Bankruptcy Not in the Cards for Atlantic City's Recovery Team

by | March 25, 2015

By Amy S. Rosenberg and Harold Brubaker

Warning of a liquidity crisis though 2015 and a situation "a lot more severe" than they had anticipated, Atlantic City's emergency management team has recommended $10 million in budget cuts, hundreds of layoffs and mediators appointed to negotiate with casinos and unions.

Kevin Lavin and Kevyn Orr released a 60-day interim report that highlights a $101 million budget shortfall for the city and a $45 million shortfall for the school district.

Despite their well-publicized bankruptcy expertise, Lavin and Orr said they were not advocating that route for the beleaguered resort, which lost four casinos during and 8,000 jobs during the great meltdown of 2014. Its ratable base has plunged 35 percent since 2014 to $7.3 billion.

"We have to close the gap as quickly as possible," Lavin said in a conference call with reporters and Mayor Don Guardian, shortly after the report was made public. "Bankruptcy is not something we are contemplating. We think this process can be done without that necessity."

Tax increases are also off the table, they said.

The report warns of a liquidity crisis through 2015 and plots a "phase II" though June 30th in which cost savings and negotiations with creditors, labor unions and other stakeholders will be conducted.

Instead, they recommended cutting expenses in 2015 by $10 million, laying off 25 to 30 pecent of the city' 1,100 workforce and appointing mediators to reach resolutions with various stakeholders, including casinos and unions.

Atlantic City Mayor Guardian's preliminary budget for 2015 called for $202 million in spending, a decrease of $30 million from last year, but still leaving a gap of $70 million in revenue. The city's ratable base for 2015 is $7.35 billion, which at last year's tax rate yield $132 million.

Lavin said the increase in the shortfall to $101 million reflected ratables that continue to plunge practically day by day.

"It's a dynamic process," Lavin said.

Guardian has also called for staffing reductions, and has decreased the city workforce by about 150 already. Chris Filiciello, his chief of staff, said there was concensus that the payroll should be between 850 and 900 workers, or full-time equivalents.

Filicillo said the report "confirms what the mayor's ben saying since last year."

Legislators who have been trying to pass a package of recovery bills were critical of the report as being repetitive of prior conclusions and, in the words of State Assemblyman Vince Mazzeo, "starkly lacking in innovative ideas."

Robert O'Brien, an attorney for the city's police, fire and white collar unions, said the layoff numbers were unrealistic. Mayor Don Guardian has already reduced the work force by about 150 mostly through attrition.

"I don't think they can run the city in an operationally efficient fashion with head cuts of 20-30 percent," O'Brien said. "If they indeed expect to do that, that's unrealistic."

He said he feared the report focusing on the city's economic woes would lay the ground work for an attempt to break union contracts.

"The unions have been trying to cooperate," O'Brien said. "We're very concerned if in fact Atlantic City is seeing such dire consequences, there has to be other ways to address short of taking it out on the backs of the workers. These are not rich contracts."

The report appears to reopen the door to previous proposals, languishing in the state legislature, to redirect casino tax revenue to the city's coffers, including $30 million now financing the Atlantic City Alliance marketing group and about $17.5 million in current Investment Alternative Tax funding that currently goes to the Casino Reinvestment Development Authority.

Orr, previously the emergency manager for Detroit, said they'd be looking for resolution with all the city's stakeholders.

"This is going to be somewhat dynamic and negotiated solution," he said. "We need to do that on a very time is of the essense basis. We're going to need the help of everbody: financial planners, unions, creditor, interested parties to come to the table."

Neither Lavin nor Orr would comment on what they would be seeking from either unions or creditors, including Borgata, which is owed $88 million and last week filed suit against the city of Atlantic City to stop it from issuing bonds to pay back a $40 million loan to the state of New Jersey. Guardian has previouly said he hoped to negotiate a reduced payment to Borgata.

"We do believe the use of mediators is very helpful in this process," Lavin said. "Everyone recognizes the magnitude of the issue."

The report lists a potential of $130 million in possible revenue enhancements and cost reductions to balance the city budget, including cutting lifeguard pensions, $10 million in operational cuts, pension and benefit reductions totally $41.6 million. It considers eliminating the lifeguard pension, a proposal first made by Gov. Christie's summit report that would save about $1 million.

The report also considers state transitional aid of $13 million, and additional state aid.

The managers would not take a direct stand in support of a proposal to convert casino hotels to a "Payment in Lieu of Taxes" or PILOT plan, now pending before the state legislature but the report includse that as a possible long term solution.

Still, State Sen. President Steve Sweeney criticized the report, saying it "does nothing more than dramatize" the fical crisis, which, he said, "could have been stablized fiv months ago" if the administration had gone along with the legislative recovery plan.

"Today's report was 60 days in the making and it reached the same conclusions that we did in November," Sweeney said in a statemnt. "The administation's failure to act has only prolonged the crisis and the appointmnt of the so-called bankruptcy managers made the situation worse by jeopariding the credit rating for Atlantic City and seven other major cities in New Jersey."

Atlantic City and its casino industry, he said, "have been struggling to survive while the administration has held three summits and isued three reports but has taken no real action."

Inquirer staff writer Andrew Seidman contributed to this story.

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