By Hilary Russ

(Reuters) - Atlantic City, New Jersey's struggling gambling hub, will get a 60-day extension of a $40 million state loan that was due Tuesday, the city's revenue director told Reuters on Monday.

"We have been working with the state, and the due date will be extended," Michael Stinson said.

The city needed the lifeline. A report last week by its state-appointed emergency manager, Kevin Lavin, called for cost-cutting, layoffs and possibly debt restructuring to stabilize the city's budget, which has a projected $101 million deficit.

The report also said that without significant state support, the oceanfront resort town "cannot stand on its own."

With increased competition from neighboring states, Atlantic City no longer has a monopoly on East Coast casinos. As a result, it lost nearly two-thirds of its property tax base in just five years. It is now down to $7.35 billion.

Even with the loan extension, Atlantic City's cash flow is expected to go negative by May, according to Lavin's report.

Several state lawmakers are working on a package of legislation aimed at stabilizing Atlantic City's tax base by having casinos make set payments in lieu of taxes.

"Tax appeals will really cripple the finances of Atlantic City if we don't get these bills passed," said New Jersey Assemblyman Vincent Mazzeo, one of bill's sponsors.

Without timely legislative action, state aid and casino property tax payments, the city could default under Lavin's "aggressive" 90-day timeline, warned Moody's Investors Service, which rates Atlantic City's bonds junk.

The city could have tried issuing bonds to repay the state loan. But with its next fiscal steps uncertain, market access has been limited since late last year.

The loan, offered in December at a 0.75 percent interest rate, came in the first place because the city was unable to borrow the $40 million in the capital markets.

Even that amount was scaled back from a planned $140 million bond sale, a large portion of which was to repay property tax appeals won by casinos.

The city owes the Borgata Hotel Casino & Spa $88.25 million for tax appeals, for example. That bill is still due, and the casino has sued to try to stop the city from issuing new bonds to pay other creditors before it.

Stinson said he could not comment on the pending litigation.

(Reporting by Hilary Russ; Editing by Meredith Mazzilli and Lisa Von Ahn)