Atlantic City is already unable to both pay its debts and support basic municipal operations... what it really needs is to cut its debt, not come up with different payment schedules.
At first glance, Atlantic City's current crisis bears little resemblance to those of Detroit, Puerto Rico and the other recent cases of fiscal catastrophe. The city is on the brink of bankruptcy due almost exclusively to a bad bet on casinos: around 20,000 industry jobs and half of annual gaming revenues have been lost in the last decade.
Atlantic City is already unable to both pay its debts and support basic municipal operations... what it really needs is to cut its debt, not come up with different payment schedules.
But though governments can go broke for any number of reasons, the solutions to their distress tend to be broadly similar. Atlantic City can learn many lessons from how other cities have dealt with insolvency.
First, unionized employees will have to make major concessions. This has been a sticking point between New Jersey Gov. Chris Christie and Vincent Prieto, the pro-union speaker of the New Jersey Assembly. Christie wants to take over Atlantic City and give state appointees the authority to break labor contracts. Prieto has blocked the governor's plan, saying, "We don't need to destroy collective bargaining rights to fix Atlantic City." Prieto is raising false hopes. Not only is most city spending bound up in salaries and benefits, state and local officials cannot hope for any concessions from corporate creditors without sacrifices by labor.
One analogy here is the 1994 bankruptcy of Orange County, California. Orange County became insolvent not from overstaffing but an overreliance on investment return to fund basic services. Nonetheless, more than 2,000 positions had to be eliminated to restore solvency.
Second, the state should not only take over Atlantic City but invest its appointees with broad powers. Atlantic City Mayor Don Guardian has denounced Christie's plan to replace local authorities as a "fascist dictatorship." But many difficult decisions lie ahead along Atlantic City's long road back to fiscal stability...
