New Jersey has rejected a fiscal plan submitted by the Atlantic City government to stabilize the city’s finances, clearing the way for a state takeover of the resort’s spending.
The state Department of Community Affairs reviewed the plan and determined it was unlikely to stabilize the city’s finances. The city faces about $500 million in debt it currently can’t pay back and has been flirting with bankruptcy for more than a year.
As part of a rescue package of bills passed in Trenton earlier this year, the city was charged with coming up with a five-year plan to stabilize the city’s finances. If the plan was rejected—which it now has been—the state could move to take over the city’s finances and spending.
New Jersey Department of Community Affairs Commissioner Charles Richman said the city’s plan failed to meet several necessary fiscal requirements. Richman wrote the five-year plan had a “significant financial gap each year” and a cumulative shortfall of about $106 million, according to a DCA statement.
“I would have much preferred to leave management of the city’s recovery in the hands of its municipal officials,” Richman wrote in his decision. “However, I am constrained by the plan the city has placed before me. The enormous problems confronting the city did not occur overnight. City leadership has had ample time to improve the city’s financial condition, yet has avoided doing so in any meaningful way. The plan is not likely to achieve financial stability for the city.”
City officials said the will fight the decision.
“We are in the process of reviewing all of our options, and we will take all necessary steps to protect the people of Atlantic City,” said Mayor Donald Guardian and City Council President Marty Small in a joint statement. “We will fight this until we cannot fight any longer.”
Guardian later said the city would submit a response to the “many inaccuracies” in the state’s decisions, according to the Press of Atlantic City.
“I believe if the plan is still rejected it will end up in court,” Guardian said.
To take over city operations, the state’s Local Finance Board, a division of the Community Affairs Department, must next consider whether to assume governing powers from local officials. A spokesman for the division told Reuters that it is unclear how long such a move would take.
The biggest sticking point in the dispute between the state and the city remains the city’s Municipal Utilities Authority. Officials in Trenton—including Governor Chris Christie—have wanted the city to sell the water authority saying it could bring in $100 million or more for the city to pay down debt.
However, city officials have fought to keep the MUA independent to protect water rates for residents. The MUA has been self-sustaining, drawing its revenue from water rates.
Under the rescue package, the city received a $73 million loan from the state and was required to put the MUA up as collateral on that loan. That required the city to dissolve the independent authority, but the city’s Council has refused to do that, technically putting the city in violation of its loan terms.
Next, the city included a measure in its fiscal plan where the MUA would bond for $110 million to purchase the city’s former municipal airport Bader Field. That money would then be used to pay down city debt.
The DCA had serious problems with that aspect of the plan, with Richman saying the proposed plan was “structurally flawed.”
The plan also included a proposed tax settlement with the Borgata casino, which the city owes $150 million for back taxes the casino has won on tax judgements. The agreement would have had the city pay $103 million, but officials on both sides said any deal would require the state approving the fiscal plan.
Richman also faulted the plan for not including tax increases and said that it underestimates the city’s debt service over the next five years by approximately $18 million; assumes the city will receive $31 million more in redirected casino investment taxes than is likely; and overstates property tax revenues by $20.5 million.
The proposed takeover would give the state authority over Atlantic City’s fiscal moves, including the right to dissolve agencies, cancel decisions by local elected officials and sell off assets, including both Bader Field and the MUA. Richman’s decision, however, stopped short of saying the state intends to use that authority.
In a related matter, the city did make a $9.4 million debt service payment last week, but still must make another about $7 million payment before the end of the year.
