ATLANTIC CITY — The city will violate terms of a $73 million state loan, but the city has asked the state for a “reprieve” on the matter, Mayor Don Guardian said Wednesday.
The city will miss a Thursday deadline to initiate dissolution of its Municipal Utilities Authority, Guardian said in a statement. That will put the city at the mercy of the state, which could ultimately demand immediate repayment of the loan or seize the city’s collateral.
“Although the Sept. 15 deadline will pass tomorrow without a City Council resolution dissolving the MUA or designating it as collateral in case of default, we have asked the state for a reprieve on this because we believe that the MUA will actually be a better part of the overall financial solution if it is kept whole,” Guardian said in the statement.
The city’s failure to adopt the authority-related measures could trigger an “event of default” if the state notifies the city of the violation and the failure is not “cured” in 10 days, according to the loan terms.
If the violation is not cured, the state can demand immediate repayment of the loan and — if the city can’t pay — each item of collateral, according to the terms. The state could also withhold state aid.
Division of Local Government Services Director Tim Cunningham is the state official who would determine if an “event of default” has occurred.
A spokeswoman from the Department of Community Affairs, which includes the DLGS, said the state hasn’t yet made a decision on the city's request for reprieve.
“A decision has not been made and the Division is awaiting legal guidance as to its options,” said DCA spokeswoman Tammori Petty.
The state loan has become a hot-button issue in the city. Community leaders have hosted two town hall meetings about the loan at All Wars Memorial Building, including one Tuesday night.
“The agreement is a document designed for failure,” said Linda Steele, an executive board member of the Atlantic City branch of the National Association for the Advancement of Colored People.
Questions were raised Tuesday night about how much money the city would owe if an event of default occurred. The city drew $13.5 million from the state, but most of the loan is dedicated to paying back the state for deferred employee health and pension payments and a city school tax payment.
“My understanding is the default would be on $13.5 million, and that was one of the triggers for temporarily dissolving the MUA,” Council President Marty Small said.
The city plans to pay off the loan with up to $78 million in redirected casino tax funds from a state financial rescue package enacted in May. But that bill was amended to withhold that state aid until after the state accepts or rejects the city’s fiscal recovery plan.
The town hall meetings have had mayoral political overtones.
Councilman Frank Gilliam, who like Small is a likely 2017 candidate for mayor, criticized the Guardian administration for not including council in loan negotiations and creating a “rush” for council to approve it at a July 28 emergency meeting.
“This administration is a savvy and very cunning administration. Don Guardian is a master, a master of deception,” said Gilliam, who didn’t attend the emergency council meeting and later voted against dissolving the authority as required by the loan terms.
Council has voted down or pulled measures to dissolve the authority five times.
The loan agreement made assets of the authority collateral, and a recent op-ed from Guardian and Small said the state could reach the authority if the city defaults on the loan repayment.
But Small noted Tuesday that the state takeover bill gave the city a year to “maximize the value” of the authority before the state could sell or lease it to a private entity.
“This is a part of the (takeover) bill,” Small said. “According to the law, the state can’t even do anything until May 26, 2017. They can’t touch the MUA if they wanted to.”
Former Revel owner Glenn Straub was the keynote speaker of sorts at the meeting. In Straub fashion, he offered to help the city in its fight against the state.
“What’s going on behind the scenes, there’s a power play to take over your water,” Straub said. “They’re going to steal it from you. And if you want to bid, bid. I’ll bid against them.”