A state “takeover” of Atlantic City’s government may be morphing into an “intervention” as New Jersey lawmakers continue to refine their plans to aid the struggling resort.
Officials announced refinements to a bill to have the state takeover most of the city’s finances—that aren’t already controlled by the state—calling it “a cooperative working agreement” between the state and city.
The bill, however, still gives the state control of the city’s finances including the right to renegotiate debt, break contracts, dissolve boards or agencies, sell off city assets, and file for bankruptcy, according to an analysis by the Associated Press.
Under the proposed bill, the state Local Finance Board “may in its exclusive discretion assume, reallocate to, and vest in the director, any of the functions, powers, privileges, and immunities of the governing body of” Atlantic City for five years.
State Senate President Stephen Sweeney called the bill an “intervention” rather than a “takeover.”
“The intervention plan will enable the state and the city to work together to accomplish what Atlantic City can’t do on its own,” Sweeney said at the announcement. “The city’s fiscal crisis is severe and immediate. It owes bondholders more than $500 million, has more than $150 million in debts for tax appeals, and has no ability to get financing from the bond market. Property values have plummeted, the foreclosure rate is the highest in the country and unemployment is greater now than during the recession. The state has to take a more direct role with more effective solutions.”
Atlantic City Mayor Donald Guardian has said that the city has been facing a possible bankruptcy as it continues to struggle meeting its debt obligations and previously agreed to accept the state’s help rather than fight a takeover attempt.
State Senator James Whelan, who represents Atlantic City, said the new bill still gives the state great control over the city, but now spells out that control in very specific terms.
“The original bill was very broad in terms of all the powers the Local Government Services would have had,” Whelan told the Press of Atlantic City. “Now this is really concentrated on the financial stuff.”
One of the more controversial aspects of the plan is the granting to the state the right to sell the city’s assets, including its private Municipal Utilities Authority, which Sweeny has suggested could net the city $100 million.
City officials have wanted to preserve the authority—which has been much coveted by private utilities—in part to keep water rates low in the city for its poorer residents. The new bill gives the city a year to figure out how to “monetize” the water utility “before the state can act to use the asset to generate needed funds for the city,” according to the AP.
The refined measure replaces an earlier takeover bill—which would have lasted 15 years—introduced in January and incorporates several changes suggested by New Jersey Governor Chris Christie, officials said.
A bill previously vetoed by Christie that would let Atlantic City’s eight casinos make payments in lieu of taxes in return for not appealing their property taxes has also been reintroduced in the state legislature. The bill would redirect casino payments that once went to the state Casino reinvestment development Authority to paying down the city’s debt, the AP reported.
Christie—back in the state after withdrawing from the presidential race—also gave his annual budget address last week, but made no mention of Atlantic City’s troubles in the speech, where he introduced a $34.8 billion budget and challenged state Democrats to work with him to solve the state’s most pressing issues.
North Jersey Casinos
Meanwhile, the state’s plan to offer referendum to voters to allow two casinos to be built in Northern New Jersey remained a topic of debate, with some analysts saying they could be among the most successful in the country.
But some warned that the casinos could face the same pressure of competition that has devastated Atlantic City’s casino market—especially if New York goes forward with plans to build a casino near Manhattan.
Although locations for the new casinos have not been selected, the two proposals most often mentioned are at the Meadowlands Racetrack in East Rutherford and one in Jersey City, both near Manhattan.
“Given where that’s located, in terms of access to a substantial population base, we think they actually could do pretty well,” Peter Trombetta, an analyst with Moody’s Investors Service, told the Associated Press. “Any time you cut off access to competing casinos and offer a good product, people will go there instead of where they used to go. If I were Atlantic City, if I were Connecticut, I’d be nervous. All of the surrounding markets would be affected. But we look at gaming as a zero-sum game. If they built that, I don’t think it would grow the market.”
A Manhattan casino could be approved as soon as December 2022, according to the New York State Gaming Commission. New York City already has one of the top-earning casinos in the nation at the Aqueduct Racetrack in Queens, which offers only slot machines but still won $816 million from April 2014 to March 2015.
“You’re going to assume the competition is going to go after your market if it’s close by,” Moody’s analyst Keith Foley also told the AP. “If New York state sees north Jersey casinos are doing very well and taking visitors from Manhattan, if they put a casino in downtown New York City, that’ll cut that traffic off coming into North Jersey.”
Other Developments
Moody’s Investor Services also issued a report saying that Atlantic City’s shrinking casino taxes and financial trouble is beginning to effect the financial health of its home county.
Atlantic City taxes make up nearly 25 percent of Atlantic County’s tax base and making up for losses will require the county to make tax increases or spending cuts, Moody’s said in its weekly credit outlook analyzed by the Press of Atlantic City.
Atlantic County has an Aa2 negative debt rating, according to Moody’s. Atlantic City’s rating is Caa1 and is being reviewed for further downgrade.
Atlantic County’s tax base fell to $36.6 billion in 2015 from $58.2 billion in 2008, Moody’s said. Over the same period, Atlantic City’s fell to $8.4 billion from a high of $22.2 billion, the report said.
