Atlantic City’s government managed to keep its doors open last week in the face of an ever-elevating battle of words between New Jersey Governor Chris Christie and state Assembly Leader Vincent Prieto over a planned state takeover of the city’s finances.
But despite generating a lot of colorful headlines, there was still no progress in the state legislature that would give financial relief to the beleaguered city, which could face another shutdown threat as early as May.
The city had expected to run out of money April 8 and shutdown non-essential services while furloughing workers. That was averted, however, after the city’s council and its nine labor unions agreed to defer paying employees to once a month, rather than every two weeks. That allows the city to make its next payroll in May after quarterly tax payments begin to come in.
But the plan does nothing to plug the serious holes in the city’s budget, which are made worse by more than $400 million in debt it can’t currently pay back. Officials warn that the city could easily run out of money next month as well.
The crisis led to a series of developments throughout the week that culminated with Prieto introducing a new bill in the Assembly to have the state takeover the city’s finances. However, as expected, Christie said he will not sign the new plan into law as it differs significantly from a takeover plan already adopted by the state Senate.
Prieto and Christie met earlier in the week, but did not reach an agreement, according to reports. Several southern New Jersey lawmakers had also urged Prieto to post the original takeover bill for a vote in a letter, but Prieto emerged with his own plan.
Prieto’s new plan basically combines two bills passed in the Senate that would allow the state to take over the city as well as set a payment in lieu of taxes (PILOT) plan for the city’s casinos. The PILOT plan is designed to stabilize casino tax appeals and ensure the city receives about $150 million per year from the casinos. The bill also redirects about $60 million in other casino funds to the resort.
The bill would allow the state to take over the city’s finances, but only if the resort fails to meet certain performance targets. A special committee would be appointed to see that the city meets the targets. If not, the state would then be able to take over many city functions.
Prieto has opposed the Senate takeover bill because it would give the state the right to nullify union contracts.
“Collective bargaining and worker rights cannot be the first thing on the chopping block,” Prieto said. “The expert committee created under this bill would be given a year to use its sweeping power to cut spending, save money and restore Atlantic City to sound financial condition. If it does not meet specific benchmarks, more draconian steps could rightly be taken, but worker rights must first be valued.”
The bill was approved by an Assembly committee and is scheduled for a full vote this week.
Prieto told the Associated Press that he has not yet spoken with Senate President Steve Sweeney, a fellow Democrat, about the bill, but called on him and Christie to consider it. Sweeney is sponsor of the Senate’s version of the takeover.
Christie, however, has left no doubt he intends to veto the bill should it get to his desk. Christie called Prieto’s measure a “union protection plan” and said “this is the most irresponsible game of political chicken I’ve ever seen,” according to the AP.
Atlantic City Mayor Don Guardian, however, supports the Assembly plan saying it “is the difference between a democracy and a dictatorship.”
According to the AP, Prieto’s bill would establish a five-member Atlantic City Planning Committee consisting of state and local officials, including three Christie appointments and Atlantic City’s mayor and City Council president. After a year, the committee would report on whether the city has met certain performance benchmarks to a special master appointed by the chief justice of the state Supreme Court.
If the special master agrees the benchmarks have not been met, the state could then do most of the things envisioned in the Senate version of a takeover bill, the AP said.
If the benchmarks are not met after the first year, the state would be able to dissolve city authorities and agencies; veto the minutes of City Council and other city board meetings; and sell off city assets. If the benchmarks are not met for a second consecutive year, the state could cancel or unilaterally modify union contracts; abolish any non-elected positions in Atlantic City government; and enter into shared services agreements with Atlantic County or other government agencies, among other powers, according the AP’s analysis.
Prieto said the new plan would not exempt the state from unfair labor practice laws and changes a provision in the Senate plan that allows casinos to opt out of the payment-in-lieu-of-taxes requirement if the state approves new casino construction in the northern part of the state.
Still, this new plan comes after weeks of Christie saying that he will not compromise on the rescue plan, which included sharp exchanges between Christie and Prieto, and Christie and Guardian.
Christie even held a press conference in Atlantic City where he again blasted the city for poor fiscal management and not making substantial cuts to its municipal budget and called Guardian a liar for opposing the Senate takeover plan after agreeing to it earlier.
Christie also had the state’s commissioner of education file a lawsuit against the city early last week to require it to make tax payments to the city’s school district. Christie said the move is designed to protect about $34 million in property tax collections owed to the district. The municipality is responsible for collecting school district taxes.
Christie charged that the city has been using school district monies to fund the municipal government.
“The action won’t fix the city’s own financial problems, but it will prevent them from making Atlantic City students and their families collateral damage to their reckless financial games,” Christie said at a news conference.
Guardian, however, charged that Christie’s figures were inaccurate. He said while the city has been about a month behind on making tax payments to the schools, but that was due to a payment schedule set by the city’s already-in-place and Christie-appointed emergency manager.
The city’s school board president John Devlin told the Press of Atlantic City that the board has been working with the city on the tax payments and that the board does not support the state’s move.
“It’s just another avenue to take the city down,” he told the paper.
The state’s main teachers union, however, supported Christie’s move.
The Senate takeover bill, supported by Christie, specifically exempts the teacher’s union from the provision allowing the state to unilaterally terminate or modify city union contracts.
Borgata Tax Appeals
And in another major setback for the city a judge ruled earlier in the week that Atlantic City violated an agreement to repay millions of tax dollars to the Borgata Hotel Casino & Spa.
The settlement stems from tax appeals filed by the Borgata and a settlement with the city to repay $88.25 million for tax years 2011 to 2014.
The ruling found the city in breach of the settlement when it failed to pay the sum in 2014. The ruling allows Borgata to pursue a full trial on the tax appeals in tax court. The city had sued to block those appeals.
The city also owes Borgata $62 million in back taxes for 2009 and 2010 that were set by the tax court. The city missed a deadline to pay back those funds in December.
The judge, however, ordered the city and the casino to continue mediation and regularly report back to the court, according to the AP.
According to The Press of Atlantic City, the resort’s tax assessor valued Borgata at about $2.2 billion for 2009 and 2010, but in 2013, after a three-week bench trial, a tax court judge reduced the assessments to $880 million and $870 million, respectively. The ruling was affirmed on appeal, and the state Supreme Court declined to review the case.
Borgata withheld its $7.5 million first-quarter tax payment due in February and says it will continue withholding quarterly payments to offset the $62 million.
And to make matters even worse, the city saw its bond rating further reduced to junk status—which has blocked the city from borrowing to repay the Borgata debt—early in the week.
Moody’s Investors Service downgraded the city’s general obligation rating to Caa3 from Caa1.
The rating expects that bondholders could lose up to 35 percent of principal “in light of the city’s very large structural deficit with limited sources of relief without state assistance,” Moody’s said.
Moody’s said the rating could be upgraded if legislation is adopted that “meaningfully augments city revenues and materially reduces the structural budget deficit.”
