ATLANTIC CITY — The city is on the clock to comply with terms of a $73 million state loan or face a possible default.
The Division of Local Government Services notified Atlantic City of its breach of the loan terms “and that it has 10 days to cure the breach to come into compliance with the agreement,” Tammori Petty, spokeswoman for the state Department of Community Affairs, wrote in an email Friday.
The state notified the city Thursday and the deadline to comply is Oct. 3, Petty said. She declined to speculate on whether the state would demand immediate repayment of the loan should the city fail to comply.
The agreement made assets of the Municipal Utilities Authority collateral and required the city to adopt an ordinance by Sept. 15 that authorized dissolution of the authority if the city can’t pay back the loan.
The city missed that deadline, but Mayor Don Guardian said last week the city asked the state for a reprieve.
“We continue to focus on putting together the 150-day plan," said Chris Filiciello, Guardian's chief of staff, referring to a fiscal recovery plan due Nov. 3. "If we are given the time to complete and present it, we know it will be the best plan to move Atlantic City forward while still maintaining our local sovereignty.”
The city’s failure to adopt the authority-related measures could trigger an “event of default” if 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, seize each item of collateral or withhold state aid, according to the terms.
The city has drawn at least $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. City officials have said the city wouldn’t be able to repay the loan at this time.
“If the city weren’t able to repay the advanced monies on demand (which it could not), the city’s failure to repay would result in a ‘payment’ default,” Guardian and Council President Marty Small wrote in a Sept. 6 opinion piece published in The Press of Atlantic City.
Petty declined to comment on how much money the city would owe the state.
Collateral for the loan included as much as $78 million in redirected casino tax funds, other state aid received by the city, proceeds of a Bader Field sale, the authority’s assets in the event of its dissolution, and a lien on casino payments in lieu of property taxes, according to the loan terms.
However, the $78 million in casino tax funds won’t be released until after the state accepts or rejects the city’s recovery plan due Nov. 3. The city hasn’t sold Bader Field, casinos won’t make PILOT payments until 2017 and the state takeover law gave the city a year to maximize the value of the authority before the state could sell or lease it to a private entity.
The prized water works has been at the center of negotiations between the city and state over the resort’s financial future. City Council has pulled or voted down measures to dissolve the authority five times. The city’s inaction was cited by state officials pursuing a state takeover.
Small said Friday that support on council to dissolve the authority is “not there” unless “someone can change their mind.” Council split on the authority-related measures by a 4-4-1 vote last month.
“We were told how serious it was and the effects it could have, and we haven’t been able to garner the necessary support,” Small said.
The city asked the state for a reprieve on violating the loan terms 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 a statement last week.
Liberty & Prosperity, an organization represented by former City Councilman Seth Grossman, has a pending lawsuit that aims, in part, to void the loan agreement. Grossman claims a July 28 council meeting when the loan was approved violated state Sunshine and Local Budget laws.
Doug Goldmacher, an analyst at Moody’s Investors Service, said: “Atlantic City’s inability to meet its loan covenants is a credit negative and indicative of the city’s severe fiscal distress. It also brings the city closer to a potential state takeover.”