Atlantic City’s water utility will not be sold or leased as part of New Jersey’s state takeover of the cash-strapped city, state officials announced Wednesday.

Former U.S. Sen. Jeffrey Chiesa, who was designated in November 2016 to lead the financial recovery effort of Atlantic City when state intervention took effect, said the Atlantic City Municipal Utilities Authority would not be privatized. The state was empowered under the Municipal Stabilization and Recovery Act approved in May 2016 to sell assets like the water authority to help address the city’s debt crisis.

Atlantic City skyline
The Atlantic City Municipal Utilities Authority will not be privatized under New Jersey's state intervention powers. Bloomberg News

“After speaking with community members and listening to their concerns about a potential privatization of the MUA, the State recognizes the important role the MUA plays in the community at large and the visible pride that city residents and businesses have in their water system,” said Chiesa in a statement. “This allegiance was evident in this year’s petition drive in support of the MUA and in City Council’s vote to give city residents a say in any dissolution of the MUA.”

Chiesa's announcement came shortly before a change in leadership at New Jersey's capital with Democratic Governor-Elect Phil Murphy is set to take over for Gov. Chris Christie in January. Murphy appointed Lt. Gov.-elect Sheila Oliver to head the state's Department of Community Affairs, which is overseeing the Atlantic City state takeover.

Dissolving the MUA was a condition under a $73 million bridge loan the state provided Atlantic City to avert it defaulting on a $3.4 million debt payment owed Aug. 1, 2016. The city violated the loan terms in early October when it missed an Oct. 3, 2016 deadline to dissolve the water authority, but the state did not demand an immediate repayment.

“In the past year, there has been considerable concern on the part of Atlantic City residents that the Atlantic City Municipal Utilities Authority would be sold,” City Council President Marty Small said in a statement. “This decision by the State was the product of intense effort by the Atlantic City residents, community groups and outside organizations to being pressure on the State to prevent the sale.”

New Jersey’s Local Finance Board, an arm of the DCA, voted to implement state intervention on Nov. 9, 2016 after rejecting the city’s five-year recovery plan. The city’s proposal hinged largely on selling its former municipal airport property, Bader Field, to the MUA for $110 million to help pay off outstanding casino debt.

Former Atlantic City Emergency Manager Kevin Lavin recommended in a January 2016 report that the city and Atlantic County team up to dissolve and restructure the water authority. Lavin told The Bond Buyer in a June 2016 interview that a long-term lease of the authority would provide the city around $7 to $8 million to be used in a trust devoted to debt service payments.

Atlantic City, which has junk credit ratings of CCC-plus from S&P Global Ratings and Caa3 from Moody’s, issued $138 million in bonds earlier this year through New Jersey’s Municipal Qualified Bond Act program to finance casino property tax appeal settlements. Democratic City Councilman Frank Gilliam will take over as mayor in January after defeating Republican incumbent Donald Guardian in November.

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Corrected December 22, 2017 at 10:55AM: An earlier version gave the wrong S&P rating.