Atlantic City takeover looms as state rejects plan

ATLANTIC CITY - The state rejected Atlantic City's 123-page, five-year fiscal recovery plan Tuesday, saying it was "not likely to achieve financial stability" for the beleaguered seaside town and triggering what could be an imminent state takeover.

The state called the plan "ambitious" but "deficient" and "speculative."

The decision stung local officials, including Mayor Don Guardian and City Council President Marty Small, who expressed deep disappointment and said the city would appeal.

Guardian, who on Halloween dressed as George Washington and said he was fighting for his city's independence, said the city's battle with Trenton would continue "until we cannot fight any longer."

The city was able to make a $9.3 million debt payment earlier Tuesday.

Officials at the state's Department of Community Affairs said the decision was triggered by their conclusion that "not only ... what is in the plan" is "deficient, but also "what the city does not have in its plan," including a proposed balanced budget for 2017 that complies with all conditions of the Local Budget Law.

"I would have much preferred to leave management of the city's recovery in the hands of its municipal officials," DCA Commissioner Charles Richman wrote. "However I am constrained by the plan the city has placed before me. The enormous problems confronting the city did not occur overnight. City leadership has had ample time to improve the city's financial condition yet has avoided doing so in any meaningful way."

Guardian, attending a gala of the city's business community at a Caesars ballroom an hour after the state's decision was revealed, said the 75-page rebuttal was "riddled with inaccuracies."

Guardian said Richman had told him by telephone the DCA would present its findings to the state Local Finance Board, which next meets next Wednesday, to "determine what part of the city government we will be taking over."

The extent of a looming takeover remained unclear. The city has the right to challenge the rejection of the plan in court, according to the law that gave it 150 days to prevent that takeover.

There was none of the prior bombast from the governor's office.

Asked if the state would move for an immediate takeover, Brian Murray, a spokesman for Gov. Christie, said in an email, "We're looking at this detailed report, just as you are, and will not be commenting at this time."

Tammori Petty, DCA spokeswoman, said the next step would be for the Local Finance Board to consider "whether to assume powers of the governing body that may be substantially related to the city's fiscal condition or financial rehabilitation and recovery," as outlined in the Municipal Stabilization and Recovery Act.

Guardian said his staff would be working through the night to address the state's decision. A statement by his office said the state had "truly missed a golden opportunity" and asked the state to reconsider. Guardian said the state had never discussed any of its findings with its advisers over the last five days. The law gives the city the right to appeal to the Appellate decision of Superior Court.

A takeover would essentially sideline the mayor and council. The law gives the state powers to abolish departments and authorities, veto minutes of city council, sell assets, and terminate collective bargaining agreements.

Richman said in the state decision that the city's plan underestimates debt service and overstates property tax revenues, and that key components of the plan, including a proposed sale of Bader Field to the Municipal Utility Authority, are "speculative." He said the city's fire department is too big, and police have not agreed to cost-cutting measures like 12-hour shifts. The plan also questions the city's tax revenue projections.

The state criticized the plan as lacking specifics, and said the idea of having the MUA issue bonds to finance the Bader purchase could make the city vulnerable to that debt.

The decision caps a nearly yearlong tug-of-war with the state over the future of Atlantic City, during which the city teetered on the edge of bankruptcy but managed to pull back and pay its bills. City workers deferred paychecks and some residents paid taxes early.

Assembly Speaker Vincent Prieto, who championed the city's cause in Trenton, called the state's decision "disappointing."

"Taxpayers better now beware," Prieto said. "State takeover of school districts have been disastrous. The administration needs to immediately detail whether a takeover would cost taxpayer money and how much." He said the state needed to be "completely transparent."

Councilman Jesse Kurtz said: "Plan or no plan, the debt needs to be taken care of. If they're not going to accept this plan we need to put bankruptcy on the table."

The decision caused some confusion inside City Hall and out. It renewed fears of a private company taking over the city's water authority.

Jitney driver Frank Becktel, a close watcher of city government, said, "I don't know what the state's decision is. Are they telling us what they're going to do? Or are they telling us they don't like what Atlantic City wanted to to do?"

City Councilman Frank Gilliam, who voted against the plan, said, "Now that the drama is over, it's time to get to work in a real spirit of a partnership."

But it seemed the drama would likely continue.

DCA spokeswoman Petty said "the city has taken virtually no concrete actions during the course of the past 150 days to begin to turn its budgetary problems around." She said the state doubted the city could "make the hard decisions ... to stabilize the city's finances and attract investment."

While some reductions have been made, she said, the city's plan "will not be enough."

The state also questioned whether the city could count on casinos making the "payment in lieu of taxes" required by state law to begin in 2017.

The Borgata has been withholding quarterly taxes pending resolution of a $150 million tax refund due the casino. The city said it had a deal, but Borgata would not put it in writing. It was unknown whether Borgata would withhold taxes under the PILOT. Borgata general counsel Joe Corbo, also at the gala, had no comment.

In that surreal Atlantic City way, many of the city's biggest players converged at the black tie gala just after the news reached city hall.

Gary Hill, head of the Metropolitan Business and Citizens Association, said the business community supported the city. "It's very sad when the state is trying to micromanage our issues and our economy," he said.

Miss America, Savvy Shields, also attending the gala, had no comment.

arosenberg@phillynews.com

609-823-0453 @amysrosenberg

Staff writer Andrew Seidman contributed to this article.