Is Christie's attempt to stabilize A.C. backfiring?

Whatever Gov. Christie intended when he appointed a team of bankruptcy and restructuring experts to devise a plan to stabilize Atlantic City's finances, what he got was a firestorm that may have exacerbated the city's plight.

Officials delayed a $12 million bond offering last week after Moody's Investors Service sharply downgraded Atlantic City's debt rating. The bond-rating agency said Christie's appointment of an "emergency manager" could signal an end to the state's long-held policy of not allowing local governments to default or go bankrupt.

Atlantic City Mayor Don Guardian said last week that the city had the money to pay off $12.8 million in bonds due Tuesday, instead of refinancing them, if it must.

Even as state officials have insisted that bankruptcy is not planned for Atlantic City, Christie's action and Moody's reaction may have made it impossible for Atlantic City - which has $397 million of debt - to borrow, at least until the emergency manager makes his recommendations on city finances, expected in March.

"Chris Christie basically shot Atlantic City in the head," said Mark Schwartz, a Bryn Mawr lawyer who represented the Harrisburg City Council during its debt crisis in 2011 and 2012 and has served as a bond lawyer.

While investors in local government bonds are always concerned about politics, experts said, Christie's presidential ambitions and Atlantic City's high profile as a gambling hub introduce an unusual level of capriciousness.

"If Chris Christie is going to make a presidential run, I don't know how much he really cares what Atlantic City will look like 10 years from now," said David D. Tawil, president of the New York hedge fund Maglan Capital and a restructuring expert.

"What's most important is what's going to resonate best with voters around the country," Tawil said.

Christie's use of the term emergency manager to describe restructuring expert Kevin Lavin was misleading, said Marc H. Pfeiffer, a former deputy director of New Jersey's Division of Local Government Services, which oversees the state's interventions in municipal finance.

"The phrase does not accurately construe the work that Mr. Lavin is doing," said Pfeiffer, now senior policy fellow and assistant director of the Bloustein Local Government Research Center at Rutgers University.

"This is fact-finding," he said. "It is analysis. It is development of recommendations, because the emergency manager is not granted any specific authority to implement anything."

The distinction was lost on many who zeroed in on Lavin's orders to prepare a plan that could include "the adjustment of debts pursuant to law."

Even if Lavin's plan is not binding, Standard & Poor's found his appointment troubling.

"Third-party intervention is often more draconian than the actions taken to date and has a greater likelihood of being detrimental to bondholders," said S&P analyst Lindsay Wilhelm.

Adding to the alarm was the choice of Kevyn Orr, Detroit's emergency manager during its bankruptcy, as an adviser to Lavin.

"Gov. Christie must know he was sending a message. It either means bankruptcy is on the table or they will use the leverage of the threat of bankruptcy," said Stephen D. Eide, a senior fellow at the Manhattan Institute's Center for State and Local Leadership in New York.

In 2012, Philadelphia hired a team led by Lavin, then with FTI Consulting Inc., to find ways to save money from a private-sector perspective. The focus was not on people, but on overhead costs and nontax revenue collections.

Lavin's team suggested ways to boost the city's general fund by $85 million over five years through savings and revenue increases. The city decided to count on about $60 million of that.

"I would expect him to be very thoughtful and reasoned about his approach," said Philadelphia budget director Rebecca Rhynhart, who said she worked closely with Lavin.

The task is massive in Atlantic City compared with the tweaks Lavin recommended in Philadelphia.

For years, when Atlantic City had a monopoly or near-monopoly on East Coast gambling, "the government of Atlantic City had a lot of wealth and they spent it," said Pfeiffer, the former state official who helped oversee local government budgets.

"Now that they don't have a lot of wealth, what happens next? The governor's office, I think, has been prudent," in adding more eyes to look at what can be done, Pfeiffer said.

Michael Busler, a finance professor at Richard Stockton College, said the biggest challenge for the city would be reining in labor costs.

"What will happen now is the emergency manager will try to renegotiate some of the contracts to get the costs, wages down significantly," Busler said.

Under New Jersey's Local Government Supervision Act of 1947, which is what Christie cited in appointing Lavin, there is no authority to abrogate union contracts. That would be up to a judge, if the city were put into bankruptcy.

Guardian said last week that progress was being made on union contracts.

"We've got eight collective bargaining agreements citywide," he said. "All but one have been moving swimmingly."

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