Does Atlantic City Deal Merely Delay Inevitable Takeover?
Believe it or not, the Atlantic City rescue legislation that snarled the gears of the Statehouse for four months could prove to be the easy part.
Presuming lawmakers on Thursday pass the plan and Gov. Chris Christie signs it, Atlantic City officials will then have five months to balance their wildly-off-kilter financial ledger in time for 2017 and adopt a five-year plan for fiscal stability.
That’s no small order. Spending exceeds revenues by tens of millions right now, and that’s in a budget that already pays nothing toward the $39 million it should be shelling out toward health benefits and pensions this year.
“This is certainly a road to recovery for Atlantic City. And it’s going to be a tough road for us to meet,” Mayor Don Guardian said.
“It’s time for us with all of our unions to be able to sit down and reduce the cost of government,” he said.
If the Christie administration’s Department of Community Affairs deems the plan insufficient, or concludes it isn’t being implemented, the state could set in motion the state takeover the governor prefers, though the city could appeal any such rejection to a Superior Court judge.
“I think the city’s going to have some challenges in coming up with a financial plan that meets the criteria in the law,” said Marc Pfeiffer, assistant director of Rutgers University’s Bloustein Local Government Research Center.
Pfeiffer said the plan doesn’t give the city additional tools or authority beyond early retirement incentives that, in a more limited way, were in the original proposal.
“It doesn’t have anywhere near the authority that the state would have if the full takeover were executed,” Pfeiffer said. “I believe there was probably some room in between nothing and the extreme version of takeover, where the state could have given the city some additional authority to improve its leverage when it comes to collective bargaining, when it comes to dealing with moving personnel around, from a civil service standpoint.”
“So as a result I think the city is going to find it very difficult to make all of that work,” Pfeiffer said. “I’m not saying it can’t be done, but it’s clearly very challenging.”
It’s not yet clear exactly how much spending will need to be cut.
The city’s 2015 budget was $262 million. It hasn’t adopted a 2016 budget, though Guardian has said it is spending around $225 million this year. The exact amount of money available, even if the rescue plan is enacted and locks in casino funds and some categories of state aid, depends on how much transitional aid the city may get from the state.
“I think from even three years ago, four years ago, we knew that we had to be under $200 million to be sustainable as a city, and I think we may have to go a little bit below that,” Guardian said. “But that’s a wonderful opportunity to have right now.”
Prieto said he couldn’t say what Atlantic City’s budget will have to be but that it’s “going to be somewhere I think very much south of where they are today.”
“They feel comfortable that they have the tools and the resources to be able to fend that off and get back to a healthy place. And I think it’s good. It’s giving them an opportunity. It’ll bring everybody to the table. Everybody wants to” help, Prieto said, noting city employees offered to work without pay and agreed to be paid once every four weeks to help the city manage its cashflow.
“Everybody is going to have to pitch in, and they’re going to have to do the tough decisions,” Prieto said. “And I give them a lot of credit. They feel comfortable, then I feel comfortable.”
Prieto suggested it could require $88 million to $100 million in cuts, a number Guardian couldn’t confirm, though the mayor said “it’s going to be pretty drastic.”
Guardian suggested the most important thing the rescue plan could do is give Atlantic City a chance to refinance its debt, which is currently rated at junk-bond status, preventing the city from having access to the financial markets.
The city has $240 million in debt, not counting roughly $160 million it owes the Borgata for overpaid property taxes after the casino’s successful tax appeal. Guardian says debt payments are $38 million a year currently but could be spread out over 30 years, backed by the guarantee of steady state aid.
“That’s a key part. That’s $20, $30 million we’re going to trim from our budget alone just by doing a refinancing or a restructuring,” estimated Guardian, who said “a good part” of the additional $25 million or more in spending cuts would come from reducing debt payments.
Pfeiffer called that “entirely possible” but said the price of lowering annual payments now will be increased interest costs in the future.
One of the only other additional tools offered by the legislation is an early retirement offer through which employees with at least 20 years on the job could get up to five years of additional credits toward their pensions if they leave their job.
“A big help is going to be the early retirements, especially for police and fire,” Guardian said. “I think we’ll have about 120 altogether, so that could be $5, $6, $7 million. That’s real savings.”
A user-friendly budget document produced for the 2015 budget indicated the city had 296 full-time police officers and 36 part-time officers, at a personnel cost of $38 million a year, and 236 firefighters, costing $27 million.
If 120 police officers and firefighters retire early, that’s around 22 percent of the employees in those departments.
Guardian estimated that firefighters and police officers retire at an average salary of $110,000, while the people being hired to replace them will start at $45,000 and not see as quick an escalation in their salary because of additional salary steps and pay bumps for longevity and education.
Pfeiffer said early retirements will cost the city’s taxpayers significantly in the long run. But he said it’s too late to develop less costly alternatives now that early retirement incentives are on the horizon.
“I think that’s unfortunate,” Pfeiffer said. “Early retirements cost more money. They can be very expensive down the road. They also result in a brain drain. They lose senior people with a lot of expertise and experience in running city services. That can be a problem unto itself.”
Neither of those moves are likely to yield enough savings, however.
City officials were planning to convene a committee starting Tuesday that would meet to look at each department for cost-cutting opportunities. Guardian said it would include him and his chief of staff, chief finance officer and business administrator; Council President Marty Small and two other councilman that Small selects; and the state monitor and head of the state’s Local Finance Board.
“Every time we have a meeting, we’ll probably gear toward a specific division, so we’ll talk about firefighting, we’ll talk about police, we’ll talk about public works, we’ll talk about debt,’ Guardian said.