Atlantic City and its financial problems are a proverbial “canary in the coal mine,” and the rest of the state can learn important lessons from its troubles, the latest being the plan to dissolve the city’s municipal utilities authority.
Atlantic City’s Mayor Don Guardian and Council President Marty Small are urging the Council to liquidate the City’s water utility. They want it to be quickly sold as collateral for a new $73 million loan they want from the state.
A majority of the nine council members oppose this. They know that for the past hundred years, the people of Atlantic City paid for two large lakes and a dozen wells to enjoy abundant fresh water they could afford. If these valuable assets are sold, every resident and visitor will pay a lot more, so the buyers profit from their investment.
Atlantic City’s Financial Problems Are Not Confined To City Limits
This is not just a local issue. Republican Governor Christie, and Democrat Senate and Assembly leaders Steve Sweeney and Vincent Prieto have threatened to have the state takeover Atlantic City and seize every asset its taxpayers own if the City does not go along. That is because these same state politicians made the same mess with dozens of other state and county authorities and other local governments throughout the state, including the Transportation Trust Fund Authority.
For years, they blatantly ignored the State Constitution and countless state laws designed to protect taxpayers. They spent far more than they collected in taxes and now these state, county, and local governments, agencies, and authorities have hundreds of billions of dollars in debt. The only sensible solution is to let these agencies go bankrupt, and cut debt, salaries, and other spending down to what taxpayers can afford.
New Jersey Constitution Requires Voter Approval Of Debts
Article 8 of the New Jersey Constitution clearly states that state taxpayers have no legal or moral obligation to pay any debts not approved by voters. Hardly any of these debts were approved by voters.
State officials and their Wall Street backers know that if Atlantic City fixes its problems by cutting its debt, salaries, and spending, taxpayers around the state will want to do the same thing. That is why the people of Atlantic City need your understanding and support.
From a legal point of view, Atlantic City has absolutely no legal obligation to hock its water department. The “Secured Loan Agreement” signed by its mayor on July 28 violated several important laws. Our organization, LibertyAndProsperity.org and three taxpayers sued to set it aside. The “Agreement” was approved by only four of nine council members at closed meeting held without proper advance notice. This violated both the Open Public Meetings Act and the Local Budget Law, which also required a two thirds vote of six members in two separate votes. Finally, the resolution approving the deal did not even mention any of its terms.
Even though state and local officials know this loan agreement is on shaky legal ground and about to be knocked out in court, they are acting as if it is final and binding. Besides setting aside the unlawful loan agreement, our lawsuit also uncovered years of blatantly illegal conduct by state and local officials since the state took over Atlantic City’s finances in October, 2010.
The state’s Local Budget Law requires every town and county in New Jersey to adopt balanced budgets by March of each year. When Atlantic City lost two thirds of its tax base five years ago, it should have made big spending cuts to compensate for lost tax collections.
But since the State took over, it let the last two mayors avoid layoffs and salary cuts and run unlawful $100 million deficits for each of the past six years. The State funded these unlawful deficits by letting this City of 40,000 borrow a more than a half billion dollars.
Last May, the State approved PILOT (Peanuts In Lieu of Taxes) tax deals that exempted all eight casino hotels, 112 shops, restaurants and parking garages, and 4,500 “affordable” housing units from any tax increases for the next ten years. That puts the entire burden of Atlantic City’s debt on the backs of less than a third of its taxpayers.
The only solution is a federal bankruptcy or state insolvency to cut both the debt, and unsustainable salaries in City Hall and the public schools that created it. Incredibly, state officials oppose this, and Mayor Guardian never demanded it. For the past six years, City and state officials did business as usual and put the City deeper into debt year after year. This left Governor Christie free to run for President without having an embarrassing crisis in Atlantic City.
For the past two years, Mayor Guardian and state officials hid this from the public – and even from most City Council members. They refused to adopt public budgets until September, when most money was already unlawfully spent at unsustainable levels. They claimed the City had the funds to pay $36 million each year to the Wall Street loan sharks, while secretly refusing to pay for employee health insurance or pensions. This is how Charles Ponzi and Bernie Madoff did business.
Mayor Guardian and Council President Small now demand that City Council liquidate the water department so they borrow $73 million more and delay the day of reckoning for a few more months. The best hope for Atlantic City is for a majority of City Council to refuse, and say, “Enough!”
Yes, this will create a crisis. But unfortunately, that crisis is the only way all parties involved will get serious enough to fix the problems that created it.
And this goes far beyond Atlantic City. For years, we at Libertyandprosperity.org have said “What happens to America, happens to Atlantic City first!”