New Jersey's Local Finance Board approved a state takeover of Atlantic City's finances Wednesday.
The board's 5-0 vote empowers the state to alter the junk-rated city's outstanding debt and municipal contracts and sell city assets for a five-year period.
The fiscal controls were included under the Municipal Stabilization and Recovery Act approved by New Jersey lawmakers in May when Atlantic City was given 150-days to craft an acceptable rescue plan to avert a June default.
The action comes after the state's Nov. 1 rejection of a five-year recovery plan proposed by the city.
Atlantic City officials could not immediately be reached for comment on the state intervention. Mayor Donald Guardian said last week the city was prepared to wage a legal battle to maintain its sovereignty.
State intervention creates uncertainty over whether Atlantic City can meet its upcoming debt service requirements. The city made its $9.4 million Nov. 1 bond payment and next owes $2.3 million on Dec. 1 and then $4.8 million on Dec. 15, according to Moody's Investors Service. The Jersey Shore gambling hub has $240 million in bond debt, and more than $500 million in total debt when factoring in casino tax refunds and other obligations.
"The state now has the authority to enact significant changes in Atlantic City, including selling city assets, entering shared services agreements, and restructuring debt," Moody's Investors Service said in a statement Wednesday. "Despite the possibility of debt restructuring, Moody's views the state takeover as credit positive because the state certainly has the ability to make Atlantic City's forthcoming debt payments on December 1 and 15, and it was questionable whether the city could make those payments without financial assistance. Atlantic City will become the first city to be taken over by the state since Camden in 2002, and we will watch developments closely to determine how they will impact the city and the city's Municipal Utilities Authority (B3/negative).
"The city has previously stated that it would appeal a state takeover. It is not yet clear how this might impact the timing of a takeover or the payment of debt service."
The rescue plan rejected by New Jersey's Department of Community Affairs on Nov. 1 hinged largely on selling its former municipal airport property, Bader Field, to its independently-operated Municipal Utilities Authority for $110 million. The city was also planning to slash 100 full-time workers, reduce the annual budget by $55 million and issue $105 million of tax-exempt bonds through New Jersey's Municipal Qualified Bond Act.
Atlantic City, which has a roughly $100 million budget deficit, has suffered five casino closures since 2014. The distressed city is rated CC by S&P Global Ratings and Caa3 by Moody's
