On Tuesday, Atlantic City Emergency Manager Kevin Lavin said that “bankruptcy is not something” he and consultant Kevyn Orr “are contemplating” for the municipality.
Although Lavin expressed optimism the details of his financial recovery plan for the city would be worked out by the end of June, Michael Busler, a municipal finance professor at Stockton University, said Wednesday the report’s prescriptions — particularly a call for layoffs and pension cuts — would likely lead to an impasse with the city’s unions, leaving a bankruptcy filing as the only option.
Atlantic City Emergency Manager Kevin Lavin said Tuesday the city must lay off a portion of …
“The workers are going to say, ‘It’s not our fault you’re having all this trouble. We shouldn’t have to accept the burden of this,’” Busler said.
“I think they won’t be able to come up with an agreement by June,” he said, “in which case, the only thing left is for the city to file bankruptcy.”
Lavin’s report said the city faces a $101 million budget deficit this year. It also laid out $128.9 million in potential savings and “revenue enhancements” that could be tapped to cover it.
But $10 million of that comes from additional budget cuts, possibly including several hundred layoffs, according to rough estimates Lavin provided.
About $40 million in benefit and pension deferments or reductions were factored into the savings as well.
While Busler held out little hope a resolution would be found, other experts said the possibility of bankruptcy is less likely than the professor indicates.
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“There are a lot of hoops you have to jump through before you file for bankruptcy,” said Juliet M. Moringiello, a law professor at Widener University who has studied municipal bankruptcies around the country.
Moringiello said a judge must be convinced the municipality in question has done all it can to cut the deals needed to restore fiscal solvency. That means proving that good-faith negotiations have taken place with a variety of groups, including employees and creditors holding the city’s debt — another key issue for the shore town.
“If Atlantic City were to file for bankruptcy next week, it would be pretty easy to make an argument that they don’t meet the eligibility requirement because they have not yet negotiated with their creditors,” Moringiello said. “This plan is a blueprint for that negotiation.”
Melissa Jacoby, a professor at the University of North Carolina School of Law, who studied Detroit’s bankruptcy — which Orr managed — said that city faced negotiation challenges Atlantic City may not.
For example, because of its size, Detroit had to forge deals with a larger number of creditors, employees and retirees than the resort.
The courts, she said, ultimately found that “it was impracticable for Detroit to negotiate with all of its creditors because they were too dispersed,” while unions successfully argued they couldn’t reasonably represent their retired members.
Jacoby also said bankrupt cities also meet two other criteria. The first is that they have run out of cash to pay ongoing expenses, while the second is they have entered into “service delivery insolvency,” meaning they can no longer provide essential services to citizens.
Lavin’s report does predict a potential cash-flow crisis beginning in May, but says “corrective actions” can be taken to avoid it.
Regarding municipal services, Jacoby said that in Detroit, “significant swaths of the city had no streetlights,” police response times were “unreasonably long,” and “the fire department had outdated equipment.”
By contrast, Guardian’s administration has highlighted its efforts to maintain services with fewer staffers. And while some city workers have talked of the added burden retirements have placed on them, others deliver a different message. The city’s blue-collar workers, for example, recently took over the city’s recycling collection from Atlantic County, arguing they can do it more efficiently and effectively.
Much remains unclear about the impact of Lavin’s proposals on the city’s workforce, the outcome of negotiations affecting pensions and benefits, the union reaction to proposed changes, and the city’s future level of functionality.
Chris Filiciello, chief of staff to Mayor Don Guardian, said Tuesday the city aims to reduce its workforce to between 850 and 900 employees. Lavin, who put the number of city full-time equivalent employees at 1,150, called for reducing staffing between 20 and 30 percent. It remains unclear whether that includes approximately 150 recently retired workers.
Kevin Roberts, a spokesman for Lavin, didn’t return a call for clarification Wednesday.
Atlantic City Council President Frank M. Gilliam said Wednesday he was unfamiliar with the administration’s staffing goal, but that the cut Lavin suggested could “decimate us in terms of being able to run our day-to-day business.”
He said council members couldn’t estimate the city’s proper staffing level until Guardian gave them a budget, and he called on the mayor to do so.
Guardian was unavailable for comment Wednesday.
Even so, Gilliam said Lavin’s report clarified the city’s fiscal situation, and he remained optimistic that deals with labor could be struck.
“As time progresses, hopefully the unions and their members really begin to see the critical financial crises the city’s in,” he said. “I hope that through arbitration, that they’ll be more accepting to some of the suggestions that council and the administration will be asking (of) them.”
Al Borzi, who heads the city’s supervisors union, said Wednesday municipal workers have always been willing to come to the table.
“All of the unions have expressed that we’re willing to work with the city,” Borzi said. Administration officials, he said, had in recent months deferred talks about a future contract, saying they were waiting for Lavin’s report to be released.
“The report is out now,” Borzi said. “Let’s see if they’re going to ask us to sit with them.”
Regarding negotiations, Borzi said his members hadn’t drawn lines in the sand they are unwilling to cross.
“We’re waiting to get some kind of idea of what the city’s expecting,” he said.
“I think most of us understand that (over) the next couple years, we’re not going to get a raise,” said Virginia Darnell, who leads the white-collar employees union. “We’re not happy about it, but we do understand the city’s financial considerations.”
Darnell said the average salary among her members is between $30,000 and $35,000, and that further reductions would be difficult to accept.
She said the city’s pension payments are determined by the state, not her workers, and that she doesn’t understand how Lavin’s projected pension savings could be realized without deferring payments, resulting in costly interest down the road.
If bankrtupcy was being considered, she said, the Christie Administration could prevent it by providing the city with needed aid.
“I don’t believe anybody wants the city to go bankrupt,” she said, adding that, besides its economic disruptions, it would also convince potential tourists that the resort was dirty, unsafe and not worth visiting.
“Perception is everything,” Darnell said.
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