ATLANTIC CITY — A surprise tax appeal settlement on the Hard Rock Hotel & Casino is a credit negative for the resort, according to a leading investment agency.
Moody’s Investors Service said the recently amended settlement diverts financial resources from other operations and poses a “minimal threat” to the city’s “still-precarious financial position.”
Atlantic County officials were made aware of the $4.8 million tax appeal settlement at the end of 2018.
The state announced in August 2017 it had settled all casino tax appeals, totaling $80 million, for which the city bonded.
The settlement covers tax payments for the period between the Taj Mahal’s closing in 2016 and Hard Rock’s purchase of the property in 2017.
“Because of the timing of Hard Rock’s purchase of the property, and the work that needed to be done to get the casino into the PILOT (payment in lieu of taxes agreement for casinos), the 2017 appeal was not able to be included in the $80 million bond ordinance the city approved in August 2017 to fund other property-tax appeals,” Lisa Ryan, a spokeswoman for the state Department of Community Affairs, said when the deal was announced in January.
After the state took control of the city’s finances in 2016 through the Municipal Recovery and Stabilization Act, legislators enacted the Casino Property Tax Stabilization Act, which shifted casinos to a PILOT structure and was intended to end the threat of future tax appeals.
The city will pay annual installments of $1.24 million for four years as a result of the Hard Rock/Taj Mahal settlement, beginning with the 2019-20 fiscal year.
Moody’s report, released Friday, said that while the settlement amount is “considerably less than the $17.4 million the city had in its tax appeal reserve” as of 2017, the money “could be better used by the city for its massive backlog of deferred maintenance and other pressing obligations.”
Moody’s declaration of credit negative does not connote a rating or outlook change.
It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer, according to the agency.
Atlantic County will pay about $92,000 per year as its share of the settlement, beginning in 2020.