United States: Atlantic City Emergency Manager Powers And Pre-Conditions For Filing Municipal Bankruptcy

Last Updated: February 10 2015
Article by Nicholas Casiello, Jr. and Michael Viscount

On January 22, 2015, New Jersey Governor Chris Christie issued Executive Order No. 171 through which he appointed an Emergency Manager for the City of Atlantic City. Drastic as this measure may seem, the Executive Order only grants the Emergency Manager the limited powers to analyze and assess Atlantic City's financial condition, recommend a plan to the governor within 60 days, negotiate with affected parties and consult with all stakeholders. The Emergency Manager is not empowered to directly run the city or make any unilateral decisions regarding Atlantic City's financial condition.

This alert outlines the powers granted to the Emergency Manager in the Executive Order, offers a brief summary of the statutes and other documents cited within and briefly discusses the pre-conditions necessary for a New Jersey municipal bankruptcy filing.

Emergency Manager Powers

The Executive Order grants the Emergency Manager the authority to perform three main tasks:

  1. Analyze and assess the financial condition of Atlantic City;
  2. Prepare and recommend, within 60 days of appointment, a plan to place the finances of Atlantic City in a stable condition on a long-term basis by any and all lawful means, including the restricting of municipal operations and the adjustment of the debts of Atlantic City pursuant to law; and
  3. Negotiate with parties affected by the recommended plan for an adjustment of Atlantic City's debts and the restructuring of its municipal operations and, in [the Emergency Manager's] discretion, to recommend modifications of the plan as a result of such negotiations.

Executive Order No. 171 (January 22, 2015).

In support of these tasks, the Emergency Manager is granted wide discretion to consult with any and all parties necessary to secure the long-term financial stability of Atlantic City (i.e., the mayor and council of Atlantic City, creditors, representatives of bondholders, collective bargaining representatives, etc.). Id. And, the Emergency Manager is granted unlimited access to "all financial and other information, documents, and records of, or pertaining to Atlantic City." Id.

The Executive Order does not grant the Emergency Manager the power to make any unilateral decisions, despite his significant authority to investigate and assess Atlantic City's financial condition. Nor does the text of the Executive Order indicate that any power has been taken away from the mayor or city council. Thus, the mayor and city council remain in control of the city. The power to act on the Emergency Manager's recommendations is expressly reserved in the Executive Order for Governor Christie. The specific language of the Executive Order makes this undeniable, stating, "[p]ending receipt of recommendations from the Emergency Manager, I reserve the right to take such additional actions, invoke such emergency powers and issue such emergency order or directives as may be necessary..." Id. Accordingly, the Emergency Manager is limited to assessing, recommending, negotiating and consulting.

The Emergency Manager's powers should not be trivialized, even though they are less than the total control granted to the recent Detroit Emergency Manager. The Executive Order expressly permits the Emergency Manger to make any lawful recommendations he sees fit, no matter how drastic, in stabilizing Atlantic City's finances. Id. This includes recommending the restructuring of municipal operations and the adjustments of the debts of Atlantic City. Id. Although they may just be recommendations for now, it is likely that some, if not all of them, will be implemented in the future.

Statutes and Documents Cited in the Executive Order

There are four main citations referenced in the Executive Order.

  1. The Local Government Supervision Act, N.J.S.A. 52:27BB-54 et seq.
    The act permits the state to appoint a Fiscal Control Officer to oversee and supervise the finances of a municipality in unsound financial condition, of which Atlantic City has been subject to since September 2010. Under this law, the Local Finance Board has the authority to approve all expenditures and any incurrence of debt.
  2. Local Finance Board Resolution of September 10, 2014.
    The Local Government Supervision Act requires the Local Finance Board to vote annually for the continuation of oversight and supervision of a city, otherwise the oversight automatically expires. This resolution was simply the most recent vote by the Local Finance Board extending its supervision over Atlantic City for another year.
  3. Executive Order No. 11. Executive Order 11, issued February 3, 2010.
    This Executive Order by Governor Christie created the New Jersey Gaming, Sports and Entertainment Advisory Commission. The Advisory Commission "is charged with developing recommendations for the governor for a comprehensive, statewide approach regarding the issues and financial needs of New Jersey's gaming, professional sports and entertainment industries and making proposals for the implementation of its recommendations." Exec. Order No. 11 (Feb. 3, 2010).
  4. The Advisory Commission's November 12, 2014, report.
    Among a number of financial problems and recommended solutions, this report suggested that an Emergency Manager be appointed immediately with "extraordinary supervisory powers" under the act. The report also notes that to appoint an Emergency Manager, legislative action may be required to augment the existing statute.

Thus, no statute cited in the Executive Order specifically authorizes the appointment of an Emergency Manager.

Pre-Conditions to New Jersey Municipal Bankruptcy

While the Emergency Manager has said that it is too early to discuss bankruptcy, his background in restructurings and the appointment as his special counsel of the former bankruptcy lawyer who shepherded Detroit through its bankruptcy, has led to speculation that this alternative is clearly on the table. New Jersey municipalities cannot file for bankruptcy under the United States Bankruptcy Code without state approval. Section 109 of the code, titled, "Who may be a debtor," provides that a municipality must be specifically authorized to be a debtor by state law. 11 U.S.C. § 109(c).

New Jersey state law requires the state Municipal Finance Commission to approve the filing of a petition, as well as any plan of readjustment, prior to a municipality filing a petition in bankruptcy court. N.J.S.A. 52:27-40.

A petition to file for bankruptcy must also be authorized by an ordinance of the governing body of the municipality. N.J.S.A. 52:27-41. The governing body must adopt this ordinance by an affirmative vote of not less than two-thirds of the governing body's elected members. Id. After the ordinance is adopted, the municipality must submit the petition (and a plan of readjustment, if there is one) to the commission for approval. Ultimately, the commission possesses the discretion to approve any petition for bankruptcy or plan of readjustment. N.J.S.A. 52:27-43.

In the past 75+ years, only two New Jersey municipalities have even attempted to file for bankruptcy protection: the City of Asbury Park in 1936 and more recently the City of Camden in 1999.1 This is most likely the result of "New Jersey [having] one of the most significant set of laws, budgetary tools and state oversight programs, including aid funds from the state, to monitor local government finance...."2 The Division of Local Government Services in the Department of Community Affairs and its Local Finance Board serve as a constant check over the financial health of municipalities. There are numerous red flags under state law that identify when a municipality is experiencing financial difficulty, specifically designed to avoid a full-fledged bankruptcy. See N.J.S.A. 52:27-1 et seq. If any of the red flags are signaled, the state is empowered to step in and assume either partial or full supervisory control over a municipality's finances until stabilization.

Conclusion

The Executive Order primarily empowers the Emergency Manager to assess Atlantic City's financial condition while ultimately recommending solutions for long-term economic stability. Despite not possessing any actual "power" to take action, the Emergency Manager certainly has an abundant amount of influential "power" in shaping Atlantic City's economic future. For now, only Governor Christie can act on the Emergency Manager's recommendations while the mayor and city council remain in control of Atlantic City.

Footnotes

1. Shortly after the City of Camden filed for bankruptcy protection, the state sought to dismiss its bankruptcy petition because it had not received state approval prior to filing. Within days of filing the petition, Camden withdrew its bankruptcy petition in exchange for $62.5 million in immediate state aid.

2. Richard Keevey, New Jersey's Laws and Fiscal Safeguards Make Municipal Bankruptcy Unlikely, NJ Spotlight, Oct. 28, 2013, at 2.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nicholas Casiello, Jr.
Michael Viscount
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions