Atlantic City Hits Pause on Bankruptcy After New State Planby and
Governor, mayor announce pact as council meets on bankruptcy
Proposal would include five-year debt restructuring plan
Atlantic City stepped back from pursuing bankruptcy after its mayor and New Jersey Governor Chris Christie reached an agreement on a plan that would give the state more control over the troubled gambling hub’s finances.
The accord is aimed at keeping Atlantic City from seeking to have its debts written down in court, Christie, a two-term Republican, said Tuesday at a press conference in Trenton with Mayor Don Guardian and Senate President Stephen Sweeney, the state’s highest-ranking Democratic lawmaker.
The measures, which require approval as early as next month from the Democratic-controlled legislature, will set a five-year plan for restructuring debt, contracts and consolidating services, Christie said. Asked if the plan was tantamount to a takeover, he said “you can call it whatever you want.”
“Bankruptcy is always a last resort,” Christie said. “That would not be good for the city of Atlantic City and not something we would want to engage in.”
The finances of Atlantic City, a seaside resort of 39,000, have been upended by the expansion of legalized gambling, which has battered the tourism industry and led casinos to demand tax cuts as the value of their real estate plunged. It’s projected to run out of money as soon as April following the closure in 2014 of one-third of the city’s betting parlors.
The governor announced the agreement just hours before the Democratic-controlled city council, which had called a takeover an assault on local rule, convened a meeting to discuss bankruptcy. Last week, Guardian, a Republican, said that would allow the city to emerge with a “clean slate,” renegotiate union contracts and write off about $40 million of its debt.
At the meeting, council members heard a presentation on the basics of municipal bankruptcy from Richard Trenk, a West Orange, New Jersey lawyer who has represented the city, and from residents, many of whom said they were against a state takeover. Councilman Kaleem Shabazz said afterward that there won’t be a bankruptcy filing.
Council president Marty Small, a Democrat, said at the meeting that he was assured that the council and mayor would be represented in the negotiations over the state plan.
“We will not let them disenfranchise your vote,” Small told residents and activists gathered in the council’s chamber.
A bankruptcy, if approved by the state, could have unnerved bondholders by saddling them with losses and undermining New Jersey’s decades-old reputation for standing behind distressed cities. Atlantic City bonds maturing in 2024 traded Tuesday for an average yield of 8.9 percent, or 7.26 percentage points more than top-rated securities. That gap has increased by about a percentage point since Dec. 21.
Guardian told reporters in Trenton earlier that the city was faced with choosing between four options: do nothing; a takeover; a bankruptcy; or ceding more authority in collaboration with the state.
“We do need the force the state is going to bring to help restructure our debt," Guardian said in Trenton. "We’re not dead, just wounded. So help us fix ourselves."
New Jersey, which has policies aimed at steering cities from financial disaster, must approve a municipal bankruptcy, which hasn’t happened since the 1930s. Sweeney, while proposing a takeover this month, said it would help solve the city’s problems outside of the courts. Atlantic City has about $240 million in debt outstanding and faces more than $150 million in tax appeals from casinos.