Atlantic City bankruptcy ‘inevitable’, source says

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Nearly two months after he installed them as overseers of the embattled seaside city’s economy and finances, Gov. Chris Christie’s emergency management team released its initial findings on Atlantic City this afternoon.

The report comes as economic strife continues to dog the city — and as uncertainty continues to surround its fate. Christie’s appointment of emergency manager Kevin Lavin, who has worked in corporate finance, and special counsel Kevin Or, who recently presided over Detroit’s financial meltdown, at an Atlantic City summit earlier this year was met with criticism and resistance from many officials who fear the move is part of a plan to push the city toward eventual bankruptcy.

But the report, clocking in at 36 pages did not yet recommend so drastic a measure, though it did find the situation to be ‘more severe’ than anticipated. Lavin told reporters on a conference call that the city is in a deeper economic bind than he had predicated when he went to work in the city 60 days ago, saying the city is in a full-blown financial “crisis” and faces a budget shortfall of $101 million dollars this year alone.

Closing that gap, Lavin said, is the team’s first priority. The report proposes a combination of cost reduction and potential payment delay measures — including layoffs, debt deferral, and cuts to the city’s PERS and PFRS pension system — as well as revenue enhancement measures — including increasing state COPMTRA aid — to save the city some $10 million in 2015.

A source prior to the report’s release predicated as much, arguing that the team’s recommendations were likely to focus on budget cuts, refinancing the city’s $12.8 million debt load, and restructuring of contracts for school and city employees.

Two of the biggest strains on city’s municipal finances involve funding for its school district and police force, the source said. Atlantic City cops are among some of the most highest-paid in the state — and while that’s not “anything new for municipalities throughout the state”, the source noted, in a beleaguered Atlantic City it’s “so disproportionate”.

Lavin said both would face cuts  — and layoffs — in the coming weeks. He said the city would likely need to terminate 25 to 30 percent of the city’ 1,100 workforce, and that the team would use mediators to reach resolutions with various stakeholders, including casinos and unions.

Few details were offered on exactly how those cuts and layoffs would be approached. But the source said one course of action might be giving city employees, like police and fire, the opportunity to make voluntary cuts, rather than forcing their hand, in a show of good faith.

But all this doesn’t mean some lawmakers’ worst fears — including Senate President Steve Sweeney’s (D-3) — will not still be realized. While Lavin said the team was not currently considering bankruptcy for the city, many worry that doesn’t mean it’s off the table.

According to the source, most of these measures — the restructuring, the cuts — are in preparation of an ‘inevitable’ Chapter 9 filing.

While Lavin and Orr have been working with the city’s government over the last several weeks and have shown an openness to input from local officials and stakeholders, that’s mostly been “politics”, the source said. They’re ultimately “calling the shots.”

“In reality, they’re past it — they should have filed bankruptcy a year and a half ago,” the source said.

Atlantic City bankruptcy ‘inevitable’, source says