A.C. mayor: Bankruptcy is possible

TRENTON - Atlantic City is considering filing for bankruptcy, Mayor Don Guardian said Wednesday, even though the state is likely to block such a move and is pushing a plan to take control of the local government's finances.

Guardian said he planned to hold an emergency meeting of the City Council next week to discuss a possible bankruptcy amid a fiscal crisis. Senate President Stephen Sweeney said that would be reckless and has attacked the city's government as incapable of reining in spending.

"It would be good from a financial point for Atlantic City to file for bankruptcy," Guardian told reporters after he met with Assembly Speaker Vincent Prieto (D., Hudson) in his Statehouse office. "We come out with a clean slate," he said, adding the city could renew every collective bargaining agreement.

"What it's not good is for the rest of the state," Guardian said, explaining that other municipalities might be tempted to file for bankruptcy without trying to cut costs first.

The city has requested bids for a bankruptcy attorney.

It owes about $240 million in bonded debt, the mayor said, and owes the Borgata Hotel Casino & Spa as much as $160 million in property tax appeals. The city says it doesn't have the money - and cannot realistically access bond markets - to make that payment.

A municipality must get state approval to file for bankruptcy. No New Jersey municipality has entered bankruptcy or defaulted on its general obligation debt since the 1930s, according to Moody's Investors Service. Camden filed for bankruptcy in 1999 but quickly changed course when the state offered millions in aid.

Sweeney (D., Gloucester), who is leading the takeover effort, described bankruptcy as the "worst possible outcome for Atlantic City and for the state of New Jersey."

"By having the state manage the city's finances, it could negotiate with creditors, access the bond market, monetize its assets, and organize and rightsize city government," he said in a statement. The legislation would let the state take control of the government for 15 years.

Guardian noted that the state Local Finance Board must approve the city's budget. But the state cannot cut costs; it may only reject the city's spending plans.

One objective of the takeover, according to a person familiar with the matter, would be to disband the fire and police departments and reorganize them under Atlantic County control, much as Camden's police force was replaced in 2013 by a county-run force.

A report released Friday by the city's emergency manager presented such consolidation as an option.

Guardian and Council President Marty Small Sr. met with Prieto a day after Gov. Christie rejected legislation intended to help stabilize the city's finances. Christie, a Republican running for president, is said to support a takeover.

Prieto told reporters that he was open to the takeover legislation but still reviewing it. The bill has not advanced in the Legislature. "I think everybody wants to avoid bankruptcy," Prieto said.

Sweeney and Prieto have promised Christie that they would hold votes on all Atlantic City-related bills, including one that would enable a state intervention, according to a person familiar with the matter who spoke on condition of anonymity.

That agreement was struck when Christie helped broker an accord on a proposed constitutional amendment to expand gaming to North Jersey, the source said, adding that Christie wants to act on all proposals simultaneously.

"I won't respond to people hiding behind anonymity who inaccurately portray my position on what I understood to be the Senate president's initiative," Prieto said in a statement. "Otherwise I'll refer you to my comments about being open to the idea with possible amendments."

A key provision of the legislation Christie let lapse would have required the city's eight casinos to pay a collective sum of at least $120 million annually for 15 years to the city in lieu of property taxes.

The city's 2015 budget, which totaled $262 million, included about $33.5 million in revenue that was to come as a result of the legislation. Lawmakers and independent analysts say the city will run out of money in April.

The governor's office said Wednesday that Christie did not sign the legislation "for one simple reason: Atlantic City government has been given over five years and two city administrations to deal with its structural budget issues and excessive spending. It has not."

"The governor is not going to ask the taxpayers to continue to be enablers in this waste and abuse," his office said in a statement.

Christie and Sweeney have decried the government's budget as outrageous for a city of about 40,000 people. Sweeney said the city's per capita spending far exceeds those of cities such as Camden, Newark, and Paterson. City officials say they have complied with most of what the state has asked of them, including closing a shortfall that exceeded $100 million last year.

Four Atlantic City casinos closed in 2014, and thousands of workers lost their jobs amid competition from gaming in neighboring states such as Pennsylvania and New York. Between 2010 and 2015, the city's property-tax base shrank from $20.5 billion in 2010 to $7.3 billion.

With the resort town's finances in poor shape, Wall Street ratings agencies downgraded its debt. Moody's last month said there was a "high risk" the city will default over the next five years.

The emergency manager, Kevin Lavin, appointed by Christie last year, predicts a $300 million deficit over the next five years, not including nonbonded obligations such as tax appeals and deferred pension and health benefit payments.

Two new casinos in North Jersey could present new challenges to the city, potentially hurting economic activity there. If lawmakers and voters approve the referendum question, supporters say, a substantial portion of tax revenue generated by the new casinos would be directed to Atlantic City for nongaming development.

Lisa Washburn, managing director of Municipal Market Analytics in Massachusetts, said Wednesday that without significant state investment, a takeover would not solve the city's underlying problems: "That the casino industry continues to wane, that [fewer] people continue to travel to Atlantic City, and that there hasn't been real investment in the community itself."

Some say bankruptcy might be reasonable. "Municipal bankruptcy in theory can be a wonderful way to make people face reality," said Mark Schwartz, a lawyer who represented the Harrisburg City Council when it unsuccessfully petitioned for bankruptcy in 2011.

It would force the city to develop a plan with its creditors, he said, while preserving elected officials' autonomy.

aseidman@phillynews.com

856-779-3846 @AndrewSeidman

Staff writer Amy S. Rosenberg contributed to this article.