On the same day that Atlantic City's government learned it would receive $6.8 million in state aid to help balance next year's budget, it also agreed to dole out many times that in a refund to its biggest taxpayer - the Borgata Hotel Casino & Spa.
The resort's top-grossing casino will get back $88.25 million under a settlement it reached late Tuesday with the city on its property taxes - and the refund could grow even larger if the city loses a pending tax appeal against the Borgata.
The Borgata's parent company, Boyd Gaming Corp. of Las Vegas, announced the settlement in a filing with the Securities and Exchange Commission.
"We are pleased to bring closure to this matter, and believe this negotiated settlement sends a strong message that Atlantic City is serious about creating a pro-business climate that encourages growth and investment while at the same time protecting our residents," Mayor Don Guardian said.
The settlement covers tax years 2011 through 2015 and is the latest in a series of successful property tax appeals by the casinos that have strained an already financially beleaguered city government.
The appeals have squeezed Atlantic City's ability to generate revenue from its biggest source - property taxes - and forced the city to raise the tax rate to make up for the shortfall.
The casinos are saying they are worth much less today than in 2006 because of a significant drop in their gaming revenues following growth in regional competition, and therefore should pay lower property taxes.
Under this week's settlement, the Borgata will receive the refund for tax years 2011 through 2013 in a lump sum, as well as an estimated tax credit of $17.85 million for tax year 2014. The city also agreed to an unspecified lower assessment on the casino for 2015.
As part of the agreement, the Borgata agreed to give up its right to further contest its assessments for tax years 2011 to 2015. However, the company is still seeking nearly $49 million, plus interest, in refunds for 2009-10. The state Tax Court has ruled in favor of the casino and the city is appealing.
"We view this property tax agreement as a clear positive for Borgata," gaming analyst John Kempf of RBC Capital Markets L.L.C. said Wednesday. "However, negotiations for other casinos will likely be of similar length."
Since taking office on New Year's Day, settling casino tax appeals has been a priority for Guardian.
Atlantic City has been under a state fiscal monitor the last three years, mainly because of the financial strain the casino tax appeals have placed on the city.
The refunds to casinos have cost the city more than $270 million so far - most being repaid using borrowed money.
When contacted, the Borgata had no comment on this week's settlement, but the mayor did.
"When I took office in January, this administration was faced with an exceptionally challenging financial situation that required quick action and difficult choices," Guardian said in a statement. "By reaching this agreement with the city's largest taxpayer, we have eliminated significant uncertainty regarding future budgets.
"We see this as another positive step toward stabilizing our tax base," he said. "In addition, this provides our city with much-needed flexibility, and will save considerable legal fees and borrowing costs."
The Borgata refund will be paid for with borrowed money, said Michael P. Stinson, the city's director of revenue and finance.
Guardian's proposed $262 million budget for 2015 calls for an increase of 65 cents in the local tax rate to help make up for a $40 million shortfall. In addition, Atlantic City has applied for $20 million in an essential services grant and transitional aid from the state.
Stinson said the city was told on Tuesday that it will receive $6.8 million in the essential services grant, but was still waiting to hear on transitional aid.
"The number-one reason why taxes are so high is decreased property values," Guardian said at his State of the City address to the City Council in March. Of the proposed 65-cent increase, Guardian said, 61 cents is due to declining property values.
None have dropped more precipitously than those of the casinos. Their total assessed property values for this year are $11.2 billion, a little over half of what they were in 2010, when they topped $20 billion.
Casino valuations in New Jersey are based on the income they generate. Atlantic City has lost about a third of its tax base since 2008, mostly because of the hit in property-tax revenue.
Total gaming revenue dipped below $3 billion last year from a peak of $5.2 billion in 2006, while the city lost another key taxpayer in January when the Atlantic Club casino-hotel closed, leaving it with 11 casino hotels.