Atlantic City's proposed financial recovery plan was rejected by New Jersey, setting the stage for a possible state takeover and raising more doubts about the junk-rated city's ability to service its bond debt.
New Jersey's Department of Community Affairs announced late Tuesday that after a five-day review of the city's proposal, Commissioner Charles Richman and his team determined that "it is not likely to achieve financial stability for Atlantic City."
The DCA's statement did not indicate if the state would immediately intervene in Atlantic City; the rescue package state lawmakers approved in May empowers New Jersey's Local Finance Board to alter outstanding debt and municipal contracts for five years if the city is unable to come up with an acceptable rescue plan.
The rescue plan the city delivered hinges largely on selling its former municipal airport property, Bader Field, to its independently-operated Municipal Utilities Authority for $110 million. The plan would have also cut 100 full-time workers, reduced the city budget and included the issuance of $105 million of tax-exempt bonds through New Jersey's Municipal Qualified Bond Act.
The DCA said the city's five-year plan was rejected because it contained a "significant financial gap" each year along with "a cumulative financial shortfall" in excess of roughly $106 million. The DCA said that the city underestimates debt service in the plan over the next five years by roughly $18 million and overstates property tax revenue by roughly $20.5 million. The agency also cautioned that plans to sell Bader Field and initiating a new $105 million bond offering to pay off debt are "speculative in terms of their viability."
Analysts have raised questions about the viability of raising money for the plan by issuing bonds through the Municipal Utilities Authority, which is rated junk, as is the city itself.
"The City has taken virtually no concrete actions during the course of the past 150 days to begin to turn its budgetary problems around and indicate that it has the capability to make the hard decisions that will be necessary to stabilize the City's finances and attract investment that will propel the redevelopment of the City," DCA spokeswoman Tammori Petty said in a statement.
The Atlantic City press office could not immediately be reached for comment on the state's decision. Mayor Donald Guardian said last week that the city will appeal in court if the state rejected the plan. The Jersey Shore gambling hub is saddled with $240 million in bond debt and also owes $170 million in tax refunds to the Borgata casino.
The city made its $9.4 million Nov. 1 debt service payment; according to Moody's Investors Service it faces $7.4 million in debt service payments due in December.
Assembly Speaker Vincent Prieto, D-Secaucus, responded with disappointment about the state decision pointing to how past state takeovers of school districts have been "disastrous"
"The plan should have been approved," Prieto said in a statement. "I doubt the state can do better."