New Jersey lawmakers introduced legislation Wednesday that would pull Atlantic City from the brink of bankruptcy but strip local officials of their authority, setting the stage for a fierce debate over the city’s future.
The legislation introduced in the state Senate would give the state control for five years over all government functions, including the ability to sell Atlantic City’s assets, alter or terminate union contracts and sell bonds.
The legislation also prevents city officials from seeking bankruptcy protection, a move they have publicly threatened in recent months, entrusting instead that power to a six-member legislative committee.
State officials had previously described the measure as a takeover, while Atlantic City Mayor Don Guardian called it a partnership. On Wednesday, Senate President Steve Sweeney, a Democrat from southern New Jersey, described it as an “intervention.”
“The intervention plan will enable the state and the city to work together to accomplish what Atlantic City can’t do on its own,” said Mr. Sweeney, a lead sponsor of the bill, in a statement. “The city’s fiscal crisis is severe and immediate.”
Atlantic City officials reacted with anger to the legislation. “It’s not a partnership, it’s a dictatorship,” City Council President Marty Small, a Democrat, said at a council meeting Wednesday night.
A spokesman for Atlantic City’s mayor didn’t respond to a request for comment Wednesday. The mayor has acknowledged the city’s need for state assistance but said he would oppose a complete state takeover because it would disenfranchise residents who elected him and the City Council.
Preventing bankruptcy is critical to protecting the credit ratings for New Jersey and its other cities, said Sen. Paul Sarlo, a Democrat from northern New Jersey who co-sponsored the bill. Atlantic City officials have floated bankruptcy as a potential solution to the city’s crushing debt, which is projected to total nearly $400 million over the next five years.
Mr. Sarlo said lawmakers are tired of subsidizing Atlantic City and wanted to ensure the city couldn’t file for bankruptcy.
“There’s so much Atlantic City fatigue in the Legislature that we felt we had to give the Legislature a say here in such a critical decision that may be made by Atlantic City,” he said, referring to bankruptcy.
Last month, Gov. Chris Christie announced he would support a five-year takeover of Atlantic City’s finances, but a spokesman for the governor declined to comment Wednesday on the new legislation.
Assembly Speaker Vincent Prieto, a Democrat, whose cooperation is necessary to send a bill to the governor’s desk, said through a spokeswoman that he remains concerned about “any efforts that would unilaterally alter collective bargaining.”
Assemblyman Chris Brown, a Republican, said he wants to hear how the state plans to “right-size” the city’s budget, which has been subject to approval by a state monitor since 2010. Atlantic City’s tax base has contracted 64% since 2010, but its budget stands at nearly $250 million for a city of about 40,000 people.
“They have this legislation that says they’re going to take over the city. OK, what are you going to do differently?” Mr. Brown said. “I’m still waiting to see the plan.”
Mr. Sarlo said the state would use its new powers to shrink the city’s government.
“The goal here is to sell off some of their assets, pay down some of their debt and to streamline government down there,” he said.
Mr. Sarlo said the proposed legislation is “less rigid” than what state lawmakers had originally envisioned. The proposed bill, for example, gives the city one year to increase revenue from its water utility before the state can sell it.
City residents and officials have long opposed privatizing the water utility, which currently operates as an independent government authority, for fear it will increase their water prices.
A companion piece of legislation, also introduced Wednesday, outlined a nine-year payment plan in lieu of property taxes for the city’s casinos. The arrangement would stabilize revenue for a city that has been slammed by property-tax appeals and is on track to run out of cash by April 1 or earlier.
The bill doesn’t address the city’s ongoing dispute with Borgata Hotel Casino & Spa, which successfully appealed its property-tax assessments dating back to 2009 and is now owed $150 million, plus interest. With Atlantic City unable to pay, a judge ruled earlier this month that Borgata could withhold its $7.2 million February tax payment as a way of recouping some of the debt.
A judge last week ordered Borgata and the state to hold a Feb. 23 settlement discussion to negotiate the outstanding debt.
Atlantic City, which dominated gaming on the East Coast for 30 years, has seen its economic pillars crumble over the past decade under competition from new casinos in Pennsylvania and New York state.
By Kate King of Dow Jones Business News