Atlantic City's emergency management team recommends $10 million in cuts, hundreds of layoffs

Warning of a liquidity crisis through 2015 and a revenue decline "a lot more severe" than they had anticipated, Atlantic City's emergency managers on Tuesday recommended $10 million in budget cuts, hundreds of layoffs, and mediators to negotiate with casinos and unions.

The 60-day interim report by Kevin Lavin and Kevyn Orr, appointed by Gov. Christie, highlighted a $101 million budget shortfall for the city and a $47 million shortfall for the school district, but was short on details of how the city's long-term financial woes can be solved.

Despite their well-publicized bankruptcy expertise, Lavin and Orr said they were not advocating that route for the beleaguered resort, which lost four casinos and 8,000 jobs during the great meltdown of 2014. Its ratable base has plunged 35 percent just since last year, to $7.3 billion.

Lavin's immediate concern is this year's projected $101 million deficit.

"We have to close the gap as quickly as possible," Lavin said in a conference call with reporters and Mayor Don Guardian, shortly after the report was made public. "Bankruptcy is not something we are contemplating. We think this process can be done without that necessity."

Between now and June 30, they plan to propose restructuring options for the city, negotiate with creditors and unions, and identify additional cost savings. Another report is due in 90 days.

"The city simply cannot stand on its own," Lavin wrote. "Thus, one thing is clear - there is no reasonable likelihood that these headwinds will abate at any point in the near future.

"Absent immediate and urgent corrective action, the city's ability to function as a thriving and viable municipal enterprise is imperiled," he wrote.

Tax increases, which were the centerpiece of financial management in Atlantic City in recent years, are not planned, Lavin said. Taxes in Atlantic City rose 29 percent in 2014.

Instead, Lavin and Orr recommended cutting expenses in 2015 by $10 million - on top of cuts already planned by Guardian - laying off 25 to 30 percent of the city's 1,150 full-time-equivalent employees and appointing mediators to reach resolutions with various stakeholders, including casinos and unions. For the school district, the managers recommended similar cost cutting, including layoffs, and additional state aid. The report does not rule out the school tax rate rising "very slightly."

Other than staff cuts, there were few details on how to cut the cost of city government.

Guardian's preliminary budget for 2015 called for $202 million in spending, a decrease of $30 million from last year, but still left a gap of $70 million in revenue because property taxes at last year's rate would yield just $132 million.

Guardian has also called for staffing reductions and has reduced the city workforce by about 150 already. Chris Filiciello, his chief of staff, said there was consensus that the payroll should be between 850 and 900 workers or full-time equivalents.

Robert O'Brien, an attorney for the city's police, fire, and white-collar unions, said the layoff numbers cited by Lavin were unrealistic. "I don't think they can run the city in an operationally efficient fashion with head cuts of 20 to 30 percent," O'Brien said. "If they indeed expect to do that, that's unrealistic."

He said he feared the report focusing on the city's economic woes would lay the groundwork for an attempt to break union contracts.

"The unions have been trying to cooperate," O'Brien said. "We're very concerned if in fact Atlantic City is seeing such dire consequences, there has to be other ways to address short of taking it out on the backs of the workers. These are not rich contracts."

A municipal bond analyst said Lavin's report showed that Atlantic City's problem, like Detroit's, was declining revenue, rather than rising costs for for debt and pensions. "Debt and pensions are just not that high versus the current budget," said Matt Fabian, a partner at Municipal Market Analytics, a research firm in Concord, Mass.

"They've already cut back on head count and they've cut back on services, but there's only so much of that you can do with a city government," Fabian said. "It means adding money from the state, or absent that, adding money from the tax base," which could come through a combination of rate increases and economic growth, he said.

Legislators who were trying to develop a long-term fix for Atlantic City's finances before Christie appointed the emergency manager criticized the report as repeating earlier conclusions and, in the words of State Assemblyman Vince Mazzeo, "starkly lacking in innovative ideas."

The report appears to keep the door open to previous proposals, languishing in the state Legislature, to redirect casino tax revenue to the city's coffers, including $30 million now financing the Atlantic City Alliance marketing group and about $17.5 million in current Investment Alternative Tax funding that currently goes to the Casino Reinvestment Development Authority.

Orr, previously the emergency manager for Detroit, said he and Lavin would look for resolutions with all the city's stakeholders.

"This is going to be a somewhat dynamic and negotiated solution," he said. "We need to do that on a very time is of the essence basis."

Neither Lavin nor Orr would say what they would seek from unions or creditors, including Borgata, which is owed $88 million from successful tax appeals and last week sued the city to stop it from issuing bonds to pay back a $40 million loan to the State of New Jersey. Guardian has previously said he hoped to negotiate a reduced payment to Borgata.

Borgata declined to comment.

The $30 million annual payment from the casinos to the Atlantic City Alliance, which under a previous proposal would be used to pay the city's debt service, is a sore spot for casinos because only eight casinos remain to shoulder the payment originally intended for 12.

The city has $270.7 million in bond debt, including $191.8 million from property tax refunds. The report suggested the city could save money by extending maturities or refinancing some of that debt, but doing so would be difficult because the appointment of Lavin "scared away the capital markets," said Fabian, the municipal bond analyst.

As remedies for the short-term budget, the report lists $130 million in possible revenue enhancements and cost reductions, including cutting lifeguard jobs, $10 million in operational cuts, and benefit reductions totaling $41.6 million.

The report also considers state transitional aid of $13 million, and additional state aid.

The managers would not take a direct stand in support of a proposal to convert casino hotels to a "Payment in Lieu of Taxes" or PILOT plan, now pending before the Legislature, but the report includes that as a possible long-term solution.

The Casino Association of New Jersey said it still supports the PILOT proposal, which it described in a statement Tuesday as a way to "give much needed stability to the city's shrinking tax base and provide additional revenue to the city's coffers."

"Today's report from Atlantic City's emergency manager underscores the need for decisive action in order to halt the financial spiral in which the city has found itself," the association said.

State Senate President Steve Sweeney, who has advocated for the PILOT proposal, said the report "does nothing more than dramatize" the fiscal crisis, which, he said, "could have been stabilized five months ago" if the administration had gone along with the legislative recovery plan.

"Today's report was 60 days in the making, and it reached the same conclusions that we did in November," Sweeney said in a statement. "The administration's failure to act has only prolonged the crisis and 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."

Atlantic City and its casino industry, he said, "have been struggling to survive while the administration has held three summits and issued three reports but has taken no real action."

$101M

Atlantic City's budget shortfall.

$47M

The school district's

budget gap.

25-30

Percentage of

the city's 1,100 workers who could lose

their jobs.

$7.3B

Value of resort's taxable property, a drop of

35 percent

from 2014.EndText