Atlantic City May Be Given 130-Day Reprieve by Stephen Sweeney
Atlantic City and the State of New Jersey continue to vie for control of the Boardwalk city’s finances. Under a plan proposed by Democratic State Senate President Steve Sweeney, the state would give Atlantic City 130 days in order to get its finances under control. If it did not, then New Jersey would take control of the city’s finances for the next five years. Such is the state of the city’s finances that few see a way out, except through bankruptcy or state-controlled assistance.
Not everyone is enamored with the plan. The head of the General Assembly, Vincent Prieto, has been critical of the Sweeney Plan. Prieto believes Atlantic City has been given enough time to figure things out, so new leaders need to take control of the finances.
The 130-Day Sweeney Plan
It may be academic, because it is hard to see how Atlantic City develops the wherewithal in the next 4+ months to change the outlook. Under the Sweeney Plan, the city would have 130 days to create a “financial stability” plan which would bring Atlantic City spending down to sustainable levels. In particular, the city would need to bring spending on its citizens down to $3,500 per head, for each of its 40,000 citizens.
Gov. Christie and other New Jersey politicians have pointed out that Atlantic City spends an average of $6,700 per citizen each year. That number is higher than the spending figures for cities like Neward and Jersey City. To cut spending, the Atlantic City thus would need to cut spending almost in half. Such austerity would mean a loss of jobs for city workers, as well as a significant loss of services for Atlantic City residents.
Gov. Christie Loses in Court
In recent weeks, the city has been in court, fighting a challenge by Gov. Chris Christie which would have forced the city to stop paying municipal workers. In a dramatic decision last week, a New Jersey judge gave Mayor Don Guardian the right to pay workers, which kept the city government from shutting down for four weeks. At the time, the city had $8 million in funds. The city worker’s payroll requirements were $3.5 million for the weekend ending April 8. Gov. Christie sued to keep the city from paying workers, because he wanted the money saved for an April 15 payment to the city’s teachers and school administrators. Christie said he did not want teachers and students to become “collateral damage” in Atlantic City’s financial meltdown.
Christie’s move would have forced a government shutdown of non-essential services, outside of police, firefighting, and education. Even then, police officers and firefighters would have had to work the next four weeks without pay. No one could say whether the police department or the fire department personnel ever would have gotten paid for their work — one official said they “probably” would be paid at some time in the nebulous future.
Casino Industry’s Collapse
The financial crisis is closely tied to the downfall of Atlantic City’s gambling economy. In the peak year of 2006, Atlantic City generated about $5.4 billion in gaming revenues. In 2015, that number had fallen to less than half — at $2.6 billion. Because 70% of the city’s property taxes were paid by the casinos — who also happened to be the number one employer in town — the city’s tax base collapsed.
That is why Carl Icahn wants to be judicicious in his investments. North Jersey casinos are certain to quicken the demise of Atlantic City’s casino industry, and thus Atlantic City. Bankruptcy (or something close to it) is coming, and adding bigger and better casinos on the other end of the state is not likely to help matters any.
Carl Icahn Declines to Renovate Trump Taj Mahal
Carl Icahn, who now owns the Trump Taj Mahal outright, is hedging his bets on the Atlantic City casino industry. Icahn said recently he may not invest the $100 million he had promised to invest in Trump Taj Mahal. The New York City billionaire said such an investment would not make sense, if the people of New Jersey approve a North Jersey casino bill which will be on the ballot in November.
Instead, Icahn announced that the successful management team which turned around the Tropicana have been tasked with managing the Trump Taj Mahal, too. The Tropicana also will invest $15 million on a much less ambitious renovation for the Taj Mahal. These fifteen million dollars will go to repairing the roof of the aging casino, while also renovation 150 hotel rooms which are unusable at the moment.
Bad Signs for Atlantic City
The decision makes sense in the current business environment. Whether you like Carl Icahn or not, it is hard to argue the point that he is a smart businessman. If he is having second thoughts about doubling down on the Atlantic City economy, then it is a bad sign for the city.
Of course, the financial weakness of Atlantic City does not have to mean the all the businesses inside the city are in trouble. Much of the future success of Atlantic City casinos is going to depend on decisions made outside the city itself. While the near-bankruptcy of the city could cause a decline in infrastructure or services to the casino, they should be able to weather the coming trouble. In fact, the city is likely to have the casinos be the last part of the city to feel the pain’s of austerity, since those 8 (or more) businesses are one of the keys to Atlantic City’s eventual recovery.
