This piece first published at Forbes.com: click here for link
Political tension in New Jersey has reached a boiling point as lawmakers fight over the future of Atlantic City. But residents of, and investors in, the cash-strapped city won’t be the only victims of its insolvency.
Barring a last-minute legislative solution, Atlantic City is set to run out of cash and shut down for a month-long stretch starting next week. By April 15, it could be $10 million in the hole.
Even if the city resumes operations as planned on May 2, Mayor Don Guardian (R) says it still might run out of cash again in eight to 10 weeks.
The knock-on impact of the city’s budget constraints are far reaching. With schools in the resort town also struggling, budgetary funding gaps could shut them down as well.
In addition to the education tab, the city could default on roughly $250 million of bond debt if it fails to make a payment due to holders on May 1.Reverberations from a failure to pay, however, would tarnish the state’s reputation and could also make it more expensive for all New Jersey municipalities to borrow if their credit ratings were impacted as a result.
With no magic fix on the horizon, some of the most viable near-term solutions are stalled in the legislature. For one, Governor Chris Christie(R) refuses to provide “Band-Aids” like an emergency loan to Atlantic City. And the proposal Christie does support – along with Senate President Steve Sweeney (D) – that gives the state full financial control of AC is opposed by Speaker of the House Vincent Prieto (D).
Prieto will not put the bill to a vote because it provides the ability to terminate collective bargaining agreements. For his part, Christie – a former presidential hopeful turned Donald Trump supporter – sees busting unions as effective strategy for his own ambitions inside the Republican party.
Another bill targeting collection from the city’s primary source of taxable revenue is caught in the Christie-Prieto crossfire. Legislation that would fix the amount casinos pay in property taxes through a payment in lieu of taxes (PILOT) mechanism would provide $100 million to the city over 10 years, although the governor won’t sign PILOT legislation without state control.
Atlantic City’s financial slide is directly tied to the fate of the decline of the casino industry. The seaside tourist destination began to feel the negative impact of gaming expansion in nearby Pennsylvania in late 2006. By 2014 four of the city’s 12 casinos closed and the amount of gaming revenue generated was less than half of the 2006 peak.
Fewer casinos meant a lower employment base, which plunged to 13,300 in 2014 from 45,501 in 2002, according to city documents. Property values similarly followed suit falling to an estimated $6.7 billion from a high of $20 billion in 2010.
Looking ahead there is no logical savior in sight to restore the AC gaming biz to its former glory. With the exception of Boyd Gaming Corp’sBorgata Casino Hotel, few have much regard for the remaining casinos. Billionaire Carl Icahn owns the Trump Taj Mahal and Tropicana; the bankrupt Caesars Entertainment Corp owns Caesars at Atlantic City, Bally’s and Harrah’s; Landry’s owns the Golden Nugget; and Resorts is managed by the Mohegan Sun, the only leftovers of the city’s glory days.
The casinos that were once the golden goose for the city are now more of an albatross. The city owes Borgata alone more than $150 million for outstanding property tax refunds dating back to 2009. After years of negotiation and a skipped $62 million payment in December, the Boyd property – and the city’s largest taxpayer – skipped a $7.5 million payment of its own in February, opting instead for a credit on the outstanding tax appeals.
The game does nothing to solve Atlantic City’s problems, and all New Jerseyans could be paying the price.
— March 31, 2016, Forbes.com
by Maria Amante and Jon Berke
click here for link