A judge has rejected New Jersey's attempt to freeze Atlantic City's cash as it struggles to avoid going broke.
The state Education Department asked a judge to prevent the city from spending any more money until it makes an $8 million payment to its school system, which is owed $34 million by the end of the school year.
But Superior Court Judge Julio Mendez refused, giving both sides until April 19 to try to work out a deal.
Gov. Chris Christie had the state sue the city earlier this week, trying to block it from making payroll payments before turning over money it owes the schools. Christie is pushing for a state takeover of Atlantic City.
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City and school officials hinted they may consider a temporary deal for partial payments.