ATLANTIC CITY -- The city is in uncharted territory as it risks defaulting on state loan terms.
No New Jersey municipality has defaulted on a state loan in the 20th or 21st centuries, said Marc Pfeiffer, assistant director at the Bloustein Local Government Research Center at Rutgers University.
But the $73 million loan agreement, which made the city’s Municipal Utilities Authority collateral, is unprecedented in its nature and scope, said Pfeiffer, a retired deputy director of the Division of Local Government Services, the state’s local government oversight agency.
“When the state had provided short term cash flow loans in the past, there was never this level collateral or provisions regarding what would happen in the event of a default,” Pfeiffer said. “Because frankly, the state has some extensive control over municipalities that default is not a problem...Atlantic City’s fiscal problems are more dire than what we’ve seen in the past.”
The loan terms required the city to adopt an ordinance by Sept. 15 that dissolves the authority if the city can’t pay back the loan. City Council’s Wednesday meeting ended without a vote on initiating the dissolution, putting the city just days away from defaulting on the loan terms.
If that happens, the state could demand immediate repayment of the loan. The city would not be able to pay back the loan at this time, officials have said. The city plans to use redirected casino tax funds to pay back the loan, but that state aid isn’t available until November.
Mayor Don Guardian and Council President Marty Small were in Trenton Thursday to speak with state officials about Wednesday’s council meeting.
“It was important for us to make sure the state knows that we are still completely focused on crafting a viable 150-day plan and submitting it early,” Guardian said in a statement, referring to a fiscal plan due in Nov. 3. “We believe that in the big picture, the plan we will present will lay out a clear path toward Atlantic City’s solvency.”
The fiscal plan’s rejection would result in a state takeover.
Residents packed council chambers Wednesday night and some urged council to rescind the July 28 resolution that authorized the loan deal. Council voted 5-3-1 to do that, but was one vote shy of the two-thirds majority needed. Most of the money has already been spent.
At the meeting, Small acknowledged the loan is “not a good agreement” but told residents it was the best possible decision for the city.
“All decisions aren’t popular,” Small said. “You’re going to disagree, you’re going to agree. But understand the decision that was made was for the best for everyone in this room that’s from Atlantic City. You may not agree with it, but we’re giving ourselves a chance.”
Council doesn’t have another scheduled meeting until Sept. 21. The loan terms gives the city 10 days to cure an event of default, giving the city until Sept. 25 to pass the authority-related measures if the city misses the Sept. 15 deadline.
Meanwhile, a lawsuit from former Councilman Seth Grossman seeks to void the loan deal. The suit claims enough notice wasn’t given for the meeting and not enough council members approved the loan.
The authority has been at the center of negotiations between the city and state. Monetizing the authority was mentioned in a 2015 draft Memorandum of Understanding for Transitional Aid. And the state takeover law gave the city a year to monetize it before the state can sell it.
Council has voted down or pulled measures to dissolve the authority five times. Council’s inaction on the authority was cited by state officials calling for a state takeover.
“I have said going back well over a year, privately, to members of council, to members of the administration: ‘You have to do something with the MUA,’” said Sen. Jim Whelan, D-Atlantic. “Their failure to do so is just emblematic of what’s going on.”
On Tuesday, Gov. Chris Christie said: “It looks like, you know, I might have to be mayor of Atlantic City.”