Atlantic City Penalized as Christie Pushes Gambling: Muni Credit
Governor Chris Christie’s “New Jersey Comeback,” already challenged by revenue trailing his forecasts, is riding on a revival of Atlantic City, the East Coast gambling center under siege from competitors in Pennsylvania and New York.
Christie, a 49-year-old Republican, projected taxes and fees from casinos will jump 16 percent in the fiscal year that begins July 1. The boost would help balance his $32 billion state budget, which promises residents a 10 percent income-tax cut over three years.
Atlantic City, the second-largest U.S. gaming center, has seen tax collections drop while its debt costs have soared 43 percent since the start of 2011 as neighboring states expanded gambling. Revenue from the state’s 12 casinos fell 10 percent in April, extending a five-year slump. Yet Christie has said the $2.4 billion Revel resort, which opened in April as the city’s first new casino in nine years, will draw more tourists.
“This has been for my company, and I think for many, the single-most painful market that we’ve experienced in this country,” Gary Loveman, president of Caesars Entertainment Corp. (CZR), said during a May industry conference at Revel. “There simply is too much supply in Atlantic City and there is too little revenue to support what’s in place here today.”
Christie, who faces re-election next year, has traveled the state to promote a recovery he has said will allow for both increased spending and tax cuts. He has made turning around Atlantic City a centerpiece of his plans to revitalize New Jersey’s economy. The state’s jobless rate was 9.1 percent in April, a percentage point above the national average.
Atlantic City’s casinos generated $3.3 billion of revenue last year, down 37 percent from the peak in 2006. Standard & Poor’s cut its rating on the municipality’s general obligations in April to A-, seventh-highest, from A, citing concern about a reliance on gaming and pending property-tax appeals by casinos.
The company also cited risks from the city’s depressed income levels and elevated unemployment rate, which was 12.4 percent in April for the area.
Investors are demanding a larger yield penalty on the city’s bonds. Securities due in February 2020 traded this week at an average yield as high as 3.24 percent, or 1.77 percentage points above a Bloomberg Valuation index of similar-maturity general obligations rated AAA. At their sale in January 2011, the city’s bonds yielded 1.24 points more than a like-maturity benchmark. Top-rated rated munis have earned 2.6 percent this year, according to Bank of America Merrill Lynch data.
The city was a bustling resort until the 1960s, when it became riddled with poverty, crime and corruption. The state approved casino gambling in 1976 and limited it to the city to boost its ailing finances. The first casino, Resorts International, opened in 1978. Gambling revenue rose every year until 2007, when the 18-month recession began.
U.S. casinos’ gambling revenue rose 3 percent to $35.6 billion in 2011 as Las Vegas shook off its own slump and more capacity came online in states such as New York, according to a survey by the American Gaming Association. Consumer spending on gambling rose 2.9 percent to $10.7 billion last year in Nevada, and fell 7 percent in Atlantic City to $3.3 billion.
Christie has expanded casino marketing, eased regulations and created a tourism district around the resorts to give the state a greater role in policing and development. He gave the Revel Entertainment Group LLC resort a $261 million tax break to help restart construction.
At the heart of his bet is whether New Jersey’s gambling houses can attract new visitors and reclaim a portion of the gamblers the city once enjoyed when it held an East Coast monopoly. Some gamblers have migrated to new casinos in Pennsylvania, Delaware and New York.
Christie and Revel Chief Executive Officer Kevin DeSanctis have said the resort will bring in new business with top-notch dining, amenities and spas.
“I don’t believe that Atlantic City’s economic pie is finite,” Christie told reporters on May 24 as he walked the city’s boardwalk. “I believe it’s infinite and if we continue to bring attractions here that people want to see, more people will come.”
Andrew Zarnett, a gaming analyst at Deutsche Bank Securities in New York, disagreed. He said he expects two thirds of Revel’s revenue to come from customers of other city venues.
“Everybody’s a loser, because when you add supply to a market that’s not growing, everybody gets cannibalized,” he said at last month’s conference.
The resort earned $13.4 million in gambling revenue in its first month, compared with the $47 million that the Borgata made in its debut in the city in 2003, Moody’s Investors Service said in a report.
“Since casinos represent 86 percent of the city’s taxable base, their financial health dictates that of the city,” Moody’s said.
State Senator Ray Lesniak, a Democrat from Elizabeth sponsoring a bill that would allow Atlantic City casinos to take bets online, said the decline will persist unless New Jersey adds a new source of gambling income. Christie’s reliance on higher casino-tax revenue to balance his budget is reckless, Lesniak said.
“From the get-go his plan to revitalize Atlantic City has been a failure and the revenue has continued to decline,” Lesniak said in a telephone interview. “The governor is going to have to wake up to reality.”
After a preview starting in April, Revel held a Memorial Day weekend grand opening featuring sold-out performances by Beyonce. Christie, saying he wanted to “put his money where his mouth is,” stayed at Revel with his family and saw a show.
“Revel’s opening comes at a very fortuitous time,” Christie said on the boardwalk. “As we see our economy recover, we’re going to see that rising tide lift all boats here in Atlantic City.”
Following are pending deals:
PUERTO RICO PUBLIC BUILDINGS AUTHORITY is set to sell $500 million of revenue bonds as soon as next week to refund debt, according to data compiled by Bloomberg. (Added June 1)
SUFFOLK COUNTY, New York, home of the Hamptons beach communities, plans to offer about $60 million in general- obligation bonds as soon as June 6, data compiled by Bloomberg show. The proceeds will be used for roads, parks and buildings, according to the offering document. Moody’s rates the debt A1, fifth-highest. The securities will be issued via competitive sale. (Added June 1)
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