A report from Atlantic City Emergency Manager Kevin Lavin stopped short of calling for the city to declare bankruptcy instead asking for spending cuts and municipal layoffs.
Lavin said the resort faces a 2015 budget deficit of $101 million or about $30 million more than previously estimated. In order to avoid tax increases, the city must cut an additional $10 million from its budget, he said.
That means layoffs of municipal workers. Though he did not give a specific number, he called for a 20 to 30 percent cut to the city’s about 1,150 full-time employees.
The city has already committed to trying to reduce the workforce to between 850 and 900, according to city Mayor Donald Guardian’s office.
“All of the cuts that we’ve made, and that we’re going to continue to make, will not balance the budget,” Guardian told the Press of Atlantic City. “We certainly know what we have to do as a city. It’s continue to reduce costs, reduce the size of staffing, and provide services in the most efficient manner.”
The $10 million reduction would be part of about $129 million in savings and new funding sources the report says the city can use to cut the deficit.
Other proposals include deferrals or reductions to pension payments that would save about $40 million, and the addition of approximately $30 million in anticipated state support that combines transitional aid, Consolidated Municipal Property Tax Relief Aid, and essential services grant money from the Community Development Block Grant Program.
Moody’s Investors Service reacted negatively to the report calling the plan credit-negative saying the proposals leave open the possibility of a default and rely heavily on aggressive actions in a short time frame.
“The timeline to help the city recover relies on rapid legislative action, state aid, and timely property tax payments from struggling casinos,” the firm wrote. “Long-term restructuring options will be exceedingly difficult to implement.”
Standard & Poor’s also indicated it could lower Atlantic City’s debt rating.
“The report does not directly reference bankruptcy,” S&P said in a statement. “However, it does identify possible deferrals in debt service payments, which could occur as early as the current fiscal year. Therefore, our analysis will focus primarily on the debt restructuring and refinancing that the Emergency Manager identifies as potential options to address the city’s fiscal situation.”
The manager’s plan also assumes that the state will approve a casino payment-in-lieu-of-taxes program that has been languishing in the state legislature while waiting for the manager’s report. The plan calls for $30 million used to finance the casino-funded Atlantic City Alliance—a marketing arm for the city—to go directly to the city’s debt service. The Alliance would be disbanded.
However, the Pilot program for the city’s casinos—which would have the city’s casinos pay a combined $150 million in taxes—has not advanced while Lavin and consultant Kevyn Orr have been working on the report.
Senate President Stephen M. Sweeney, a sponsor of the tax plan, criticized the report.
“The report does nothing more than dramatize the fiscal crisis in Atlantic City that could have been stabilized five months ago if the administration had committed to support the PILOT plan I offered along with Senator Whelan and Assemblyman Mazzeo,” he said in a press statement.
Sweeney later reacted to the ratings agency statements.
“The latest report by the so-called emergency managers is not only a failed substitute for real action, it is now having a negative influence on Atlantic City’s financial condition,” he said. “The reaction by Wall Street shows that the report is making the situation worse.
“Standard & Poors reviewed the report and then said they might lower the city’s credit rating below junk bond status, which would make it even harder for the city to work its way out of its dire fiscal problems,” Sweeney said. “This is the same result caused by the appointment of the managers, which triggered a downgrade for the city and threatened the fiscal stability of other cities in New Jersey.”
Assemblyman Vince Mazzeo echoed the criticism.
“We all know what the problems are in Atlantic City,” he said in a press statement. “What we needed from the emergency manager was solutions, but this report is starkly lacking in innovative ideas to solve the problems. I want more specific ideas in the weeks ahead and details on how exactly any layoffs would impact public safety and vital services.”
The report ends the first phase of manager’s plans for the city and Lavin and Orr will spend three months working out details not discussed in the report, Lavin said.
A second report will be released in June.
