PHILADELPHIA (Reuters) -- Atlantic City will spreada $9.5 million deficit over five years in order to limit aproperty tax hike as it battles to improve its finances, underan agreement with the state announced on Tuesday.

City and state officials said they had signed a memorandumof agreement that allows the city to increase the averageproperty tax bill by $157, compared with $253 as previouslyplanned, according to a statement issued by Governor ChrisChristie's office.

The move comes as cities across the United States aresuffering from declining tax collections, and some evenconsider rare municipal bankruptcy filings, which has stirredstates to launch financial rescues.

Atlantic City's agreement will reduce by almost 80 percentits request for a $9.9 million waiver on capping propertytaxes, which will be limited under state law to an annualincrease of 2 percent starting next year.

The city's projected budget deficit is the result of almost$13 million in tax credits for its 11 casinos followingsuccessful tax appeals, officials said.

Business at Atlantic City's casinos has suffered in recentyears due to the weak economy and increasing competition fromnew casinos in neighboring states. Revenue dropped 11.3 percentin August compared with a year earlier, according to thestate's Casino Control Commission.

The latest agreement is part of a revitalization plan underwhich the state will oversee management of the Atlantic Citycasino district, including its marina, boardwalk andbeachfront, to create an environment that will attract moretourists and gamblers.

Atlantic City has nearly $110 million of debt outstanding,according to Moody's Investors Service, which gives its creditits fifth-highest rating of A1 with a stable outlook. (Reporting by Jon Hurdle; Editing by Dan Grebler and LeslieAdler)