Aug 26 Atlantic City, the down-on-its-luck New Jersey gambling mecca, will sell up to $140 million of municipal bonds later this year to pay for property tax appeals by its overvalued casinos.
The city has borrowed about $205.7 million altogether since it started issuing tax appeal bonds annually in 2010, but this year's offering is expected to be the biggest, the city's finance director Michael Stinson said on Tuesday.
Moody's Investors Service downgraded the city to junk in July, which would usually lead to higher interest rates when the city seeks to borrow in the capital markets. But the new bonds will be supported by a state program that in essence gives bondholders first dibs on state aid, itself subject to annual appropriation by the state legislature.
Under the New Jersey Qualified Bond Act, a New Jersey municipality pledges a portion of its expected state aid to repay qualifying bonds. The state treasury then holds back that amount to cover debt service and pays bondholders directly.
That program "will reduce considerably the interest, and over the twenty-five years will result in tens of millions of dollars of savings," Mayor Don Guardian said.
Existing debt issued by other cities under the program was downgraded to A2 in May, after Moody's cut its rating on New Jersey debt.
Guardian addressed reporters in a teleconference on Tuesday about how to reverse the city's downturn and diversify its economy beyond casinos, which have struggled in the face of increasing competition from neighboring states.
He and state and country economic development organizations plan to aggressively market the city to conventions and large meetings, and to invest in the boardwalk, entertainment venues, and other non-gambling attractions.
They also expect to soon open a job training and placement program for dislocated Atlantic City workers.
Still, the city will have to trim about $40 million from its budget over the next four years, to make up for reduced revenues because of decreased gambling, Guardian said.
That may mean layoffs and spending cuts. In part through attrition, the municipal workforce will have to shrink by up to 300 employees, Guardian said.
"All options are on the table for how we cut costs," Guardian said.
The city wants to issue the new bonds early in the fourth quarter, Stinson said. About $15 million of the total amount is to pay for non-casino tax appeals.
Most of the remaining balance is to cover $88 million of tax appeals for the Borgata Hotel Casino & Spa for 2011 through 2013, and an additional amount for 2014 that hasn't yet been finalized, Stinson said. Borgata is owned by Boyd Gaming Corp. of Las Vegas. (Reporting by Hilary Russ; Editing by Chris Reese)