Moody’s Cuts Atlantic City to Junk

The research service released a report:

Moody’s Investors Service has downgraded Atlantic City’s (NJ) underlying general obligation rating to Ba1 from Baa2, affecting $245 million of outstanding general obligation parity debt. The outlook remains negative. The outstanding debt is secured by the city’s unlimited general obligation tax pledge.

And:

The downgrade to Ba1 reflects the city’s significantly weakened tax base, revenue-raising ability, and broader economic outlook. These result from ongoing casino revenue declines, expected near-term casino closures, and the impact of sizable casino tax appeals, all of which has stemmed from increased competition from casinos in neighboring states. The rating also factors in the city’s still-substantial tax base dominated by a pressured gaming industry (nearly 70% of assessed values), narrow financial cushion, very weak residential socioeconomics and an increasing debt burden.

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The casino shuttering is in great contrast to the 1980s when gaming companies could not build facilities fast enough in Atlantic City. The trend rescued a city that had been in sharp decline for decades. According to the U.S. Census Bureau, its population dropped 20% in the decade that ended in 1970, and another 16% in the period that ended in 1980. The erosion slowed to 6% in the 1990 census, but rose 7% in the 2000 measure.

To make matters worse, Forbes recently ranked Atlantic City last among 200 cities based on “business climate.”

Atlantic City ultimately was a victim of its own success. Nearby states saw that tax revenue from the gambling business was good for state finances. Gaming operations opened in New York and Pennsylvania. Indian-owned casinos like Foxwoods and Mohegan Sun in Connecticut flourished, attracting New York City gamblers who at one time might have gone to Atlantic City.

And, as is true of many industries, the “retail” part of gambling has been challenged by online versions.

Atlantic City is one American metro area that cannot be saved by government or private sector policy. Its problems are unsolvable. It will not be long until it is little more than a tiny town in southern New Jersey.

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