To Takeover, or Not to Takeover: That Is the Question

 

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eBlog, 10/31/16

Good Morning! In this a.m.’s eBlog, we consider the long wait until tomorrow for the State of New Jersey to determine whether to approve Atlantic City’s recovery plan—or to take over the municipality. States have different legal means and experiences in taking over municipalities: eighteen provide authority for municipal bankruptcy—which, of course, means thirty-two do not. In New Jersey, there has been a complex interplay with the state naming an emergency manager, a la Michigan, nut a manager who appeared to play little if any role. In New Jersey’s case, the state, in fact, does have experience with a state takeover: Camden. So, as we await the state decision tomorrow, we consider some of these intergovernmental factors.  

Saving Grace? The State of New Jersey is expected to decide the fate of Atlantic City by tomorrow with regard to how much—if any—of the city’s proposed 123-page recovery plan—a plan which, as we have described, sharply reduces the number of employees, addresses liabilities from past overtaxing of casino properties, reduces employee benefits, cuts the number of fleet vehicles, and would sell off its municipal airport. The plan, despite guarantees of substantial payments from casinos and diversion to the city of tens of millions in state revenue, proposes ongoing state transitional aid for five years. The plan proposes the city’s Municipal Utilities Authority would borrow $110 million in order to purchase city’s Bader Field airport property—with the financing of the loan to be repaid by raising water rates, selling the property, or a combination of both. The plan does not seek any tax increases. Finally, the plan seeks extra state transitional aid, winding down from $26 million in the first year to $14 million in 2021. The State has until tomorrow to opine whether this proposal would restore “fiscal stability:” rejection would allow the state to move to take over the city government and seize assets. Gov. Chris Christie’s office has, so far, directed all questions to the Department of Community Affairs. His long, winding, one hundred fifty day period granted the City by the legislature to come up with a recovery plan comes in the wake of a seeming series of experiments by the state—including the appointment of an emergency manager—apparently styled after Michigan’s system; however, in Atlantic City, it remains unclear whether the Governor’s appointed emergency manager ever had any authority: he was a non-player. Gov. Christie called Mayor Guardian a liar. Yet, at the end of a day, it seems unlikely the Governor’s desire to wrest control over the city is still there: Rutgers University political scientist Ross K. Baker has described Gov. Christie’s playbook of bravado and verbal aggressiveness as something that ‘no longer works for him:’ “He let a lot of people down…The revelation of his conduct, his pettiness, his vengefulness are not attractive human qualities.” One of the rationales for a state takeover was to reassure legislators from the norther part of the Garden State that it would not be reckless to send a projected $200 million from proposed North Jersey casinos down to Atlantic City in a major tax transfer; however, even that plan is unlikely to lead to any cash-in of chips; the referendum to allow casinos in the northern part of the state appears unlikely to hit the right numbers in next week’s elections.

For the state, this will not be a first-time decision, and its experience with the state takeover of Camden might provide us some insights: New Jersey took over the nation’s poorest city and one of the most violent in the country in 2002 at a cost of $175 million in extra state dollars. In Camden, the state takeover appeared to result in an inability to improve the city’s failing infrastructure, schools, or economy. There, the state takeover lasted more than seven years, a period during which the state appropriated hundreds of millions of dollars in aid in an effort to overcome decades of corruption in City Hall: the state imposed its own chief operating officer to run the city; New Jersey set aside $175 million in special state aid—aid theoretically intended to repair crumbling streets and sewers, improve schools, and put more police officers on the streets. Former New Jersey Assembly Speaker Joe Roberts noted that if Camden was going to have any chance of survival long-term, the state takeover was vital, along with a fiscal plan to grow the city’s tax base. Yet the city, with a poverty rate close to 40 percent—a municipality which as recently as 2012 experienced the highest crime rate in the United States—some more than 600 percent greater than the national average, might not be a poster child for signs that a state takeover necessarily guarantees a brighter and safer fiscal or physical future. Camden, with a population of 77,000, once home to several major manufacturing firms, has received hundreds of millions of dollars in loans, grants and direct aid from the State of New Jersey; yet, over the years, and despite the state takeover and assistance, the city remains one of the nation’s poorest.

Nevertheless, on its own, according to Camden Mayor Dana L. Redd, the city, a year ago last June, had gained substantial fiscal progress: S&P affirmed the City of Camden’s investment grade bond rating of BBB+, noting that while many urban cities across the country with similar challenges were experiencing downgrades in their ratings, Camden was bucking the trend: “Camden’s current financial standing has surpassed everyone’s expectations…The fact that S&P affirmed our investment grade rating sends a clear message that Camden’s resurgence is real and investors and businesses have confidence in investing in our City. While this is certainly welcomed news, my Administration will continue to take appropriate steps to ensure the City can receive an upgrade in the near future.” In its upgrade, S&P noted: “We believe that its liquidity will remain very strong given expected financial stability and continued improvements in the economy, coupled with a proactive administration,” adding “recent development includes the construction of student residential housing for the Cooper Medical School of Rowan University. Also, currently under construction is a new corporate headquarters and practice facility for the Philadelphia 76ers. Furthermore, the city is experiencing quite a bit of development. Most notable, are two commercial properties, the U.S. headquarters of Subaru and Holtec, which are expected to add a significant number of jobs and boost the economy. Additional investments are likely, given the city’s improving economy and lower crime rate. The city has continued to make progress in economic development and its crime rate and has gained White House attention.”

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