Wednesday, October 30, 2013

Stung by tax ruling, Atlantic City braces for the worst



This struggling resort saw its newest casino, Revel, emerge from Chapter 11 bankruptcy before summer, but now a more ominous threat lurks.

Atlantic City itself could face bankruptcy, city officials say, after last week's decision by a New Jersey Tax Court to award the city's largest employer and taxpayer - Borgata Hotel Casino & Spa - a $48.8 million property-tax reduction, plus interest, that the city will have to refund.

Though city officials say they plan to appeal to the Appellate Division of Superior Court, they fear the tax court ruling will instigate a new round of tax appeals by casinos here, hoping for a big payday like Borgata's.

Atlantic City's substantial decline in gaming revenue since 2006 has already triggered a wave of successful tax-assessment appeals by several casinos between 2009 and 2012. At least two - Atlantic Club and Golden Nugget - said last week they planned to seek new assessments to lower their tax liability even more.

"If this decision stands, its impact could effectively exempt several other casino properties from local property taxation," City Solicitor Braun D. Littlefield said Oct. 21, when the Borgata ruling came down. "We maintain that this is an inequitable and grossly unfair position in which to place the taxpayers of this city."

Littlefield said the burden could shift to residential and other smaller property taxpayers to make up the city's projected revenue loss.

The case underscores the growing tension between the city and its most successful gambling palace.

Borgata officials say that they are willing to pay their fair share but that times have changed and that the Borgata faces the same competitive pressures as everyone else.

Since opening 10 years ago in the city's Marina District, and despite recent revenue declines, the Borgata is A.C.'s top grossing casino and employs the largest staff, at 5,500. It opened at a cost of $1.1 billion in summer 2003 and its parent company, Boyd Gaming Corp., has since poured another billion dollars into the property.

In a 64-page opinion, Tax Court Presiding Judge Patrick DeAlmeida agreed to lower the assessed value of the Borgata property from $2.3 billion to $880 million in tax year 2009, and $2.3 billion to $870 million in tax year 2010.

The potential refund to Borgata represents 20 percent of the city's annual revenue.

"Since 2006, the city's and school board's spending combined had gone up 34 percent, while our property taxes have gone up 84 percent," said Joe Lupo, senior vice president of operations at the Borgata. "The city needs to look at its spending, and that's what the taxpayers should be asking themselves: 'How is the city spending its dollars and can it do it more efficiently?' "

To which Littlefield responded in an e-mail Friday: "We firmly believe that the recent ruling . . . was incorrect."

He suggested the state Legislature come up with "a uniform methodology to assess casino properties in an equitable manner." The same sentiment was expressed by Atlantic City Mayor Lorenzo Langford, who is running for reelection, in a candidates' roundtable last week at the Tropicana.

The top 10 property taxpayers in Atlantic City last year were casinos, with the Borgata atop the list, according to the Atlantic County Board of Taxation. The casinos also provide most of the jobs.

Moody's analyst Vito Galluccio said there was a parallel between declining A.C. gaming revenue - an erosion of $2.3 billion since 2006 - and sinking casino property values.

Casino property valuations are based in part on the income they generate.

The downward trajectory shows no signs of reversing.

Gaming revenue was down 9.3 percent year-to-date through September, according to the N.J. Division of Gaming Enforcement, marking the 13th straight monthly casino revenue decline.

DeAlmeida cited the forces eating Atlantic City's lunch:

"By late 2009, a virtual wall of casinos, constructed or planned, arose along the Pennsylvania-New Jersey border from Bethlehem to South Philadelphia and continued into northern Delaware," he wrote in his opinion. "These casinos, which offered slot machines, restaurants, and other amenities attractive to the Borgata's targeted customer base, skimmed clients from Atlantic City casino-hotels at a growing rate."

Atlantic City has already issued debt to pay for $200 million in refunds that casinos have won in tax appeals since 2007. The city's tax base has decreased 34 percent over the last five years as a result, according to the county Board of Taxation.

The appeals have included ones by the Tropicana, Bally's, Caesars, Harrah's Resort, Trump Taj Mahal, Trump Plaza, and the Atlantic Club.

In June 2012, Trump Entertainment Resorts Inc., which owns the Trump Taj Mahal and Trump Plaza, won a record $54 million in property-tax credits from the city in settling its assessment challenge.

In May 2012, the Atlantic Club, formerly the A.C. Hilton, settled with the city to reduce its property value to $165 million, less than a third of the $540 million assessment of 2008. Michael Frawley, chief operating officer of the Atlantic Club, said, "We do intend to appeal again in 2014 for a further reduction."

It's the same with the Golden Nugget Atlantic City, formerly Trump Marina. "All we ask is that we be treated fairly," said Tom Pohlman, its executive vice president and general manager. He said the casino would be "seeking a fair property valuation" next year.

Tropicana and Revel reached settlements this year. Tropicana received a $49.5 million refund in the form of credits against future bills from 2013 to 2017. The $2.4 billion Revel, which opened on April 2, 2012, as the most expensive casino ever built in A.C., had its assessed value reduced from $1.48 billion to $1.15 billion in the spring.

Revel filed for bankruptcy 11 months after opening because of drastically low revenue. It emerged from bankruptcy in mid-May.

Galluccio predicted the "casinos are apt to continue appealing their property taxes because their gaming revenues are likely to continue declining."

Borgata senior executive Auggie Cipollini said three more property-tax appeals by the casino - for 2011, 2012, and 2013 - would head to tax court in January.He said the casino's assessed value for those years would likely be lower than the $870 million the court agreed to for 2010 - "because Borgata generated less income in each of those years than the two years that were settled."

Source: Philly.com

No comments:

Post a Comment