Christie Appoints Emergency Manager to Address Atlantic City’s Ailing Finances

Meir Rinde | January 23, 2015 | Planning, Politics
Governor moves to quell concerns about AC’s sovereignty after naming Kevin Lavin to new post, with Kevyn Orr -- Detroit’s former emergency manager -- as special consultant

Credit: Meir Rinde
Kevin Lavan (left) was appointed emergency manager of Atlantic City by Gov. Christie on Thursday, January 22, 2015. Next to him is Kevyn Orr, who will serve as special consultant to Lavan. Orr recently served as emergency manager for Detroit during its bankruptcy process.
Amid cries that Gov. Chris Christie is robbing Atlantic City of its sovereignty and undercutting its mayor’s efforts to reduce operating costs, the governor yesterday gave an emergency manager significant authority to investigate and fix the city’s finances. Still, the new position has nowhere near the broad powers that a state-appointed overseer had in Camden several years ago or the total control an emergency manager recently had over Detroit.

Speaking at the third summit held on Atlantic City’s problems in the past five months, Christie suggested that the extent of the state’s investment in the beleaguered casino resort obliged him to make a bold move. He noted that measures to help the city that have been proposed by local officials, state legislators, and his own advisory commission all come with substantial price tags.

“Unfortunately, all these efforts have not yet created a plan for long-term success in Atlantic City in my view,” Christie said. “I say this because all of them assume an investment of extensive state resources without a comprehensive and committed plan leading to long-term fiscal stability for Atlantic City.”

“This is what we should expect of ourselves. This is what the residents and taxpayers expect of us not only in Atlantic City, not only in Atlantic County, but across the entire state of New Jersey where people are being asked to pay some of this expense,” he said.

The city for the first time last year received $13 million in transitional aid, in addition to its regular city and school aid, and Mayor Don Guardian said yesterday that it was applying for the extra aid again.

The Legislature is also considering bills that would redirect casino taxes and other assessments directly to the city, including $30 million that goes annually to the Casino Reinvestment Development Authority to finance local projects and the Atlantic City Alliance’s $20 million marketing budget. Another bill would make the city school district eligible for a major boost in state aid.

By appointing an emergency manager, the governor can show his statewide constituency that he is spending all that money responsibly, said Joseph Marbach, a political scientist and an administrator at La Salle University.

“If there’s a significant bailout of the city, I think it’s something that voters are going to appreciate,” Marbach said. “So it sort of has a political angle. It’s an accountability issue.”

Christie signed an executive order creating the emergency manager position and appointed Kevin Lavin, a New York City corporate restructuring expert, to the job. Serving as Lavin’s special consultant will be Kevyn Orr, a lawyer who became nationally known when he served as Detroit’s powerful emergency manager during its bankruptcy in 2013 and 2014.

Concerns over sovereignty

After Lavin and Orr emerged from the 35-minute, closed-door summit meeting with Christie, state legislators, area mayors, casino executives, union leaders, and others, Orr said each financial restructuring situation is different and Atlantic City should not be compared to Detroit. But he also said the resort town has urgent problems.

“The trend lines for the city, both on the revenue side and the cost side are not good. The situation’s not going to change. The timing element in terms of the bridge loan that the state has provided the city comes due on March 31, so that’s a trigger and needs to be addressed,” Orr said.

He was referring to a $40 million state loan approved in December to help the city pay for tax appeals won by casinos. The city has issued $345 million in bonds since 2010 to cover tax appeals and settlements, and debt service represents 15 percent of the 2014 budget, according to a report by the governor’s advisory commission on Atlantic City.

In addition, four of the city’s 12 casinos closed last year, putting more than 8,000 people out of work, and Guardian has said another casino could close in the near future. A package of bills sponsored by Senate President Stephen Sweeney (D-Gloucester) seeks to stabilize the city’s deteriorating tax base by having the remaining casinos pay a fixed $150 million a year to the city and county in lieu of taxes for two years and then $120 million for the following 13 years, subject to changes in their gambling revenues.

Guardian has repeatedly argued against imposition of an emergency manager, saying that in the year since he took office he has eliminated hundreds of city positions, cut costs, and begun union negotiations. He has noted that the city already has a fiscal monitor as part of its transitional aid agreement with the state.

After the summit meeting he softened his position, saying the “table of brotherhood is open” to anyone who wanted to help. He also said the appointment sounded less threatening than it had during the second Atlantic City summit in November. At that meeting, one participant said he “wanted an emergency manager to fire the entire workforce of the city and take over,” Guardian recalled.

“That’s a lot different than the governor saying we’re going to help the city, we’re going to provide you with additional tools that you need, and they’re going to work with the mayor and the city council president in order to help you find some financial stability,” he said.

But the mayor also said that until he fully understood Christie’s executive order he could not say if he supported or opposed the emergency manager’s appointment. And City Council President Frank Gilliam said that while he wanted to sit down and talk with Lavin and Orr, he was “totally opposed to anyone coming in and taking over sovereignty of the city.”

“We’re open to working with them. But at the same time, any time they tend to basically usurp our power, we definitely have a problem with that,” Gilliam said.

A boost in expertise

The text of Christie’s executive order does not appear to support Guardian’s fears that he and the council would be rendered powerless, as arguably occurred in Camden from 2002 to 2009 under special state legislation.

In relatively anodyne language, the new order says the emergency manager is authorized to “analyze and assess” city finances; to “recommend… a plan” within 60 days that includes “the restructuring of municipal operations and the adjustment of the debts of Atlantic City”; “to negotiate with parties affected”; and to consult with all stakeholders, including creditors and employee unions.

Nowhere does the order say that the emergency manager can, for example, directly run the police and finance departments or terminate union contracts, as Orr did when the state of Michigan gave him those powers in Detroit. Rather, Christie directed Lavin and Orr to help Guardian further cut the cost of government and address the “unprecedented” drop in city property values, according to Marc Pfeiffer, the former deputy director of New Jersey’s Division of Local Government Services.

“How that happens remains to be seen, but he’s brought in some apparently very good resources, who have some expertise in this, and that can only help,” said Pfeiffer, assistant director of the Bloustein Local Government Research Center at Rutgers University. “He used the term ‘emergency manager,’ which is what Kevyn Orr’s title was in Detroit, but he had enormous power there. That’s not what’s happening here. They’re providing advice, guidance and recommendations.”

Atlantic City has already been under supervision of the state’s Local Finance Board for a number of years in exchange for permission to issue special debt to fund property-tax appeals, Pfeiffer said. Using its powers, the Local Finance Board may be able to reshape the city’s budget to conform to Lavin’s recommendations if the city fails to follow them, he said.

Those recommendations could involve cutting the budget more deeply than Guardian and the council want, but Pfeiffer said those powers do not merit alarm over a loss of sovereignty.

“The governor doesn’t have the authority just to go in and take over (the city) by himself. There’s laws he’s got to follow,” he said. “He’s providing an additional boost with the authority and the weight behind his office.”

Bill Dressel, executive director of the NJ State League of Municipalities, said he was initially very concerned by early news reports suggesting a state takeover of Atlantic City, which he thought would violate the state Constitution and other laws and set a dangerous precedent. But he said the executive order itself eased his concerns, as did speaking to Guardian yesterday afternoon, after the mayor had a chance to meet with Lavin and Orr.

“They kind of impressed him,” Dressel said. “They said up front they weren’t there to run the town. They basically want to help him look at all options available.”

Lavin and Orr repeatedly said after the summit that they planned to work closely with Guardian to resolve the city’s financial mess.

“People in our business are not power-hungry,” Lavin said. “They’re there to get a job done and then make other people look good. That’s what we’re here to do.”

Dressel said he was also concerned that the bond markets might misinterpret the presence of the former Detroit emergency manager as a sign that Atlantic City is going to declare bankruptcy, which would make it difficult or impossible for the city to borrow money.

“That’s a perception I hope is dispelled,” he said. “This is not a bankruptcy situation.”

Freezing property taxes

Christie announced the new emergency manager as the Legislature continues to discuss competing tax reform plans for Atlantic City. As an alternative to Sweeney’s PILOT plan, Assemblyman Chris Brown (R-Atlantic) has proposed freezing Atlantic City’s property tax rate for five years and redirecting smaller amounts to the city budget from the CRDA and Atlantic City Alliance.

Brown has said his proposal would freeze taxes for everyone, not just casinos, but opponents like Assemblyman Vincent Mazzeo (D-Atlantic) say Brown’s measure would not suspend casino tax appeals as the PILOT program does, potentially allowing for further reductions in the city’s tax base and requiring more indebtedness to pay for the resulting tax refunds.

The Legislature could vote on a tax-reform plan as soon as next month, but the governor said yesterday that many of the various efforts by the Legislature and other parties to improve the city’s situation had yet either to be approved or to take effect.

“I can’t wait any longer, and so we need to take more aggressive action and that’s the action that I’m taking today,” Christie said.

“This is not to declare that what we’ve done before has been a failure. In fact a lot of what we’ve done has improved circumstances here in Atlantic City, but we are digging out of an enormous hole that was brought over a long, decades long period of time, some by bad actions, some by just changed circumstances that were completely out of the control of anyone who was making decisions here in Atlantic City,” he said.

Lavin and Orr also stressed the importance of acting quickly, given the loan due at the end of March and the city’s steadily worsening financial position. Using the November summit as a starting date, Orr said it will soon be a quarter of a year since the advisory commission called for an emergency manager, and it could be months more before a financial restructuring has an impact.

“Even if you want to put something in place today, it would probably take another 90 days before it would become effective,” he said. “It would probably take another 90 days after that before you start to see a result. Then you’re almost a year out from where you were on November 12,” when the commission’s report was released.