Emergency Manager Kevin Levin Set to Make Report on Atlantic City’s Financial Future
Kevin Levin, the man appointed by Gov. Chris Christie to oversee Atlantic City’s finances for the state as the “Emergency Manager“, is set to make a report to the state soon on the city’s deteriorating financial situation. The report might be made public as early as this coming week.
Mr. Levin’s report is going to focus on the relationship between interstate casino competition and Atlantic City casino’s falling revenues. The loss of revenue caused 4 of the city’s 12 casinos to close last year, while the tax base of Atlantic City has been ravaged.
Property and Payroll Taxes Declined Sharply
Atlantic City, which has a population of about 40,000, receives 70% of its property taxes from its casino resorts. The loss of the four casinos means the city lost over 20% of its property taxes in 2014. The casino industry also lost 8,000 jobs in 2014, which makes up nearly 90% of the 9,000 jobs lost overall.
Though many of the Atlantic City workers lived outside the city, the loss of 9,000 jobs in a county seat with a population of 40,000 is a first-class economic disaster. In one list of the worst job markets in the United States, Atlantic City was beaten by Detroit.
Atlantic City Is the New Detroit
In fact, the comparison to Detroit is apt. At the height of its decline, the population of Detroit shrank from around 1.5 million to 600 thousand, creating a disastrous decline of the city’s tax base. The New York Times recently suggested that Atlantic City was headed towards a “Detroit-style bankruptcy“. Some suspects the Emergency Manager’s report is going to make that recommendation.
45% Decline in Tax Revenues
The tax base of Atlantic City has deteriorated in a stark fashion, with roughly 45% of its revenues gone since 2008. In its peak year of 2006, Atlantic City’s gambling revenues topped $5.4 billion. In 2014, the casino industry’s revenues were only $2.4 billion.
An economic free fall of that sort is catastrophic to a city’s economic outlook, because few leaders would prepare for such a decline. Long term loans are often set for 20-to-30 year terms, so many of the financial plans the city had were made for a city with a much larger tax base. It’s no coincidence that New Jersey had to loan the city $40 million (precipitating Kevin Lavin’s appointment), because the financial institutions in New York City rate Atlantic City bonds as junk bonds at this point.
Revel Casino Is Emblematic
Throughout 2014 and the early part of 2015, the plight of Revel Casino has become symbolic of the city’s lost hopes and one-time ambitions. When Revel Casino was in the planning stage, it was conceived as a Las Vegas-style resort that would draw customers based on its style and luxury. In many ways, the $2.4 billion Revel Casino was a last gasp of the time when Atlantic City thought it could compete with Las Vegas–or at least become the undisputed east coast version of Las Vegas.
When Revel Casino opened in April 2012, it was already having major troubles, after Morgan Stanley pulled out of its $900 million investment in the resort and hotel. The casino went through two bankruptcies in its 29 months in operation, before finally closing in September 2014.
Bizarre Bankruptcy Proceedings
The bankruptcy process has been nothing short of bizarre. The casino property had two potential buyers and three expected sales, only to have all three plans falls through. Glenn Straub of Florida was the stalking horse bidder, but he was outbid by Brookfield Asset Management out of Toronto. Then Brookfield pulled out of the sale, leaving Straub as the lone bidder. Then Revel AC cancelled the sale to Straub, amidst several disputes. As it appeared the two would go through a long series of lawsuits, they announced they had settled on a price for about $10 million less than expected.
Then Judge Gloria Burns threw out the sale (which both sides wanted), saying she believed Revel AC could get a better deal. Now, Izek Shomof has entered the picture, so Straub and Shomof square off for Round 4 of the bankruptcy process for Revel Casino.
At the heart of all the stories is the loss of market share by Atlantic City casinos. After Pennsylvania allowed casino-style gaming at in-state racetracks and casinos in 2004, Atlantic City began a long decline. New York casinos also took away customers, but the Global Recession of 2008 hit Atlantic City hard. Just as recovery was expected, Hurricane Sandy hit the Jersey coastline. The subsequent damage to the economic interests to the state made it hard for any recovery plan to get underway, due to the state’s lawmakers focusing on wider issues.
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