A document obtained by The Press of Atlantic City outlines a draft agreement between the Department of Community Affairs and the city under which the state could take control of the resort's finances for a year.
The document claims an audit by the state comptroller found "substantial areas in need of improvement in the city's finances."
Atlantic City officials note nothing has been signed yet, but say they're open to working with the state.
The city is seeking permission from the state to exceed its budget cap by more than $9 million - something the state is reluctant to approve.
But officials say the state would be willing to grant the waiver in exchange for control over Atlantic City's finances.
A spokeswoman for the state Department of Community Affairs did not immediately return a message seeking comment Friday.
City Business Administrator Michael Scott said both sides are approaching the possibility of state supervision of Atlantic City's finances willingly. He said city officials and Gov. Chris Christie would review options within two weeks.
"There's a lot of things being discussed right now," he told the newspaper. "But the reality can only occur when (the governor and the mayor) sit down. But we do not want the wrong message. There is a lot of cooperation with these discussions."
Some of the benefits of state supervision include allowing the city to defer some expenses. The state would also provide staff and resources to help the city with its finances.
The city is looking at a gap of $10 million to $15 million in its $224 million proposed budget.
Information from: The Press of Atlantic City