Court rejects SID expansion

RAHWAY, NJ — An ordinance that expanded Rahway’s designated Special Improvement District, with the purpose of increasing taxes and re-invigorating the local business landscape, was struck down by Judge Karen Cassidy as “an improper exercise of authority” on Monday, Oct. 19, according to court documents.

The ordinance took effect on July 1 despite a legal challenge from attorney William Michelson and Friends of Rahway Business, LLC. It expanded the SID, formerly comprised of downtown area businesses, to include all non-residential and non-public properties throughout Rahway — with one exception, said Michelson, being the campus of Merck & Co., Inc.

“Merck might have just decided we’ve had it, we’re picking up and moving. They did that once,” said Michelson. “For most of the owners, we’re not talking about a tremendous amount. But some of the larger properties, the shopping centers and the factories, you’re talking about 5 to 10 thousand dollars a year. Maybe a little bit more for the larger ones.”

Rahway’s SID, established in 1993, annually raises tax dollars that often go back into the downtown area, with the goal of benefitting businesses and residents with robust commercial centers. In other words, it was designed as “an area in which a special assessment on property within the district shall be imposed for the purpose of promoting the economic and general welfare of the district and the municipality,” according to court documents.

Increasing the SID through an ordinance, which was unanimously approved by the Rahway City Council, meant collecting additional taxes on more than 500 properties in Rahway that are not part of Rahway’s downtown, said Michelson. The tax rate increase was by about 35 cents per $100 of assessed value for the properties, which would add up to hundreds of thousands of dollars per year for the city of Rahway.

But following a legal challenge from Friends of Rahway Business, Cassidy struck down the ordinance, writing in her decision that it doesn’t comply with existing SID statutes. The crux of the case was how the new SID covered properties throughout the city, rather than naturally expanding the borders via adjacent territories.

“The legislator’s intent should not be misconstrued to mean that a SID can be created anywhere in a municipality, in a noncontiguous manner, incorporating all commercial and industrial property, so long as the entire municipality benefits from the same,” the decision reads. “It is improbable that the legislature intended that an entire city could be considered an SID. If this were the case, every municipality within the state would have municipality-wide SID ordinances.”

The city has until 45 days after the decision, or Thursday, Dec. 3, to file an appeal, which Michelson says is a possibility.
In the meantime, though, Friends of Rahway Business are happy with the results. No other municipalities have city-wide SIDs, said Michelson, and for good reason.

“They’re delighted. Several of them came to the hearing with me. It’s pretty much everything I wanted the judge to do,” said Michelson. “Things go back to normal. They’re not going to have to exist with this thing on top of them. What’s ironic there is that all of those people have already had to make the larger payments, for the third and fourth quarters of this year, and that’s going to have to be re-credited or re-funded now.”

The expanded SID did cover a “few clusters of commercial activity,” said Michelson, including on St. George’s Avenue and Route 1.

But it also taxed little, isolated zones and industrial warehouses that are clearly separate from Rahway’s downtown, which was going against the spirit of the SID statutes, he said.

“One way to look at it is highway robbery. The administration, for the last several years, and a couple of the city agencies that go with it, appear to have been overspending their budgets,” said Michelson. “So part of what they were trying to do was desperately pull out another revenue source, from people who weren’t going to fight back.”