Atlantic City Blues

 

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eBlog, 12/01/16

Good Morning! In this a.m.’s eBlog, we consider the evolving state role in New Jersey’s takeover of Atlantic City. It might be the state has learned from its only previous history of a municipal takeover (Camden); it is clear that the takeover will prove critical today and this month in ensuring the city avoids critical non-payments and likely ensuing chapter 9 municipal bankruptcy.

Atlantic City Blues. The State of New Jersey, as part of its takeover of Atlantic City, has imposed a nearly 9 percent increase in the property tax rate as part of the boardwalk city’s $241 million budget: the new rate, $1.898 per $100 of assessed value, is up 15 cents from a year ago—overall, the city’s property tax rate has nearly doubled in the last six years even as the revenue derived from taxing its once formidable array of casinos has sharply declined. All told, the combination of county, school, and library taxes, Atlantic City’s total tax rate of $3.86 per $100 of assessed value is up nearly 13 percent from last year—but up some 113 percent since 2010. Yet, even as the rates have soared, the collection total has declined: Atlantic City collected nearly $20 billion in tax revenues in 2010; the total has since dropped sharply to about $6 billion today. The tax levy for the 2016 operating budget is $123 million, down from $128 million last year. While that is no doubt comforting to some of the city’s taxpayers who have seen their average residential tax bill decline sharply due to plummeting assessed property values (a resident residing in a home assessed at $154,778 will pay $5,974 in property taxes this year: last year, the average resident paid $5,988 in taxes on a home assessed at $174,993), the effort by the city’s elected leaders against the State of New Jersey to keep the tax rate flat appears to have fallen on deaf ears: city leaders have argued that its taxpayers had already swallowed a 50 percent tax hike in 2013 through 2014. Unsurprisingly, ergo, Atlantic City’s proposed FY2016 budget and five-year fiscal recovery plan sought no municipal tax increase. It was this lack of proposed local tax increases that drew criticism from the State—which charged the city needed more revenue if it was to be serious with regard to closing its nearly $100 million budget hole—a criticism reflected in its rejection of both the Council’s budget and recovery plan; instead, the New Jersey Local Finance Board last month imposed a revised municipal budget with the tax-rate hike last month on the precise day it assumed control of the city. In his opposition, Atlantic City Mayor Don Guardian noted: “I fought tooth and nail against this state-imposed tax increase…I told the state over and over again that our residents couldn’t handle any more tax increases because they’ve been taxed to death over the past 10 years. That’s why last year, when we had complete sovereignty over the city, we didn’t have a tax increase.” It might be that the city’s adopted budget was the final straw from the state perspective, for it drew sharp criticism from New Jersey Local Government Services Director Tim Cunningham, who, in October, had warned Mayor Guardian: “While no elected official desires to increase taxes, it is irresponsible not to maintain the current levy let alone not increase the rate in a way that brings in additional revenue;” thus, under the now state-imposed takeover, it was the state which imposed a revised $241 million budget which reduced state aid by $10 million, but increased local tax levies by $9 million.

Nevertheless, Moody’s Investors Service this week described the state takeover as a “credit positive” for Atlantic City, describing the unlikely threat of immediate default through 2017 as the single most important factor in its outlook—and reflecting the first fiscal assessment since Governor Chris Christie’s appointment of Jeffrey Chiesa to oversee the state takeover (Mr. Chiesa was the designee of Timothy Cunningham, the New Jersey Director of the Division of Local Government Services in New Jersey’s Community Affairs Department, who, under state law, was given reins of the city once the state took over). Thus the state endowed Mr. Chiesa with broad, preemptive authority to take on and bolster Atlantic City’s fiscal condition—authority which Moody’s, in its outlook, described thusly: “While the state has not officially guaranteed Atlantic City’s debt, Director Cunningham has said the state intends to prevent any default.”  The timing matters: Atlantic City has some $2.3 million in debt payments due today—and then $4.8 million more at mid-month. Ergo, as Moody’s noted: Mr. Cunningham’s “willingness to go to the state treasury for assistance if necessary to pay debt service” is a credit positive.

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