January 14, 2015
Atlantic City’s woes are well-known: Four of the city’s 12 casinos recently closed, its mayor says the local government is bloated, residential property taxes have increased and thousands have lost jobs.
Some commentators have compared the city’s situation to Detroit, the pariah of municipal financial health.
Last week, the city council passed Mayor Don Guardian’s plan to slash $40 million out of a $260 million operating budget within four years and cut up to 300 jobs in hopes of avoiding the state stepping in and establishing an emergency manager who could overrule decisions by local officials.
“New York City’s comeback starting in the '90s was really based on increased safety and declining crime levels. That is a precondition for making Atlantic City attractive.”
Were the cuts enough?
"Depends," say local academic experts and politicians. How far casino revenue falls and whether the area can attract new types of businesses while fixing its fiscal house will have the greatest impact on the town's ability to control its own future. Casino revenue remains the lifeblood of the famous resort city.
"I think we're in pretty good shape," Guardian tells PhillyVoice about casino revenues and the recovery effort.
“We are in a difficult period right now,” said State Sen. Jim Whelan, D-Atlantic. “Hopefully, we are at or near the bottom.”
The mayor’s plan is part of a patchwork of mostly overlapping proposals by local and state politicians to revitalize Atlantic City. While some of the components are at odds, the plans seek to stabilize the city’s finances after years of falling casino revenues, rising unemployment and a shrinking tax base.
Whether total casino revenue levels off at just above $2 billion or around $1.6 billion could make a major difference in the city’s eventual financial health, some experts say. There also must be a stable financial environment for new growth, and local government must be streamlined. The mayor’s plan calls for both of these changes. In addition, the president of UNITE HERE Local 54, the union that represents some casino workers, said the government can’t just implement parts of the plan because it will hamper a full recovery.
“It all has to happen together,” said Bob McDevitt, the local’s president. “When you build a house, you can’t leave out beams and posts.”
Guardian's plan calls for cuts to local government and an increase in state aid, as well as delays in pension payments and the funneling of some casino taxes toward debt. Other parts of the recovery must be implemented by the state. State Senate President Stephen Sweeney, D-Gloucester, has sponsored a package of bills he believes will help stabilize casino tax revenues.
Gov. Chris Christie also commissioned a plan to help Atlantic City that differed from the others chiefly by calling for an emergency manager who would have control over local government, an idea Guardian strongly opposes.
“We are 100 percent against having an emergency manager installed in Atlantic City,” the mayor’s plan says, adding that his office already cooperates with a state monitor.
Atlantic City needs to stabilize its casino tax revenue in order to have a predictable source of funds for its budget, Sweeney said when he announced his recovery plan in November. As property values in the area drop, casinos have fought their tax bills and often won, lowering their payments. Without a clear picture of how much money the casinos will pay, it is difficult for the city to plan.
Sweeney’s bill seeks to stabilize these payments by pegging overall casino taxes to the industry’s total revenue.
In 2013, casinos paid about $210 million in taxes. The plan would lower that amount to about $150 million for two years, then to $120 million for 13 years after that.
Casinos only have to make that level of payment, however, if their collective revenues stay above $2.2 billion, according to the bill. If revenue drops below $1.8 billion, payments after the second year would fall to $90 million. While not all of this money goes to Atlantic City’s government, much of it does, and a reduction in tax revenue would mean further strains on the city and possibly necessitate further budget cuts to match.
“Unfortunately, right now the bills are on hold,” said Whelan, who added that some local officials are pushing back because they believe the program gives a break to rich casino owners at the expense of county taxpayers who might have to initially pay more to make up for the drop in casino tax revenue.
Guardian said agreement was emerging among local officials in favor of the tax plan.
“This is one of those things where to do nothing is far worse than to stabilize things,” said McDevitt.
Most of the proposals call for some kind of tax stabilization.
A stable source of revenue would fund a trimmed city government.
Atlantic City’s budget grew when casino taxes were more plentiful. At one time, the city had a $20 billion property assessment - that wealth has shrunk to around the $9 billion that is predicted for 2015.
Previously, when the casinos were flourishing, there was enough money to fund parts of government that the current mayor says must be cut. For example, per pupil spending for education is almost $26,000 - the third-highest rate in the state for former Abbott districts, which is a kind of subsidized school zone. His plan calls for cutting that spending to as low as $17,620.
Many of the cuts will be accomplished through attrition - police and fire services will be hit. The mayor’s plan includes cutting about 50 police officers; some have already been eliminated.
“We can achieve substantial savings and still have a safe city,” the mayor’s plan says.
James Hughes, dean of the Rutgers School of Planning and Public Policy, said safety is essential for a recovery and must be a priority even with financial pressures.
“New York City’s comeback starting in the '90s was really based on increased safety and declining crime levels,” Hughes said. “That is a precondition for making Atlantic City attractive.”
Atlantic City’s economy was traditionally focused on gambling and, at times, ignored investing in other attractions. This model fell apart when casinos sprung up in Pennsylvania, New York and Maryland. The old monopoly vanished, and out-of-state gamblers no longer had to travel to New Jersey’s famous shore attraction.
Not long after taking office, Christie established a five-year plan for Atlantic City’s recovery that invested in the city and, in part, promised to restrict gambling to Atlantic City. That assurance may disappear - Sweeney has said he may be willing to expand gambling to North Jersey, which could cut further into the city’s economy. Sweeney stressed, however, that any expansion should keep the health of Atlantic City in mind.
How much the city’s gambling industry could shrink is unclear. McDevitt says he sees revenues leveling off at just below where they are now - a path the city would like to see instead of a drop to around $1.6 billion, which would further strain the city’s tax base and push more employees out of work. That lower number is possible with the addition of more competitive casinos in the region, said Rich Perniciaro, vice president of planning research and executive support at Atlantic Cape Community College.
Hughes said he hoped the industry could stabilize closer to its current levels.
“Can they keep it at a $2 billion level?” asked Hughes. He also asked if they can broaden their other attractions and retail offerings. Those, he said, will be measures of success.
A judge last week approved the sale of the shuttered Revel Casino to Florida businessman Glenn Straub at a fraction of its original value. Straub said he plans to reopen the property - an uncertain process currently in its infancy. Guardian said he hoped Revel re-opening would keep casino revenues somewhat stable.
And early Thursday morning, Caesars Entertainment Corp. filed for bankruptcy in an effort to restructure its debt, according to the Associated Press. The company owns a property in Atlantic City.
Atlantic City has sought to attract other investment. Stockton College purchased the now-defunct Showboat Casino property, for example. The mayor's plan described the college as “a major positive game-changer for the city.” The mayor’s plan also calls for opening up the boardwalk and creating an entertainment zone similar to what helped establish the Northern Liberties neighborhood in Philadelphia. The man who led the way in developing NoLibs, Bart Blatstein, has expressed interest in investing in Atlantic City.
"If we fell below the $2 billion mark, we really have to look at a more creative way of getting rid of debt," the mayor said. "That may be getting rid of city-owned property."
As an example, he mentioned redeveloping Bader Field, the former airport, into sports fields that could help bring in money for the city.
As a tradeoff for making cuts to its local government, the city’s plan asks the state to increase aid to Atlantic City and trust that it can solve its own problems without an emergency manager who would have the power to unilaterally overrule local government. There is already a state monitor with some power in place.
While Perniciaro says the state is likely to help, “the question is what do they want in return?” The emergency manager represents a clear sticking point.
In addition, it is unclear how big any aid package would be - the state suffered revenue shortfalls last year and is fighting major pension obligations.
Earlier this week, Atlantic City was the recipient of the largest federal jobs training grant New Jersey has received since 2010, according to a press release from the state Senate Democrats' office. Almost $30 million was awarded to provide training and relief to Atlantic City workers who had lost their jobs because of the region’s economic collapse.
Unlike the national unemployment rate, which is dropping, Atlantic City’s is growing, according to November numbers from the U.S. Bureau of Labor Statistics. Some of those job losses may be permanent.
The decline in gaming means that the city is likely to have permanently lost many of its casino jobs. While some workers may retire or find new jobs in the local hospitality industry when existing jobs turn over, many may leave the area for opportunities closer to where new casinos are opening or gaining business.
“Our bubble burst in 2006, and we have been dealing with it ever since,” said McDevitt.