A recent court decision awarding the equivalent of 20% of Atlantic City’s annual revenues to a local casino is a credit negative for the city, Moody’s Investors Service said.
A New Jersey state court ruled last week that Atlantic City owed its largest taxpayer, Borgata Casino, a $50 million property tax refund. The casino had argued that since its gambling business has contracted over the last several years, the city should reduce its property tax assessment. The court’s agreement with this argument makes the casino the first one to have its property tax assessment changed based on this argument.
The court ruling “is likely to encourage a new wave of casino appeals” in Atlantic City, said Moody’s analyst Vito Galluccio. Gambling revenue at the city’s casinos is likely to continue to decline, he said.
Atlantic City is rated Baa1 with a negative outlook by Moody’s and A-minus by Standard & Poor’s.
“We are continuing to monitor the situation,” said S&P spokesman Edward Sweeney. “We will provide the market with an update at a future point.”
As things stand the city’s assessed property value has declined 34% in the past five years.
The city’s debt as a percentage of assessed property value is expected to go to 2% in 2014, four times the percentage in 2010.
Since 2007, the city has issued debt to pay $200 million in tax refunds to other casinos that appealed for lower taxes because of declining gambling revenues, Galluccio said.
The city has only $2.7 million of reserves for 2013.
Atlantic City is strongly considering appealing the decision, said the city’s director of revenue and finance Michael Stinson. If it does not appeal, the city has 45 days to make arrangements to pay, he said. If it does pay, it will pay through a credit against expected tax payments that would be acceptable to the court, he said.
Stinson was unfazed by Moody’s description of the decision as a credit negative. Every quarter Moody’s has said the decline of the casino industry is a credit negative for the city, he said. However, Moody’s has not made a change in the city’s rating, he said.