November 2020 Newsletter:

Two issues loom large for taxpayer in the coming months:

The Sewell Tract

A Fiscal Timebomb, 50 years in the making, is about to drop on the Property Taxpayers of Cape May. It is increasingly likely that in 2021 a massive lawsuit could be resolved involving the NJDEP, a private real estate developer and a group of private citizens. The next step is the oft-postponed case is the resumption of the trial to start in January 2021.
 
The parties in this case may negotiate an agreement, or the court will reach a decision, followed by the inevitable appeals process.
 
Like so many thorny issues that drive the formation of public policy, there is no question on the need to preserve this natural resource. But rather, what will be the cost of that preservation and who will pay that cost.
 
BACKGROUND
 
East Cape May Associates (ECMA), the developer and the New Jersey Department Environmental Protection(DEP) have been in litigation (ECMA vs NJDEP, Docket No. CPM-L-1217-92) for some 50 years. The litigation involves a land development project that had been approved by the City, but then denied by the DEP and later appealed.
 
The project was for 360 homes on some 100 acres located east of Pittsburgh Ave. to the U.S. Coast Guard Base, and commonly known as the Sewell Tract.
 
The history of this project is convoluted and starts back to the 1950's & 60's when the City of Cape May was aggressively trying to attract development and increase our tax base.
 
The City offered incentives and, when the original project was approved, the City agreed to pay for the development infrastructure, water, sewer, roads, etc. at an estimated cost of $12 million dollars.
 
Times changed. Concern for the Environment, Wildlife Habitat, Conservation, Wetland Protection and new National and State Statutes came into play. In addition, local support for development in this location slowly evaporated and demand grew to keep the site an Open Space. This effort was supported by the City and several national environmental organizations, including the Army Corps. of Engineers.
 
In 2009, a negotiated settlement between DEP and ECMA collapsed when the Army Corp of Engineers rejected the terms of the settlement.
 
In 2013 there was an attempt to settle this case with an Amelioration Offer that the DEP approved and was rejected by ECMA.
 
This Offer involved money, tax credits and certain limited development rights on 25 acres, and 75 acres would become Open Space. Under the terms of this Amelioration Offer, the obligation to the City taxpayers was considered minimal as there were grants and low interest loans available for the limited infrastructure.
 
In 2014 a local non-profit corporation, Concerned Citizens for Sewell Tract Preservation, Inc. (CCSTP) was formed to oppose any development and support 100% Open Space. In 2016, the group was included in the suit as a plaintiff-intervener. They were successful in raising approximately $400,000 from some 100 donors to advance the legal case, and these funds have been spent.
 
In recent years, City Council has adopted two Resolutions generally supporting the preservation of Open Space. However, the City of Cape May is not a party in the case, and has played no role in the design, conduct or strategies of this litigation. It is a private matter between joint private plaintiffs and the State of New Jersey.
 
In 2019 and 2020, at the request of CCSTP, the Mayor and Council drafted a resolution providing taxpayer's funds to continue their legal battle. This Resolution has failed adoption several times because of recusal of the Deputy Mayor who is married to the founder of the CCSTP, thus creating a 2-2 stalemate.
 
The 2020 Municipal Budget includes a 32% increase in the appropriation for Legal Services, due in large measure to the anticipated passage of a resolution providing $80,000 in public funds to CCSTP to support its lawsuit. In addition, Council has expended $12,960.00 to date is support of Legal Services related to the CCSTP lawsuit.
 
There are 27 vacant property taxable parcels in the Sewell Tract with a total assessed value of $343,100. Recently the 100 acres of land has been valued at $100 million dollars, or about a million dollars an acre, the typical today's cost for a vacant lot in the Poverty Beach/East Cape May area. If this tract were to be developed, the City is legally bound to provide municipal infrastructure, estimated at $16 million dollars.
 
And finally, several years ago, in anticipation of development in the Sewell Tract, the city authorized a Bond Issue of $12 million. It has never been activated.
 
WHAT ARE THE CITY'S OPTIONS?
 
In every legal case each party generally has a bottom line. In this case, the Developer (ECMA) wants the maximum financial benefits. NJDEP wants the tract preserved but does not want to part with any money. The Army Corps of Engineers is against wetlands development. The CCSTP, a local non-profit citizen group primarily from homeowners in the development area, wants 100% Open Space - NO Development in their neighborhood.
 
While the issue appears headed for the "trial-verdict-appeal" merry-go-round, there may be an alternative solution emerging.
 
In recent months, ECMA has agreed to cap its claim in the suit. ECMA has also asked CCSTP to assistance in helping to locate sources of outside funding that might bridge a monetary gap between the two main parties. CCSTP is lobbying the Governor and the Commissioner of the DEP to put the litigation on hold while outside financing can be explored to settle this case. CCSTP believes that resources might be found to finance such a solution and produce what they believe to be the best outcome--preservation of Sewell Tract in its natural state and free from further development in the East Cape May/Poverty Beach neighborhood.
 
It is important to note that the Core Issue of this litigation is "how much money will ECMA receive for the public taking of its land".  The litigation is not founded on the preservation of the Sewell Tract. Preservation could be a byproduct of a resolution, and most hope it will, but it is not the central issue.
 
So, what does this emerging solution look like?
 
Given the fiscal disaster that is the State and Federal Budget, the hunt for outside resources will be a short one. The most likely solution would be an arrangement under which the Developer would agree to receive reduced compensation for the taking of his land, and a joint arrangement of Federal, State and Local entities would provide the funds to compensate the Developer. This Joint Arrangement would then assume ownership of the Tract.
 
While Cape May City is not a party to this litigation, it will be deeply involved in its resolution. Its Property Tax Base will be asked to bear a portion (as yet unknown) of the compensation to ECMA for the taking of its land. Cape May City will also be asked to assume the cost for the stewardship of this land, and 100 acres of privately owned taxable property will become tax exempt.
 
When ECMA and CCSTP asked recently for a delay in the trial in order to "locate sources of outside funding that might bridge a monetary gap between the two main parties", it was the local property tax base they had in mind.
 
There will then be a three-fold impact on your tax bill:

• Annual appropriation for increased bonding indebtedness,
   
  
• Annual appropriation for operating expenses, and
   
• A significant loss of tax ratables.

So, where do we the taxpayers stand.

CMTPA's goal is and always has been "a transparent relationship between the taxpayers and their governments" and so we join all taxpayers in our desire to know what our governments are planning to do with our money. Transparency means being able to see how our government is deciding what to do, not being told what they have already done.
 
At this point, CMTPA believes that:

1. Since the City of Cape May is not a party to any aspect of this litigation, any discussion by council of the impact on the city stemming from any anticipated negotiated agreement MUST be done in a public meeting. This is not a "Closed Session" issue.
    
2. The City of Cape May must not let the Taxpayers be the last to know how and why our money is being spent.

COMMERCIAL BEACH TAGS

Over the past winter, Cape May City Council accepted one public request and rejected three others. The combined effect of these decisions has caused an unnecessary decrease in revenue for this current fiscal year, and it cannot be blamed on Covid.
 
At the request of the hotel/motel industry, Council created something that exists in no other seaside community in New Jersey. The COMMERCIAL BEACH TAG is a seasonal beach tag that may be purchased by any entity or person(s) that rents or makes rooms or living space available to members of the public for a fee, and that is required to obtain a mercantile license from the City of Cape May or another municipality. Council set the fee for this novel creation at $50. The tag can be used and reused without limit for the benefit of their customers. Council indicated at passage that there would be an impact study on the new tag program, including enforcement and use monitoring, with a revisit on the Commercial Tag program in November of 2020.
 
Council rejected three requests made to them by the Taxpayers Association. TPA urged Council not to adopt such a radical innovation until a careful fiscal analysis can be done to gauge its potential value and impact on Revenue. That requested was rejected.
 
TPA then warned that, if Council insisted on the adoption of this radical innovation, the one-time $50 fee would not be sufficient to offset the lost revenue due to the likely decrease in the purchase of 3 day, and weekly passes. TPA suggested that if the commercial tag is to be created the fee should be at least $100. That requested was also rejected by Council.
 
TPA also requested that, since Council was raising the fees for other tags, the current fee of $6 for the daily tag be raised to $8. $6 is the lowest daily fee on the Jersey Coast and $4 lower that Cape May Point. That requested was also rejected by Council.
 
How did all of this work out?


 
Simply put:

1. The purchase of 2,812 Commercial tags for use by the Tourist Lodging Industry gutted the common tag sales. Three-day passes were down 53%, weekly passes were down 17%. These visitors were still here but they were likely using the commercial tags from their lodgings.
    
2. Beach Tag Revenue declined by $221,270. This crater was caused the Commercial Tag Program. This program was priced too low and curtailing the need to purchase of 3-day and weekly passes by guests of the accommodations which used the commercial program.
    
3. The commercial tag revenue was capped at $140,600 regardless of how many times the tag was used. If Council had accepted TPA's proposal of $100 per commercial tag, that revenue would have been $281,200.
    
4. Had Council accepted TPA's request to raise the daily tag fee by $2 there would be no revenue deficit. The significant increase in daily tab sales would have generated an additional $262,312.
    
5. There was no impact analysis publicly discussed or published.
    
6. The City has just announced that the Commercial Tag privilege will be in place once again for 2021, and that all tag fees will remain at 2020 levels.
   

Covid can be blamed for a lot of current problems, but not this one.
 
Poor planning and a lack of willingness to listen caused this revenue hole, and it appears that Council is unable or unwilling to address this revenue impact for the pending 2021 budget.
 
CMTPA calls on Council to corrects these mistakes now by eliminating the Commercial Tag Program and increasing the Daily Tag fee to $8.