ATLANTIC CITY - New Jersey's casino enforcement agency recommended a conditional one-year license renewal instead of the standard five-year license for the embattled Tropicana Casino & Resort here yesterday to close a two-week hearing over the casino's fate.

In a stinging assessment, Yvonne Maher, acting director and lead attorney for the state Division of Gaming Enforcement, said the chief executive officer of Tropicana owner Columbia-Sussex Corp. "is not willing or able to run an Atlantic City casino." Maher characterized the executive, William J. Yung III, as having "bit off more than he could chew."

"It's Mr. Yung's corporate philosophy to run a lean and efficient company," she said, "but it's not working at the Tropicana."

Maher presented a laundry list of 26 conditions for the proposed one-year license renewal, including requiring that the casino report quarterly to an independent audit committee, that it notify the commission of all customer complaints, and that it report some planned layoffs at least 15 days before their effective dates and all other layoffs at least 10 days before their effective dates.

Besides the shorter license, the division asked the state to levy a "substantial six-figure penalty" against the Tropicana for ignoring a state law that requires a casino to have an independent audit committee.

Maher's recommendation - similar to one made by a prosecutor to a judge - goes now to the New Jersey Casino Control Commission, which is expected to make a final ruling next Wednesday.

During last month's hearing, critics took Tropicana management to task for laying off 900 workers this year, a move the casino blamed on falling revenue due in part to competition from Pennsylvania and New York slots parlors and to an Atlantic City ordinance passed in April limiting smoking to one-quarter of the casino floors here.

The dismissals, according to critics, including employees' union Unite Here Local 54, led to poor customer service, unsanitary conditions, and poor-quality food at the casino. Files containing 71 customer complaints became part of the evidence submitted to the commission.

In his closing remarks yesterday, Paul O'Gara, attorney for Columbia-Sussex, argued vigorously for about an hour that the company and Yung had the competence, integrity, financial stability and character to run the Tropicana effectively, and that, despite all the problems, new management was ready to move forward.

"Would Bill Yung, a man who has accomplished what he accomplished, come here and intentionally take the largest hotel in his portfolio and run it into the ground? It makes no sense," he said.

Tropicana management blamed many of the problems on the union, saying that an alleged three-week sick-out by members was in resistance to the job cuts.

He said the hotel had a 94 percent occupancy rate and had spent more than $30 million on renovations. "This facility is being improved tremendously," O'Gara said.

After the one-year license was recommended, O'Gara said: "Obviously, we want a longer term; we would like the five-year license."

O'Gara said he had not yet read the list of conditions for the one-year renewal, which included the Tropicana's establishing a fully independent compliance committee to regularly review its business operations.

And as a sign of the division's growing concern over the casino's financial stability, the casino must submit revised financial forecasts to the commission and division before any management or service contracts take effect.

A critical test of whether the Tropicana qualifies for a license renewal hangs on a provision in the New Jersey Casino Control Act authorizing the commission "to require each casino licensee to establish and maintain an approved hotel which is in all respects a superior, first-class facility of exceptional quality which will help restore Atlantic City as a resort, tourist and convention destination."

The act was passed in 1977, but has been amended several times.

The Tropicana's license was due to expire at 12:01 a.m. last Saturday, but the commission extended it until a decision is reached on relicensing.

The union has pushed for the appointment of an outside party, known as a conservator, to oversee the operation of the casino, a move that the commission has never undertaken in gambling's 29-year history here. A conservator would have the authority to seek a new buyer for the Tropicana.

"We don't want the Tropicana to close, but we want it to be a first-class facility," union attorney Regina Hertzig said yesterday. "This company doesn't have the wherewithal to run it that way."