The opinion of the court was delivered by: Handler, J.
Argued September 28, 1998
On certification to the Superior Court, Appellate Division.
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.
In 1993, the Town of Morristown enacted Ordinance 0-42-93, entitled "An Ordinance Creating A Special Improvement District Within The Town Of Morristown And Designating A District Management Corporation." The ordinance was passed pursuant to N.J.S.A. 40:56-65 to -89, which authorized municipalities to establish Special Improvement Districts (SIDs).
The statute provided for the creation of a District Management Corporation empowered to fund, manage, acquire, and oversee the rehabilitation of properties in SID districts, and to attract new businesses. N.J.S.A. 40:56-83(b). The SID was created due to declining economic conditions in Morristown. The stated purposes of the ordinance were to:
"(a) promote economic growth and employment within the Business District;"
"(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).
Plaintiffs focus their constitutional challenge on the 1995 amendment to N.J.S.A. 40:56-66(b), which allows municipalities to exclude residential properties from the SID assessment. That exclusion, according to plaintiffs, violates several constitutional principles. They contend foremost that the exclusion of residential property is unconstitutional because the SID special 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. N.J. Const. art. VIII, § 1, ¶ 1(a). Plaintiffs also contend that the exclusion of residential property from such a tax violates the constitutional provision that authorizes only general or special purpose exemptions from taxation. N.J. Const. art. VIII, § 1, ¶ 2. Plaintiffs present the related claim that the factors that serve to invalidate the special assessments under the Uniformity Clause also invalidate the assessments as an unconstitutional taking without just compensation. N.J. Const. art. I, ¶ 20; U.S. Const. amend. v.
The Uniformity Clause of the New Jersey Constitution applies to the taxation of real property. It requires that all property be assessed for taxation "under general laws and by uniform rules" and according to the "same standard of value." N.J. Const. art. VIII, § 1, ¶ 1(a), viz:
"Property shall be assessed for taxation under general laws and by uniform rules. All real property assessed and taxed locally or by the State for allotment and payment to taxing districts shall be assessed according to the same standard of value, except as otherwise permitted herein, and such real property shall be taxed at the general tax rate of the taxing district in which the property is situated, for the use of such taxing district." [Ibid.]
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. ...