New Jersey's top elected officials Tuesday announced a deal with Atlantic City Mayor Donald Guardian to allow increased state intervention in an effort to keep the Jersey Shore gambling resort out of bankruptcy.
Gov. Chris Christie and State Senate President Steve Sweeney, D-Gloucester, announced new legislation that would give the state increased power over Atlantic City finances, including restructuring municipal debt, changing collective bargaining agreements and selling off city-owned assets. The Republican governor said the legislation, which he hopes to sign by late February, would provide a five-year state takeover compared to 15 years Sweeney had proposed. Guardian opposed Sweeney's plan.
Guardian, Christie and Sweeney announced the new plan at a press conference an hour and a half ahead of an emergency Atlantic City Council meeting that had been scheduled to discuss seeking bankruptcy protection.
"Last Thursday, I placed a telephone call to the mayor, and I told him my view was the city needed help and I wanted to help the city and we needed to work together," said Christie during the joint press conference. "The time to act is now."
Christie did not say whether the takeover proposal would address $153 million Atlantic City owes the Borgata casino in tax refunds. The city missed a $62 million tax refund payment owed to the Borgata on Dec. 19.
Atlantic City Mayor Donald Guardian said last week he would consider bankruptcy following Christie's rejection of a financial rescue package that had been approved in the state legislature and would have addressed some of the city's short-term fiscal challenges.
The 2015 budget Atlantic City adopted in September relies on $33.5 million in anticipated revenues from redirected casino taxes that were included in the rescue bills. A Jan. 15 report from Emergency Manager Kevin Lavin noted that the city's cash flow will run out by April 1 without the recovery bills.
"It's time for tough decisions and pain as we move forward," said Guardian at the press conference. "I refuse to say anything is off the table, including bankruptcy."
Moody's Investors Service and Standard & Poor's both issued reports following Christie's veto outlining Atlantic City's liquidity crisis and pointed to the need for state assistance to avoid a default on its debt. S&P slashed its Atlantic City credit rating four notches to CCC-minus.
Mike Cerra, assistant executive director of the New Jersey League of Municipalities, said Tuesday's agreement is "a positive development" since neither a bankruptcy nor long-term state takeover would be beneficial to the local governments in the state. Cerra said a bankruptcy would have sent negative message to the bond markets that New Jersey would allow a distressed municipality to reach that stage of insolvency.
"Nothing good comes out of a bankruptcy for a local government," said Cerra. "Neither a bankruptcy or a full state takeover were desirable options."
New Jersey, which last had a municipal bankruptcy during the Great Depression, formed the Division of Local Government Services in the late 1940s with the power to approve Chapter 9 requests and the power to approve budgets for distressed localities to ensure they can pay their debts. Camden filed for bankruptcy in 1999 without state approval, but then withdrew its application after receiving $62 million in state aid.
"There is a long tradition of state oversight in New Jersey," said Marc Pfeiffer, assistant director of the Bloustein Local Government Research Center at Rutgers University. "It is an added protection to bondholders."