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Atlantic City Lurches Toward a Takeover as State Rejects its Recovery Plan

Monday, November 7, 2016   (0 Comments)
Share | 11/07/16

Despite producing a five-year recovery plan last week that was praised by lawmakers and financial auditors as a viable solution to the seaside gaming mecca’s severe economic woes, Atlantic City still faces a likely — if at this point inevitable — state takeover of parts or all of its government following the rejection by Gov. Chris Christie’s administration of the proposed plan. In a late-breaking decision yesterday, Department of Community Affairs Commissioner Charles Richman said that, after “thoroughly” analyzing the city’s proposed strategy, he has “concluded that it is not likely to achieve financial stability for Atlantic City.” Richman said the state's decision to reject the plan is based not only on deficiencies in some of the fiscal recovery measures city officials have proposed, but also on “what the city does not have” in it. “I would have much preferred to leave management of the City’s recovery in the hands of its municipal officials,” Richman wrote in his report. “However, I am constrained by the plan before me.”

Relying on a combination of cost-saving measures and revenue generators that officials said they’d already begun to implement, the city’s strategy was two-pronged, seeking to address over $500 million the city currently faces in outstanding debt stemming from damaging casino tax appeals over the years. At the same time, it sought to plug the city’s budget deficit, which has bloomed to almost $100 million in the face of plummeting local tax revenues spurred in part by the crumbling of the city’s economic core, its casino industry. Five of Atlantic City’s 12 casinos have shuttered their doors in recent years, costing thousands of jobs. And the casinos that still stand have successfully challenged their tax assessments, helping to reduce a ratable base that in 2008 totaled $20 billion to just over $7 billion in 2015.

City officials — as well as state lawmakers and other major players — had heralded the plan over the last several days, calling it a “Herculean effort” they thought would almost certainly stave off a takeover. But Richman threw cold water on those hopes yesterday, saying the plan does not meet the directives laid out in the “Municipal Stabilization and Recovery Act,” the rescue package lawmakers passed for the city in May; that gave city officials 150 days to come up with a balanced budget for 2017 and a five-year plan to get its overall finances in order. He said the plan did not include that balanced budget, or at least one that “complies with all of the applicable conditions of the Local Budget Law.”

While city officials said last week they anticipated the plan to result in millions of dollars in savings over several years — including $18.5 million by 2021 — Richman said those figures relied on a series of underestimates and overestimates in what Atlantic City would spend and bring in over the next few years. The plan, he said, “underestimates debt service over the next five years by approximately $18 million; fails to accurately estimate the revenues collected from the investment alternative tax by improperly anticipating an excess of IATs of approximately $31 million over the life of its Plan; and overstates property tax revenues by approximately $20.5 million, based on the City’s flawed assumption that the property tax base will remain constant for the duration of the Plan.”

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