Addressing Structural Municipal Deficits or Compelling Municipal Bankruptcy?

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November 11, 2015. Share on Twitter

Waiting for Godot. On the very last day before a package of legislation to help Atlantic City recover would have become law, New Jersey Gov. and GOP Presidential contender Chris Christie yesterday conditionally vetoed the bills, all intended as part of a state package the New Jersey Legislature approved last June, including legislation to establish a payments-in-lieu (PILOT) of taxes program for casinos over a 15-year period—meaning the $30 million the legislature had originally earmarked for Atlantic City will now be redirected to the state, boring a large fiscal hole in the struggling city’s fiscal recovery plans. The Governor conditionally vetoed:

• a bill to reallocate the casino alternative tax to pay debt service on Atlantic City-issued municipal bonds;
• a bill to cancel the Atlantic City Alliance’s partnership with the Casino Reinvestment Development Authority and direct its $60 million budget to the city for the next two years; and
• a bill in the legislation that would have required casinos to provide full-time employees with “suitable health care and retirement benefits.”

Gov. Christie did sign a bill in the relief package which authorizes supplemental school aid to the Atlantic City School District. In a statement accompanying his vetoes, Gov. Christie challenged Garden State lawmakers in his conditional veto message to devise a plan that “addresses the continuing structural deficit in a manner that does not merely shift the city’s obligations to the state,” noting: “While I commend the Legislature for attempting to devise measures to stabilize the City’s budget and finances, I am concerned that the bills, in their present form, fail to recognize the true path to economic revitalization and fiscal stability in the city…While these bills represent the bipartisan efforts of many to provide important, near-term support to the city’s immediate challenges, I do not believe they meet the goal of setting a course toward renewed, long-term prosperity, and economic growth. To achieve these goals, we must continue our work and go further to ensure that the next step leads to that economically vibrant future for Atlantic City.”

Gov. Chris Christie’s conditional veto of the Atlantic City payment in lieu of taxes legislation does not address how casino payments will be shared with the Atlantic County, thereby leaving local officials uncertain of its effect on their municipalities. The legislation had called for Atlantic City’s remaining casinos to pay $150 million in lieu of property taxes for two years, and $120 million annually for 13 years after that. Soon after the state Legislature passed the bill earlier this year, county and city officials called for a conditional veto because there was no agreement on how much of that money would go to the county, throwing a wrench into towns’ budgeting plans.

Next Steps. The New Jersey Senate and Assembly now have the option to make changes that might satisfy Gov. Christie’s objections, albeit with the Governor having been out of the state and in still another GOP Presidential debate tonight, the options for meaningful discussions appear to have been rare. Atlantic County Executive Dennis Levinson and Atlantic City Mayor Don Guardian had agreed Atlantic County would receive 13.5 percent of casino payments; however, that compromise was unacceptable to Atlantic City Council members; now some of the mayors in the County are calling for Atlantic City to file for municipal bankruptcy, rather than any proposal which they fear might put them at fiscal risk, such as the proposed PILOT agreement, under which there has been apprehension over the possibility of ever-larger county tax bills for 15 years.

Atlantic County Executive Levinson, in the wake of the vetoes, said he will sit down with Atlantic City and New Jersey officials to reach a compromise, noting: “I don’t want to gum things up and act like I didn’t get what I wanted…I don’t believe the Governor in his wisdom wanted winners or losers in this, but he wants a viable, good plan acceptable to everybody.” In fact, the Atlantic County freeholder board, the Atlantic County Mayors’ Association, and the League of Municipalities had joined the County Executive in calling for a conditional veto to specify the county share, arguing that anything less than 13.5 percent would transfer too big a county tax burden onto the other 22 municipalities in Atlantic County. By now, of course, the idea that there is a “good plan that is acceptable to everybody” appears more and more like a pipe dream.

Back to the Municipal Bankruptcy Option? In the wake of yesterday’s vetoes, several Atlantic County mayors said the best path forward now was for Atlantic City to file for chapter 9 municipal bankruptcy, with Galloway Township Mayor Don Purdy warning the region cannot have surrounding communities taking the hit for Atlantic City: “(Atlantic City) has too much old, lingering debt, and throwing good money at bad money won’t work…The only way to fix it is to go bankrupt at this point.” Egg Harbor Township Mayor James “Sonny” McCullough concurred, noting Egg Harbor suffered the most job losses after the casino closing and had the most foreclosures in Atlantic County, adding: “My recommendation — even before the PILOT — has been Chapter 9 bankruptcy…They need to reorganize their debt just like Detroit did. This is the best option of all, and it gives the municipality an opportunity to reevaluate its debt and reorganize its future.” Indeed, in the festering period while New Jersey municipal leaders awaited Gov. Christie’s 11th hour actions, mayors in surrounding municipalities had been warning taxpayers that their county tax rate would increase if Gov. Christie signed the PILOT bills. Atlantic County Mayors Association President Jack Glasser, the Mayor of Somers Point, said he had not had a chance to read the conditional veto, but said he would be disappointed if it did not clear up the issue of how payments would be shared, adding: “I’m going to have to discuss that with the mayors…Atlantic City needs help, but the bottom line is, it shouldn’t be on the backs of the rest of the county.” County Executive Levinson said he guessed that Gov. Christie was most likely intentionally vague about how Atlantic City and Atlantic County would share the payments in order to avoid creating winners and losers—something which no Presidential contender, after all, would wish to do. Mr. Levinson added: “Cool heads right now are what’s needed,” adding that he expects New Jersey’s Local Finance Board to have a lot of say in how the money is shared with the county, adding: “The Governor is always quoting Bruce Springsteen…“I’ll quote the Rolling Stones. ‘You can’t always get what you want, but if you try sometimes, you might find you get what you need.’”

With the issue thus sent back to the legislature, New Jersey Senate President Steve Sweeney (D-Gloucester) noted: “I am extremely disappointed in the Governor’s failure to enact the package of bills to aid Atlantic City’s financial recovery, and I am concerned by the time that was wasted since the plan was put on his desk close to six months ago…No one should ignore the fact that Atlantic City’s financial crisis continues and that a comprehensive, forward-looking plan is needed to prevent fiscal conditions from getting worse and that we need to act quickly. I am prepared to work constructively with everyone who is impacted by Atlantic City’s fate to help the city’s economy recover and grow.”

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