Huge challenges to cutting Atlantic City's costs

There's no doubt Mayor Don Guardian is serious about cutting the cost of Atlantic City government.

On Wednesday, when Guardian delivers his "State of the City Address" to Atlantic City Council, he is expected to talk about plans to cut $15 million from the city's payroll budget as part of an effort to drastically reduce the cost of governing the city.

When he rises to speak, Guardian does so as the only New Jersey mayor with a casino industry, one planted there by the state in the 1970s. That distinction is part of the challenge, now that the industry is in crisis.

Several times recently Guardian has mused about how Atlantic City's financial problems would disappear if the state would just handle it like any other poor city.

"If the State of New Jersey treated us, based on the population that we have, like they treat the Newarks and the Irvingtons and the West New Yorks and the Camdens and the Patersons and the Passaics and the Hobokens, we would have over $60 million in CMPTRA aid," Guardian said in a recent interview, using the acronym for the state's main aid program for distressed municipalities.

There are two problems with that notion.

First, the formulas used to calculate aid under the Consolidated Municipal Property Tax Relief Act were set years ago, and it would be very hard to figure out what Atlantic City should get, if it qualified.

"It's not a practical solution," said Marc H. Pfeiffer, a former deputy director of New Jersey's Division of Local Government Services, which oversees interventions in municipal finances.

Guardian provided comparisons of state aid to selected New Jersey cities, but not a detailed explanation of his $60 million estimate. Last year, the city received $6.3 million under the Energy Tax Receipts Property Tax Relief program and $13 million in transitional aid, which must be applied for every year.

Second, the state is unlikely to send significantly more money to Atlantic City until it is sure that the city's cost structure reflects the new reality of the gambling industry. Four casinos closed last year and Atlantic City casino gambling revenue has fallen by half since its 2006 peak, to $2.6 billion last year.

"Before the state does anything, they want to make sure this is not going to be an ongoing problem, and the only way to do that is to significantly reduce spending," said Michael Busler, a finance professor at Richard Stockton College.

The challenge for state officials is figuring out the appropriate cost of running Atlantic City, given the extra costs, especially in public safety, that came along with the - until 2006 - booming casino industry.

The number of annual visitors to Atlantic City, often cited as a justification for high levels of local government spending, fell to about 25 million in 2013 from 35 million in 2005, according to data from the South Jersey Transportation Authority.

Despite that huge decline in visitors, experts still cautioned against comparing costs of running Atlantic City with other cities because much of the infrastructure to serve millions more visitors remains.

"That's really hard to do here because the biggest driver of Atlantic City's budget is public safety cost," said Pfeiffer, the former state official who is now senior policy fellow and assistant director of the Bloustein Local Government Research Center at Rutgers University.

"You could take another city of 40,000 people that's urban, that's got similar demographics, and use that as a model, but Atlantic City's got casinos," Pfeiffer said. "Casinos drive an important response and planning function for Atlantic City. That's not comparable to anybody."

Nevertheless, Atlantic City's finances have been on an unsustainable trajectory. Officials have doubled the property-tax rate to counter a decline in real estate assessments from $20.5 billion after a 2007 reassessment to $11.3 billion last year. Most of the decline can be attributed to appeals by casinos, whose revenues and profits have plummeted.

Values could go as low as $6.5 billion, based on recent tax-appeal rulings, according to the most recent report from Gov. Christie's tax force on Atlantic City.

To help Atlantic City climb out of a financial morass that was years in the making and involved budgets that were approved by state officials, Christie last month appointed restructuring expert Kevin Lavin as "emergency manager," though Lavin's role is actually more akin to a consultant.

Lavin is supposed to come up with a plan to "restructure the operations, finances, and culture" of government in Atlantic City and issue a report with his recommendations by March 24.

Expense reductions are already underway. This year's budgeted expenditures are expected to be $227.3 million, down 13 percent from $261.4 million last year, a bond statement said.

If the proposed $227.3 million budget is accepted, it would be the city's smallest since 2010.

That's probably still too much, Busler said. "The bottom line is we're going to have to get the spending down to $200 million, and that will be closer to matching what revenue will be," the Stockton professor said.

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