ATLANTIC CITY — There hasn't been a municipal default in New Jersey since the Great Depression. But Wall Street sees little it likes in the state's latest plan to rescue Atlantic City, and is warning the resort town may soon be unable to pay its debt.
Moody's Investors Service and Standard & Poor's have both raised serious doubts over the Christie administration's proposals to resolve the growing financial crisis in Atlantic City, leaving the city open to default.
The dire predictions come just days after an emergency management team put in place by Gov. Chris Christie outlined $130 million in budget cuts and massive layoffs.
But with four of the city's 12 casinos now closed, and 8,000 jobs gone, the city is out of money and out of time.
While stopping short of calls for bankruptcy, what troubled Wall Street most about the plan was that the fixes were dependent on more state assistance and reductions in expenditures, rather than finding ways to bring in new revenue.
Moody's on Thursday said the state plan also relied on quick legislative action, state aid, and timely property tax payments from already struggling casinos--an unlikely scenario. Both the Revel and Trump Taj Mahal were delinquent on their property tax payments in 2014, analysts said.
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"Given the city's cash flow projections and assuming pension and health benefit payments are delayed or deferred, the state legislature will have only three months to adopt the two bills before the city reaches a liquidity and debt service crisis," said Moody's. "Debt service payments due on August 1 and December 15 may be at risk if the two bills are not adopted swiftly and the revenue infusion does not come in time."
Standard & Poor's, which in January cut Atlantic City's debt rating to junk bond status, went even further in its response to the latest reports, saying it is weighing a further downgrade in the face of a possible default.
In an announcement on Wednesday, the agency said it was considering lowering the rating on the city's general obligation bonds from "BB" to "CC," or "currently highly vulnerable," in the wake of the proposed debt restructuring and refinancing proposed by the state-imposed emergency managers. That is just steps away from a "D" rating, indicating a payment default on financial commitments.
A spokeswoman for the state Department of Community Affairs said there has not been a municipal default in New Jersey since the stock market crash of 1929.
A spokesman for Christie declined comment on the rating agency announcements, other than to reiterate remarks earlier this week that the governor's office was looking forward to reviewing the findings of the emergency management team.
State Senate President Stephen Sweeney (D-Gloucester), though, said the emergency financial managers were only making things worse, giving Wall Street a crisis of faith. He noted any further ratings decline on Atlantic City's debt "would make it even harder for the city to work its way out of its dire fiscal problems." He complained that the administration was warned months ago that decisive action was needed to stabilize Atlantic City's finances and reposition the casino industry.
"They have held three summits and issued three reports but they have done little to nothing to restore financial stability, protect local taxpayers, maintain public services or to give the gaming industry the ability to rebuild its business opportunities," Sweeney said. "They seem to want to keep playing a losing hand."
STAGGERING TAX BASE DECLINE
Kevin Lavin, the corporate finance attorney appointed by Christie as the lead emergency manager, said Atlantic City's fiscal problems were far worse than anyone realized. Its property tax base dropped by 64 percent over the last five years, from $20.5 billion in 2010 to $7.3 billion in 2015, and the city faces a $101 million budget gap in the fiscal year that begins July 1.
"Atlantic City is in a financial crisis," Lavin said.
He said the city needs to reduce its costs by $10 million this year and said there could be a 20 to 30 percent reduction of the city's payroll, translating to hundreds of layoffs.
Joseph Seneca, a Rutgers University economist, said Wall Street's warnings held no surprise.
"These are realistic assessments of the depth of the fiscal problems that has built over a period of time. The decline property tax base loss is just staggering," he said. "There's a fundamental erosion in the fiscal capacity of the city and that's the reality," he said.
While talks about reimagining a casino resort now overtaken by competition have been the focus of the governor for more than five years, Seneca said whatever needs to be done will not happen quickly.
"The fiscal realities here and now though are pretty dire," he remarked. "The drop of more than 50 percent drop in the tax base is stunning. It has to have deep and significant financial implications."
Peter Reinhart, director of the Kislak Real Estate Institute at Monmouth University, said dependence by the emergency managers on state money to help bail out Atlantic City is another red flag for Wall Street. While people may have been hoping for a silver bullet to solve the problem, he said there just isn't enough government dollars to go around.
"There are very valid concerns in Atlantic City," Reinhart said. "Layoffs and modifying pensions may work short term, but it does nothing in solving the long term problem of bringing in new investment into Atlantic City."
Ted Sherman may be reached at tsherman@njadvancemedia.com. Follow him on Twitter @TedShermanSL. Find NJ.com on Facebook.