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NEW YORK, July 17 (Reuters) - New Jersey officials considered a state takeover of Atlantic City's assets and proposed punishing the struggling New Jersey gambling hub if it did not agree, according to a draft document reviewed by Reuters.
Atlantic City has come under increasing financial oversight from the state, but the memo shows state officials contemplated a dramatic intervention to help pay down its roughly $400 million of debt.
The memorandum, which circulated earlier this week among city officials, proposed granting the state's Department of Community Affairs the authority to value all the city's assets and sell, transfer or lease them to help the city meet its financial obligations.
If the city refused to go along, the state would withold half of the city's transitional aid, the memo said.
"That was absolutely unacceptable to me, and to our council president and city council," Mayor Don Guardian told Reuters in a phone interview on Friday. "It basically is saying sell the farm, and that's just not what we want to do."
Guardian's office has since discussed other forms of agreements with Timothy Cunningham, director of the division that sent the memo and would have taken over city assets. Cunningham apologized and told Guardian that the memo was a draft that should not have been sent out, Guardian said.
A spokeswoman for Cunningham's division referred questions to New Jersey Govenror Chris Christie's office, which did not reply to requests for comment.
The state memo included all assets but targeted specifically the Atlantic City Municipal Utilities Authority, which provides the city's drinking water, even though it is an independent authority not owned by the city. It would have to first be dissolved under statute before any sale or transfer could occur.
A move to dissolve the utility failed in the city council earlier this year. The memo sparked anger in the union representing water utility workers, who are planning a protest on Monday.
Over the weekend, Guardian said the city and state could strike an agreement that seeks to bring the water utility under city control to then find ways to maximize its revenues.
Atlantic City's emergency manager, Kevin Lavin, appointed in January by Christie, contemplated privatizing city assets in his March report.
"We've never had the opportunity to be at the table in the discussions," G. Bruce Ward, the water utility's executive director, told Reuters. "We have been firmly committed to the city to assist it in any way that we can."
Reporting by Hilary Russ; Editing by Andrew Hay