Borgata Settlement Solves One Problem for Atlantic City

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Atlantic City's tax settlement with the Borgata Hotel should help the distressed city move forward to deal with its other fiscal challenges, analysts said.

Atlantic City will pay $72 million of the $165 million it owes the casino in property tax refunds from 2009 through 2015, under a deal announced by New Jersey's Department of Community Affairs late Wednesday.

Moody's Investors Service analyst Douglas Goldmacher said the settlement is a "credit positive" for Atlantic City and allows it to focus on other issues now such as receiving PILOT payments from the other casinos.

"While $72 million is still a substantial amount for the city to repay, it is far less than the original amount discussed," said Goldmacher. "Equally important, the agreement removes a considerable amount of uncertainty and clears the way for the city and state to move on to the next items on their agenda, which is most likely getting signed PILOT agreements from all the casinos."

As part of the agreement, Borgata agreed to make quarterly payments in lieu of taxes this year. The casino will forgo pending tax appeals from 2013-2015 that could potentially have returned the casino roughly $65 million. Borgata was acquired by MGM Resorts last August and is the city's largest employer.

"The settlement took both sides working closely together to find common ground," said Jeffrey Chiesa, who was designated in November lead the state's oversight of Atlantic City's financial recovery effort. "As good corporate citizens, MGM Resorts and Borgata understand the financial realities facing Atlantic City and are jointly committed to the revitalization of the area as a good place to live and a prime destination for tourism."

The agreement forged by the state is $31 million less than $103 million the city proposed paying Borgata last October by borrowing through New Jersey's Municipal Qualified Bond Act as part of a five-year rescue plan it pitched to avoid a state takeover. The state rejected the recovery plan and implemented state intervention on Nov. 9.

"This settlement has been one of my administration's priorities since Atlantic City's fiscal crisis forced us to assume control of operations there in November with a plan to stabilize property taxes and return the city to a sound financial footing," Gov. Chris Christie said in a statement. "This is a great step forward in bringing Atlantic City back to fiscal health."

The Atlantic City press office could not be reached to explain how the city plans to pay for the settlement. The city has $224 million in bonded debt, according to the city's 2016 annual debt statement. A large chunk of the outstanding debt relates to casino property tax appeals.

"We have agreed to this reduced payment because we are committed to being a catalyst of Atlantic City's strong and vibrant future," John McManus, MGM Resorts International executive vice president, general counsel and secretary, said in a statement. "With this agreement we are assured the relative certainty of payment, and the avoidance of additional cost and time related to further litigation."

The state provided Atlantic City a $73 million bridge loan as part of a rescue package last year to avert a default. The city violated the loan terms in early October when it missed a deadline to dissolve its Municipal Utilities Authority, but the state did not demand an immediate repayment.

Marc Pfeiffer, assistant director of Rutgers University's Bloustein Local Government Research Center, called the settlement "a big win" for all parties involved and credited Chiesa for spearheading the agreement.

"A settlement has been discussed for a while and it took the state's oversight and Jeff Chiesa to bring it together," said Pfeiffer. "With this resolved the city and the oversight process can now move to resolving the payment in lieu of taxes issue, while they continue to work on bringing the city's operational costs in line with today's economic environment."

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