ATLANTIC CITY — City Council’s fourth failed attempt to dissolve its Municipal Utilities Authority has put the city on the brink of defaulting on a state loan.
Council voted down three ordinances and a resolution Wednesday night to begin dissolving the authority. The city now risks violating state loan terms and losing control of the authority to the state.
Terms of a $73 million state loan made the authority collateral and required the city to adopt an ordinance dissolving it by Sept. 15. The authority’s assets would be used to pay back the state if the city defaulted on the loan. The measures can include a revocation clause to let the city undo the dissolution once the loan is paid back.
Failure to meet the deadline would make loan repayment due immediately and could require the city “to deliver each item of collateral” to the state Department of Community Affairs, according to the loan terms.
A DCA spokeswoman declined comment.
Mayor Don Guardian called Wednesday’s vote “terrible” and said it “moves up the concept of a state takeover.” The state could sell the authority as early as Sept. 25, he said.
Council voted 4-4-1 on the resolution and ordinances. Councilmen Marty Small, Jesse Kurtz, Kaleem Shabazz and William Marsh voted in favor of the ordinances’ introduction. Councilmen Frank Gilliam, George Tibbitt, Moisse Delgado and Chuen “Jimmy” Cheng voted against the measures. Councilman Aaron Randolph, an authority employee, abstained.
Small, the council president, blasted those who voted against the measures, saying they just “gift-wrapped the city to the state.”
“So when the city shuts down and people lose their jobs and we owe the state $73 million because we defaulted on a loan, they can look the people in the eye who voted against it and they can thank them,” Small said.
Councilmen voting against dissolution described a lack of transparency leading up to the vote. The measures were not listed on the council’s agenda but were introduced after executive session. A July 28 emergency council meeting on the loan was announced just earlier that day and only had four members approving the loan terms
“I don’t understand why this particular council body, specifically Councilman Small, believes he has the ability to force votes or have people forced to vote without having the ample time,” Gilliam said. “We thought we were just going to be discussing the MUA. That discussion led to a full-fledged vote.”
Asked about violating the loan terms, Gilliam said: “I was never in favor of the loan.”
Delgado cited the Flint, Michigan, water crisis when asked about his no vote. Drinking water there was contaminated after an emergency manager changed the water source in a cost-cutting measure. No one is calling for a change in the water supply in Atlantic City.
“I’m thinking of the long term because if we make the decision to dissolve the MUA, the state takes over the MUA, they sell it off to a company that’s into profits and not quality, and what if something happens like what happened in Flint, Michigan?” Delgado said.
But Guardian said failing to dissolve the authority could lead to the state selling the water works. A sale or lease could give the city a large lump sum of cash, but could result in higher water rates on residents, officials say.
“If you wanted to give the state the opportunity to sell the MUA, you would give it to them if you don’t dissolve it,” Guardian said.
A 2007 council rule prevents failed ordinances from being voted on again for six months. However, a 2008 rule gives the council the ability to bring back failed measures with a majority vote. The council has failed to get majority support for dissolving the MUA in four tries.
Guardian said city officials are trying to get the community activated to ask the four councilman who voted no to switch their votes. Officials are also mulling over whether Randolph, who has abstained on authority votes, is allowed to vote for dissolution, Guardian said.
One legal opinion argues Randolph doesn’t get a “material benefit” by voting to dissolve since he may have to give up either the authority or council job since the utility would be part of the city, Guardian said.
Randolph didn’t immediately return a request for comment.
The council would have to hold at least one emergency meeting to meet the Sept. 15 dissolution deadline.
The authority has been cited by city and state officials as an untapped asset that can generate millions for the cash-strapped city. Ideas for its future include making it a city water department, having the county run it, or selling or leasing it to a private operator.
The city's inaction on the authority was cited by state officials pursuing a state takeover.
“It’s really interesting that this one entity has wound up being the top prize in the negotiations between the city and the state, and that illustrates its potential value,” said Brigid Harrison, a political science professor at Montclair State University.