Standard & Poor's last week changed the outlook on Atlantic City to negative from stable as New Jersey's gambling center addresses property-tax appeals and restrictions on its ability to generate additional revenue. The agency rates the city A.
The outlook change follows a downgrade from Moody's Investors Service on Oct. 29. Moody's dropped Atlantic City to Baa1 with a negative outlook from its recalibrated rating of A1, due to credit deterioration. The city had $113 million of outstanding debt as of Dec. 31, 2009.
Officials are working on a $12 million refunding that will generate net-present value savings and a $8.7 million bond deal that will help the city meet its tax-appeal payments. Powell Capital Markets Inc. and PNC Bank are co-underwriters of the refunding and tax-appeal bond sales. The city is also working on issuing about $15 million of new-money bonds to help finance infrastructure projects.
The city's 10 largest taxpayers are all casinos and make up 64% of Atlantic City's total assessed value. Of those 10 gambling facilities, nine are appealing their property taxes.
Casino revenue in the city has been declining since 2006 because of the economic downturn and new gambling competition in neighboring states, according to Standard & Poor's. Values on Atlantic City's casinos are based on the revenues they generate.
Property-tax increases in New Jersey also will be capped at 2% beginning Jan. 1, down from the current 4% limit.
"The negative outlook reflects Standard & Poor's expectation that although the city expects to generate an operating surplus in 2010 that will bring the general fund balance to what we consider adequate levels, we believe that ongoing pressures from continued tax appeals and limited revenue-raising flexibility will likely pose additional challenges that the city will need to address in the coming year," Standard & Poor's reported.
"It is also our opinion that the city's failure to reestablish structural balance and maintain projected fund balances could result in our lowering the rating," the report said.
State officials in early October told Atlantic City that it could spread its $9.5 million budget over five years and issue bonds to pay tax appeals in order to contain property-tax increases. Officials cut the city payroll by 113 positions and are implementing furlough days.