A continued slide in Atlantic City's casino revenues will add pressure to the city government's finances, Moody's Investors Service and Standard & Poor's says.
On Thursday the Associated Press reported that casino revenues in June were down 12.6% from a year earlier. For the first half of the year, the revenues were down 10.7%.
Property assessments of the casinos are based on the casinos' business volume, said Standard & Poor's associate director Andrew Teras. With declining volume, the casinos have been appealing their assessments. Continued successful appeals could put credit pressure on the city that S&P rates A-minus, Teras said.
Property taxes account for 77% of the city's revenues.
The city's casino revenues are off by more than 40% since 2007. This has spurred unemployment, putting pressure on the city government, Teras said.
After declining for years, the city's reserve levels have stabilized recently, Teras said. For the time being the city's financial position is stable, he said. In the long term, the city government may need to come up with new ways of addressing its financial woes.
"The decreasing gambling revenues are a credit negative for Atlantic City and are a key driver of the negative outlook that we maintain on the city's Baa1 rating," wrote Moody's analyst Vito Galluccio in an e-mail to The Bond Buyer.
"Although the downward trend in gaming revenues has led to steep assessed value declines, property tax revenues and the city's budget have not been as negatively affected because the city has increased the millage rate enough to still grow the levy each year," Galluccio continued. "While this strategy has been successful in past years, it remains unclear whether the city can continue this practice in the future, particularly given more intensified assessed value declines and the recently adopted 2013 budget, which for the first time reflects a levy decrease."
In response, Michael Stinson, director of revenue and finance for Atlantic City, said, "We're very bullish on Atlantic City."
The city can easily respond to declines in property assessments with increased rates, Stinson said. While casino revenues are down in the first half of the year, hotel occupancy rates have been pretty good.
In the aftermath of last fall's Hurricane Sandy, Federal Emergency Management Agency reimbursement for homeowners and the city is ongoing, Stinson said.
The U.S. Army Corps of Engineers will soon start constructing a $30 million sea wall for the city, with just a $10 million city government contribution, Stinson said. This construction will help the local economy.
