- Senate president said he'll back bankruptcy if takeover fails
- Lawmakers also consider ending city's 40-year casino monopoly
After almost five years of piecemeal efforts to fix Atlantic City, New Jersey’s distressed seaside resort faces more drastic measures: the end of its casino monopoly and a state takeover or bankruptcy filing.
On the line is the future of a city that Governor Chris Christie once said was crucial to New Jersey’s recovery. Once the second-largest U.S. gambling market, Atlantic City has seen its key industry crumble as day-trip patrons shift to newer, closer casinos in nearby Pennsylvania and New York.
The decline has sapped municipal tax collections. While state aid helped plug a gap this year, the city of 39,000 faces a shortfall of $90 million next year, a third of its budget. The dire straits have led New Jersey officials to bring to the forefront options that have been discussed for months, if not years. The new initiatives spurred a rally for the city’s debt.
Lawmakers this week agreed to ask voters in November to expand gambling to northern New Jersey and share the revenue with Atlantic City. They’ve also proposed taking control of its finances for 15 years. Senate President Steve Sweeney, the highest-ranking Democratic legislator, said the city should declare bankruptcy if the takeover isn’t approved quickly.
“This is a very clear statement to Atlantic City: Get your act together, knock off the B.S. and start addressing what you need to address,” Sweeney told reporters Tuesday at the Statehouse in Trenton. “The state is not going to come in and bail you out any more. You need to fix this.”
Christie, a second-term Republican running for president, in February 2011 kicked off a five-year turnaround plan based on tax incentives, marketing, a state-run tourism district and a push for more non-gambling businesses. In 2014, four of 12 casinos closed. The city was downgraded by Moody’s Investors Service to junk; Standard & Poor’s followed in January 2015.
An emergency manager appointed by the governor a year ago to oversee Atlantic City’s finances released one report in March and “no substantive subsequent updates,” S&P said in December. This month, the state Senate sent Christie legislation that would divert some gambling funds to the city and establish fixed payments from casinos instead of levies based on real estate values to prevent tax appeals that have strained the city’s finances.
Atlantic City’s reliance on faltering casinos hobbles its finances, said Jason Diefenthaler, who runs a high-yield muni fund at Wasmer Schroeder & Co. in Naples, Florida, that holds some city water securities.
“With most municipalities, at least from a creditor standpoint, you want to see
as many legs to the economic stool as possible,” he said. “In Atlantic City’s case, they are kind of a one-legged stool.”
Bankruptcy is a powerful but little-used tool of mending municipal finances. Since 1980, just 54 U.S. cities, towns and counties have sought court protection from creditors, including San Bernardino, California, and Jefferson County, Alabama, according to James Spiotto, managing director at Chapman Strategic Advisors, which advises on financial restructuring.
In New Jersey, which has some of the most aggressive policies among states to steer local government from financial disaster, the last one was in 1938 by Fort Lee, according to the Pew Charitable Trusts. When Camden filed for bankruptcy in 1999, the state stepped in with a cash infusion and the plan was scrapped, according to a November Pew report.
Christie, who’s been out of state campaigning, returned to Trenton on Monday to announce he’d brokered the deal with Democrats who control the legislature to ask voters to expand gambling. Placing two casinos in the populous and wealthy northern suburbs in exchange for shunting a third of the new revenue to Atlantic City would create as much as $8 billion in economic activity and thousands of jobs, said Senator Paul Sarlo, a Wood-Ridge Democrat and a co-sponsor of the proposal.
On Tuesday, Sweeney said more must be done. He, Sarlo and Senator Kevin O’Toole, a Republican from Cedar Grove, announced plans to introduce legislation to give control of city finances to the state’s Local Finance Board. While about 15 municipalities get some state oversight, including Atlantic City, the last to lose total authority was Camden, from 2002 to 2010, according to his office.
Atlantic City, Sweeney said in a statement, has a “bloated” budget that amounts to $6,717 per person. That figure is $2,736 for Newark, New Jersey’s largest city, and $1,953 for Camden.
Atlantic City Mayor Don Guardian said the lawmaker’s estimates are inflated, and that the cost of running Atlantic City is the lowest since 2002. During a press conference Wednesday at a casino, he said the takeover proposal was a surprise and out of line in a city that has worked to balance its books while dealing with an industry in crisis. At the same time, it’s given the state billions over the years in luxury and gambling taxes while supporting 25,000 jobs.
The city isn’t at the point of bankruptcy, he said.
“If they are allowed to do this in Atlantic City, they will be allowed to do it anywhere,” Guardian said of the takeover. “It’s a terrible precedent. The people of New Jersey elect the state legislature to run the state, not take over its cities.”
Along Pacific Avenue, the main drag behind the beachfront casinos, caution tape is wrapped around the shuttered Showboat’s street-front columns and a security guard chases people away. Signs still boost specials at the hotel, which closed in mid-2014. Next door sits a mirrored-glass high-rise known as the Revel, the $2.4 billion casino that was supposed to usher in a renaissance when it opened in April 2012. Closed since September 2014, the building sits empty amid trash-strewn stairs and barren lots.
Atlantic City bonds started to rally Tuesday amid news of the lawmakers’ actions to help ease the city’s fiscal distress. A tax-exempt bond due December 2023 traded Wednesday at an average price of 82 cents to yield 8 percent, higher than the average price of 78 cents on Friday.
Ernest Coursey, a county lawmaker who represents Atlantic City, said the Camden takeover failed to produce results, while control over Newark’s public schools has led to few improvements.
“It will be a cold day in hell before we just stand by idly,” Coursey said at the Guardian press conference. “Everything the state touches turns to crap.”