For modification -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. Opposed -- None. The opinion of the court was delivered by Francis, J.
In this proceeding the Borough of Moonachie sought a judgment declaring that a building on a tract of land owned by the Port Authority and acquired by it as part of the Teterboro Airport complex is not exempt from taxation. The County of Bergen asked that the land as well as the building be adjudged taxable. The Port Authority denied that either land or building is taxable and also claimed for reasons to be discussed that the borough and county are estopped from imposing an assessment for such purpose. The Law Division of the Superior Court declared both land and building subject to taxation. Port Authority's subsequent appeal to the Appellate Division was certified on our own motion for determination by this court.
The Port of New York Authority is a public corporate entity, an arm of the States of New York and New Jersey, created in 1921 by compact between them for the purpose of coordination and development of terminal, transportation and other facilities of commerce in and about the Port of New York. R.S. 32:1-1 et seq. In 1947 the Legislatures of both States adopted the air terminal statute empowering the Authority "to effectuate, establish, acquire, construct, rehabilitate, improve, maintain and operate air terminals, as hereafter defined, within the Port of New York district."
L. 1947, c. 43, N.J.S.A. 32:1-35.1 et seq.; N.Y.L. 1947, c. 802, McKinney's Unconsolidated Laws, §§ 6631-6647. (Emphasis ours.) Power was given also to acquire real property for "air terminal purposes" by condemnation or eminent domain. N.J.S.A. 32:1-35.9. The conduct of air terminals was assimilated into the unitary financial operation of existing Port Authority facilities. N.J.S.A. 32:1-35.6, 35.12.
In 1949 pursuant to these powers and to L. 1949, c. 81, N.J.S.A. 32:1-35.18, the Teterboro Airport was acquired. It is located in the Boroughs of Teterboro, Moonachie and Hasbrouck Heights, Bergen County, New Jersey and at the time of acquisition consisted of 450 acres. Thereafter it was expanded gradually to its present size of about 900 acres. The entire southerly boundary of the airport property is Moonachie Avenue. About one-quarter of this boundary is reserved as an approach area to certain runways; the remaining three-quarters of the boundary, except for the 10-acre tract involved in this proceeding, is vacant land. Below is a simplified map of the location. The dotted areas at the [38 NJ Page 417] upper left portion of the westerly side of the airport and the two smaller such areas at the lower left portion of the south and southeast side are clear zones required to be maintained at the ends of the runways. The remaining undotted area is vacant land except, as has been indicated, for the 10-acre tract, here involved, along the Moonachie Avenue boundary of the airport at the upper left corner of the map and marked "*J. Screen and Storm Window Co. Building." There is no doubt that this undotted area, acquisition of which was completed in 1952, was initially purchased for airport purposes. It was to provide noise protection for people living south of the airport; also adequate space within the airport for such runway extensions or changes as the future might require, or for any new or additional air navigation aids that might be ordered. It is still being devoted to those purposes.
In February 1959 after the undotted southerly portion of the airport had remained vacant for about seven years, the Port Authority entered into a 20-year lease of the 10-acre tract shown on the map with Jersey Screen and Storm Window Co., Inc. As part of the undertaking, the Port Authority agreed to construct on the land a single story building to be used for the "design, manufacture and sale of metal windows, metal doors, metal siding, metal awnings, metal railings, metal building panels and any and all other metal building accessories, together with any component parts and any and all other allied products of the foregoing; and for the extrusion, casting, anodizing and other similar finishing of metal products"; for business and administration offices of the company, and "for no other purpose whatsoever." The one-story building was to be within the height limit imposed by the Federal Aviation Agency for structures in such proximity to flight paths.
Before making the lease, the Authority made a "business judgment" that it was not necessary to keep the land in its unimproved state and that it would not be needed for any airport structure or air navigational aids for at least 12
years. As part of this opinion also, it was concluded that the lease would probably continue in force for the full 20-year term. A rental was fixed which would provide a return on the investment and amortize it as well in 12 to 14 years. Presumably as a precautionary measure, however, the lease provided that it could be terminated on 365 days' notice effective at any time subsequent to the end of the fifth year of the term "if in the sole discretion of the Porth Authority the premises or any portion thereof are required for, or in connection with, air terminal operation or development inconsistent with the continued existence of the improvements described in Exhibit C." (That exhibit is the construction plan.) In that event the "Port Authority shall be obligated subsequent to such termination to demolish the said improvements." Construction of the building was begun in June 1959 and completed in June 1960. According to the Port Authority Executive Director, the cost was "a little over a million dollars." Under the lease the tenant is required to pay an annual rental of $110,390.
The borough assessors being of the opinion that the building was neither an air terminal nor being used for air terminal purposes within the statutory definition, N.J.S.A. 32:1-35.3, assessed it on a pro rata basis for 1960 at $269,370, and at $309,300 (representing one-third of the true value) for the full year 1961. The tax levy for 1960 was $10,441.08 and for 1961, $21,248.91. The Authority claimed that the land and building were within the statutory category, and so were exempt from taxation under N.J.S.A. 32:1-35.5. On the evidence adduced, the trial court found that the exemption was not applicable to either land or building and declared both taxable.
Section 5 of the Air Terminal Act, L. 1947, c. 43, N.J.S.A. 32:1-35.5 provides:
"The Port Authority shall be required to pay no taxes or assessments upon any of the property acquired or used by it for air terminal purposes ; but this shall not be construed to prevent the Port Authority and municipalities from entering into agreements for the
payment of fair and reasonable sums by the Port Authority annually in accordance with legislation heretofore adopted by the two States, to the end that such municipalities may not suffer undue loss of taxes and assessments by reason of the acquisition and ownership of property by the Port Authority for air terminal purposes." (Emphasis added.)
The complementary New York statute appears in McKinney's Unconsolidated Laws, § 6635.
The antecedent legislation referred to is L. 1931, c. 69, § 1, R.S. 32:1-144; N.Y.L. 1931, c. 553, McKinney's, supra, § 6971, which authorizes the Authority "in its discretion" to enter into "voluntary agreements" with the interested municipality or county to pay annually a fair and reasonable sum in lieu of taxes on any marine or inland terminal property owned by it. The payment is "not [to be] in excess of ...