Atlantic City officials are gearing up to fight a possible state takeover after New Jersey rejected the city's five-year fiscal recovery plan.
Mayor Donald Guardian announced at a Wednesday afternoon press conference that the city will submit a response to the state's report to address "inaccuracies and misinformation" in the hope that New Jersey Department of Community Affairs Commissioner Charles Richman will reconsider the decision.
Guardian said the 150-day period provided by the state to form an acceptable recovery plan expires tomorrow under legislation approved in late May to avert a June bond default by the struggling gambling destination.
Guardian emphasized that the city is also prepared to wage a legal battle to prevent state intervention, which would create uncertainty over whether the junk-ranked city can meet its debt service obligations.
"Having a plan in place allows the city to access bond markets at reasonable interest rates," said Guardian in his opening remarks at the press conference. "We are appealing to the commissioner to understand the critical nature of this plan and reevaluate it on the accurate backup information that we will provide tomorrow."
DCA spokeswoman Tammori Petty said late Tuesday the state's Local Finance Board will consider whether it should assume finance-related powers under the Municipal Stabilization and Recovery Act approved by lawmakers in May. The legislation would empower the Local Finance Board to alter Atlantic City's outstanding debt and municipal contracts and sell city assets for a five-year period.
Atlantic City made its $9.4 million Nov. 1 bond payment Tuesday afternoon just before it learned that the state rejected its rescue plan late Tuesday afternoon.
The city has $240 million in bond debt, and more than $500 million in total debt when factoring in casino tax refunds and other obligations.
The rejected rescue plan hinged largely on selling its former municipal airport property, Bader Field, to its independently-operated Municipal Utilities Authority for $110 million.
City officials were also planning to cut 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.
Commissioner Richman categorically rejects any claim that his decision was disingenuous, inaccurate, misinformed, politically-motivated, or guided by anything other than the requirements of the Municipal Stabilization and Recovery Act and the City’s Plan,” Petty said in an emailed statement. “Any items for consideration should have been addressed during the 150 days provided to the City to prepare its Plan and then included in the Plan as required by the Act.
Moody's analyst Douglas Goldmacher said in a statement Wednesday that not enough information is known yet from Tuesday's developments to determine their credit impact because the state hasn't indicated yet how much control if any it will exert over Atlantic City. The city, which is rated Caa3 by Moody's, next owes debt service payments of $2.3 million on Dec. 1 and $4.8 million on Dec. 15.
"The city's financial condition remains extremely weak and it will be difficult for it to make these payments without funding assistance from the state or other outside sources," said Goldmacher.
Frank Shafroth, director of the State and Local Government Leadership Center at George Mason University in Virginia, said New Jersey's record of state takeovers, most recently with Camden, proved very costly. He criticized Gov. Chris Christie for appointing Kevin Lavin as emergency manager in early 2015, but without giving him the authority to make substantive changes. Lavin endorsed state intervention, but recommended against Chapter 9 bankruptcy.
"The emergency manager's team had cost taxpayers about $2.6 million, but seemingly played little constructive role in working with the mayor and council," said Shafroth. "It is hard to fashion effective recovery if the key players are not coordinating. It almost makes it appear as if the State was simply waiting to play 'gotcha.'"
Richman said that the city's five-year recovery proposal was "not likely to achieve financial stability" and contained a "significant financial gap" each year along with "a cumulative financial shortfall" in excess of roughly $106 million.
Richman said the city underestimated debt service over the next five years by roughly $18 million and overstated property tax revenue by roughly $20.5 million.
Plans to sell Bader Field and initiating a new $105 million bond offering to pay off debt are "speculative in terms of their viability," the report said.
"I would have much preferred to leave management of the city's recovery in the hands of its municipal officials," Richman said in the
Petty did not immediately respond for comment on what would happen if the city resubmits the recovery plan to the DCA or what the timetable is for deciding how much control the state may choose to exercise.
Shafroth also noted that a report from Moody's describing the plan as "robust and detailed" should have been taken more seriously by the state as evidence of the "heavy lifting" undertaken by the city to form a workable plan.
"This would have seemed the prototype opportunity for the state to work with in a constructive way, rather than against the city," said Shafroth. "The state's takeover record of municipalities is spotty, at best."
