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Preheat oven to 350°F. Spray a 2 quart baking dish with olive oil spray and set aside.
Place the potatoes in a large pot and cover with water. Bring to a boil over medium heat. Reduce the heat and simmer until the potatoes are just tender, about 8 minutes. Drain and set aside to cool.
Melt the butter in a large saucepan set over medium heat. Add the garlic and cook for 30 seconds, then stir in the flour until well combined.
Slowly whisk in the chicken broth, cook for 1 minute, then stir in the milk. Whisk until smooth, seasoning with salt, pepper, and nutmeg. Continue cooking for 1-2 minutes, until the sauce thickens.
Remove the saucepan from the heat and stir in 1 cup of cheddar cheese until melted.
Spread ¼ cup of the sauce over the prepared baking dish. Arrange ⅓ of the sliced potatoes evenly over the sauce. Top with ⅓ of the sauce to cover the potatoes, then sprinkle with ⅓ cup of the cheddar cheese and ⅓ of the bacon. Continue layering two more times in that order with the remaining potatoes, sauce, cheese, and bacon and repeat. Sprinkle the rest of the cheese on top.
Cover with foil and bake for 25-30 minutes. Uncover and continue baking for another 5 minutes or until the potatoes are fork tender. Turn the broiler to high and brown the cheese, if desired.
Garnish with chives and serve warm.