NJ Takes Atlantic City to Court Over Delay in Tax Payments to Schools

City contends arrangement is crucial to avoiding shutdown of municipal government due to lack of cash

Atlantic City Mayor Don Guardian (right) and City Council President Marty Small
Gov. Chris Christie has made it clear he believes it will take nothing short of a full state takeover of cash-strapped Atlantic City to sort out the resort’s finances.

But now he’s taking the city’s government to court to resolve a dispute involving funding for the local school district, a move that could send the resort into deeper fiscal distress.

Left unclear is whether a key state legislative leader will post a bill later this week that authorizes the takeover sought by Christie, or whether the Legislature will pass another measure that would provide the city with some much-needed cash.

A lawsuit filed yesterday against the city government by the state Department of Education seeks to ensure the school district is at the front of the line when it comes to receiving city property tax revenue, which is in danger of running dry this month.

But the suit, if successful, also threatens to upset a plan local officials are advancing to prevent city government from being forced to shut down later this week due to a lack of cash by temporarily paying employees every four weeks instead of every two weeks.

It also raises the issue of using the schools as a political football in the standoff between the governor and Assembly Speaker Vince Prieto (D-Hudson).

Prieto vs. Christie

The state’s legal action, announced by Christie during a news conference in the State House yesterday, is the latest volley in an escalating back-and-forth between Christie and Prieto over what should be done about Atlantic City.

Christie says drastic changes are needed, including tearing up union deals and other worker benefits that he’s deemed too excessive given the city’s financial struggles. Mindful of his own legacy, Christie has been pushing hard since returning home earlier this year from his failed bid for the GOP’s presidential nomination for legislation that would allow the state to take over the city’s finances.

But Prieto, citing concerns about collective bargaining and union rights, has instead called for more cooperation between local officials and the state, and for a negotiated solution to the city’s fiscal troubles. Prieto has refused to post the takeover legislation sought by Christie and another associated bill that would provide the city with some much-needed cash via tax payments from casinos even as some members of his own party – including a large group of Assembly Democrats from South Jersey — now say they want to vote for the bills.

The takeover measure has already passed the Senate, but it’s unclear if it will be posted for a vote later this week when the full Assembly is due in Trenton for its next session.

There is also a complicated political backdrop to the issue because Prieto is an ally of Jersey City Mayor Steven Fulop, a likely 2017 Democratic gubernatorial candidate. But Christie has been working closely with Senate President Stephen Sweeney (D-Gloucester), who is also considered to be readying for a run for governor next year as Christie comes up on his two-term limit in early 2018.

Christie and Prieto met face-to-face yesterday to discuss Atlantic City, but the two men made no progress in resolving their disagreement.

Threat by Christie

Last week, Christie threatened to withhold his support for a ballot question going before voters this fall that, if approved, would allow casino gambling in North Jersey. The governor’s move was viewed as a calculated attempt to increase pressure on Prieto — many lawmakers in his part of the state are anxious to see casinos open in North Jersey.

Now, by suing Atlantic City’s government over property tax revenue collected by the city but owed to the school district, Christie’s administration is putting more pressure on local officials, who also oppose the takeover legislation on grounds that it infringes on their right to self-government.

City leaders have been working with the school district for over a year to delay turning over the property tax revenue to help give the city leeway as it struggles through its financial problems.

But the suit filed yesterday in Superior Court in Atlantic County seeks to force the city to make its next payment to the school district on April 15.

A statement from the state Department of Education, the plaintiff in the suit, argued the court action is necessary to enforce state law and ensure that city schools remain open.

“Our goal is to safeguard the necessary local funding for the schools in Atlantic City and to ensure that students continue to receive an education,” the statement said.

Christie, during his press conference, pressed for a resolution to the issue as soon as later this week.

“We’re asking a court to hear it as quickly as possible and to prevent Atlantic City from being even more irresponsible if it’s possible than they’ve been already,” Christie said.

A crushing blow?

But forcing the city to make monthly payments of property tax revenue to the school district that total $8.5 million on a regular basis would also threaten the local government’s latest plan to make it through the end of the month without having to shut down or lay off employees.

That’s because new property tax revenue is scheduled to come into the city in May, meaning the local government would be able to stay afloat for another month if the school district is allowed to remain flexible in receiving its property tax payments.

Mayor Don Guardian, speaking at the State House yesterday after holding his own meeting with Prieto, said the city has no intention of not making each $8.5 million payment owed the school district over the next three months. And he said state-appointed fiscal monitors have been the ones allowing for the relaxed payment schedule the city has been using for over a year now.

“I can assure, we’re not going to play politics with our kids,” said Guardian, a Republican. “We’re trying to ensure that they’re taken care of.”

City Council President Marty Small, a Democrat, accused Christie of trying to force a fiscal crisis for political reasons rather than working closely with local officials on a solution that all sides can live with.

“We are trying to set policy,” Small said. “All they want to do is play politics and rob the residents of Atlantic City of their right to self-government.”

They said the game plan for local officials right now is to buy enough time for lawmakers to work out a compromise with Christie over how best to manage the city through its fiscal crisis.

Why not more aid?

But Guardian said while the local government continues to make budget cuts, more state aid should also be part of the solution. Other struggling cities get healthy cash infusions of as much as $6,000 per-resident, but Atlantic City’s state aid levels are much lower, about $1,500 a resident. That’s because the payment formula dates back to the days when the city had piles of revenue the casino industry, Guardian said.

Atlantic City’s fiscal problems stem largely from the last recession and increasing competition from new casinos that have opened in neighboring states – resulting in the closing of four of the resort’s 12 casinos in recent years. The remaining casinos, meanwhile, have also successfully challenged their tax assessments, helping to reduce a ratable base that once totaled more than $20 billion to just over $7 billion.

A [link:https://www.njspotlight.com/stories/16/01/19/christie-s-pocket-veto-of-bills-increases-odds-of-atlantic-city-going-bankrupt/}report] released earlier this year by an emergency manager appointed by Christie to scrutinize city finances predicted the local government would run out of cash by April. And even if stopgap measures could be found, the report said, the city faces a budget deficit that could be as large as $300 million over the next five years.

Amid the new developments yesterday, Moody’s Investors Service, a major Wall Street credit-rating agency, lowered the city’s debt grade even deeper into “junk” status, to Caa3.

Christie referred to that action during the news conference yesterday, and he also challenged Prieto to post the takeover legislation when the Assembly has a full voting session on Thursday.

“If he wants to get off the rostrum and go argue against it, do so,” Christie said. “You want to vote against it? Vote against it, but the speaker’s irresponsible actions are now putting at risk one of America’s great historical cities.”

Who’s really to blame?

Prieto said yesterday that it’s Christie who is refusing to exercise broad powers his administration already has under existing state law to assist Atlantic City.

“Gov. Christie, rather than blaming others, should be using his existing authority to help Atlantic City avoid fiscal disaster,” Prieto said.

Prieto also sent a letter to fellow Assembly Democrats that accused Sweeney of working with the governor on a takeover bill that “violates progressive principles by trampling collective bargaining and allowing unfair labor practices.”

Sweeney, through a spokesman, declined comment yesterday.

But a statement from Wendell Steinhauer, president of the New Jersey Education Association, also called for more cooperation.

“Ultimately, the state is responsible for ensuring that the school district is able to finish the school year,” Steinhauer said. “We have to work together to fix this problem and protect our students.”

“The members of the Atlantic City Education Association and NJEA are ready and willing to work with elected officials to ensure that every child in Atlantic City continues to have access to a great public education,” he said.