With four out of the 12 casinos in Atlantic City shutting down in the last eighteen months, Wall Street gas been speculating about what these changes indicate. Some believe that the market is right sizing, since the demand for casinos has slumped due to the increase in competition from neighboring states; others are concerned about the overall fiscal losses that Atlantic City will suffer due to these shutdowns. The remaining property holders are particularly concerned because if the state resorts to replacing the revenue losses, it will probably have to be through taxation. The fiscal loss to the state is a substantial one, since the tax base has fallen from $20.5 billion in 2010 to $7.3 billion in 2015, of which $4 billion has been lost in the past one year. Therefore, Atlantic City casinos are in desperate need of a rescue project to bail them out of this peril.
Emergency Management Team
On January 22, 2015, Governor Chris Christie installed an emergency management team in order to, in his own words, “dig the financially strapped gaming resort out of an enormous hole.” He appointed Kevin Lavin, a corporate finance attorney who specializes in helping sick industries, as the Emergency Manager, and Kevyn Orr, a former corporate bankruptcy lawyer who had led Detroit city with the filing of its municipal bankruptcy, as a special counsel to Lavin. This move by the Governor showed that the option of declaring bankruptcy was also one that was open to Atlantic City at the time.
In March, the team came out with a report that while abolishing the notions of bankruptcy, stated that Atlantic City would have to make budget cuts worth at least $10 million in operational costs and $41.6 million in benefit reductions, along with hundreds of layoffs. The deficit for the year was estimated at $101 million and the way out cited by the report was via the prescribed cuts. The team, however, did not take a stand with regard to a proposal to convert casino hotels to a “Payment in Lieu of Taxes” or PILOT plan, although the report stated that it could be a possible long term solution.
5 Bills that Could Save the Garden State’s Casinos
A package of 5 bills was devised in order to alleviate Atlantic City of its economic crisis. These were approved by the State Assembly in June, but awaited the decisive signatures of Governor Christie. The centerpiece bill, i.e., the A3981, was the formalized PILOT plan, which was suggested to the Emergency Management Team earlier in the year. This bill suggested that the remaining 8 casinos be allowed to make payments in lieu of taxes for the next fifteen years. If it comes into effect, the casinos will be required to pay $150 million in total for the next two years and a sum of $120 million in the subsequent years, if gaming revenues attain stability. Some of the other bills suggest amendments in reference to health care and retirement benefits of the laid-off casino employees and a casino tax, currently used for redevelopment projects, to be redirected towards payment of debt.
Governor Christie’s Delayed Reaction
Governor Christie’s spokesperson said in May 2015 that he looked forward to reviewing the bills, since legislative action was integral to finding a holistic solution to Atlantic City’s crisis. However, with three months having passed since and the bills remaining stuck at his desk, there is much concern from other quarters about his inaction. The union as well as Casino Authority of New Jersey have urged the Governor’s office to respond within the year, failing which, the city stands to lose $50 million in combined gaming revenue taxes.
Governor Christie is said to be busy running the Presidential candidate race and has made no statement with regard to when he will review the bills. Why he chooses to delay this matter is anyone’s guess. Meanwhile, the future of the casinos hang in limbo. While the shutdowns in Atlantic City were in response to market forces, if the state passes the legislation and retracts from controlling the fate of the casinos, there is no reason why they should not be able to make a comeback in due course. It would, however, be tragic if instead of competition, lack of legislative support becomes prohibitive to casino industry growth in the city.