The Odds of Staying out of Municipal Bankruptcy

November 13, 2015. Share on Twitter

Rolling the Die: What Are the Odds of Fiscal Recovery? In the wake of Gov. Christie’s conditional vetoes of the package of bills intended to help Atlantic City avoid the need to seek bankruptcy protection and the threat to essential public services, New Jersey Senate President Stephen Sweeney and Gov. Chris Christie, in a joint statement after the veto, said they would meet soon to “construct a final and fast resolution” to Atlantic City’s economic and fiscal stress—even as the Governor is in a critical point in his quest for the GOP Presidential nomination. The conditionally vetoed key elements of a rescue package approved by the legislature would have allocated $33.5 million in redirected casino taxes to pay off Atlantic City’s municipal bonds—and now leave the beleaguered city facing layoffs by the end of the year as Mayor Guardian and the Council grapple with a continued credit crisis.

The conditional vetoes, however, appear to have stirred up a regional hornet’s nest, even as they put Atlantic City between a rock and a hard place. Atlantic City Councilman Timothy Mancuso said the city is counting on more than $33 million in PILOT funds to balance its 2015 budget, noting: “It’s down to the wire, and now everybody’s throwing in different plans…“We can’t have that.” Chris Filiciello, a spokesman for Atlantic City Mayor Don Guardian, said Mayor Guardian “supports Governor Christie and Senate President leadership on this issue, and is looking forward to legislation being agreed upon and signed into law as soon as possible.” The problem, as one participant noted, is the critical time lost because of the Gov.’s very last minute veto—or as one party noted: “The past 12 months was the time to produce realistic alternative plans — now we need to focus on finishing the job of getting Atlantic City and Atlantic County back on the path to fiscal stability.” Atlantic County Assemblyman Chris Brown yesterday stated he would not vote for a sweeping plan to change the taxes paid by Atlantic City’s casinos, proposing instead an alternative which would increase the casinos’ annual tax bills by about $88 million in 2016 alone while keeping the city’s marketing and development agencies from being gutted. The new plan would, he hopes, replace the proposed legislation, a bill under which casinos would make a collective $120 million payment for 15 years, instead of traditional property-tax payments. The scurry to come up with alternative fiscal options come at the onset of what now could become a challenging state-local standoff, as well as a regional fiscal struggle. Gov. Christie’s conditional vetoes of the so-called PILOT package, even though they would maintain the payment in lieu of taxes or PILOT agreement’s structure, would give the state greater authority and control over the funds the agreement directs to Atlantic City. Thus the 24th hour conditional veto has triggered not only a state-local power struggle, but also a regional tussle.

Atlantic County Executive Dennis Levinson said he agreed that the Casino Redevelopment Authority needed one of the bills, which would have redirected some $25 million to $30 million in casino Investment Alternative Tax (IAT) collections to municipal debt payments, and that the casinos have to be assessed properly: “(The PILOT bill) just prevents the casinos from appealing their taxes for 15 years…It can be simplified. Assess the casinos fairly, correctly, properly.” That is to write that every local government in the region has a stake (bad pun) in the outcome—and the continuing delays in agreeing upon an outcome, because Atlantic City’s fiscal base relies on its casinos—not just for revenues, but also for employment: in addition to property taxes, Atlantic City’s eight casinos pay 9.25 percent in taxes on their gross gambling revenue. The 11th hour action by a Presidentially campaigning Governor now creates fear of risk that virtually all of the casino properties’ revenue streams, including revenue from food, beverage and entertainment operations, and jobs could be at risk. Assemblyman Brown reports that, in 2016 alone, the changes he is proposing would bring in about $11.8 million more receipts from his proposed 1.25 percent investment alternative tax, which funds the Casino Reinvestment Development Authority (CRDA), while his other tax on casino revenue, an 8 percent levy used to help seniors and the disabled in New Jersey, would, he reports, see receipts increase by nearly $76 million. In comparison, the conditionally vetoed PILOT package would have eliminated the $30 million annual budget of the Atlantic City Alliance, the city’s main marketing arm, and virtually defunded the authority, which orchestrates large development projects in Atlantic City, instead using those dollars to pay down Atlantic City’s debt and expenses. Assemblyman Brown, however, asserts that under his proposed pan, increased receipts from casinos could keep the alliance and authority running with $8 million and $10 million in annual funding, respectively. The CRDA could also forward $5 million of its IAT funds to the city as part of a PILOT for properties it owns in the city, and the remainder of, which he estimates would be about $18 million next year, would go to Atlantic City: or, as he put it: “If we are serious about protecting the future of Atlantic County…we need to preserve CRDA to continue to reinvest in nongaming attractions…At the same time, we need to market Atlantic City to ensure our continued growth and success.” The Assemblyman’s plan also calls for deeper county involvement in property assessments and proposes permitting Atlantic County to participate in property tax appeals valued at $10 million or more.

Why Not Tax the Guy Behind the Tree? Steven Scheinthal, General Counsel for Golden Nugget owner Landry’s Inc., presciently reminds folks: “If anyone thinks that they’re going to tax the casinos more than they already are being taxed, then they live in la-la land…And I bet you there’s seven other casino operators that would feel the same way.” In Rome, where the expression was tempus fugit or time is flying, the long delay by Gov. Christie is now on the verge of fiscal consequences, after all: Atlantic City Business Administrator Arch Liston Tuesday, in an epistle, warned that Atlantic City employees in five departments could be facing layoffs by the end of the year: the letter, sent by and first obtained by pressofatlanticcity.com, went to Atlantic City employees who work in the revenue and finance, health and human services, planning and development, public works departments, and the municipal courts—warning that such layoffs would take effect on Dec. 28. While the Governor delayed months in acting, Atlantic City faces an $11 million debt service payment due in December. That is not a payment that can be put off.