On appeal from Hackensack Meadowlands Development Commission (A-2460-88T2 and A246-89T2) and Superior Court of New Jersey, Law Division, Hudson County (A-5430-90T2).
Dreier, Skillman and Villanueva. The opinion of the court was delivered by Skillman, J.A.D.
[267 NJSuper Page 367] These three consolidated appeals present various challenges to the constitutionality and administrative interpretation of the intermunicipal tax-sharing provisions of Article 9 of the Hackensack
Meadowlands Reclamation and Development Act (the Act), N.J.S.A. 13:17-60 to -76.
The Act, enacted in 1969, created the Hackensack Meadowlands Development Commission (HMDC) as a regional governmental entity to oversee the orderly development of the Hackensack Meadowlands. The Act was intended to provide a means to reclaim, plan, develop and redevelop 21,000 acres of public and private land in the Meadowlands District (the District), consisting of salt water swamps, meadows and marshes, and related uplands. N.J.S.A. 13:17-1. The District encompasses parts of fourteen municipalities: Carlstadt, East Rutherford, Little Ferry, Lyndhurst, Moonachie, North Arlington, Ridgefield, Rutherford, South Hackensack, Teterboro, Jersey City, Kearny, North Bergen and Secaucus (the constituent municipalities). N.J.S.A. 13:17-3(j). Finding that development was slowed by the nature of the land and its distribution among many municipalities, the Legislature assigned responsibility to the HMDC to regulate development in the District with due regard to its special environmental needs. See N.J.S.A. 13:17-1. Accordingly, the HMDC was directed to prepare and administer a Master Plan that would supersede conflicting provisions of the constituent municipalities. N.J.S.A. 13:17-11(b).
Recognizing that regional development of the District would result in tax benefits to municipalities with land suited for commercial development while imposing tax burdens on municipalities whose land was best suited for residences or public use, the Legislature devised a tax-sharing mechanism, set forth in Article 9 of the Act, N.J.S.A. 13:17-60 to 13:17-76, to insure that no municipality would be singled out to reap the benefits or bear the burdens of this coordinated development. The intent of the tax sharing provision was to enable each constituent municipality to "equitably share in the new financial benefits and new costs resulting from the development of the meadowland district as a whole." N.J.S.A. 13:17-60(a).
The tax-sharing provisions of the Act use the following terms of art:
(1) Adjustment year. The year for which the formula is being applied to determine amounts payable from a constituent municipality to the intermunicipal account or from the intermunicipal account to constituent municipalities. N.J.S.A. 13:17-61(a).
(2) Base year. Calendar year 1970. N.J.S.A. 13:17-61(e).
(3) Comparison year. The second calendar year preceding the adjustment year. N.J.S.A. 13:17-61(f).
(4) Aggregate true value. The assessed value of real property in a constituent municipality divided by the average assessment ratio promulgated by the Director of the Division of Taxation in the Department of the Treasury for school aid purposes (the Director's ratio) on October 1 of the year for which the value is to be determined. N.J.S.A. 13:17-67(a)(2).
(5) Apportionment rate. A rate determined by dividing the municipality's total property taxes levied for local, school, and veterans' and senior citizens' purposes in the comparison year by the aggregate true value of all taxable real property within the municipality, exclusive of Class II railroad property. N.J.S.A. 13:17-61(g).
(6) Intermunicipal account. An account established by the HMDC into which constituent municipalities pay obligations and from which constituent municipalities are paid amounts due to them for each adjustment year. N.J.S.A. 13:17-66.
A municipality's obligation to the intermunicipal account equals a percentage of the increase from the base year to the comparison year of the aggregate true value of taxable real property in the municipality's portion of the District, multiplied by the apportionment rate. N.J.S.A. 13:17-67(b). For 1983 through 1988, each municipality's obligation was 50% of the amount thus calculated. Ibid. Beginning in 1989, the percentage was reduced by 2% per year until 1993, after which it shall be 40% of the calculated amount. Ibid.
If the aggregate true value of District taxable real property within a municipality in any comparison year is less than that in the base year, the municipality is entitled to receive a "guarantee payment" from the intermunicipal account for the portion of the decrease in value that is attributable to acquisition of property by a governmental agency which resulted in the property becoming exempt from taxation, multiplied by the apportionment rate. N.J.S.A. 13:17-68. A municipality may also receive a payment
from the intermunicipal account for "school district services." N.J.S.A. 13:17-70. This payment is calculated by dividing the total local school tax levy for the comparison year by the total resident school enrollment and then multiplying that figure by the increase in resident enrollment in the District within that municipality between the base year and the comparison year. Ibid. If the "guarantee" and "school district services" payments to the constituent municipalities are less than the amounts payable into the intermunicipal account in any year, the balance is distributed among the constituent municipalities in the same ratio as the number of acres of District land within each municipality bears to total acres in the District as a whole. N.J.S.A. 13:17-72. The HMDC determines a municipality's tax sharing obligation by adding all payments due to a municipality from the intermunicipal account and subtracting therefrom the amount payable to the account by that municipality. N.J.S.A. 13:17-74(a).
Shortly after enactment of the Act, a number of lawsuits were filed challenging its constitutionality on a broad variety of grounds, which included claims that Article 9 constituted a private, special or local law relating to taxation, in violation of Article IV, section 7, paragraph 9(6) of the New Jersey Constitution, an improper delegation of the Legislature's taxing power, in violation of Article IV, section I, paragraph 1, and a tax for a regional rather than a local purpose, in violation of Article VIII, section I, paragraph 1(a). The trial court rejected all of these facial constitutional challenges to the validity of the Act. Meadowlands Regional Dev. Agency v. State of N.J., 112 N.J. Super. 89, 270 A.2d 418 (Ch.Div.1970). The Supreme Court sustained the constitutionality of the Act substantially for the reasons expressed in the trial court opinion but supplemented that opinion with comments regarding the tax-sharing provisions, which had been amended during the pendency of the appeal. Meadowlands Regional Redevelopment Agency v. State of N.J., 63 N.J. 35, 304 A.2d 545,
appeal dismissed, 414 U.S. 991, 94 S. Ct. 343, 38 L. Ed. 2d 230 (1973) (referred to hereinafter as Meadowlands). The Court concluded:
The amended tax-sharing provisions present a mechanism for sharing tax benefits and burdens within the District which on its face appears to be rational and fair to constituent municipalities. Experience with the formula will undoubtedly put it in better perspective and establish if, where and how changes are needed to accomplish its purposes. In any event, should a constituent municipality demonstrate that the tax-sharing provisions as actually applied to it work an arbitrary result, it will have the right to secure judicial relief. All we now decide is that the amended provisions have not been shown to be arbitrary on their face.
In March 1987 the Town of Secaucus (Secaucus) and the Township of North Bergen (North Bergen) filed separate lawsuits, which were subsequently consolidated, challenging the constitutionality of the tax-sharing provisions on various grounds. Their complaints sought a declaration that the tax-sharing provisions are invalid as applied and an injunction against their continued implementation in 1987 and thereafter. In the alternative, Secaucus sought a declaration of unconstitutionality of the "compounding effect," described in greater detail later in this opinion, under which a municipality's past payments into the intermunicipal tax-sharing fund were included in the calculation of its future obligations.
Secaucus also initiated two administrative proceedings challenging the HMDC's interpretation of certain sections of the Act governing the calculation of tax-sharing obligations. In February 1986 Secaucus petitioned the HMDC to review its staff's calculations of the constituent municipalities' 1986 tax-sharing obligations. Secaucus argued that the HMDC had (1) improperly included the "compounding effect" in its calculations, and (2) improperly failed to treat payments received by constituent municipalities under the Gross Receipts Tax Act (GRTA), N.J.S.A. 54:30A-49 to -68, as "payments in lieu of real property taxes" within the intent of N.J.S.A. 13:17-67(c). The HMDC initially dismissed Secaucus's petition on the ground that it was not authorized by N.J.S.A. 13:17-76. However, we reversed in an unreported opinion and remanded to the HMDC to consider the
merits of Secaucus's petition. Town of Secaucus v. Hackensack Meadowlands Dev. Comm'n, A-2874-86T7. After our remand, the matter was heard by an Administrative Law Judge (ALJ), who concluded that the HMDC's method of calculating tax-sharing obligations which resulted in the "compounding effect" was mandated by N.J.S.A. 13:17-61(g)(1). However, the ALJ also concluded that the HMDC erred in excluding payments to municipalities under the GRTA from its tax-sharing calculations.
On September 28, 1988, the HMDC adopted the ALJ's decision upholding the compounding effect, but rejected her Conclusion that payments to municipalities under GRTA must be treated as payments in lieu of taxes. Secaucus's challenge to this administrative decision, originally filed in the Law Division, was subsequently transferred to this court pursuant to R. 1:13-4(a).*fn1
On March 24, 1988, Secaucus appealed HMDC's calculations of tax-sharing obligations for 1985 through 1988, claiming that the HMDC had improperly disregarded the Port Authority's payments to Teterboro and Moonachie in lieu of real property taxes on Teterboro Airport. The ALJ agreed with this contention and ordered HMDC to recalculate the adjustment payments for 1985 and subsequent years by including the payments in lieu of taxes for Teterboro Airport. After receiving an extension of time from the Chief Administrative Law Judge, the HMDC issued a final decision which rejected the ALJ's recommended decision and concluded that it had properly excluded the payments in lieu of taxes relating to Teterboro Airport from its tax-sharing calculations. Secaucus also appealed this decision.
After hearing oral argument on Secaucus's appeal from the HMDC's first decision, this court issued an unreported opinion on
January 22, 1990, staying the appeals of both HMDC decisions until the trial court entered final judgment in the pending litigation challenging the constitutionality of the tax-sharing provisions. Town of Secaucus v. Hackensack Meadowlands Dev. Comm'n, A-2460-88T2; A-246-89T2. We also directed that the appeals from the HMDC's two decisions be consolidated with each other and with any appeal which might thereafter be filed in the suits challenging the constitutionality of the tax-sharing provisions.
During the pendency of this litigation, the Legislature amended the tax-sharing provisions by enactment of chapter 26 of the Laws of 1989. This amendment changed the tax-sharing provisions in a number of significant respects, including the elimination, as of January 1, 1989, of the "compounding effect."
The trial court rejected plaintiffs' constitutional challenges to the tax-sharing provisions. Township of North Bergen v. Borough of Teterboro, 254 N.J. Super. 704, 604 A.2d 216 (Law Div.1991). The trial court held that plaintiffs' challenge to the compounding effect was barred under principles of res judicata by the Supreme Court's opinion in Meadowlands. The court also rejected plaintiffs' constitutional challenge to the provisions of Article 9 requiring the HMDC to use the "Director's ratio" in calculating the growth of property values in constituent municipalities. Id. at 716-21, 604 A.2d 216. In addition, the court rejected plaintiffs' argument that the HMDC's regulatory authority over development in the meadowlands has been effectively preempted by federal legislation enacted subsequent to the Act, thus negating the justification for the tax-sharing provisions upon which the Court relied in Meadowlands. Id. at 721-22, 604 A.2d 216. Plaintiffs' appeal from the judgment memorializing the trial court decision was consolidated with Secaucus's appeals from the HMDC's administrative decisions as directed in our earlier opinion.
We conclude that the trial court erred in ruling that plaintiffs' challenge to the constitutionality of the compounding effect is barred under principles of res judicata. However, rather than
remanding this part of the case, we have exercised our original jurisdiction and considered the merits of plaintiffs' challenge to the compounding effect. We conclude that the 1989 amendment of the tax-sharing provisions prospectively eliminating the compounding effect is constitutional. We also conclude that the trial court properly rejected plaintiffs' other challenges to the constitutionality of the tax-sharing provisions. In addition, we affirm the HMDC's decision that the State's payments under the GRTA are not payments in lieu of real estate taxes within the intent of N.J.S.A. 13:17-67(c), and the HMDC's decision, although not its reasoning, relating to the Port Authority's payments in lieu of real property taxes to Teterboro and Moonachie.
We first consider the trial court's ruling that plaintiffs' challenge to the constitutionality of the compounding effect is barred under principles of res judicata by the Court's decision in Meadowlands. Res judicata only "precludes parties from relitigating substantially the same cause of action." Culver v. Insurance Co. of N. Am., 115 N.J. 451, 460, 559 A.2d 400 (1989). Therefore, if subsequent events materially alter the facts underlying a judgment, a party is not precluded from pursuing fresh litigation. Washington Township v. Gould, 39 N.J. 527, 533, 189 A.2d 697 (1963). Moreover, there is a well recognized distinction in constitutional litigation between the constitutionality of legislation on its face and as applied. See State Farm Mutual Auto Ins. Co. v. State, 124 N.J. 32, 45-46, 590 A.2d 191 (1991). Consequently, a party who has unsuccessfully challenged the constitutionality of legislation facially may in light of subsequent events challenge its constitutionality as applied. Consistent with these principles, the Court in Meadowlands expressly preserved the right of parties such as plaintiffs to resurrect their challenges to Article 9 of the Act in light of actual experience with its operation, noting that "should a constituent municipality demonstrate that the tax-sharing provisions as actually applied to it work an arbitrary
result, it will have the right to secure judicial relief." 63 N.J. at 45, 304 A.2d 545.
Plaintiffs simply availed themselves of this right. Although the compounding effect flowed directly from the former language of the Act, this effect did not become evident to the HMDC or to the constituent municipalities until many years after the law was enacted. Consequently, the Court in Meadowlands did not decide any issue relating to the compounding effect. Moreover, plaintiffs could not reasonably have anticipated this consequence of the tax-sharing formula in the early years of its administration. Therefore, plaintiffs are not barred by res judicata from securing an adjudication of their claims relating to the compounding effect. See Culver v. Insurance Co. of N. Am., supra, 115 N.J. at 463, 559 A.2d 400.
The "compounding effect" derived from the former definition of the "apportionment rate" used to calculate a municipality's tax-sharing obligation. Before it was amended in 1989, N.J.S.A. 13:17-61(g) provided in pertinent part:
"Apportionment rate" means a rate determined as follows:
(1) The total property taxes levied for local, school, and veteran and senior citizens' purposes, as certified pursuant to R.S. 54:4-52, of the municipality in the comparison year, divided by
(2) The aggregate true value of all taxable real property, exclusive of Class II railroad property, located in the municipality, both within and without the district, in the comparison year, as determined by the Director of the Division of Taxation on October 1 of the comparison year,
Thus, if a municipality had been required to make an adjustment payment into the intermunicipal tax-sharing fund in a comparison year, the numerator used to determine the apportionment rate would be increased by the taxes levied to satisfy this obligation. Conversely, if a municipality had received an ...