Atlantic City, N.J. is moving closer to default and a possible bankruptcy after New Jersey Gov. Chris Christie's Jan. 19 veto of a financial rescue package, according to Moody's Investors Service.
Moody's analyst Josellyn Yousef wrote in a Jan. 25 report that three Atlantic City rescue bills rejected by Christie would have provided nearly $47 million in additional revenues in 2016 and "a predictive stream" from casino payment in lieu of taxes.
The Atlantic City Council scheduled a Tuesday meeting to review the option of filing for bankruptcy, but New Jersey Law requires state approval for a municipal bankruptcy. Yousef noted that Atlantic City owing the Borgata casino $153 million in tax refunds could prompt city and state officials to seriously consider a bankruptcy option.
"The bills could be resurrected, but time is running out and the city's cash position is dangerously low," said Yousef in her report. "Without another liquidity infusion from the state, the city is likely to default on debt service payments as early as April."
Moody's rates Atlantic City bonds Caa1 with a negative outlook. Standard & Poor's slashed the city's credit rating four notches on Friday to CCC-minus from B citing a "near-term liquidity crisis."
Atlantic City plugged a $101 million deficit in its 2015 budget adopted in late September in part with $33.5 million in anticipated revenues from redirected casino taxes that would have been included in the rescue legislation. Yousef said the state may deliver Atlantic City a loan "in the 11th hour" like it did in 2014, but that remains uncertain. The state could also allow the city to defer an estimated $40 million of 2016 pension and health benefits that are due in April.
"All of these quick and short-term fixes would just prolong Atlantic City's crisis," Yousef wrote.
Atlantic City suffered four casino closures in 2014. A closure of any of the city's eight remaining casinos could result in between $8 million and $15 million of lost revenue, according to Yousef.
