (SID) are unconstitutional because residential properties are excluded from the assessments. In 1993, the Town of Morristown enacted an ordinance creating a SID within the town and designating a management corporation. The SID was created due to declining economic conditions in Morristown. The ordinance was passed pursuant to N.J.S.A. 40:56-65 to -89, which authorized municipalities to establish SIDs. The Morristown ordinance specifically exempted residential and mixed-use property from the SID special assessment. In 1994, in an unreported decision, Gonzalez v. Borough of Freehold, the Appellate Division upheld the constitutionality of the statute authorizing the establishment of SIDs. However, it invalidated the provision of a municipal SID ordinance that exempted residential properties because the provision violated the statutory definition of a SID, namely, an area within a municipality designated by municipal ordinance as an area in which a special assessment on all property within the district shall be imposed. In response to that decision, Morristown amended its SID ordinance by removing residential properties from the boundaries of the SID. Subsequently, a special assessment was made on all subject property within the SID on the basis of .105" of the property's assessed value for local real property tax purposes. In December 1994, plaintiffs (collectively Roc-Jersey) filed a verified complaint against Morristown and the District Management Corporation (MPI) challenging the assessments. The trial court ruled that both ordinances were valid and that residential properties located within the geographic boundaries of the district were permissibly excluded from contributing to the costs of the SID. The trial court further directed Morristown to prepare a report articulating its position concerning the extent to which different categories of properties within the SID benefit by the activities undertaken by the MPI; whether and to what extent the different categories of properties should receive differentiated assessments; and whether the non-residential portion of mixed use properties should be included for assessment within the SID. Thereafter, the plaintiffs filed separate notices of appeal contesting the trial court's ruling upholding the exclusion of residential properties. In April 1994, after receiving Morristown's report, the trial court entered an order ruling that the special assessment formula adopted by Morristown was both reasonable and legal. Roc-Jersey amended its notice of appeal to include this order. Thereafter, the Legislature enacted a statute amending N.J.S.A. 40:56-66(b). The amendment expressly permitted municipalities to exempt residential properties, residential portions of mixed-use properties, and parcels with any number of residential units or vacant properties within a SID from the special assessment. The law became effective immediately on July 5, 1995. The appeals of Roc-Jersey and Shav Associates were consolidated. In an unpublished opinion, the Appellate Division affirmed the trial court's dismissal of plaintiffs' complaints. The plaintiffs focused their constitutional challenge on the 1995 amendment to N.J.S.A. 40:56-66(b), which allowed the municipalities to exclude residential properties from the SID assessment, contending among other things, that the exclusion of residential property was unconstitutional because the SID assessment is a tax, rather than a special assessment, and therefore violates the Uniformity Clause of the New Jersey Constitution, which requires real property taxes to be applied uniformly to all classes of real property. The Supreme Court granted plaintiffs' petitions for certification. HELD: The enabling legislation and Morristown's implementing ordinance have not created real property taxes and do not violate the tax clauses of the Constitution in allowing municipalities to exempt residential properties from the Special Improvement District assessment. 1. Both constitutional history and judicial precedent require a strict application of the tax clauses to real property. Therefore, if the assessments authorized by the SID statute and imposed by the implementing ordinance are deemed to be real property taxes, then the exclusion of residential properties could constitute preferential tax treatment in violation of the uniformity and exemption clauses of the Constitution. (pp. 8-11) 2. The Uniformity Clause of the Constitution is inapplicable to special assessments. The special assessment is used to provide a combination of services and improvements that are intended and designed to benefit particular properties and demonstrably enhance the value and/or the use or function of the properties that are subject to the special assessment. (pp. 12-18) 3. While a valid special assessment must be as nearly as may be in proportion to the benefit received, it need not be measured with mathematical precision. Special assessments that are proportionate to the benefit received are presumptively correct and the taxpayers have the burden of overcoming that presumption by clear and convincing evidence. (pp. 18-20) 4. It was not unreasonable for Morristown to select a real property tax assessment basis for determining special assessments, as opposed to one of the more complex methods of valuing benefits during the initial phase of the SID, as the tax system is updated periodically and provides property owners with a basis to challenge erroneous tax assessments and the derivative SID assessments. (pp. 20-23) 5. The exclusion of residential properties from the assessment imposed on property in the SID does not constitute an invalid exemption under the exemption provision of the tax clauses of the Constitution inasmuch as the exemption is general in nature because it is based on a zoning classification rather than on the status of the owner, and because it is not directed at benefitting a particular industry. (pp. 23-25) 6. Where, as here, the nature of the benefit is imprecise, the method of valuing that benefit based on property values is rational and appropriate. Therefore, the special assessment does not violate the Takings Clause of the New Jersey Constitution and the Fifth Amendment to the United States Constitution. (pp. 25-27) 7. The SID provides sufficiently identifiable benefits to the subject properties and the special assessments are measured reasonably and fairly in proportion to the benefits conferred. Therefore, the enabling legislation and implementing ordinance have not created real property taxes and do not violate the tax clauses of the Constitution in allowing municipalities to exempt residential properties from the SID assessment. (pp. 28-31) 8. Because the 1995 amendment to the enabling statute was enacted in response to Gonzalez to remedy what the Legislature perceived as a misapplication of the law, the amendment fell within the curative exception, thus allowing for the retroactive application of the amendment. (pp. 31-34) Judgment of the Appellate Division is AFFIRMED. CHIEF JUSTICE PORITZ and JUSTICES POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN join in JUSTICE HANDLER's opinion. 2ND ROC-JERSEY ASSOCIATES, 3RD ROC-JERSEY ASSOCIATES, 4TH ROC-JERSEY ASSOCIATES and 5TH ROC-JERSEY ASSOCIATES, Plaintiffs-Appellants, and SHAV ASSOCIATES, Plaintiff-Intervenor- Appellant, v. TOWN OF MORRISTOWN, a Municipal Corporation, and MORRISTOWN PARTNERS, INC., Defendants-Respondents, and DIRECTOR, DIVISION OF LOCAL GOVERNMENT SERVICES, Intervenor-Respondent. Argued September 28, 1998 -- Decided May 13, 1999 On certification to the Superior Court, Appellate Division. William J. Sitar argued the cause for intervenor-appellant Shav Associates (Mandelbaum &amp; Mandelbaum, attorneys; Mr. Sitar, Steven R. Irwin and Peter L. Davidson, on the briefs). James J. Shrager argued the cause for appellants 2nd Roc-Jersey Associates, 3rd Roc-Jersey Associates, 4th Roc-Jersey Associates and 5th Roc-Jersey Associates (Hannoch Weisman, attorneys). Herbert A. Vogel argued the cause for respondent Town of Morristown (Vogel, Chait, Schwartz &amp; Collins, attorneys; Laura J. Lande, on the brief). Robert S. Goldsmith argued the cause for respondent Morristown Partners, Inc. (Greenbaum, Rowe, Smith, Ravin, Davis &amp; Himmel, attorneys; Mr. Goldsmith and Gary K. Wolinetz, on the brief). Gail L. Menyuk, Deputy Attorney General, argued the cause for intervenor-respondent Director, Division of Local Government Services (Peter Verniero, Attorney General of New Jersey, attorney; Joseph L. Yannotti, Assistant Attorney General, of counsel; Paul I. Tannenbaum, Deputy Attorney General, on the brief). The opinion of the Court was delivered by HANDLER, J. The principal issue raised in this appeal is whether assessments imposed on real property in a municipal Special Improvement District are unconstitutional because residential properties are excluded from the assessments. The issue arises because the assessments imposed on properties in the Special Improvement District may, in their application, constitute real property taxes. Whether the special assessments should be deemed real property taxes depends in large part on the nature of the benefits received by the properties within the Special Improvement District and on the method of determining the amount to be assessed. If the assessments are deemed taxes, the uniformity and exemption standards governing the taxation of real property under the New Jersey Constitution would determine the validity of the exclusion of residential properties. (b) foster and encourage self-help programs to enhance the local business climate; (c) create a self-financing Special Improvement District to assist in meeting community needs, goals and objectives; (d) designate a District Management Corporation to assist in managing self-help programs and in carrying out local needs, goals and objectives. Many New Jersey municipalities have created SIDs pursuant to the enabling statute. The overwhelming majority of these SIDs, like the Morristown SID, use real property value as the basis for determining SID special assessments. The Morristown ordinance specifically exempted residential property from the SID special assessment, viz: (c) All properties within the [SID] that are used for residential purposes, and those portions of mixed use properties that are residential are deemed excluded from the assessing or taxing provisions of this ordinance and are expressly exempt from any tax or assessment made for Special Improvement District purposes. In 1994, the Appellate Division, in an unreported decision, Gonzalez v. Borough of Freehold, No. A-3476-92T2 (App. Div. June 30, 1994), upheld the constitutionality of the statute authorizing the establishment of SIDs. Nevertheless, it invalidated the provision of a municipal SID ordinance that exempted residential properties because the provision violated the statutory definition of a SID, namely, "an area within a municipality designated by municipal ordinance as an area in which a special assessment on all property within the district shall be imposed." N.J.S.A. 4:56-66(b) (emphasis added). In response to that decision, Morristown amended its SID ordinance by removing residential properties from the boundaries of the SID. The annual budget for the SID in 1994 was $500,000. A special assessment was made on all subject property within the SID on the basis of .105" of the property's assessed value for local real property tax purposes. Plaintiffs, 2nd Roc-Jersey Associates, 3rd Roc-Jersey Associates, 4th Roc-Jersey Associates and 5th Roc-Jersey Associates (collectively Roc-Jersey), the owners of Headquarters Plaza, a commercial office complex, were assessed $64,317.75. Plaintiff Shav Associates, the owner of a four-story office building, was assessed $11,061.75 (later reduced to $9,443.18). On December 12, 1994, plaintiffs filed a verified complaint against defendants Town of Morristown and the District Management Corporation, Morristown Partnership, Inc. (MPI), challenging the assessments. The trial court ruled that both ordinances were valid and that residential properties located within the geographic boundaries of the district were permissibly excluded from contributing to the costs of the SID. The court further directed Morristown to prepare: a report consciously articulating its position concerning (A) the extent to which different categories of properties within the [SID] benefit by the activities undertaken by [MPI] and whether and to what extent the different categories of properties should receive differentiated assessments and (B) whether the non-residential portion of mixed use properties should be included for assessment within the [SID]. Thereafter, plaintiffs filed separate notices of appeal contesting the court's ruling upholding the exclusion of residential properties. Pursuant to the trial court's order, the parties submitted detailed reports. In April 1995, after reviewing those reports, the trial court entered an order ruling that the special assessment formula adopted by Morristown was both reasonable and legal. Roc-Jersey amended its notice of appeal to include the April order. Thereafter, the Legislature enacted a statute, L. 1995, c. 170, amending N.J.S.A. 40:56-66(b). The amendment expressly permitted municipalities to exempt residential properties, residential portions of mixed-use properties, and parcels with any number of residential units or vacant properties within a SID from the special assessment. The law became effective immediately on July 5, 1995. The appeals of Roc-Jersey and Shav Associates were subsequently consolidated. The Director of the Division of Local Government Services intervened to respond to the constitutional issues raised in the appeals. The Appellate Division, in an unpublished per curiam opinion, affirmed the trial court's dismissal of plaintiffs' complaints. This Court granted plaintiffs' petitions for certification. 152 N.J. 12 (1997). The Legislature may exempt certain property from the Uniformity Clause either by general laws or for the specified purposes enumerated in the exemption clause. N.J. Const. art. VIII, 1, 2, viz: Exemption from taxation may be granted only by general laws. Until otherwise provided by law all exemptions from taxation validly granted and now in existence shall be continued. Exemptions from taxation may be altered or repealed, except those exempting real and personal property used exclusively for religious, educational, charitable or cemetery purposes, as defined by law, and owned by any corporation or association organized and conducted exclusively for one or more of such purposes and not operating for profit. The history of the Constitution's tax clauses underscores New Jersey's strong and firm policy that strictly mandates uniformity in the imposition of real property taxes. During the first hundred years of the post-revolutionary period, from 1776 to 1875, the New Jersey Constitution contained no clause relating to taxation. 2 Proceedings of the State of New Jersey Constitutional Convention of 1947 542 (S. Goldmann &amp; H. Crystal, ed. 1951) (hereinafter referred to as Proceedings)). In 1875, the New Jersey Constitution of 1844 was amended to include a tax provision. Property shall be assessed for taxes under general laws, and by uniform rules, according to its true value. [1844 New Jersey Constitution, art. IV, sec. 7, para. 12.] That clause was interpreted to empower the Legislature to tax classes of property differently. As a result, real property taxation abuses occurred under the 1875 tax clause. Particularly, railroads were continuously granted preferential treatment. See Wheaton J. Lane, From Indian Trail to Iron Horse (1939); 5 Proceedings at 565 (testimony of Milton B. Conford to the Committee on Tax and Finance); 1 W. Sackett, Modern Battles of Trenton 19-23 (1895). The inequalities of real property taxation increased with the passing of the Railroad Tax Law of 1941, which fixed a tax rate for railroad property that was well below the average rate of taxation for real property. 5 Proceedings at 565. In Jersey City v. Kelly, 134 N.J.L. 239 (1946), the Court of Errors and Appeals upheld that statute. Nevertheless, it pointedly quoted from Jersey City v. State Bd. of Tax Appeals, 133 N.J.L. 202 (Sup. Ct. 1945), viz: Equality of the burden upon all taxable property can only be attained if and when there shall be but one general law applicable alike to all taxable property, irrespective of its particular use. That, however, continues to be the 'dream unrealized.' The Kelly case, and the underlying railroad legislation, was a catalyst that precipitated the reworking of the constitutional tax clause. New Jersey State League of Municipalities v. Kimmelman, 105 N.J. 422, 431 (1987). The proposed tax clause was passed in its current form, raising a constitutional bar against the preferential treatment of one industry or class of property. That constitutional prohibition against preferential tax treatment of any type or class of real property has been expressly acknowledged, fully recognized, and consistently followed by the courts. E.g. Switz v. Kingsley, 37 N.J. 566 (1962) (invalidating act granting preferential treatment to farmlands by assessing farmland at agricultural rather than market value); Kimmelman, supra, 105 N.J. at 438-39 (invalidating statute that delayed taxation on unoccupied, newly-constructed single family dwellings). Both constitutional history and judicial precedent adjure a strict application of the tax clauses to real property. If the assessments authorized by the SID statute and imposed by the implementing ordinance are deemed to be real property taxes, then the exclusion of residential properties could constitute preferential tax treatment in violation of the uniformity and exemption clauses of the Constitution. Therefore, the important issue is whether, as a matter of constitutional interpretation, the SID impositions constitute real property taxes or special assessments. In this constitutional context, plaintiffs seek strict compliance with this Court's definition of benefit as "'the difference between the market value of the lands before the improvement and the market value of the land immediately after the improvement.'" McQueen v. Town of West New York, 56 N.J. 18, 23 (1970) (quoting In re Public Service Electric &amp; Gas Co., 18 N.J. Super. 357, 363-65 (App. Div. 1952)). However, while noting that the classical and perfect method is to obtain an expert appraisal of the dollar value of each individual parcel of land ante- and post improvement," the Court in McQueen pointed out that other methods would also be acceptable as long as they are just and equitable. Id. at 24. The classical method of apportionment is not applicable in this case because of the difficulty of determining the immediate increase in value attributed to the creation of the SID. The method of assessment must necessarily be adapted to the benefit conferred. Where, as here, the nature of the benefit is general and intangible, and the quantum of the benefit is imprecise, the method of valuing that benefit based on property values is rational and appropriate. Plaintiffs, as already demonstrated, have not offered any evidence to satisfy their burden of proving that the assessment does not match the benefit. It is clear that the Legislature intended that SID assessments be considered special assessments. The framework of the enabling legislation provides that the SID would be financed by the properties especially benefited by the improvements. N.J.S.A. 40:56-72. The legislative scheme also ensures that SID assessments do not take on the characteristics of general taxes. The statute provides that funds generated by the SID assessment will be segregated into a special account and will be used only for SID purposes. N.J.S.A. 40:56-80(3)(e). In weighing considerations of policy, the Court is enjoined to view the issue in a broader context. Forty states, including New Jersey, have adopted legislation enabling the creation of SIDs, which various states also term Business Improvement Districts, Community Development Districts, Municipal Improvement Districts, and Economic Development Districts. See David J. Kennedy, Note, Restraining the Power of Business Improvement Districts: The Case of the Grand Central Partnership, 15 Yale L. &amp; Pol'y Rev. 283, 290 (1996). Of these states, the vast majority have constitutional provisions requiring uniformity of taxation similar to New Jersey's, but they have yet to strike down SID legislation as unconstitutional. As of 1995, at least twenty-five other municipalities in New Jersey had established SIDs. The urban setting in which SIDs are created is central to understanding the benefit offered by the Morristown SID. Urban sprawl, that is, a landscape dotted by planned office developments and malls connected by highways and thoroughfares, has resulted in the diminishing vitality of traditional city centers, such as Morristown's Green. Increasingly, office developments and shopping malls provide services associated with town centers, such as dry cleaning, pharmacies and food courts, while town centers, which already have such services as a result of being integrated communities, languish. SIDs provide a quasi-public solution to this problem. SIDs are an attempt to achieve privately what municipal government has struggled unsuccessfully to do. See New Jersey Coalition Against War in the Middle East v. J.M.B. Realty Corp., 138 N.J. 326, 346 (1994) (noting the decline of downtown business districts and rise of suburban shopping centers as centers of commercial and social activity). SIDs are organized and financed by property owners and merchants, operate on the basis of state and local laws, and use revenues garnered from self-taxation to finance various services and capital improvements not provided by the municipality. See John C. Bollens, Special District Governments in the United States 68 (1957). These considerations are germane in determining the validity of the Morristown SID. The SID, as earlier noted, was formed as a response to declining economic conditions in Morristown and specifically to the closing of Macy's in the Town center. The reports of both parties indicated that the SID's activities were necessary to keep Morristown and its businesses competitive in a market increasingly dominated by suburban malls and office parks. These reports furnish an evidentiary basis for the conclusion that SIDs offer a benefit to commercial property. We conclude that the SID provides sufficiently identifiable benefits to the subject properties and that the special assessments are measured reasonably and fairly in proportion to the benefits conferred. Therefore, the enabling legislation and implementing ordinance have not created real property taxes and do not violate the tax clauses of the Constitution in allowing municipalities to exempt residential properties from the SID assessment. Further, because the benefits are substantial and the cost proportional to those benefits, the SID assessment is not an unconstitutional taking of property without compensation. CHIEF JUSTICE PORITZ and JUSTICES POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN join in JUSTICE HANDLER'S opinion. NO. A-137/138 2nd ROC-JERSEY ASSOCIATES 3rd ROC-JERSEY ASSOCIATES 4th ROC-JERSEY ASSOCIATES and 5th R0C-JERSEY ASSOCIATES, Plaintiffs-Appellants, and SHAV ASSOCIATES, Plaintiff-Intervenor-Appellant, v. TOWN OF MORRISTOWN , a Municipal Corporation, and MORRISTOWN PARTNERS, INC., Defendants-Respondents, and DIRECTOR, DIVISION OF LOCAL GOVERNMENT SERVICES, Intervenor-Respondent. DECIDED