Atlantic City misses deadline opening the door for a state takeover

Once again, Atlantic City is facing another financial crisis and likely loan default, as the beleaguered gaming mecca by the sea has violated the terms of a $73 million bridge loan from the state, part of the rescue legislation passed by lawmakers earlier this year to help it avoid impending bankruptcy.

City officials, under an agreement with the state announced last month, were supposed to vote to dissolve the city’s Municipal Utilities Authority (MUA), which handles the city’s water system, or designate it as collateral by Thursday, September 15. After twice failing to vote on the issue this summer, the Atlantic City council also missed the Thursday deadline.

It’s the latest development in a long and messy saga for the financially downtrodden city, which has seen the shuttering of multiple casinos and the collapse of its ratable base over the last several years. And it raises questions about whether the city, under its council and Republican Mayor Don Guardian, is making enough progress in its efforts to come up with a financial strategy to address its problems.

“The frustration is there is just an absolute lack of progress on this,” Sen. Jim Whelan (D-Atlantic) told NJ Spotlight on Friday. “It’s not like they’re saying ‘well, we missed a deadline, but this is what we’re going to do. We’re going to go deal with the county, or lease it, or privately manage it, all the other things cities have done.’ I don’t hear that.”

In May, following months of political wrangling, lawmakers in Trenton passed a long-anticipated rescue package intended to help Atlantic City out of its fiscal hole. That legislation, afterward approved by Gov. Chris Christie, included a series of short-term relief measures for the city, such as a payment-in-lieu-of-taxes plan to help stabilize its casino revenues, as well as an ultimatum that the city establish a five-year strategy to stabilize its overall finances and present it to the legislature with 150 days, or face a potential state takeover.

The package also featured a $73 million bridge loan meant to keep the city out of bankruptcy — it was at risk of defaulting on a $3.4 million debt payment in August — while local officials crafted that plan. A later agreement between city lawmakers and the state stipulated several conditions of the loan, one of the most important being the dissolution of the city’s MUA by September 15.

When that deadline came and went last week, many were left to wonder what action — if any — the state will take in its wake. Under the agreement, the state can now demand that Atlantic City repay the loan immediately, withhold state aid, or begin seizing collateral, which could include the MUA’s assets.

Atlantic City’s MUA, which provides water to more than 8,000 residents and business in the area, has been one of the main targets in talks about balancing the city’s budget. It’s been touted as a potential source of major savings by officials, including the city’s former emergency manager Kevin Lavin. Lavin, who was appointed by Christie at the height of the city’s financial debacle last year, had recommended privatizing the city’s waterworks, arguing it could provide up to $6 million a year in additional revenue.

While some have argued convincingly against privatization — supporters of the MUA contend it should be kept independent to control rates and preserve its role in hiring city residents — there are other options officials may take, including handing the MUA’s operations off to the county under a lease agreement or dissolving it altogether and turning it into a city department, as the loan’s terms called for.

Lawmakers in Atlantic City have struggled to come to a consensus on the issue, despite the significant pressure to do so. The city council has voted down or pulled measures to dissolve the MUA five times, with the last two occurring at their most recent meetings. In August, the council was deadlocked in a 4-4-1 vote on a series of measures that would begin dissolving the authority and set aside its assets as collateral, according to a report by the Press of Atlantic City.

Council members again quarreled last Wednesday over the measure — voting instead to rescind approval of the loan altogether, though the action did not receive the two-thirds majority needed to pass.

While it’s unclear exactly what has kept the council from coming together on the issue — critics of the loan say it’s a blatant attempt to seize control of the city’s waterworks — there are local politics at play. Council President Marty Small Sr., who worked closely with Guardian on the loan agreement, is rumored to be a potential 2017 mayoral candidate; so also is Councilman Frank Gilliam, a vocal critic of the Republican’s administration, who had motioned to rescind approval of the loan at the council’s last meeting.

“It’s sad to say, but whatever the state does, we deserve,” Small told the Press of Atlantic City just before the deadline on the MUA dissolution passed. “People didn’t take it seriously. They missed meetings. They claimed meetings were illegal.”

Guardian, for his part, asked the state last week for a “reprieve” on any penalties it might seek regarding the loan while the city continues to work on its long-term fiscal plan. He argued in a statement that the “MUA will actually be a better part of the overall financial solution if it is kept whole.”

In a corresponding statement from the Department of Community Affairs, which oversees the loan, Tammori Petty, director of communications, told NJ Spotlight that “a decision has not been made” on the issue and that the “Division is awaiting legal guidance as to its options.”

The lack of action on the MUA, as well as a lack of action on other potentially cost-saving measures in Atlantic City by local officials, has raised concerns among other lawmakers in Trenton. Some, including Whelan, fear the city council’s refusal to meet the terms of the $73 million loan might be indicative of the council’s unwillingness to make other tough choices, the kind that must be made if the city hopes to deliver a plan that satisfies Christie and other legislators come November 3.

If it can’t , Christie, under the rescue legislation, would then be able to assume control of parts of the city’s government, with the power to rip up current labor deals and spin off city assets.

Whelan, who said he’s had numerous meetings with members of the city council about the MUA and other issues, argued local officials aren’t being proactive enough about taking steps to put Atlantic City’s fiscal future back on track. He noted that many other cities in the state — such as Jersey City, which saw a huge influx of cash after amending its franchise agreement with its MUA in 2014 — have successfully privatized or leased to the county parts of their water works, saving them considerable money.

Other cost-saving measures that have also been discussed but have yet to be undertaken, Whelan said, include setting up additional early retirement programs in the city, which would offer incentives to city employees to mitigate layoffs.

“You have a government to run. You have a city that has to be funded. You have opportunities to save money with your water company. You have opportunities to save money with your retirement center program,” Whelan said. “And what we have seen by and large is this sort of zig-zag pattern of one day we’re going to this with the water company, another day we’re going to do that. But they just can’t seem to get a consensus to do the things they have to do. Nobody wants to make unfortunately the hard decisions that need to be made.”

Whelan said the lack of progress is “frustrating,” but that he hopes the state will put off punishing the city for missing the loan deadline in favor of waiting to see what local officials propose in November.

“To me the deadline, the most crucial deadline, is November 3,” Whelan said. “What is the plan, the overall, not just the one piece?”

_________________________________________________________

NJ Spotlight, an independent online news service on issues critical to New Jersey, makes its in-depth reporting available to NewsWorks.