Deadlock on Atlantic City threatens other N.J. cities, credit agency says

ATLANTIC CITY -- The deadlock between Gov. Chris Christie and elected officials over a deal to rescue Atlantic City from a mounting financial crisis has the potential to send shockwaves through some of the state's largest cities, a credit agency said Wednesday.

Moody's Investors Service warned "distressed New Jersey cities" face possible future credit downgrades because Christie has signaled he wouldn't rescue Atlantic City if the city defaults on its debt.

Moody's responded to a statement the governor made that could worry bondholders in the midst of his ongoing battle Atlantic City Mayor Don Guardian and state Assembly Speaker Vincent Prieto (D-Hudson) over a rescue plan. Atlantic City is saddled with $245 million in debt to bond holders and $150 million to the Borgata in property tax refunds.

"The state's current posture toward Atlantic City reduces the likelihood it would rescue other financially distressed cities," Moody's said. "While New Jersey has no legal obligation to support Atlantic City's (general obligation) bonds, the state's historically strong support for local governments has helped the credit quality of its financially weaker cities."

The weaker cities Moody's refers to are 10 municipalities with poorer credit ratings, including Newark, Paterson, Trenton, and Union City.

The warning came the same day the Republican governor traveled to the long-struggling shore town to once again chastise Guardian, a Republican, and Prieto.

Both men have refused to go along with legislation that would give Christie's administration control over the city's finances. Guardian said it would give the state too much control, and Prieto said he will not support it unless a provision is dropped that would allow the state to break unions' collective bargaining contracts.

The governor cited Moody's report as reason for Prieto to hold an Assembly vote on the legislation, which already passed the state Senate with bipartisan support.

"Pass the takeover bill. Pass the PILOT bill (to provide aid to the city)," Christie said in Atlantic City on Wednesday. "The crisis will end from a credit perspective."

Christie said he will not approve an aid package unless the takeover bill is passed.

But missing from the governor's response was the reason Moody issued its report in the first place.

Last month, Christie said during a radio interview that Atlantic City's bondholders are "going to have to make sacrifices" to help stabilize finances.

"The governor's comment provides another indication that the state is considering impairing the city's general obligation bondholders, whether through negotiated debt restructuring or possibly a Chapter 9 bankruptcy filing," Moody's said.

The governor vowed to block a bankruptcy filing, but Moody's said if Atlantic City defaulted on its debt it would call "into question the state's future willingness to support" other "distressed cities."

The report was a stark warning as both sides in the battle over the future of Atlantic City continue to dig in on their respective sides of the fight.

"You think I am enjoying this?" Christie asked in response to a reporter's question on Wednesday. "I've got no choice."

Matt Arco may be reached at marco@njadvancemedia.com. Follow him on Twitter @MatthewArco or on Facebook. Follow NJ.com Politics on Facebook.

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