New Jersey gives Atlantic City another financial lifeline

With Atlantic City’s local finances in ruins, the beachfront resort is getting another dose of temporary help from the state of New Jersey.

But Wall Street analysts say bankruptcy might still be in the cards.

As most know by now, when four A.C. casinos shut last year, it slashed the city’s tax base in half, rendering it difficult to pay for basic services. So the city turned to New Jersey for a $40 million loan, described by some as a short-term “bail out.”

Next month, A.C. has to pay back the loan, and the only way it can do so is to issue bonds or create more debt for itself. But instead of the city backing the loan — the city credit has “junk” status — New Jersey will support the loan, giving bondholders more confidence that they’ll get their money back.

The state is protecting the debt through a special program that diverts state aid to bondholders.

“It’s almost like your mother giving you a credit card, and what you use to pay off your mother’s credit card is your allowance,” said Chris Foster, a municipal finance analyst at the consulting firm NewOak.

Foster said given that Atlantic City is working through a $100 million deficit and its inability to get a loan through capital markets, this program is just about the only way it can pay its bills.

“You have a job, and you make income off that job, and your boss comes in and says, ‘all of a sudden I’m paying you half.’ You got to cut back on things. If you have credit card payments, are you going to be able to cut back on things and make credit card payments? That’s what they’re grappling with right now.”

The rating agency Moody’s recently said barring a miracle, A.C. is “highly susceptible” to default on future payments, and that could lead to bankruptcy.

Meanwhile, Gov. Chris Christie’s appointed emergency management team is looking for ways to restructure the city’s debt and balance out the books. Among other woes, casino property tax appeal settlements have hurt the city’s finances.

Will the state of New Jersey be willing to help the city out once it has another debt service bill due? Foster isn’t so sure. For now, though, it allows a little breathing room.

“This takes away a near-term liquidity crisis,” Foster said. “It gives them time to figure out what to do with the larger issue, which is the $100 million structural deficit they’re running.”