New Jersey can seize control of Atlantic's City finances under existing state law even absent passage of a takeover bill, according to a state legislative memo.
The memo from the Office of Legislative Services that was obtained by the Press of Atlantic City said the Local Government Supervision Act of 1947 empowers New Jersey to take control of the gambling hub's finances. The memo says that since Atlantic City has been under state supervision since 2010, New Jersey has "sufficient authority over the city's finances to prevent a financial catastrophe." The city is expected to run out of cash by April 1 unless there is state assistance, according to a Jan. 21 report from former emergency manager Kevin Lavin.
"At the point when Atlantic City cannot borrow, short-term, to pay its essential operating expenses due to the county and other taxing districts, it is hard to envision the state refusing to exercise its powers under the Local Government Supervision Act (1947) to take control of the finances of the city," the memo said, according to the Press.
Atlantic City officials blasted a state intervention proposal Monday that if passed would empower New Jersey to renegotiate Atlantic City's outstanding debt and municipal contracts for up to five years. The state would also have an ability to leverage city assets such as its water authority and make staff cuts.
The memo states that the Local Government Services director can raise taxes as part of exercising control of city finances under the law. The state could also force the city to liquidate or refinance debt, according to the memo.
Atlantic City owes bondholders more than $400 million as well as roughly $170 million in tax refunds to the Borgata casino. Mayor Donald Guardian has said if a resolution cannot be reached with the Borgata then he will have no choice but to petition the state's Local Finance Board for a bankruptcy declaration. The memo said it isn't clear if the Borgata debt would be erased in a potential bankruptcy filing.
"If the Borgata property tax refund can be characterized as a property tax prepayment for future tax quarters, then it is unlikely that the bankruptcy code's automatic stay of action would apply," the memo said.
The Atlantic City mayor's press office did not immediately respond for comment on the memo.
Atlantic City has junk-level bond ratings of Caa1 by Moody's Investor Service and CCC-minus from Standard & Poor's.
