Another credit-rating boost for Atlantic City is drawing applause from Gov. Phil Murphy and other officials as the resort continues to make progress during the state’s ongoing emergency takeover.
Wall Street credit-rating firm Moody’s Investors Service lifted Atlantic City’s debt grade by two steps last week, while also awarding the resort a “stable” credit outlook.
Moody’s also noted, however, “The city remains highly pressured. Despite ongoing diversification efforts, the city remains dependent on the casino industry.”
The action taken by Moody’s — which highlighted the city’s increasing budget reserves and improving liquidity — comes several months after another major credit-rating firm, S&P Global, announced its own upgrade.
Praise from AC’s mayor
Atlantic City Mayor Marty Small Sr. praised the efforts of city and state officials, as well as outside consultants, during an interview Wednesday.
“We’ve worked extremely hard,” Small said.
Murphy also weighed in last week via social media, saying the Moody’s credit-rating upgrade is a “critical step in the right direction” for Atlantic City.
“Once again, we’re seeing that our collaborative approach to getting Atlantic City back on its feet is working,” Murphy said.
But Moody’s also made it clear that the city is still facing several big fiscal challenges. These include significant debt and a local economy that remains closely tied to the ups and downs of the casino industry, despite ongoing efforts to diversify. And even with the improvement to a “Ba3” credit rating, Atlantic City’s debt score remains below what’s considered “investment grade,” meaning the resort is still a somewhat risky bet.
The fiscal problems that sent Atlantic City’s debt grade tumbling six steps into “junk” status became chronic during the Great Recession, when five casinos closed, costing the resort thousands of jobs and billions of dollars’ worth of tax ratables. The city also faced an estimated $500 million in unpaid debts in the wake of the downturn, as well as a projected $100 million operating deficit. Just weeks before bipartisan legislation for an emergency state intervention was enacted in 2016, Atlantic City narrowly avoided defaulting on an $1.8 million debt payment
The state steps in
The state takeover legislation enacted by former Republican Gov. Chris Christie gave New Jersey broad oversight powers, including control over city labor contracts for up to five years. The intervention officially started in late 2016, and it began with pay cuts for police officers and firefighters and an emphasis on resolving outstanding tax appeals with several casinos. Progress has continued in more recent years as the economy has rebounded, and the city’s latest operating budget cut overall spending while also allowing for financial aid from the state to be reduced.
Atlantic City earned an initial, four-step credit-rating upgrade from Moody’s in 2018, the same year Murphy took office and dismissed former state Attorney General Jeffrey Chiesa, who had been leading the Atlantic City oversight effort for the Christie administration.
Since then, Murphy’s administration has released a lengthy “transition report” that spelled out specific goals for improving the city’s finances, including better training of city government officials. The report also called for a continuation of the state takeover led by the Department of Community Affairs (DCA), but with more direct coordination and cooperation between city and state officials.
Last year, the DCA also issued a 21-page “implementation plan” to build on the recommendations made in the original report.
Moody’s cited the importance of the ongoing state intervention in a notice announcing last week’s two-step credit-rating increase, calling it “critical to the city’s continued wellbeing and progress.” Moody’s also noted some of the state’s oversight powers are on course to expire in less than two years based on the original legislation enacted by Christie in 2016.
“The state’s future oversight role remains to be determined and will be of critical importance to the city’s future credit quality,” Moody’s said.
Among other concerns that remain for Atlantic City despite the recent improvement is a remaining high level of debt. The relatively low incomes earned by city residents and the continued risk of an eroding casino industry amid an expansion of casino gambling in neighboring states were also cited by Moody’s as lingering “credit challenges” for Atlantic City.
Change of direction for the governor
Murphy’s embrace of the prolonged state takeover of Atlantic City marks a reversal of sorts from the position he took while running for office in 2017. His administration’s reaction to the city’s credit-rating boost highlighted the efforts of both city officials and staff from the DCA who have been overseeing financial operations, including budgeting and financial planning during the takeover.
“To start 2020 with another ratings upgrade provides both validation and inspiration for the work that DCA and city officials are doing in Atlantic City,” said Lt. Gov. Sheila Oliver, who also serves as commissioner of the DCA.
“This is great news and shows that Atlantic City’s fiscal health is improving, as well as its ability to manage its budget and address longstanding challenges,” Oliver said.
Small, who worked closely on city budget issues before becoming Atlantic City’s mayor last year, also relished the streak of positive news given where the city was just a few years ago.
“By no means are we out of the woods … but this is a step in the right direction,” he said.