Atlantic City skyline (copy)

Atlantic City could actually lose revenue if the casino industry eclipses $3 billion in gaming revenue this year because of an obscure provision in the 2016 payment in lieu of taxes legislation. (VERNON OGRODNEK / For The Press)

ATLANTIC CITY — Just when it seems the seaside resort is poised to get its fiscal house in order, an obscure provision buried within the casino PILOT law is going to deliver yet another setback.

If Atlantic City’s casinos eclipse $3 billion in total gaming revenue this year, which they are projected to do, the resort would receive about $4 million to $5 million less from the industry in 2020. That’s because of a crediting mechanism built into the 2016 legislation.

The city would lose about $14 million to $15 million in investment alternative tax funds (IATs), according to Department of Community Affairs spokesperson Lisa Ryan, but that loss would be offset by the gain of about $10 million in additional PILOT funds the city would get.

The 10-year PILOT, or payment in lieu of tax, bill was intended to stabilize Atlantic City’s finances by temporarily eliminating the volatility of costly tax appeals from the casinos and providing a predictable revenue stream for the city, the county and the school district based on annual gaming revenue.

However, the DCA — the agency with direct fiscal oversight of Atlantic City following the 2016 takeover — noted in a budget document that even if PILOT payments were to increase because gaming revenue reached the next fiscal benchmark, the city would experience a net loss because of a crediting concept in the law that holds casino tax payments at 2015 levels.

The credit will be paid for with money from IATs that the city is statutorily obligated to use for municipal debt service.

In 2018, Atlantic City received nearly $9.7 million in IAT funds. The 2019 municipal budget, which has not been formally adopted, anticipates more than $13.8 million from IAT funds.

If the casino industry meets the $3 billion gaming revenue threshold outlined in the PILOT, Atlantic City will not receive any IAT funds in 2020 or 2021.

“We are aware of the IAT issue and working with the city, particularly its finance staff, to adapt to its near and long-term impact on the city’s finances, which, as it stands now, is negative in the short-term, but positive 2022 and beyond,” Ryan said.

PILOT bill sponsor Assemblyman Vince Mazzeo, D-Atlantic, said Golden Nugget Atlantic City and Resorts Casino Hotel would not sign on to the voluntary PILOT without the credit provision in the bill responsible for the two-year moratorium on IAT payments to the city.

He said the PILOT law did its job, stabilizing Atlantic City government and finances.

“We wouldn’t have seen the turnaround with $3 billion in revenue without it,” Mazzeo said. “But I have always said it isn’t perfect. We have a hiccup here, but in 2022 and on the money will be restored.”

He said he is open for discussion about fixing it legislatively.

State Senator Chris Brown, R-Atlantic, said he will work on amending legislation.

“We should always strive to be fair and do better, which is why I am working with my colleagues to close this tax loophole to make sure families and local businesses are not stuck paying the tab,” Brown said.

Council President Marty Small Sr. said he was aware of the provision in the PILOT legislation and it was one of the reasons he testified last year to the State Legislature about Atlantic City being able to recoup a percentage of sports betting tax revenues.

Gov. Phil Murphy signed legislation in October that host municipalities of sports betting facilities would receive 1.25% of taxes from sports wagering revenue, but Atlantic City was bypassed in favor of the funds going to the Casino Reinvestment Development Authority.

Small said the city has “begged” Trenton for luxury, room and parking fees in the past, which are all revenue streams that most municipalities keep yet Atlantic City does not and contributes to the resort’s fiscal shortfalls.

“It’s a shame that we are not reaping the benefits of activities in the city,” Small said.

”Something has to change. People can’t keep saying that they care about the financial well-being of Atlantic City and then, when we come up with new ideas, they shut it down.”

Atlantic County Executive Dennis Levinson had opposed the PILOT in favor of a bankruptcy route for the city.

The county sued the state after the PILOT bill passed to get the 13.5% of PILOT funds it had been promised by then-Gov. Chris Christie. The state had wanted the county to receive just 10.4%.

“We tried to explain to (city officials) at the time the PILOT was not in their best interest,” said Levinson. “They believed the governor (Christie).”

The county’s share will not be affected by the credit provision.

At-large Councilman George Tibbitt had not heard about this “poison pill” provision in the law before, and said city attorneys are looking into it and will report back to council.

If Atlantic City is indeed going to lose $14 million under the law, “the Senate and Assembly need to amend that,” he said.

Sixth Ward Councilman Jesse Kurtz said he wanted to see “some type of subsequent state action with money attached to it to prevent us from taking two steps back in regards to our fiscal health.”

Just last year the state was assuring council that IAT payments would continue, according to Tibbitt.

Kurtz said not only was he surprised to learn about the little-known provision in the PILOT law, but that he felt it “ran counter to the recent state involvement and the spirit of that involvement in our finances.”

”As the municipal finances are being stabilized and the tax rate stabilized, the one huge issue that we have as a city is our debt burden and our inability to bond money for capital improvements,” he said. “Reducing the IATs to the city at a time like this is going to have a very negative impact because the purpose of diverting IATs in the first place was to deal with the overwhelming debt burden and put us in a position to accomplish capital improvements.”

The Mayor’s Office did not return request for comment.

The PILOT law outlines tiers for total gaming revenue generated by the casino industry and resulting payments in lieu of taxes. In 2018, the casino industry reported $2.86 billion in revenue and the PILOT responsibility was $132.6 million.

The city received $70.2 million of that total, while Atlantic County was paid $15.6 million and the Atlantic City school district was given $44.2 million.

Two new casino properties and legalized sports betting created additional gaming revenue streams in the second half of 2018.

With a full year of nine operational casino properties and sports wagering revenue, the industry is on pace to eclipse the $3 billion threshold in the PILOT bill.

The resulting PILOT amount for 2019 is estimated to be roughly $152.6 million.

Atlantic County would receive approximately 13.5%, and the Atlantic City school district would be paid about 33% based on last year’s calculation, although the school system payment is subject to change.

From 2022 to 2026, the final years of the PILOT, the crediting mechanism lapses and Atlantic City would again receive its portion of IAT funds. According to the DCA budget document, the city would receive annual IAT funding of $39.6 million during those years.

Staff Writer Michelle Brunetti Post contributed to this report.

Contact: 609-272-7222 ddanzis@pressofac.com Twitter @ACPressDanzis

Staff Writer

I cover Atlantic City government and the casino industry since joining The Press in early 2018. I formerly worked as a politics & government reporter for NJ Herald and received the First Amendment: Art Weissman Memorial NJPA Award two years in a row.

Staff Writer

In my first job after college got paid to read the New York Times and summarize articles for an early online data base. First reporting job was with The Daily Record in Parsippany. I have also worked in nonprofits, and have been with The Press since 1990.

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