New Jersey's state takeover of Atlantic City finances is a credit positive for the distressed gambling hub because it will likely eliminate any threat of a default through 2017, according to Moody's Investors Service.
In a report published Monday, Moody's analyst Douglas Goldmacher noted that Tim Cunningham, director of New Jersey's Division of Local Government Services, has said he intends to prevent any default and is willing to go to the state treasury for assistance if necessary to pay debt service. Atlantic City next owes $2.3 million in debt service on Dec. 1 followed by a $4.8 million payment due Dec. 15.
Cunningham tapped former U.S. senator and New Jersey Attorney General Jeffrey Chiesa as the designee in charge of Atlantic City finances. Chiesa is empowered under the Municipal Stabilization and Recovery Act approved in May to alter the city's outstanding debt and municipal contracts.
"Director Cunningham has noted that his 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," said Goldmacher in his report. "He will have the authority to unilaterally modify or terminate union contracts, sell city assets, hire or fire workers, enter shared services agreements, restructure debt, abolish departments, assume control of city litigation, and veto minutes."
Prior to Chiesa's appointment, the state implemented a 2016 budget for the city on Nov. 9 that increases taxes by $9.4 million compared to the city's fiscal recovery proposal, which was rejected by New Jersey's Department of Community Affairs. Goldmacher noted that the state's Atlantic City budget also reduces state transitional aid that the city had requested by $10.8 million.
As part of New Jersey's Atlantic City fiscal plan, the state released Atlantic City Alliance and Investment Alternative Tax funds owed to the city that had been held as collateral for an up to $73 million bridge loan that went into technical default on Oct 3. Goldmacher said the city used these funds to repay $62 million borrowed from the loan to end the technical default and remove the state's lien on the city's former airport property, Bader Field, and the Atlantic City Municipal Utilities Authority.
"Among Mr. Chiesa's first tasks will be to negotiate payment-in-lieu-of-taxes (PILOT) agreements with several casinos as required under the state legislation authorizing the takeover," said Goldmacher. "The PILOT agreements with the city's seven still open casinos (down from 12 in 2014), would allow it to better plan its budget by not having to adjust for unknown payments due to losing casino tax appeals."
Goldmacher noted that while New Jersey has its own financial challenges, "temporarily covering Atlantic City's debts would barely register on its balance sheet." He said New Jersey's $487 million fund balance is a narrow 1.5% of 2016 revenues, but the city's $36.8 million in 2016 debt service payments would equate to a "very small portion" of the state's nearly $36 billion in revenues.