Atlantic City’s government is again in danger of defaulting on a debt payment, as local officials and Gov. Chris Christie’s administration have yet to come to terms on a key bridge loan from the state. The $74 million loan was an important feature of the rescue legislation approved by lawmakers several months ago to help keep the seaside resort out of bankruptcy.
City leaders and Christie administration officials say they are working to finalize a deal on the bridge loan, but if they can’t come to an agreement soon the city is likely to default on a $3.4 million debt payment that comes due on August 1, according to a report issued yesterday by Moody’s Investors Service.
The report also said that without the loan already in place, the city needed the state’s help earlier this month to cover an $8.5 million payment to the resort’s school system. The city has another $18.6 million in debt payments due by the end of the year, putting more pressure on local and state officials to come to terms.
“Absent receipt of state support, we believe a default would likely set off a series of missed debt payments and revive the prospect of the city filing for bankruptcy, or pursuing debt restructuring outside bankruptcy,” the Moody’s report said.
It’s been nearly 80 years since there has been a municipal default in New Jersey, but Atlantic City came close at the beginning of May as it ran dangerously low on cash. Instead, early property-tax collections saved the day and ensured a $1.8 million debt payment was made on time. Still, the city remained on life support and local officials pleaded for help from the state.
A few weeks later, lawmakers in Trenton resolved a series of disagreements over a state rescue package and sent Christie legislation calling for the bridge loan, payments-in-lieu-of-taxes from casino operators, and other assistance.
Christie had sought an immediate takeover of city finances and the power to rip up its workers-union contracts. But a few days later he signed the rescue package approved by lawmakers, which instead gave the city until early November to come up with a plan to right its finances or face a state takeover.
The legislation that included the bridge loan didn’t spell out the specific terms of the loan, leaving it up to city officials to negotiate with the state.
Atlantic City Mayor Don Guardian could not be reached for comment yesterday. Earlier in the week, the mayor told city residents, according to a story published by The Press of Atlantic City, that the city didn’t receive a first draft of the loan documents until just two weeks ago. He also said he thought the city and state were close to reaching an agreement.
Tammori Petty, a spokeswoman for the Department of Community Affairs, the state agency that is working on the Atlantic City loan, confirmed yesterday that officials are still hammering out a deal. “We continue to work with the city to finalize the terms of the loan,” Petty said.
Atlantic City’s fiscal problems stem largely from the past recession and increasing competition from new casinos that have opened in neighboring states. Four of the resort’s 12 casinos have closed in recent years, costing the city thousands of jobs. The remaining casinos, meanwhile, have successfully challenged their tax assessments, helping to reduce a ratable base that once totaled more than $20 billion to just over $7 billion.
A report released earlier this year by an emergency manager appointed by Christie predicted the city faces a budget deficit that could be as large as $300 million over the next five years. The emergency manager’s recommendations included privatizing or regionalizing the city’s municipal utilities authority and letting the county government take over the city’s health and tax assessment departments.
The rescue package Christie authorized at the end of May established a 150-day deadline for the city to come up with a five-year financial plan, and contained the threat of a state takeover if the plan is deemed by the Christie administration to be insufficient. It also called for the state to provide the bridge loan and other financial help, including the authorization of the payments-in-lieu-of-taxes worth up to $120 million for the 2017 calendar year. Those payments are intended to prevent the casinos from filing what have become costly property-tax appeals.
City leaders met earlier this week to work on the five-year financial plan and are to come together again next month.