By Hilary Russ

NEW YORK (Reuters) - New Jersey is spending at least $1.7 million, more than twice as much as previously known, on professionals mainly from the audit firm Ernst & Young LLP (EY) to turn around distressed gambling hub Atlantic City.

The city's tax base shrank by two-thirds in five years because of casino competition from neighboring states, prompting Governor Chris Christie, now a 2016 Republican presidential candidate, to appoint emergency manager Kevin Lavin in January.

Under Lavin, EY [ERNY.UL] billed $1.25 million for its second phase of work, currently underway, to develop a long-term recovery strategy, according to documents obtained through a public records request. Costs could keep growing as consultants determine how to rebuild the city.

The level of spending on outside professionals for a distressed city is "unprecedented for New Jersey," said Rutgers University senior policy fellow Marc Pfeiffer, who served for 26 years in the state's local government oversight agency.

Christie's office said in a statement that Lavin and his team are "working diligently with Atlantic City and other stakeholders to identify the solutions that will assist the city in establishing long-term fiscal stability."

EY said it "does not have any additional insights to share at this time."

The oceanfront resort had the highest U.S. metro foreclosure rate in the first half of 2015, and Atlantic County lost a larger percentage of jobs last year than any other big county in the nation.

In addition to the $1.25 million, EY has billed $250,000 for the first phase of work on a March report that detailed the city's dire finances but disclosed little that wasn't already revealed in previous studies.

Lavin's annual salary added another $135,000 to the tab. Kevyn Orr, the ex-emergency manager of formerly bankrupt Detroit, who worked with Lavin in Atlantic City until April, received about $70,000.

Lavin's office, however, missed its June goal to provide an updated plan.

Standard & Poor's Ratings Services cut the city's credit rating three notches deeper into junk territory, to 'B', earlier this month because of the lack of updates.

Lavin spokesman Bill Nowling said the goal is still to put the city on a secure financial footing and close a $101 million shortfall in this year's budget.

"Once that process is complete, the city will be in a position to present a long-term plan that is both realistic and financially sound," Nowling said in an email. "The timeline for this process is driven by work required to accomplish those aims."

(Reporting by Hilary Russ; Editing by Alan Crosby)