New Jersey Gov. Chris Christie put his state government in control of struggling Atlantic City Thursday, hiring an emergency manager and naming a key figure in Detroit's bankruptcy case as a consultant.
In an executive order, Christie appointed corporate restructuring attorney Kevin Lavin from FTI Consulting to oversee Atlantic City's finances and daily operations as emergency manager. He named Kevyn Orr, who as emergency manager guided Detroit through the biggest U.S. municipal bankruptcy, as a part-time consultant in the emergency management effort.
The city is almost entirely dependent on a casino gambling sector that has been in decline for years, highlighted by the September closure of the two-year old Revel casino and hotel.
Moody's Investors Service placed Atlantic City's Ba1 general obligation bond rating on review for a downgrade in December after the city postponed a $140 million bond sale to the first quarter. In July, Moody's had slashed Atlantic City's rating to speculative-grade Ba1 from Baa2, citing declining casino revenues.
The city suffered four casino closures last year with a fifth, the Taj Mahal, mired in bankruptcy.
Christie's office, announcing his Atlantic City executive order, said there is a belief that "expert and objective leadership is needed to restructure the operations, finances and culture of its government."
The announcement added that the administration wants to help Atlantic City "diversify from simply a gambling hub" and will aid casino workers impacted by recent closures with job searches through the Department of Labor and Workforce Development.
In a statement released Thursday after he met Lavin and Orr, Atlantic City Mayor Don Guardian said he was relieved that the worst rumors that he and the City Council will be stripped of all legislative powers appear untrue.
"They made it clear that they recognized myself and City Council as the locally elected representatives of the people of Atlantic City and that they wanted to work together with us in the spirit of cooperation," Guardian said.
"From my perspective, Governor Christie has given us more tools to help bring Atlantic City out of its financial distress and restore its long term viability," the mayor said.
New Jersey Senate President Stephen Sweeney proposed legislation last November aimed at propping up Atlantic City financially and helping it avoid bankruptcy. The proposal, which would include having casinos making payments in lieu of taxes instead of paying property taxes for two years, was endorsed by State Sen. Jim Whelan and Assemblyman Vince Mazzeo, who both represent Atlantic City.
Sweeney declined to comment on Christie's executive order.
New Jersey law authorizes municipalities to file for Chapter 9 bankruptcy.
Howard Cure, director of municipal research at Evercore Wealth Management, said New Jersey has had solid oversight of its localities through the Local Government Supervision Act, but in the case of Atlantic City more assistance is needed.
"Atlantic City's troubles are so entrenched that it requires another level of help," said Cure. "The question is how much ability the emergency manager is going to have with renegotiating contracts and making cuts."
James Spiotto, managing director at Chapman Strategic Advisors LLC in Chicago, said while there have been high profile Chapter 9 filings in recent years including Detroit's in 2013, there have been only 661 in total since 1937. Several Michigan municipalities have reached the emergency manager stage as Atlantic City has, but none other than Detroit has needed bankruptcy, he said.
"Just because you have an emergency manager doesn't mean it will lead to a Chapter 9 filing," said Spiotto. "There are many alternatives."
Atlantic City had $261 million in debt outstanding as of Dec. 31, 2013, according to data from the Municipal Securities Rulemaking Board. A report from Moody's last month showed that lost revenue from the shuttered Revel Casino could lead to Atlantic City facing a $70 million budget shortfall.
The Republican took over the city after defeating incumbent Democratic mayor Lorenzo Langford in 2013.
Atlantic City Revenue Director Michael Stinson said the emergency manager move is not expected to impact a $140 million bond sale planned for the first quarter that was called off last November.
The city is also planning to sell $12 million in bond anticipation notes by Feb 1.