With the state taking over Atlantic City’s municipal finances—and already raising the resort’s tax rate—Moody’s Investor Services called the step a “credit positive” move which should keep the city from defaulting on its debt through 2017.
The city faces about $500 million in debt it can’t currently pay back, but the statement from Moody’s noted that the state has ruled out bankruptcy for the resort.
New Jersey took over the city’s finances last month after the state Department of Community Affairs rejected the city’s plan to handle its debt. The takeover was part of a series of rescue bills for the city passed in Trenton earlier this year.
The state Division of Government Services has appointed former U.S. Senator Jeffrey Chiesa—a longtime ally of Governor Chris Christie—to oversee the takeover. He has the power to veto City Council minutes, sell city assets and hire and fire employees, including breaking union contracts.
Moody’s noted that the city owes about $7 million in payments at the start of December, but said statements by Chiesa that he will tap state funds to make debt payments were a positive sign.
The state has not officially guaranteed the city’s debt, but “has indicated a willingness to go to the state treasury for assistance if necessary to pay debt service. With its severe liquidity issues, the city’s ability to pay its debt service has come into question on a monthly basis,” Moody’s said.
“Control over Atlantic City’s finances does not include the authority to file for Chapter 9 bankruptcy, an indication of the state’s desire to resolve the city’s situation without going through this complex and often lengthy process,” wrote Moody’s analyst Douglas Goldmacher
“While New Jersey has financial issues of its own, temporarily covering Atlantic City’s debts would barely register on its balance sheet,” the report said. “The state’s $487 million fund balance may be a narrow 1.5 percent of 2016 revenues, but the city’s $36.8 million in 2016 debt service payments would be a very small portion of the state’s nearly $36 billion in revenues.”
The state has also moved to raise the city’s tax rate and implemented a $241 million budget for the resort for 2016. The new budget increases property taxes $9.4 million and decreases state aid anticipated in the budget by about $11 million, according to the Associated Press.
The budget, however, anticipates less money to be raised by taxes than in 2015 due to the city’s shrinking ratable base.
Chiesa has not said what steps he will take to right the city’s finances, but he does have recommendations from an emergency manager appointed by Christie in 2015. The city, in devising its own eventually rejected fiscal plan, did not take many of the emergency managers recommendations. Those recommendations included privatizing many city services and transferring other services to Atlantic County as well as monetizing city assets.
The city has seen five casinos close since 2014 and casino revenue fall from a high or $5.2 billion in 2006 to $2.56 billion in 2015.
