Moody’s Warns Atlantic City Could Face ‘Draconian Cost-Cutting’ and Large Tax Increases

Atlantic City and eight other municipalities in New Jersey could see their credit ratings downgraded due to Governor Phil Murphy s (D) freeze on transitional aid disbursements.

Earlier this month, the governor announced a suspension of spending items totaling $235 million. The largest component is that of transitional aid – money that towns can apply for that adequately demonstrate the need for temporary financial relief from the state.

Murphy s spending stoppage includes $104.8 million in aid money. Atlantic City received $26.2 million in transitional funds in 2016, $13 million in 2017, and $3.9 million last year. The casino town has been under state control since 2016.

Moody s Investors Service – one of the big three – says the freeze threatens nine municipalities that have relied on the money in recent years.

Given the frequently razor-thin margins of error in distressed municipal budgets, a suspension can lead to the need for draconian cost-cutting or large tax increases, the Moody s note said.

Along with Atlantic City, the other towns are Camden, Nutley, Paterson, Penns Grove, Salem, Seaside Heights, Trenton, and Union City.

Despite the grave warning, Moody s admits transitional aid is typically given at the end the state s fiscal year, which only began July 1 and runs through June 30, 2020.

Moody s maintains Atlantic City s rating at B2/positive. The classification is in the speculative grade, and judged as a high credit risk.

Moody s supported Murphy s decision in April to retain governance of Atlantic City. State control has had a strong, positive effect on the city s financial position, which remains weak, the firm said.

Murphy campaigned on to local officials. He told voters during his campaign that he didn t feel the takeover was necessary, and said the city s recovery plan was reasonable.

Five casinos closed between 2014 and 2016, which lead to far fewer tax dollars being delivered to Atlantic County and the city. Debt quickly escalated, and property tax disputes from the remaining resort operators led to the city threatening the credit ratings of not only its municipality – but other nearby towns and the state as a whole.

Critics to Murphy s freeze say it s simply politics as usual.

The governor s action putting a so-called freeze on items cherry picked from the budget is a shameless act of political retribution that is both petty and vindictive. It s Bridgegate on steroids that punishes those who disagree, New Jersey Senate President Stephen Sweeney (D) said this month.

This is an abuse of gubernatorial power that victimizes some of the neediest and most vulnerable people in New Jersey, Sweeney concluded.

The governor has been accused by Sweeney and others of stopping the transitional money in retribution of George Norcross – a wealthy and powerful Democrat in South Jersey who has use his position to influence Trenton lawmakers and receive large tax incentives for his companies. Norcross is based in Camden, one of the potentially impacted cities.