Even if New Jersey does not pass new legislation that would let it take control of Atlantic City's finances, existing law gives the state the authority to do so, according to a memo prepared by the nonpartisan Office of Legislative Services.
Under the 1947 law that let the state begin supervising the city in 2010, New Jersey could direct it to liquidate or refinance its debt, and has the power to approve new collective bargaining agreements.
But the state could not dissolve existing agreements, the memo says.
"At the point when Atlantic City cannot borrow, short-term, to pay its essential operating expenses and payments due to the county and other taxing districts, it is hard to envision the state refusing to exercise its powers under the 'Local Government Supervision Act (1947)' to take control of the finances of the city," says the memo, dated Friday, a copy of which was obtained Wednesday.
The memo explores what would happen if the state and the city remained at an impasse over how to improve the city's financial position. Atlantic City owes hundreds of millions of dollars to bondholders and in tax appeals to the Borgata casino hotel.
Chris Filiciello, Mayor Don Guardian's chief of staff, said Guardian received a copy of the memo Wednesday and was reviewing it.
Wall Street ratings agencies have said that the city could run out of money by April and eventually default on its debt.
Atlantic City's tax base has shrunk since four of its 12 casinos closed in 2014 amid competition from casinos in neighboring states.
Gov. Christie and Senate President Stephen Sweeney (D., Gloucester) are pushing for a bill that would allow the state, over five years, to abolish contracts, dissolve agencies, and dispose of municipally owned assets, among other powers. It also would offer early retirement incentives to municipal employees.
Guardian and other local officials have likened the proposal to fascism and vowed a fight.
Sweeney wants to pair the takeover legislation with a measure that would establish a payment-in-lieu-of-taxes (PILOT) system for Atlantic City's eight casinos. This would eliminate the threat of new casino tax appeals and ensure a stable source of funding for a decade, supporters say.
The 1947 law does not specify a time limit for state control, and says the law should be "construed liberally" to ensure that "unsound financial conditions in municipalities shall be forestalled and corrected."
Guardian also has expressed interest in filing for bankruptcy, a move that would require state approval, which seems unlikely.
The OLS memo said it was unclear whether Atlantic City would be able to discharge or "cram down" its debts to the Borgata via bankruptcy.
The memo says New Jersey law allows the state Local Finance Board and the Division of Local Government Services in the Department of Community Affairs to take action necessary to prevent "financial catastrophe."
Under the 1947 law, local elected officials who refuse to comply with the state could face fines and jail time, and could be forced to forfeit their offices.