This piece first published November 14, 2016, Debtwire Municipals
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A former New Jersey senator will soon receive control of Atlantic City, said three sources familiar with the matter.
Former Senator Jeff Chiesa (R) will lead the state’s takeover of the city to help guide it toward financial stability, the sources said. Chiesa will have the ability to break collective bargaining agreements and monetize city assets, as laid out by the Municipality Stabilization and Recovery Act (MSRA), signed by Governor Chris Christie (R) in May.
Chiesa was appointed by Tim Cunningham, the director of New Jersey’s Division of Local Government Services, to serve as designee in the city.
As designee, Chiesa’s powers will supersede those of Atlantic City’s elected Mayor Don Guardian (R) and nine members of the city council. He is permitted to take “any and all” actions that may stabilize the municipality’s finances, according to MSRA.
Christie appointed Chiesa to the United States Senate following Senator Frank Lautenberg’s death in 2013. He served for three months, until Senator Cory Booker’s election later that year.
Prior to his senate appointment, Chiesa acted as New Jersey Attorney General and Christie’s chief counsel. He is now a member of Chiesa Shahinian & Giantomasi PC, a New Jersey-based law firm with several areas of practice, including litigation, government and public finance.
Chiesa did not return requests for comment. New Jersey’s Department of Community Affairs (DCA) confirmed the appointment.
In a statement to Debtwire Municipals, the DCA said that Chiesa has “wide-ranging” authority, although city officials will maintain day-to-day operations. Chiesa, along with Cunningham and the DCA, will implement the city’s fiscal recovery efforts in accordance with the MSRA.
Chiesa’s first steps include entering into PILOT agreements with casino properties and ensuring that all payments – debt service and amounts owed to Atlantic County and Atlantic City School District – are made on time.
“The senator also will be exploring right-sizing the city’s work force and other changes to ensure savings can be realized in the FY17 budget,” according to the DCA statement. “He will also pursue financing and other opportunities to reduce the city’s significant debt.”
The Local Finance Board voted 5-0 to take over Atlantic City last week, as reported . The move came after Department of Community Affairs Chairman Charles Richman rejected the city’s five-year recovery plan, the city’s last-ditch effort to maintain local control, as reported.
The city’s five-year plan, produced by PFM, NW Financial and McManimon, Scotland and Baumann received criticism for its lack of feasibility. Debtwire Municipals also noted its shortcomings.
Mayor Guardian said last week the true goal of the takeover is a monetization of the Atlantic City Municipal Utility Authority (MUA). In the city’s five-year plan, it proposed selling another city asset, Bader Field, to the MUA for USD 110m to help pay off some of the city’s outstanding property tax liabilities.
The city could make a legal challenge to the takeover, but Guardian also said last week he hopes for a “cooperative partnership” while subject to state control.
Christie previously appointed Kevin Lavin to serve as the city’s emergency manager in 2015. Christie also named former Detroit Emergency Manager Kevyn Orr to serve as an advisor with Lavin at that time. Lavin’s role was simply advisory, though he authored two reports with recommendations to fix the city’s troubled finances.
An Atlantic City takeover was first proposed earlier this year, though the proposal initially led to a revolt by city council members, who proposed bankruptcy as an alternative, as reported. The initial proposals set off a battle between the governor, legislative Democrats and city officials, though the law signed by Christie received Guardian’s blessing.
The city’s problems began as gaming revenue declined about 50% since a 2006 peak amid competition from neighboring casinos in Pennsylvania and other states. Five casinos have closed since 2014 and the city’s ratable base similarly plummeted to about USD 6.5bn from a 2010 peak of USD 20.1bn. Casinos appealing property tax valuations also contributed to the reduction in value and increased the city’s debt load.
Atlantic City is rated Caa3/negative by Moody’s Investors Service and CC/negative by S&P Global.
A USD 1.6m tranche of 4% Series 2011 Atlantic City general improvement bonds due 2017 last traded in odd lots at 83.333 with an unspecified yield on 14 November, according to Electronic Municipal Market Access.
by Maria Amante