Plans to close four of Atlantic City's twelve casinos will pressure the city's already tenuous finances, analysts say.
On Monday, the Trump Plaza Hotel announced it would close on September 16. The Showboat and Revel casinos are expected to close in August, though a buyer may yet rescue them.
The Atlantic Club casino has already closed.
Casinos constitute 70% of Atlantic City's property tax base.
"Short term there will be a cash flow problem about just meeting [Atlantic City government's] expenses," said Evercore director of municipal research Howard Cure. "Longer-term one has to wonder about its ability to service its debt given that there's more and more competition in the area."
City officials are more optimistic about its short-term prospects.
The city has reached settlement agreements on tax appeals with the owners of three of the four closing casinos for them to make payments in 2014 and 2015, said Atlantic City director of revenue and finance Michael Stinson. He said he expected the owners to stick to these agreements even if the casinos close.
The owners of Showboat only reached a tax agreement for 2014. Its closure will lead to lower city revenues in 2015, he said.
Moody's analyst Vito Galluccio was unsure about the short-term financial impact, but saw the closings as negative for the long term. In the short-term the casino owners may pay the property taxes on the closed buildings or they may appeal them in court, he said.
Over the long term, the closures will cut away at the city's primary source of revenue, he said.
The closures will also hit the city's already weak socioeconomic profile, Galluccio said. The city's median family income is just above 50% of the United States value.
The city had a 14.9% unemployment rate in May, one of the highest in the United States. Galluccio said he heard the casino closings will lay off 5,000 people. The Associated Press reported that 7,000 casino workers have been told their jobs could disappear within 60 days.
After the closures, gamblers may not shift from the closed casinos to the remaining ones, Cure said. With fewer casinos to choose from, gamblers may stay away from the city altogether.
The closures will not just hit Atlantic City but also the state's coffers, albeit to a lesser degree, Cure said.
Moody's Investors Service rates Atlantic City's general obligation bonds Baa2 with a negative outlook. Standard & Poor's rates them A-minus with a stable outlook.
The four casino closures are "a dramatic correction but a necessary correction," said Andrew Klebanow, partner of Global Markets Advisors, who follows the casino industry. There were too many casinos in Atlantic City for the market of gamblers.
Klebanow said he expected there would be no more Atlantic City casino closure announcements in the next several months.
There may be various possibilities for the four closing casinos. Revel may be picked up soon because it is a stunning building, Klebanow said.
Showboat and Revel may be closed and rebranded or may be sold before closure. Atlantic Club will probably one day reopen as a hotel.
In other Atlantic City news the state's Local Government Services office awarded $13 million in transitional aid to the city on Friday. The state has already given the city a $7 million essential services grant.
The city is looking to reassess all property this year, Galluccio said. This would be a positive since it would reduce the city's legal bills going forward.
The city is still working on its fiscal year 2014 budget even though the city's fiscal year began Jan. 1.
The budget will be balanced, Stinson said. The city plans a large tax increase, he said. The amount of state aid will determine the size of the tax increase, he said.
The city is operating on a modified budget from last year, Stinson said. There have been some changes in spending but continuity in collections.
The state will approve the new 2014 budget in August.
