Atlantic City may miss a .8 million interest payment on municipal bonds, which would make it the first municipality in New Jersey to default on such a payment since the Depression era.
The city is facing a major financial shortfall and has ostensibly been out of cash since early April. A spokesman for Atlantic City Mayor Donald Guardian said the mayor is considering missing the payment, but will wait to see how much cash the city has collected from quarterly tax payments due in May.
Bloomberg News then reported that it would be the first default by a New Jersey municipality since the Depression. The interest payments on the bonds are insured by Assured Guaranty, which would be obligated to pay bondholders should the city default. The bonds were sold in 2012 to fund tax-appeal settlements, the news service reported.
The threat of default comes after another week with no progress in the state legislature on any plan to bail out the struggling municipality. A standoff continued between Governor Chris Christie—who supports a state Senate plan to have the state takeover the city’s finances—and state Assembly Leader Vincent Prieto who has proposed a plan to give the city two years to meet financial benchmarks before the state assume control.
Both plans tie financial aid to the city into the mix including an immediate payment of about $60 million in casino-funded marketing costs that would be directed to the city. The resort included about $33 million of those funds into its 2015 budget and is now suing the state to try and recover them.
In the meantime however, the city is still strapped for cash.
Chris Filiciello, Guardian’s chief of staff said the mayor will have to wait until the last minute to decide on the bond payment.
“He has to take everything into consideration,” Filiciello told Philly.com.
The city is expecting between $40 million and $50 million in taxes for the quarter, but its largest taxpayer, the Borgata, is withholding its quarterly payments because it is owed more than $150 million from tax appeals, Filiciello noted.
Meanwhile, a city councilman’s plan to cut salaries of elected officials was shot down as officials said the money saved would barely impact the city’s better than $500 million debt.
Atlantic City Councilman Kaleem Shabazz proposed 20 percent pay cuts for City Council, city clerk, and city solicitor, all of which are controlled by council. Shabazz also wants the mayor and city directors to take pay cuts.
Guardian earns $103,000 a year, but has already cut his salary from $143,000 paid to his predecessor. The city’s nine council members earn $28,000 a year.
However, City Council president Marty Small said the proposal caught council off guard.
“It would be easy to do the politically correct thing with a measure like this to play on taxpayers’ minds to think real savings would be generated when the fact of the matter is it does nothing to even put a dent what we need to do,” Small told NJ Advance Media. “I could see if it was an across-the-board, citywide measure, but to single out city council as a way to say this is where savings are going to come, let’s not kid ourselves. I’m not interested in doing anything ceremonial that doesn’t mean anything.”
Small added that council has not had a raise in its salary since 2000.
Also, a bill that would allow the city to end pension payments to its retired lifeguards—which costs the city about $1 million a year—was introduced in the state Senate. The bill was introduced by Senate President Stephen Sweeney, who is also the main proponent of the state taking over the city’s finances.
The pensions have been used by both Christie and Sweeney to point out the city’s excesses, but Guardian parried back that the pensions are set by a state law that hasn’t been amended since 1936. That law requires lifeguards to get pensions after 20 years of service.
Sweeney said the measure should solve the problem.
“I’m giving them the ability to get rid of it,” Sweeney said. “We intend to pass it. I would hope my colleagues in the Assembly think pensions for lifeguards is a little ridiculous. We can end this practice. Because Atlantic City says they can’t. We’ll eliminate the law.”
