Atlantic City would avoid an immediate default and get more time to avert a state takeover under compromise legislation moving forward in the New Jersey legislature.
The Assembly Judiciary Committee has advanced a bill that would extend Atlantic City a bridge loan while also giving the distressed local government 150 days to plug its more than $80 million budget deficit and prepare a five-year plan to get its finances in order. The legislation has the support of Atlantic City Mayor Donald Guardian and State Senate President Steve Sweeney, D-Gloucester.
"I think this is very doable and livable," Guardian said after the bill cleared committee Tuesday. "It gives us some immediate help with finances."
Assembly Speaker Vincent Prieto, D-Secaucus, said the legislation allows Atlantic City to chart its own course while protecting collective bargaining rights for city employees. He had opposed a previous Senate plan that would have empowered New Jersey's Local Finance Board to alter municipal contracts and debt over a five-year period.
"This bill includes a new bridge loan to help Atlantic City through this year, and includes a guaranteed level of state aid to provide predictable support for the city to balance its budget," said Prieto in a statement. "This is the type of compromise legislation the Assembly was seeking - one that respects that city's right to self-governance and worker rights while providing reasonable benchmarks to resolve this crisis."
The press office for New Jersey Gov. Chris Christie did not immediately respond for comment, but Prieto expressed confidence that the Republican governor will sign the bill, despite Christie's opposition to Prieto's earlier legislation.
The rescue plan, along with a companion bill enabling casinos to make fixed payments in lieu of property taxes for 10 years, is slated for a vote of the full legislature on Thursday.
Atlantic City Council President Marty Small called the compromise agreement "an important first step," but emphasized that challenges remain.
"This compromise gives our City Council and Mayor our right to self-govern and allows our residents vote to not be disenfranchised," Small said in a statement. "However, a tall task remains in making the necessary cuts that will be extremely painful and tough."
Standard & Poor's downgraded Atlantic City to CC from CCC-minus in early May citing a high likelihood of default "even under the most optimistic circumstances." Moody's slashed Atlantic City two notches to Caa3 in April and estimates the municipality has more than $400 million in debt outstanding. The city made its $1.8 million May debt service and next owes $1.6 million on June 1, according to Moody's.
"A liquidity infusion from the State of New Jersey would be credit positive for Atlantic City, but there would remain a high degree of uncertainty regarding a long-term solution," said Moody's analyst Josellyn Yousef. "We will continue to monitor any proposed legislation and how it is ultimately implemented, particularly as it pertains to debt restructuring and Atlantic City's long-term fiscal stability."
Four Atlantic City casinos closed in 2014. The gambling industry comprises 75% of the city's tax base and revenues dropped 46% from 2005 to 2014 due largely to new casino competition around the Northeast, according to Moody's.
Howard Cure, director of municipal bond research for Evercore Wealth Management, said the rescue plan is a positive, but there is still some long-term uncertainty including how Atlantic City will address $170 million in tax refunds owed to the Borgata casino.
He said Atlantic City bears watching for bondholders of all New Jersey credits because of state's tradition of avoiding municipal defaults and bankruptcies since the Great Depression. New Jersey faces its own financial struggles due largely to underfunded pension liabilities.
"This was important since it shows a commitment from the state to avoid bankruptcy," said Cure. "It gives some sense of assurance that the state will still be involved and not let the city go adrift."