Threat of Bankruptcy Recedes for Atlantic City

Tax settlements with seven casinos for $80 million have dispelled one of the major financial threats.

A lifeguard boat in Atlantic City. John Moore/Getty Images

State officials running a takeover of Atlantic City government have resolved one of the most pressing issues facing the financially troubled city: the mountain of debt owed to several casinos.

The state announced Wednesday that it reached tax settlements with the remaining seven casinos that had filed appeals of their property tax bills over the years. The city would borrow $80 million to cover the settlements, they said.

State officials did not reveal the total amounts for each settlement or how much the city would have paid had the casinos won their tax cases. But the settlements eliminate all the remaining casino tax appeals filed against the city, Gov. Chris Christie’s office said in a news release.

Going back to the days when Donald Trump was a casino operator, the city’s biggest gambling operators repeatedly and successfully have appealed the tax assessments on their properties. The effect is a one-two punch: The city has to borrow hundreds of millions of dollars to pay back those casinos at the same time that its land declines in value. Atlantic City’s tax base has shrunk by roughly two-thirds since 2010.

One casino alone — the Borgata — was owed $165 million and withheld $30 million in property taxes last year when the city had no way of repaying the casino. (The city’s junk bond rating made it too costly to borrow at the time.) That situation helped drive the city to a near-default on its bond debt.

Christie’s administration seized power from local officials in November 2016 to address the city’s dire finances. The state reached a $72 million tax settlement with Borgata in February that saved the city $93 million and put the casino back on the tax rolls. A separate law prevents casinos from appealing their assessments again for the next decade, allowing them to make fixed “payments in lieu of taxes” instead of property tax payments which are based on variable land valuations.

“The settlements reached with these casinos are the culmination of my administration’s successful efforts to address one of the most significant and vexing challenges that had been facing the city,” Christie said in a statement. “Because of the agreements announced today, casino property tax appeals no longer threaten the city’s financial future.”

In addition to the casino tax deals, the state has cut pay and threatened layoffs to the city’s police and firefighters and privatized trash collection to produce the first municipal tax decrease in nearly a decade.

Assemblyman Vincent Mazzeo, a sponsor of the takeover legislation, said bankruptcy for the city “should now absolutely be off the table” as a result of the state’s actions, describing the casino tax appeals as “the crux” of Atlantic City’s fiscal woes.

“One of the main reasons I supported state intervention in Atlantic City was to avoid the catastrophic effects that bankruptcy has on a municipality,” Mazzeo (D-Atlantic) said in a statement. “While I believe the state has erred in regards to Atlantic City’s public safety employees, I commend the fiscal turnaround since the intervention.”

Local officials said bankruptcy was never really an option, but described the tax settlements as lifting a dark cloud that had been hanging over the city. Mayor Don Guardian said the city was staring at up to $550 million in total debt as of last year. With the settlements, a slimmer budget and more state aid, the city now has about $373 million in long-term debt, he said. “We inherited a city four years ago on the brink of bankruptcy and rescued it,” Guardian said.

“There’s been no one more critical of the state coming in and taking over, but I have to take my hat off to them at the same time,” Council President Marty Small said about the state reaching the tax settlements. “This eliminates the tax appeals that have been crippling the residents of Atlantic City for far too long, and I’m happy to say those days are over.”

Not everyone was jumping for joy. Councilman Frank Gilliam, a Democrat running against Guardian for mayor this November, noted the city will still have to pay bonded debt and isn’t out of the woods yet.

“It appears it’s something wholesome for the city and in the long haul it could be beneficial, but we still have to be discussing … the debt,” he said. Gilliam added the city is still a leader in foreclosures, and said residents are still burdened with property tax bills that jumped 113 percent since 2010. (They recently fell 11.4 percent this year after the takeover.)

The takeover has remained controversial in the city. Christie put a close ally, Jeff Chiesa, in charge of the city’s finances, and Chiesa’s firm had billed at least $2.5 million for its services, according to the Inquirer. Public safety unions have sued the state to block layoffs and restore their cut pay. And residents still fear the state could privatize the city’s water authority. Threat of Bankruptcy Recedes for Atlantic City