Mayor Samson Steinman’s attempt to impose additional taxes on every business in the city has been scuttled by a Union County judge, who ruled that Rahway overstepped its authority when it tried to expand a special improvement district to encompass nearly the entire city.
The statute that permits creation of special improvement districts intends for them to focus on improving the downtown area, ruled Union County Assignment Judge Karen Cassidy in Friends of Rahway Business v. City of Rahway.
By doing so, Cassidy invalidated ordinances, which were enacted in a December 2014 and June 2015, that expanded the SID.
Rahway’s scheme was not a valid exercise of the authority allowed by the state law enabling municipalities to create special tax districts, Cassidy said.
Cassidy said some property owners paying added special assessments would get no benefit from improvements, such as changing building facades to promote unified or compatible designs, which she believes are the kind of purposes contemplated by the Legislature when enacting the SID law.
The plaintiffs, represented by attorney William Michelson, who is a Republican Assembly candidate facing former Rahway Mayor James Kennedy in November, argued that no precedent exists for a “scattered site” SID and that properties covered under the district are noncontiguous and bear no relationship to the downtown area of Rahway.
Lawyers for the city argued that all properties would benefit from the SID, which encompasses all commercial, industrial and multifamily properties in the city except for a complex owned by Merck & Co. In recent years, property taxes paid by Merck & Co., the giant multinational drug manufacturer, has fallen sharply, but no explanation was given why it was excluded from the provisions of the SID expansion.
City attorneys also argued that the enabling statute, N.J.S.A. 40:56-65 to -89, did not rule out inclusion of noncontiguous properties in an SID.
Cassidy said the Rahway ordinance “fails to demonstrate that the ordinance is a valid exercise of the authority delegated to the defendants in the enabling statutes.”
The judge said lawmakers intended for special tax zones to be “a more or less contiguous assortment of properties, located within, around or near the downtown business district of a municipality, where the improvements and services made with the funds raised could be utilized and benefit the properties in that area.”
The original downtown SID encompassed 138 properties and collected approximately $130,000 per year, according to court documents. The expanded zone would have included 544 properties that were slated to pay an annual total of nearly $750,000.
The enabling statute requires SID funds to be managed by an entity separate from the city government, and in Rahway the designated recipient has been a group called Rahway Arts District Inc., said William Michelson, of Fanwood, who represents the plaintiffs, owners of industrial properties in the city.
Michelson is a Republican candidate for the General Assembly in the 22nd District, where his Democratic opponents include Jim Kennedy, the former mayor of Rahway. Michelson said Kennedy is also a former executive director of the Rahway Arts District and was a proponent of expanding the Rahway SID.
Michelson said he filed the SID suit in January, long before either he or Kennedy became candidates for the State Legislature representing their respective parties.
Kennedy denied having anything to do with the revisions to the SID, saying he was not in office at the time it was enacted and had no involvement in its passage.
Michelson said the Arts District has been “less than transparent” about what it was doing with the SID funds.
Michelson said, “the first time we saw an explanation” of how the funds were spent was a certification from the city business administrator that claimed the SID money would have been spent marketing the city, providing concerts that are open to the public, and hiring Santa Claus to visit downtown during the holiday season.
Property owners in the enlarged district have made two quarters’ worth of payments to the SID, although the funds were placed in a special account and the city will have to return them if the ruling is not appealed, Michelson said.
Connect with NJTODAY.NET
Join NJTODAY.NET's free Email List to receive occasional updates delivered right to your email address!