New Jersey credit enhancement program weathers Atlantic City whirlwind

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PHILADELPHIA -- New Jersey's long track record of aiding distressed municipalities weathered a political storm with Atlantic City last year, according to S&P Global Ratings credit analyst Timothy Little.

In the lead up to New Jersey’s Local Finance Board initiating a state takeover of Atlantic City finances last November, Mayor Donald Guardian and Gov. Chris Christie went back and forth with battles over control of the gambling hub.

Little said at the Bond Buyer’s Mid-Atlantic conference Tuesday that the infighting between the state and city placed doubt into whether New Jersey’s credit enhancement program could continue its success preventing municipal bankruptcies, but a year later the relationship is on far firmer ground. With state assistance, Atlantic City has issued $131.1 million of refunding bonds this year under New Jersey’s Municipal Qualified Bond Act to pay for settlements brokered by the state on $302 million of outstanding property tax refunds owed to casinos.

“The political risk really was what was coming out and that was really the testing case for Atlantic City,” said Little, referring to often dueling press conferences Guardian and Christie held before state intervention took effect. “The state has shown a commitment, but it certainly has been tested.”

S&P upgraded Atlantic City’s deep-junk level bond rating one notch to CCC-plus from CCC with a stable outlook on Oct. 17 citing the resolution on tax appeals, improved finances and timely debt service payments. Little said in the S&P report that the city is now unlikely to face a “near term credit or payment crisis” in the next 12 months.

Little noted Tuesday that in addition to the statutory framework provided by New Jersey’s credit enhancement program, Atlantic City is also benefiting from $30 million in new state aid between 2015 and 2017 and new payments in lieu of taxes from casinos over the next 10 years.

Christie’s eight-year run as governor ends on Dec. 31, but Little said he does not expect any significant changes to the state’s Atlantic City fiscal controls no matter who wins the governor’s race between Democrat Phil Murphy and Republican Lt. Gov. Kim Guadagno. State intervention under the Municipal Stabilization and Recovery Act empower New Jersey’s Local Finance Board to alter outstanding debt and municipal contracts for five years.

Despite Atlantic City’s progress in the last year with state assistance, New Jersey’s heavy pension burden could have a potential spillover effect that impacts future aid, according to Susannah Page, manager of research at Roosevelt & Cross. Page also noted that Atlantic City remains limited economically by its reliance on casinos and lack of diversification.

“It’s still a one horse town,” said Page. “They are working on it, but it’s not there yet.”

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