ATLANTIC CITY — As ratings agencies sound the alarm that the city could soon default on its debt, the city’s elected officials will consider bankruptcy Tuesday at an emergency council meeting.
Atlantic City Mayor Don Guardian called the meeting last week after Gov. Chris Christie rejected a financial rescue package for the city. That left a $33.5 million hole in the city’s 2015 budget and put the city at risk of running out of cash by April.
The meeting will take place at 4 p.m. at council chambers in City Hall. Formal action may be taken.
“The time is now because the State has failed to deliver on their promises,” Guardian said in a statement. “We are still open to working with the governor and senate president to resolve this issue, but without their financial support, we are left with no more options. We will be exploring bankruptcy.”
Even if the city decides to file for Chapter 9 bankruptcy, the state’s Local Finance Board would have the final say on whether the city can do so. That appears unlikely, as lawmakers including Senate President Stephen Sweeney are proposing a state takeover of the city’s finances.
The bills rejected by Christie would have ended expensive casino tax appeals, allowed casinos to make payments in lieu of property taxes and provided funds to help the city pay down debt and other obligations.
A spokesman for Christie said the governor pocket vetoed the bills because the city’s government hasn’t dealt with “its structural budget issues and excessive spending.”
In response to the rejection, ratings agencies warned of a likely default and possible municipal bankruptcy for Atlantic City.
Standard & Poor’s downgraded the city’s debt rating deeper into junk territory, to CCC- from B, on Friday. It said the city faces a “potential near-term liquidity crisis” and that a default on general obligation bonds may be “inevitable.”
Moody’s followed suit on Monday, saying Christie’s rejection of the bills moved Atlantic City closer to both default and bankruptcy. Without another cash infusion from the state, Moody’s said the city is likely to default as early as April. Moody’s rates Atlantic City’s debt at Caa1 negative.
The city has about $240 million in bonded debt and owes about $161 million in tax refunds to Borgata Hotel Casino & Spa. It has a $67.2 million deficit in its 2016 budget, according to a recent report from state emergency manager Kevin Lavin. Its property tax base has fallen from $20.5 billion in 2010 to $7.3 billion in 2015.
Guardian has said bankruptcy would allow the city to shed most its debt and toss out its collective bargaining agreements, but would serve as bad publicity for the city.
Bankruptcy would also reverberate outside the city. The county’s share of the tax refund payment to Borgata would be due immediately, Guardian said. Sweeney said the city’s schools would be stiffed. And bankruptcy could affect the credit ratings of other New Jersey cities.
The ongoing tax appeal battle between Borgata and Atlantic City could force the city and state to consider bankruptcy more seriously, Moody’s said. Borgata has tax court judgments against the city entitling the business to about $62 million in refunds, collectively, for 2009 and 2010 property taxes.
Since the state approved the city’s budget with the $33.5 million in anticipated funds from the rescue bills, Moody’s said the state may still bail out the city with either a loan or by allowing the city to again defer pension and health benefits. The state could let the city release restricted cash, the report said.
But Moody’s said these “short-term fixes” would just prolong the city’s financial crisis.