published Apr 6th 2016, 5:15 pm, by Elise Young and Romy Varghese

(Bloomberg) —
New Jersey Governor Chris Christie said he won’t step in to help Atlantic City avert a default on its May bond payment as the distressed gambling hub runs out of money and a takeover bill remains stalled in the state Assembly.

Speaking to reporters in Atlantic City on Wednesday, Christie said legislation that would let his administration control municipal operations will pass. Not so, Assembly Speaker Vincent Prieto said in a statement after the governor’s press briefing.

The impasse threatens the finances of Atlantic City, a seaside casino resort of 39,000 that has been upended by the expansion of gambling in nearby states. On Tuesday, the city’s credit rating was downgraded to the level of financially distressed Puerto Rico by Moody’s Investors Service, which said the political standstill heightens the chance of bondholder losses and default.

While Christie said the state won’t make the city’s debt payment, he declined to discuss the repercussions of a default, saying it was “dangerous” to address hypothetical cases.

“The markets will listen to that and react,” said Christie, a second-term Republican.

Credit Quality

Christie’s comments come as ratings companies increase warnings about how state action on Atlantic City could affect their views on other local governments in New Jersey. Moody’s said before Christie’s news conference that a city default would hurt the credit quality of distressed cities such as Newark and Paterson.

Atlantic City has $245 million in general-obligation debt, according to Moody’s. Christie’s comment last month that bondholders may need to make sacrifices “suggests the state may have reached the point of viewing a default as a desirable outcome,” Moody’s added Wednesday.

Asked about that comment, Christie said it wasn’t true, and that passing the legislation is a “desirable” outcome that would forestall a solvency crisis.

Junk Rating

On Tuesday, Moody’s cut the city’s rating two levels to Caa3, the third-lowest step of below-investment-grade ratings. Standard & Poor’s ranks it an equivalent CCC-. The downgrade was followed up Wednesday by a reduction in the rating of the Atlantic City Municipal Utilities Authority to B3 from B2 by Moody’s.

Bills supported by Christie and the Senate’s Democratic leader would provide a cash infusion and give the state control over the city’s operations. Christie has said he won’t sign one without the other. To repair Atlantic City’s finances, he says, he needs the power to negotiate affordable union contracts.

Prieto, a Secaucus Democrat, opposes letting the administration change or end contracts. He has refused to bring the measure up for a vote. The speaker said Christie needs to negotiate a compromise because the existing bill “does not have enough support to pass the Assembly.”

The speaker plans to introduce a bill Thursday that would slow down the takeover, said Tom Hester, a spokesman. The measure would establish benchmarks that the city would have to meet to avoid losing control to the state.

“If the governor and Senate president refuse to act, then I am ready to move forward with my own legislation,” Prieto said in the statement.

Atlantic City Mayor Don Guardian, meanwhile, held a press conference at City Hall after Christie’s. He said much information Christie outlined for reporters, such as the city’s spending, was outdated or incorrect.

The city council approved the auction of all vacant land to raise revenue, he said. As cash runs out, Atlantic City is seeking to avert a partial shutdown Friday by paying workers every 28 days instead of every two weeks, under a resolution on the council’s agenda for Wednesday.

To contact the reporters on this story: Elise Young in Trenton at eyoung30@bloomberg.net ;Romy Varghese in Philadelphia at rvarghese8@bloomberg.net To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net ;Dave Liedtka at dliedtka@bloomberg.net Stacie Sherman