Bond will pay settlement over Boardwalk Hall renovation

A $253 million bond offering planned for this week by the New Jersey Casino Reinvestment Development Authority includes $60 million that will be paid to Pitney Bowes Inc. for a settlement linked to a renovation of Atlantic City's Boardwalk Hall that started in 1998.

New Jersey and Pitney Bowes, of Stamford, Conn., formed a partnership in 2000 to take advantage of federal historic building rehabilitation tax credits in connection with the project at the Boardwalk complex that hosts the Miss America pageant.

The state could not take advantage of the tax credits, but a private company could. The hope was that by selling the tax credits to a private partner, the state could reduce the cost it had to bear for the renovations.

However, the IRS claimed that the arrangement had no legal merit because Pitney Bowes was a partner in name only.

After a long court fight, the IRS, in August 2012, won a final ruling at the U.S. Court of Appeals for the Third Circuit in Philadelphia that the partnership was not valid.

New Jersey was on the hook because the 2000 partnership agreement included a "Tax Benefits Guaranty" to the benefit of Pitney Bowes. The $60 million was a negotiated payment, not the full amount for which New Jersey could have been liable.

The new bonds - which will be repaid from luxury taxes collected in Atlantic City - will also be used to refinance $77 million in bonds from the New Jersey Sports and Exhibition Authority and to pay for unspecified capital projects at the Atlantic City Convention Center, according to a preliminary offering prospectus published Monday.

Luxury taxes are 9 percent on hotel rooms, 9 percent on ticket purchases at entertainment venues, and 3 percent on alcoholic beverages in Atlantic City.

Even as gambling revenue has plummeted in recent years, luxury taxes have climbed, including 5.9 percent growth in the seven months ended in July, according to the prospectus. Luxury taxes totaled $35.5 million in 2013.

Fitch Ratings this month gave the bonds a solid BBB-plus rating and said the sale was expected on or around Wednesday.