Atlantic City sold more general purpose debt per capita than most other governmental entities nationwide during 2012 — including those at state and county levels.
Local officials say tourism and commercial development skew such population-based statistics. Financial experts, however, say that effect doesn’t matter as much for Atlantic City because of its economic dependence on the struggling casino industry — a situation that caused the municipality to borrow money in the first place.
The city’s $114 million in combined issues last year ranks 100th among total amounts borrowed by other U.S. governmental entities for tax appeal relief, refinancing and other general purposes, according to data provided by Thomson Reuters Municipal Issuers Group to The Press of Atlantic City.
Relative to permanent residential population, that amount breaks down to $2,899 per person — higher than any other of the other top 100 state, county, regional or local public agency bond sales in the country, according to an analysis of the data by The Press.
Only a handful of other towns that bonded for lesser amounts have a bigger 2012 per-capita bond issuance. They include Rosemont Village, Ill., and Lago Vista, Texas.
Rosemont, which has a population of 4,222 and is building an entertainment district, bonded for $103.5 million last year, or $24,514 per person. Lago Vista’s $24.5 million in bonds breaks down to $4,056 for each of its 6,041 residents, Thomson Reuters and U.S. Census data show.
Atlantic City Revenue and Finance Director Michael Stinson wasn’t aware of how the city’s 2012 borrowing relative to population ranked nationally.
“I don’t have any thoughts on it,” Stinson said. “We did what we had to do. We had tax appeals and made prudent financial decisions. Where we rank, I could care less.”
Such statistics often are skewed for Atlantic City, which issued the bonds to cover property tax rebates owed mainly to casinos, because its population swells daily with visitors and casino workers, Stinson said.
Per-capita debt is one of several things that determine a municipality or other public agency’s financial health. A high number often is bad because it means residents are on the hook for more of their town’s debt. A diverse and booming industrial sector can balance that out, but Atlantic City is dependent on a struggling casino industry, Cumberland Advisors Executive Vice President John Mosseau said.
“If there was ever a time to borrow, the past 12 months was certainly that. Interest rates can’t go lower,” Mosseau said. “But per-capita debt does matter because you want to offset such a high debt per capita (with) a greater diversification of resources ... . That’s what always bothers me about Atlantic City: its casino dependency. It’s going back to the same trough all the time.”
The gambling sector’s difficulties have changed the tax base. It — and local government revenues — have become more dependent on residents. The longer that trend continues, the more important per-capita debt factors into Atlantic City’s financial health because repayment responsibilities will keep shifting to residents, Mosseau said.
Total revenue, which takes all of a town’s resources into account, is important to consider as well, as are debt-service costs, University of Oregon economist Tim Duy said.
“We suggest the appropriate limit (for debt-service costs) is around 7 percent of revenue. The general idea is trying to get an idea of sustainability of overall revenue,” Duy said.
Atlantic City’s debt-service costs — payments due on bond principal and interest — were $32.5 million in 2012, up 50 percent from the 2011 figure of $21.7 million, budget documents show.
Atlantic City’s revenues, meanwhile, decreased to $232 million due to a combination of economic struggles and officials’ efforts to minimize tax increases.
That means debt-service costs were 14 percent of revenue in Atlantic City during 2012, or double what Duy and his colleagues advise.
The first of Atlantic City’s 2012 bonds was issued in April, refinancing $21 million of debt. In December, city officials went to market again for $93 million in tax appeal relief bonds.
That deal has since closed and provided the cash for the city to pay tax rebates of $20 million to Atlantic Club Casino Hotel, $26.5 million to Bally’s Atlantic City, $35 million to Trump Entertainment and some noncasino accounts. Anything left over will remain in the bank to offset any tax rebates that likely will be part of unresolved or future appeals, Stinson said.
Atlantic City’s bonds will pay only the rebates stemming from tax appeal cases. They won’t address the accompanying property devaluations also resulting from those cases.
Since 2010, Atlantic City’s cumulative property values have dropped about $4.5 billion — or 22 percent — to an estimated $16 billion. The nearly 12 percent drop during 2012 is the steepest on record for the resort. As their revenues plummeted, casinos’ property values also dropped and almost exclusively drove the resort-wide $2.1 billion decrease from $18.1 billion to $16 billion, city records show.
Some gambling companies, however, have agreed to refrain from appealing their taxes for a few years in their tax case settlements. That could help limit any worsening of the city’s financial crisis in 2013.
In the meantime, city officials hope to strike similar bargains with other local casino operators, Stinson has said.
They’ll also need to come up with a plan for economic diversification, Mosseau said.
“Gambling — it’s a vice with elasticities similar to other (nonessentials),” he said. “As the economy does better, it should come back. But with this kind of debt per capita, wouldn’t you want the city to look differently so when the next recession hits, you can withstand it better than the next one?”
Contact Emily Previti:
Follow Emily Previti on Twitter @emily_previti