ATLANTIC CITY — Atlantic City has exceeded its limit of borrowing, but not for the reason you might think.
It’s not that the city’s debt has grown to unmanageable levels, but rather that the value of its property has dropped, which means a shrinking of the collateral it can use as a guarantee for further borrowing.
The drop comes as the result of the exclusion of billions of dollars in casino properties during the state takeover and casino rescue package known as the Atlantic City PILOT.
Since casinos in the city are part of a payment-in-lieu-of-taxes agreement, their more than $3 billion in value doesn’t count toward the bond limit calculation, state officials said. The state’s local bond law provides that a municipality’s net debt cannot exceed 3.5 percent of the equalized assessed valuation of its property-tax base, subject to certain exceptions and conditions.
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State officials said the borrowing is necessary to pay off the resort’s crippling tax appeals as it tries to straighten out its finances. However, critics say the city still needs to find a better way to pay its bills.
The state, which oversees the city’s finances, approved bonding more than $148 million to pay off casino tax appeals, putting the city over the bonding limit.
“We asked for the waiver, and it was disclosed on all debt sales,” said John Lloyd, counsel to state designee Jeff Chiesa, adding that in other cities, tax appeals could force a town to seek a waiver.
The city has more than $224.1 million in bonded debt, according to its 2016 annual debt statement. The statement does not include the more $148 million in bonds that were recently sold to cover further casino tax appeals.
The $148 million includes tax-appeal settlements with Bally’s Atlantic City, Borgata Hotel Casino & Spa, Caesars Atlantic City, Golden Nugget Atlantic City, Harrah’s Resort, Tropicana Atlantic City, the former Trump Taj Mahal Casino Resort and the former Trump Plaza Hotel and Casino.
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“Atlantic City is now getting excellent access to the bond market, which is amazing for a city that was contemplating bankruptcy before we stepped in to manage its finances,” Chiesa said after the bonds were sold last month. “The fact that the city obtained bond insurance and sold the bonds at a low-interest cost means it is well-positioned to responsibly pay down the tax refunds it owes to casinos while preserving critical public services.”
Jim Kennedy, a former head of the Casino Reinvestment Development Authority and Atlantic City Regional Economic & Policy Analysis, said it’s more of the same when it comes to the city trying to pay off its tax appeals.
“It’s like a family that overspends on the credit cards and then takes out a second mortgage structured so most of the debt gets paid off by the kids and grandkids,” Kennedy said.
The recently issued Borgata bonds are back-loaded, Kennedy said, adding that larger principal payments will be due later in the bond-payment cycle.
State officials contend the city will be under its debt limit over the next couple of years.
“Based on our projections, the city will see some debt dropping off,” Lloyd said. “Within the next two to three years, the city will be back under the debt limit.”