ATLANTIC CITY — The city is making incremental progress toward economic stability, but its long-term fiscal health remains a cause for concern.
A third consecutive year of stable or reduced municipal taxes is being discussed, city and state officials have exercised fiscal restraint on basic budgetary matters and the more pressing economic issues that prompted a 2016 state takeover to avert bankruptcy have been addressed.
However, those efforts may prove to be inadequate long-term remedies because of looming debt obligations totaling more than $400 million and the pressing need for additional sources of revenue.
The end result may very well be prolonged state involvement in Atlantic City even after the conclusion of the five-year timetable granted under the Municipal Stabilization and Recovery Act.
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“It would not be unusual (for the state to continue its oversight),” said Marc Pfeiffer, assistant director of the Bloustein Local Government Research Center at Rutgers University and former deputy director of the state Division of Local Government Services. “(New Jersey) has had municipalities under degrees of supervision for many years, (and) every case is different.”
Pfeiffer noted that the state’s transition report on Atlantic City, which was co-authored in 2018 by Special Counsel Jim Johnson at Gov. Phil Murphy’s request, has expanded Trenton’s role in the seaside resort into quality-of-life issues.
“Now that we’ve extended the state’s engagement beyond just fiscal conditions, (they) want to make sure that those seeds they planted take root and start to grow on their own,” Pfeiffer said. “And it may be that the state wants to stay engaged in Atlantic City longer.”
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Meanwhile, city officials — who must have any legislative or executive action approved by the state Department of Community Affairs — have tried to address some of the fiscal missteps that put the city on the brink of bankruptcy in 2015.
Following years of rising municipal taxes — between 2010 and 2016 the local tax rate increased 96 percent — city officials are close to introducing a budget that would either reduce taxes or keep them at the same level for the third straight year.
Council President Marty Small Sr. said he is “100 percent certain” of at least a flat municipal budget for 2019.
“There will be no tax increase on the residents of Atlantic City,” said Small, who also serves as chairman of the Revenue and Finance Committee, during a recent public meeting. “The budget is always a working document ... (but) we’re going to continue to make sound fiscal decisions.”
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In 2017, the first full year of the state takeover, Atlantic City approved the first reduction in the municipal rate tax rate since 2008. Last year, the city adopted a $220 million operating budget while holding the municipal tax rate flat.
Lisa Ryan, spokeswoman for the state agency that oversees the city’s finances, said the DCA is continuously “working with the city to reduce costs all around.” Ryan said state and city officials have been working to finalize the 2019 budget but they are “not quite there yet.”
The city’s newfound fiscal discipline is evident in the routine practice of awarding contracts for professional services, such as those paid to outside law firms.
City Council decreased the total amount awarded for legal services by $500,000 for 2019 by awarding $2.47 million in contracts for the upcoming year. Last year, the governing body awarded more than $3 million for legal contracts and spent $2.97 million. In 2017, council awarded more than $2.95 million for legal contracts while only appropriating about $1.74 million for work done.
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Council has not approved a change order for legal services — when a vendor bills more for services than contracted and a governing body must allocate additional funding — since 2016, Small said.
“It’s simple — we changed the culture,” said Small. “That’s this (governing) body looking out for the taxpayers’ best interest.”
Despite the changes, the city’s fiscal history is catching up quickly.
According to financial statements, Atlantic City’s total municipal bond debt was $408.7 million and the school district was responsible for another $67.5 million. In February 2018, City Council, with the state’s approval, issued $49 million in bonds to pay deferred pension and debt obligations from 2015.
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In 2019, the city’s municipal bond obligations will be slightly more than $15.2 million. Atlantic City’s debt service payments will continue to rise each year until it peaks in 2026 with an annual obligation of $26.9 million. The following year, the city’s debt payment drops to $14.4 million, a figure it will pay annually until 2036.
But a long-term plan for Atlantic City — which lost a significant portion of its tax revenue when the casino tax appeals were settled — to meet its obligations still needs to be formulated.
“We recognize the city’s debt service is an important issue, and it is one that is not being ignored,” said Ryan. “Once the city budget is nailed down, we will be in a better position to speak about the city’s debt service payments and the work that is being done to help the city responsibly pay down its debt.”