State appointed ‘Emergency Manager’ possible for Atlantic City

More pain lies ahead for Atlantic City and its residents as the state considers taking control of the city government and imposing a range of service and employee benefit cuts to bring spending in line with sharp declines in casino revenues and tax payments.

Gov. Chris Christie said yesterday that a report from the Governor’s Advisory Commission on Gaming, which was set to be released today, calls for the appointment of an emergency manager to oversee the city.

The report comes on the heels of United Airline’s announcement this past Friday that it is ending service to Atlantic City International Airport, and against a background of continued casino closings.

It also recommends the creation of a public-private development corporation in Atlantic City modeled on a similar entity in New Brunswick; reforms of the city’s tax structure, employee pensions, and schools; and increased use of regional shared services, Christie said following a summit of state and local officials.

“I’m not committed at this time to any of these in particular, but I will take them all into consideration,” he said during a press conference at the office of the state Casino Reinvestment Development Authority (CRDA). “Some or all will be necessary if we’re serious about fixing and bettering Atlantic City.”

“The current model is conclusively and utterly, remarkably, unsustainable. It is incumbent upon all of us to face up to that reality, because the alternative of failure and fiscal collapse should not be an option that we’re willing to entertain. Like the casinos themselves, which failed to recognize or act in the face of a dramatically changing gambling marketplace. Atlantic City government did the same for too long,” he said.

As if to underline the rapid shifts in the city’s economy, it was also announced yesterday that Stockton College intends to buy the former Showboat Casino, which closed just three months ago, and turn the 1.4-million-square-foot property into a branch campus. Terms of the deal were not disclosed.

The city is reeling from the closures of a total of four casinos so far this year and from huge property tax increases resulting from tax refunds given to casinos after their businesses lost value. While the CRDA has concentrated on investing in a new conference center and other attractions that would draw more nongambling tourists to the city, yesterday’s summit focused on ways to slash the high cost of running the government and schools.

The small city of about 40,000 people has an annual municipal budget of $377 million, an amount that Christie and Senate President Stephen Sweeney have called excessive, particularly as casino revenues have plunged from more than $5 billion in 2006 to under $3 billion last year. Sweeney said the value of city properties for taxation purposes has halved from $20 billion to $10 billion in recent years and is expected to settle at around $7 billion.

In the past two years the property tax rate in Atlantic City has soared 53 percent and the city has increased its debt load to pay the casino tax refunds. On Monday, Sweeney separately proposed using $30 million from the CRDA’s budget to help pay those debts and ease the tax burden on residents. The money comes from a 1.25 percent tax on gross gaming revenues and 2.5 percent tax on Internet gaming.

Christie declined to discuss the commission’s recommendations in detail, saying it will take time to evaluate them and understand which he can implement and which will require legislative approval. Asked how he would measure the success of the various efforts to revitalize Atlantic City, Christie said it was too soon to talk about how many jobs or how much revenue could be restored.

“You can’t quantify that right now,” he said. “The first thing you need to do is stop the bleeding. So let’s start there, and then you work on recovery. First you’ve got to stabilize the patient, and that’s part of what we need to do. So stabilizing the patient would be considered success in the short term.”

Christie did note the unusual nature of the emergency manager recommendation, saying the role would represent “an expansion of the current statutory and fiscal oversight we currently have in Atlantic City and other cities in New Jersey.”

Mayor Don Guardian participated in the summit, and Sweeney praised his efforts to address the crisis. But the senator endorsed the proposal to appoint an emergency manager, saying the city needs a leader “that’s not going to pay attention to politics.”

Sweeney said he would like to see legislative action on the proposals within 90 days, and Christie said another summit will be convened in January.

The extent of the manager’s proposed powers was not explained yesterday. A number of New Jersey cities, including Camden, Paterson, Trenton, Harrison, and Asbury Park, have been under supervision of the state’s Local Government Finance Board recently, but only Camden has been taken over. From 2002 to 2010 a state-appointed chief operating officer had veto power over local government there. Christie has called that takeover a mistake.

After yesterday’s summit Guardian reportedly questioned the need for an emergency manager, calling Jon Hanson, a veteran New Jersey powerbroker, real estate developer, and head of the advisory commission, “a little bit out of touch with how the state of New Jersey works.”

Christie said the proposed Atlantic City Development Corporation, or AC DEVCO, would be modeled after New Brunswick DEVCO, a four-decade-old nonprofit that has been praised for revitalizing that city. The New Brunswick organization has overseen nearly $1.6 billion in investment in housing, healthcare institutions, and schools and government buildings.

The other reforms Christie mentioned were not detailed, but Guardian has said Atlantic City needs to cut 200 to 300 jobs by the middle of next year through layoffs and attrition. The city also wants to reopen labor contracts to allow possible wage and benefit cuts. Despite calls for regionalization of services, Guardian has said he opposes the creation of a county police force.

Sweeney said Monday that, in addition to dedicating $30 million in gambling taxes to defray the city’s debt-service costs, he wants to stabilize the tax base by having the casinos pay a fixed $150 million in lieu of taxes for the next two years. For a period of 15 years, they would make guaranteed payments indexed to gaming revenues.

His plan calls for a $72 million reduction in municipal and school expenses to reduce the tax levy from $377 million to $305 million, and he said additional state aid for the school district should be considered. If not for the casinos, Atlantic City would qualify as one of the state’s so-called Abbott districts, which are generally poorer and receive special assistance, Sweeney said.

His proposed legislative package would also evaluate the three-year-old Atlantic City Alliance, a casino-funded marketing entity, to determine whether it is fulfilling its function; using powers the state gained through the city’s existing transitional aid agreement to require spending cuts; and requiring casinos to provide baseline health and retirement benefits.

The Trump Taj Mahal, which has threatened to close as soon as next month, won permission from a bankruptcy judge last month to cancel employees’ health and pension benefits.

Investor Carl Icahn, who holds a large stake in the Taj Mahal, has said the company needs $175 million in state assistance to stay open. Christie declined to comment on the request yesterday but said casinos have in the past been excluded from state incentive programs.

The governor was also asked about another shuttered gaming palace, the former Revel casino. Brookfield Asset Management won an auction to buy the Revel last month and said it intends to reopen the building as a casino, which could restore thousands of jobs and millions of dollars in lost tax payments. Christie said Brookfield has had initial discussions with state officials about reopening the casino.

Christie declined an opportunity to comment on the prospect of expanding casinos to the Meadowlands and elsewhere in North Jersey, saying it had not been discussed at the summit. Sweeney and other legislators have said it makes sense to eventually allow gambling to North Jersey as a way to keep local gamblers from taking their money across the state line to casinos in New York.