Atlantic City needs approval of three bills New Jersey Gov. Chris Christie conditionally vetoed to avoid becoming "insolvent" without additional support, according to Moody's Investors Service.
The Republican governor conditionally vetoed bills on Nov. 9 that would have established a payments-in-lieu of taxes program for casinos over a 15-year period and reallocated the state's casino alternative tax to pay debt service on Atlantic City-issued municipal bonds. He also conditionally vetoed a bill that would cancel a partnership between the state's Casino Reinvestment Development Authority and Atlantic City Alliance, which would have directed $30 million in marketing funds to the city in 2015 and 2016 to pay debt service.
Moody's analysts Josellyn Yousef and Orlie Prince said in a Nov. 17 report that one of the most significant changes that Christie requested in his conditional vetoes would require that $30 million of $150 million in payments in lieu of taxes revenue go to the state before being directed to Atlantic City. The city would need to demonstrate a an acceptable financial plan in order to receive the funds, according to Christie.
"There is still a reasonable chance that the three conditionally vetoed bills will be passed by the end of the year because the governor's recommended changes do not seem onerous and the governor intends on collaborating with the Senate President to iron out the differences," said Yousef and Prince in their report. "If the bills are passed, Atlantic City would receive a much needed liquidity boost, reducing the likelihood that the city is forced into bankruptcy."
Yousef and Prince emphasized that even if all three bills become law they will not "cure" Atlantic City's long-term structural deficit. The city had a $101 million budget gap for much of this year before adopting a 2015 fiscal plan in late September that relied partly on anticipated revenues of $33.5 million in redirected casino taxes included in the rescue package. Revenue Director Michael Stinson has said the city will have enough cash to pay $11.5 million in debt service payments due on Dec. 15 even if the bills are not signed into law this year.
"If the bills fail, the city's liquidity will remain dangerously narrow and it is likely the city would be insolvent without some other form of financial support," said Yousef and Prince. "Our downgrade of the city's General Obligation rating in January 2015 to Caa1 with a negative outlook already factors in the downside risk that the city will be unable to meet debt service obligations."
Christie appointed corporate restructuring attorney Kevin Lavin as Atlantic City's emergency manager in January, prompting a six-notch credit downgrade by Moody's. Lavin issued a report in March urging "shared sacrifice" among stakeholders including the possibility of extending maturities for bondholders. He is slated to issue a fiscal recovery plan this fall.
