Atlantic City Pitches Last-Ditch Fiscal Plan to Prevent State Takeover
TRENTON — Atlantic City officials, who delivered a proposed five-year financial plan to Gov. Chris Christie’s administration Tuesday returned to the capital Wednesday to pitch lawmakers on their plan for avoiding a state takeover of the near-bankrupt city government.
The plan includes 100 layoffs, the sale of the city’s former airport and issuing new bonds to replace debts issued at high interest rates. The city’s finances spun out of control when the casino industry imploded, taking with it two-thirds of the city’s ratable base.
The state will decide by Tuesday whether to accept the proposal or start a state takeover. Atlantic City Mayor Don Guardian said the financial plan is a better option for state taxpayers than having the state take on the city’s $100 million deficit and $500 million debt.
“I would think that Atlantic City would be the least desirable municipality that the state would want to have to bail out,” Guardian told the Assembly Judiciary Committee.
The city has two particularly attractive assets – its water utility and its former municipal airport, Bader Field, a 143-acre site that stopped operations a decade ago. It has a baseball stadium and indoor ice skating rink and could be redeveloped in a variety of ways.
City officials and residents are reluctant to sell the water utility to a private company, which would certainly raise the state’s second-lowest water rates. But it has had a hard time selling Bader Field at anything above what financial adviser Joseph Baumann called “a fire sale” price.
And so the proposed solution: The city will sell Bader Field to the Atlantic City Municipal Utilities Authority for $110 million, then use the proceeds to repay some of its debts. The MUA will have to borrow money to cover the purchase cost. Baumann said the MUA may use the land for renewable energy projects such as a solar field or wind farm.
Atlantic City’s financial advisers said the city in 2008 rejected an offer of more than $800 million for Bader Field. More recently, it tried to sell the land for $150 million but didn’t get bids higher than $50 million. That would turn out differently once the city’s finances are stabilized and the economic climate becomes “normal and predictable and healthy,” said financial adviser Mike Nadol of PFM Group.
“The true values of a waterfront community like this are so depressed today because of this overhang of fiscal strain, of uncertainty, of people talking of bankruptcy or other kinds of unthinkable directions for the community,” Nadol said.
The city would have the option to repurchase Bader Field from the MUA, so long as it also covers the debt the utility incurs in buying the land. And if the MUA sells Bader Field, the city would receive half the profits once the related debts are repaid.
“Sort of a win-win from our perspective of trying to monetize the value of this property while at the same time meeting all of the important goals of the city of Atlantic City, the residents and the MUA as well,” said Baumann, chairman of the public-finance law firm McManimon, Scotland & Baumann.
Assembly Majority Leader Louis Greenwald, D-Camden, asked whether state law allows the maneuver.
“To solve a problem like this, you need some creativity. So I get the level of creativity. But I want to make sure that there’s a foundation for the creativity, that we’re not going to get rejected,” Greenwald said.
Baumann said the Atlantic City financial rescue legislation allows such a sale if it is “necessary, useful or convenient.”
“I think convenient is a pretty broad term that allows for a public body to do things that are generally consistent with their plan,” such as renewable energy projects, Baumann said.
Assemblyman John McKeon, D-Essex, said it “would be a travesty” if the Department of Community Affairs turned down the financial plan over the Bader Field issue.
“If DCA is going to have their way and just preordain this for failure, then sure, they could look at that language and interpret it in a different manner,” McKeon said. “But to me, this is my opinion, that would be a travesty. It would bring a half a billion dollars of obligation to the state of New Jersey with the net of probably another hundred million that would cost the taxpayer.”
Assemblyman Chris Brown, R-Atlantic, likewise urged the state to accept the proposal.
“The very entity that is saying, ‘We have the ultimate decision as to whether or not to accept your plan’ has no plan. And therefore it goes back to what I’ve been saying from the beginning: We need to work together. It should be a true partnership,” Brown said.
Atlantic City Council President Marty Small said he’s hopeful. He said at a meeting Tuesday morning when the plan was delivered to DCA officials, “The first words out of their mouth was, ‘It’s an impressive document.’”
“The way I read it, and this is just my opinion, I think that they’ll embrace the plan,” Small said.
Small said the plan is the only viable one available. Reports from state supervisors and emergency managers and three summits aren’t a plan, he said.
“Even on Tuesday, if we get a result that none of us sitting across here want, and they take the city of Atlantic City over, this is the only playbook that the state can run to make it work,” Small said.
Another key to the plan is the status of more than $150 million the city owes to the Borgata Hotel Casino & Spa, which won a series of tax appeals.
The city’s financial advisers from McManimon, Scotland & Baumann say they’ve agreed in principle to settle the payments for $103 million, but it’s contingent on state approval of the plan. Borgata says it’s open to compromise but hasn’t agreed to a deal.
“My partner, Ed McManimon, had numerous conversations with counsel for Borgata, with their representatives that are not local, to discuss a reasonable settlement. They've come to an agreement. Borgata was unwilling to paper that agreement, sign a document, until the financial plan was approved,” Baumann said.
“So all we have today is the word of the representatives from Borgata and my partner who's had numerous conversations with them. He is confident that they were honest, forthright, had the authority to make those representations,” he said. “But we’re counting on the approval of the financial plan the recovery plan in order to implement that settlement.”
The plan forsees no property tax increases for five years. Nadol said that’s important because the tax rate in the city has already more than doubled since 2010.
“One key area that is not in this mix is additional tax increases. And that's not because Atlantic City has expressed an unwillingness to do its share, it's because those tax increases have really already been borne since this crisis began,” Nadol said.
If the plan is turned down, there aren’t any good options, Baumann said.
“We vetted a lot of Plan B, C, D,” Baumann said. “I think we went through the whole alphabet on alternatives, including how to restructure debt. We talked about scooping debt and throwing it out. So we vetted a lot of alternatives but, no, there's no better alternative.”
“Plan B is going to be the tax increase, I guess, that everyone agrees universally, every council person including those that voted no, agree is unacceptable,” he said.
“It would certainly hurt the recovery in business attraction,” Greenwald said.
“Crush it,” said Baumann.