Atlantic City’s proposed fiscal 2017 budget, which contains $35.3 million in cuts, is a step in the right direction for the distressed gambling hub, according to S&P Global Ratings.
The city’s $206.3 million spending plan, a 14.6% drop from 2016, saves from $8 million through cuts in salaries and benefits for public safety employees, $6 million in debt service costs, and $3 million in administrative expenses. S&P credit analyst Timothy Little cautioned in an April 20 report, however, that unknowns remain, including pending litigation on whether the city can make police and firefighter cuts.
“In our view, the proposed budget takes significant measures to improve the city's structural imbalance and may lead to further improved credit quality,” Little wrote. “However, risks to fiscal recovery remain from pending lawsuits against state action impeding labor contracts.”
The budget is Atlantic City’s first fiscal plan since New Jersey’s Local Finance Board intervened last November with power to alter outstanding debt and municipal contracts. Little said that 2017 will be the first year of the agreed-to payment-in-lieu-of-taxes (PILOT) program for casino gaming properties that is fixed at a $120 million for 10 years, with 10.4% directed to Atlantic County.
Little said the budget contains far less financial support than in past years, as the $30 million of casino redirected anticipated revenue received in 2015 and 2016 is reduced to $15 million. The budget also contains no state transitional aid, which totaled $26.2 million in 2016. The city is getting a $15 million boost from an adjustment to the state Consolidated Municipal Property Tax Relief Act.
“Long-term fiscal recovery will depend on the city's ability to continue to implement fiscal reforms, reduce reliance on nonrecurring revenues and reduce its long-term liabilities,” Little said.
State aid accounts for 34% of the $206.3 million in budgeted revenue, 31% comes from casino PILOT payments, and 27% from tax revenue. The city is also planning to issue $72 million in bonds through New Jersey's Municipal Qualified Bond Act to pay for a tax settlement with the Borgata Hotel Casino & Spa over outstanding property tax refunds.
S&P upgraded Atlantic City’s general obligation bond rating two notches to CCC in early March after the Borgata settlement yielded the city $93 million in savings. Moody’s rates Atlantic City debt at Caa3.