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March 24, 2015

A.C. emergency plan: Big staff cuts but no bankruptcy

Plan meant to provide roadmap for how to rescue city's finances

Atlantic City will need to cut hundreds of staff, lower its education costs and stabilize its revenue, according to a report released Tuesday by emergency manager Kevin Lavin. 

While the report did not recommend the city declare bankruptcy, it did call for widespread restructuring. The first step will be closing this year’s $100 million budget deficit.

“The city simply cannot stand on its own,” Lavin said in the report. “Absent an urgent, material realignment of revenues and expenses, this crisis will rapidly deepen and will threaten the City’s ability to deliver and maintain essential government services.”

Lavin was appointed in January by New Jersey Gov. Chris Christie to recommend steps to save the city’s fractured finances. He did so in a 37-page report that did not dive into details but was formatted similar to a Powerpoint presentation.

The budget gap is larger than the $80 million Republican Mayor Don Guardian expected it to be a few months ago in part because property values had dropped lower than their predicted level of $8.5 billion.

“In reality it has dropped to $7.4 billion,” Guardian said during a conference call with reporters Tuesday.

The report aimed to address short-term budgetary needs, stabilize property taxes, streamline the local government and create a long-term plan for the city. It recommends meeting these goals by cutting local government, reducing education costs, delaying payments and increasing state aid.

“Bankruptcy is not something we are contemplating,” Lavin said. “We think this process can be done without that necessity.”

Lavin estimated that between 230 and 345 of the city’s 1,150 full-time equivalent positions could be cut. It was unclear how many of the cuts would take place through attrition or layoffs. In addition, the report recommends cuts to wages and benefits that would be negotiated through what Lavin referred to as “mediators.”

Lavin has a history in finance and business restructuring. Kevyn Orr, who was the emergency manager through Detroit’s bankruptcy, was appointed as a consultant. They were given about 60 days to author a report on how to turn around the city. Both were on Tuesday's conference call.

Emergency managers carry powers that enable them to fix structural problems quickly. Their appointment is rare, however, as they usually possess authority that supersedes local elected officials.

Atlantic City, home to about 40,000 people, is the only place in New Jersey where casinos are allowed. After years of heavy tourism, the city's luck shifted in the mid-2000s as new casinos in Pennsylvania and New York opened. The new competition pulled gamblers and visitors away.

That led to a sharp decline in gaming revenue, which was $5.2 billion in 2006 and now sits at about $2.7 billion, according to a study by the University of Nevada, Las Vegas. Four of the city’s 12 casino’s have closed recently and there have been corresponding layoffs of thousands of casino employees. The city’s unemployment rate was 17.8 percent in December, according to the U.S. Bureau of Labor Statistics. New Jersey’s, by contrast, was 6.2 percent during the same month.

The city is plagued by debt as well and property taxes have soared in recent years. The emergency plan calls for residential property taxes to stay at about the same rate.

The plan does call for taxes paid by casinos to stabilize. Because of the falling property values in the area, casinos have been appealing their payments. They often win these appeals, making their payments unpredictable. To address the problem, there is legislation pending in Trenton aimed at providing the government with clear levels of tax revenue from the casinos.

After Lavin's appointment, ratings agencies acted. Reuters, for example, reported a Moody’s rating move in January: “Moody's Investors Service slashed Atlantic City's credit rating six notches deeper into junk territory on Friday, a day after New Jersey Governor Chris Christie appointed an emergency manager.”

Before Christie appointed an emergency manager, Guardian drafted an economic plan he said would cut $40 million from the $260 million budget within four years – a move that would have shed about 300 public sector jobs. In his plan, Guardian said the city did not need an emergency manager, but when Christie announced Lavin's appointment, Guardian did not disparage the move.

Senate President Stephen Sweeney, D-Gloucester, was critical of Lavin's plan, which he said has only delayed needed action.

“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,” 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.”

On his monthly radio show Monday, Christie said Atlantic City had to overcome “decades of mismanagement,” according to

When announcing his decision to appoint an emergency manager, Christie said the action was taken because [Atlantic City] needed an immediate and dramatic change in course.

“We haven’t gotten there,” he said. “And I can’t wait any longer so we need to take more aggressive action.”

A follow-up report with more recommendations is expected in about 90 days, Lavin said.