Atlantic City’s Emergency Managers Need More Time to Come up With Plan

Meir Rinde | March 25, 2015 | Politics
Critics contend that just-released report does nothing to move troubled resort city closer to financial stability

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.
Two months after Gov. Chris Christie said the state had failed for years to address the gambling industry’s decline, and appointed a pair of high-profile emergency financial consultants to come up with fixes for Atlantic City’s fiscal crisis, the two men he hired said yesterday they need more time — another three months — to finalize a plan to solve the city’s mounting problems.

The executive order Christie signed in late January tasked emergency manager Kevin Lavin and consultant Kevyn Orr with recommending, “within 60 days of appointment, a plan to place the finances of Atlantic City in stable condition on a long-term basis,” including restructuring operations and debt. Since then a number of bills to help the city have been in limbo as state legislators wait for the governor to signal his intentions.

Lavin issued a report yesterday that lays out the beleaguered casino resort’s structural financial problems, much as the Governor’s Advisory Commission on gaming did in its own report in November. Lavin notes, for example, that the continuing plunge in casino property values and expected tax collections have significantly worsened in just the last few months, and says the city may have to lay off 250 or more employees to help close a $101 million budget gap for the current fiscal year, a larger deficit than previously announced.

But Lavin and Orr said they and the other staff hired at state expense will need until late June to actually come up with a final plan. In addition to Lavin, who is reportedly earning $135,000 a year, and Orr, whose compensation has not been released, that includes mediators who are handling negotiations with the casinos and city unions, and Ernst & Young consultants who are being paid $250,000 just for the first phase of work.

“Today’s report was 60 days in the making and it reached the same conclusions that we did in November: that decisive action is needed to stabilize Atlantic City’s finances, reduce expenses, protect local taxpayers, and reposition the casino industry for future growth,” Senate President Stephen Sweeney (D-Gloucester) complained in a press release. “Atlantic City and the casino industry have been struggling to survive while the administration has held three summits and issued three reports but has taken no real action. Unfortunately, this report is more of the same.”

[related]The new report does list a number of options for cutting costs and increasing city revenue, many of which have been discussed for months. In addition to layoffs, it cites two Sweeney bills that would redirect certain fees that casinos pay to support redevelopment projects and resort marketing in Atlantic City, using the money instead to help service the city’s heavy debt load.

In a conference call with reporters, Lavin and Orr said they didn’t want to comment on more comprehensive bills that aim to stop the erosion of the city’s tax base. One Sweeney bill (S-2572) would create a casino PILOT, setting tax payments at fixed levels for the next 15 years, while Assemblyman Chris Brown (R-Atlantic) has proposed freezing tax bills at current levels to protect cash-strapped homeowners.

But Orr, who previously managed Detroit’s bankruptcy as the Michigan city’s emergency manager, said successful tax appeals by casinos have created unsustainable levels of debt for the city, leading to massive tax hikes, and the managers would welcome measures that end that vicious cycle.

“We’re going to be a little circumspect because we don’t want to impact that process in any way,” Orr said, referring to the legislative debate. “But what we can say is that we are certainly welcoming any process that’s in place to help achieve one of the goals that’s in the report, which is to stabilize the tax base and get the city out of the cycle of tax appeals and funded and nonfunded debt, which is significant.”

Lavin repeated his previous statement that he and Orr were “not contemplating” a bankruptcy filing for the city. Christie’s appointment of Orr raised concerns that Atlantic City could default on its obligations and led Moody’s to downgrade the city’s debt rating, making it more difficult and expensive for the city to borrow money.

“The appointment of the so-called bankruptcy managers made the situation worse by jeopardizing the credit rating for Atlantic City and seven other major cities in New Jersey,” Sweeney said yesterday. “The appointments triggered an alarmist reaction on Wall Street that threatens the financial health of other municipalities experiencing fiscal problems and will increase their operating expenses.”

The report briefly mentions “debt service deferrals” as one of the options for addressing this year’s budget gap, but does not say what kind of debt or how much would be affected.

Sweeney said that instead of wasting time on reports, the Christie administration should be working with the Legislature to pass the casino PILOT tax plan and other bills.

“This report does nothing more than dramatize the fiscal crisis in Atlantic City that could have been stabilized five months ago if the administration had committed to support the recovery plan I offered along with Sen. Whelan and Assemblyman Mazzeo that would have stopped the bleeding and restored financial stability,” Sweeney said.

Assemblyman Vincent Mazzeo (D-Atlantic) described the report as “starkly lacking in innovative ideas to solve the problems” and asked for details on the impact of layoffs on city services. At the same time, he praised what he what he called Lavin’s “supportive wording” for the PILOT proposal.

“I hope this spurs Gov. Christie to clearly state his support for this important initiative for Atlantic County taxpayers, along with the rest of my reform package for the region,” Mazzeo said.

In the report, Lavin says four casino closures last year and a string of successful tax appeals by casinos have driven the tax base down to $7.3 billion, a 35 percent drop from last year’s total value of $11.4 billion. In 2010 the figure was $20.5 billion.

“Atlantic City is in a financial crisis,” Lavin said. “It’s actually a lot more severe than we thought when we started 60 days ago.”

The city had expected $411 million in revenue this year from taxes, state aid, and other sources but now faces a $101 million shortfall, an increase from the $70 million to $80 million gap Mayor Don Guardian has previously discussed. For the school district the budget gap is $47 million.

The report lays out $129 million in potential savings and new revenues that Lavin said will allow the city to close the budget gap. They include an estimated $10 million from operational cuts and layoffs, which Lavin said would eliminate 20 percent to 30 percent of the city’s 1,150 workers. Also listed are delays or reductions of $23 million in state benefit-plan payments and $19 million in pension payments, along with the unspecified debt deferrals. Mayor Don Guardian has already cut about 150 jobs.

The largest source of potential added revenue cited in the report is $30 million in annual casino assessments that one of Sweeney’s bills (S-2576) would redirect from the Atlantic City Alliance marketing organization. While the bill has not been approved, the ACA’s board has already decided to disband and half of its staff has reportedly been laid off.

Another $17.5 million could come via a second bill, which would redirect the Investment Alternative Tax on casinos. The IAT funds the Casino Redevelopment Development Agency, a state agency that backs commercial, housing, infrastructure, casino rehabilitation, and other projects in the city. The report also lists $13 million in Transitional Aid, the same amount the city received last year, $10 million in other state aid, and $7 million from a federal grant.

The report offers fewer details on the school district’s finances. It says the Department of Education is recommending a budget cut, “layoffs across all levels,” a possible debt refinancing overseen by the district’s state-appointed fiscal monitor, and either more state aid or a bank loan. It notes that another of Sweeney’s proposed bills (S-2574) would make the district eligible for much higher levels of aid.

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