Atlantic City breathed a sigh of relief last month when Governor Christie signed a badly needed and long-delayed financial rescue package for the resort town. But that legislation goes only so far, according to financial analysts and state lawmakers.
Salvador Rizzo reports for The Record:
Even with a new $60 million loan from state taxpayers, the threat of bankruptcy still looms over Atlantic City, where the $262 million municipal budget has a $100 million deficit, and where roughly $400 million is still owed to bondholders and local casinos that filed successful |tax appeals.
How the city could generate enough money to fill those yawning fiscal gaps remains an open question. Just weeks ago, before getting the $60 million loan, city officials were delaying paychecks to workers and taking other emergency steps to scrounge enough funds for schools and bond payments.
Atlantic City Mayor Don Guardian, a Republican, said after the rescue bills passed in the Legislature on May 26 that he expected to cut health care and prescription medication coverage for workers, and costs at the Police and Fire departments. The cash infusion from the state, Guardian added, would allow local officials to pay off $50 million to $60 million of their debt and “refinance” the rest “so that it’s nice and solid.”
Some doubt his math would work.
“The hole is too big,” said Assemblywoman Holly Schepisi, R-River Vale, who voted against the rescue legislation. “While I think all of this is well-intentioned, I’m of the mind-set that when you get into a hole of half-a-billion dollars — for a municipality of less than 40,000 people — you’re never going to make up the difference.”
Financial analysts say the rescue legislation Christie signed does not address the larger economic currents that hobbled the casino town over the past decade: A rapidly shrinking property tax base that is going from $20.5 billion in 2010 to an estimated $6.5 billion by the end of next year. The closure of four of 12 casinos in 2014, which wiped out more than 8,000 jobs. A sharp decline in gambling revenue over the past decade, from $5.2 billion in 2006 to $2.56 billion in 2015. And unrelenting competition from neighboring states, where more and more new casinos continue to siphon gamblers who used to be Atlantic City mainstays.
“These are not new problems, and they are not invisible problems,” said Gordon MacInnes, president of New Jersey Policy Perspective, a liberal think tank. Since the state established a gambling monopoly in Atlantic City in 1978, he said, “we didn’t take any preventive steps to transform Atlantic City into a real tourist destination, one that would be busy other than the three months of the summer.”
First, casinos began to crop up in Pennsylvania, clawing away nearly one-third of Atlantic City’s gamblers, MacInnes estimated. A chain reaction of declining real estate values, casino closures and job losses ensued, devastating the local economy, he added.
Governors from Brendan Byrne to Chris Christie have made plans to revitalize the parts of the city that lie beyond the casino district, but none has made a dent, MacInnes said.
What Christie’s rescue package does is avert a bankruptcy filing in the near future; it gives city officials a five-month window to come up with a financial plan that balances their budget and then slashes costs over the next five years. If Christie’s administration rejects those plans, however, the governor would be empowered to take over the local government, sell off city assets and tear up contracts with unionized workers.
State officials also folded the $60 million loan into the rescue package and switched Atlantic City’s remaining casinos from the traditional system of paying property taxes to a system of fixed yearly payments in lieu of taxes. Because of the sputtering local economy, casinos often ended up overpaying property taxes and successfully appealing their bills. By itself, the city’s largest casino, the Borgata, is owed nearly $150 million in successful tax appeals. The fixed payments are seen as more predictable and therefore more likely to help stabilize the city’s finances.
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On Wall Street, the analysts who have been tracking Atlantic City’s frail finances in recent years say the jury is still out on whether the resort town can mount a lasting recovery.
“The rescue package, which includes a $60 million bridge loan and stabilized tax payments from the city’s remaining casinos, is a credit positive development that provides short-term financial relief for Atlantic City and removes the immediate threat of a default or bankruptcy filing,” said Doug Goldmacher, an analyst at Moody’s Investors Service.
Even with the rescue plan, he added, a default remains in the cards if Atlantic City restructures its debt in a way that hurts creditors’ bottom lines.
A debt restructuring “would be considered a default if it includes any bondholder loss or impairment,” Goldmacher said. “We will also analyze how the city plans to return to long-term fiscal stability as the casino industry continues to consolidate,” he added.
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