ATLANTIC CITY — A draft memorandum of understanding between the city and the state obtained by The Press of Atlantic City grants the state Division of Local Government Services authority over all of the city’s assets.

But City Council President Frank M. Gilliam and Atlantic City Mayor Don Guardian said Tuesday the arrangement is unacceptable and is being reworked, with Guardian describing the draft as “preposterous.”

The state Department of Community Affairs, which oversees the Division of Local Government Services, declined to comment Tuesday on the document, as did Bill Nowling, spokesman for Atlantic City Emergency Manager Kevin Lavin.

The agreement gives Local Government Services Director Timothy Cunningham the power to “conduct a process, in consultation with the City, to ascertain the value of the City’s assets and to proceed with the steps necessary to access and realize the value of those assets.”

Cunningham also would be authorized “to dissolve, terminate, transfer, or otherwise dispose of any municipal authority, board or commission, and to sell, convey, lease, or otherwise dispose of any interest in any municipally owned asset.”

That would include the Municipal Utilities Authority, which provides Atlantic City’s drinking water, as well as “sewer, wastewater, and storm water infrastructure, equipment or facilities, and any real property” owned by the city.

The document states the agreement would go into effect after being approved by council and the mayor.

Once enacted, it also gives Cunningham the right to “withhold fifty percent of the City of Atlantic City’s Transitional Aid award should the Mayor or Government Body fail to act in any way, or undertake and approve any votes necessary to achieve, the process set forth above or otherwise seek to thwart the Director’s authority under this agreement.”

Atlantic City received about $13 million in transitional aid in 2014. The next council meeting is scheduled for Aug. 12.

Guardian said he was “dumbfounded” when he received the document without previous notice July 7, after which he shared it with council members.

A meeting with Cunningham, administration officials and Gilliam took place Monday, during which Cunningham said the draft “went out prematurely,” Guardian said.

Guardian said Cunningham clarified that the state was “trying to have the city determine if there were any assets that could be sold and that could be used as part of the recovery plan.”

“It was very vivid and clear that council would not support a document that represented a state takeover,” Gilliam said of his message during the meeting, adding that Cunningham apologized for the draft.

The city is now preparing a new document to send to the state, Guardian said, which will outline “a cooperative effort on how we’re coming up with a recovery plan for the city,” including “ways to leverage some cash flow for the city quickly.”

The draft memorandum justifies the powers granted to the state by citing Atlantic City’s need to address “significant economic challenges and uncertainty brought on by contraction in the casino industry.”

Atlantic City’s Municipal Utilities Authority, which is financially independent from the city, has been discussed as a potential source of new municipal revenue.

The second Hanson Commission report suggested a long-term lease of the MUA’s assets, citing a $150 million payment the city of Bayonne received in 2012 in exchange for a 40-year lease of its water system.

In April, council’s agenda included a resolution dissolving the authority, the first step toward a sale or lease arrangement.

However, that measure was tabled, and in May, council cast a preemptive vote against dissolution.

Gilliam said Tuesday that council is still looking at ways to bring the authority under the city so it can become a long-term revenue source.

As an example, he said the administration has discussed selling future rights to the authority’s extra water to new customers. The authority’s reserves exceed the city’s needs by a significant margin.

Guardian said Tuesday he’s met with MUA officials and that they’ve been “nothing short of cooperative on finding additional funding sources while still guaranteeing the same costs to our residential payers.” He also reiterated his opposition to selling the MUA.

The mayor said future MUA plans will factor in a study of the organization by Ernst & Young and Ford-Scott & Associates LLC, which Nowling confirmed has yet to be completed.

G. Bruce Ward, the MUA’s director, wouldn’t comment on any specific plans Tuesday.

“We are committed to assisting the city’s challenges, and we will do everything that is within our potential and our power to do that,” Ward said.

Gilliam said any future action concerning the utility would involve a transparent political process.

“We will never vote on anything without giving the community an opportunity to speak and be informed on what’s happening,” he said.

Contact: 609-272-7251

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