Atlantic City Makes Debt Payment as Mayor Averts a Defaultby
Mayor warns default possible in June as cash runs out
Worsening crisis may spur New Jersey's stalled rescue plans
Atlantic City made $1.8 million in interest payments, averting what would have been New Jersey’s first municipal default since the Great Depression as state lawmakers bicker over how to assist the troubled gambling hub.
Mayor Don Guardian, who last week hadn’t decided whether to meet the city’s obligations on tax-exempt debt sold in 2012, said at a press conference that the payment was made on Monday morning. Because May 1 fell on a Sunday, the city had an extra day to come through. Guardian said a default is still possible next month, predicting that the city will be out of money in June.
“Financially, we’re running on fumes,” the mayor told reporters Monday.
The brush with default underscores the severity of the city’s long-building fiscal crisis and may put pressure on New Jersey lawmakers and Governor Chris Christie to come to its aid. Christie, a Republican, and the Democrat-led legislature this year have been at loggerheads over how to rescue the 39,000-resident seaside town, whose gambling industry has been battered by competition from neighboring states.
The impasse showed no signs of easing as Christie told reporters in Trenton that Guardian shouldn’t get praise for a routine municipal act. Guardian supports a rescue plan for the city that’s opposed by the governor.
"Does he want a gold medal for that?" said Christie, who also doubted that the community could make its next bond payment.
Atlantic City, which once had a monopoly on gambling on the East Coast, has been veering toward insolvency since a third of its betting parlors closed in 2014. Other casinos have successfully challenged the size of their tax bills, causing the city’s property-tax base to tumble by more than two thirds since 2010, according to Moody’s Investors Service.
The strains have led investors to demand higher yields to lend to the junk-rated city. Atlantic City bonds maturing in 2023 traded Monday for an average of 68 cents on the dollar to yield 11.3 percent. That’s down from a price of 107 cents when they were first issued in late 2013.
Guardian said skipping the bond obligations would have been "detrimental" to the city and other municipalities. Still, if he had to choose next month between meeting debt payments or paychecks to the workforce, he would pick "payroll. Absolutely," he said after the news conference. The city’s June obligations total $1.6 million, according to Moody’s.