Atlantic City is broke and the state of New Jersey is taking over. Given New Jersey’s downgraded bond rating and its significantly unfunded pension liabilities, you may wonder whether this is help anyone needs.
In fact the state has been fiscally overseeing Atlantic City for the past several years, including appointing an emergency manager during the past year. The March 2015 60-day report of the emergency manager gives a detailed analysis of the problem. Unfortunately not enough was done since that report.
But right now, finances have gone from emergency to wipeout.
Atlantic City cannot pay its bills, especially since casinos won legal suits against the city, claiming overpayment of taxes. Turns out, the value of the city’s taxable real estate declined by two-thirds over a five-year period from 2010 to 2015.
And despite the low bond rating of the state, it is still investment grade. Atlantic City, on the other hand, is off the charts in the wrong direction. S&P cut their bond rating to CCC-, which signals the inability of a city to make payments.
In any workout, the casinos must be part of a long-term tax plan to ensure predictable payments against which the city can plan and budget. There are three parties to the de facto bankruptcy: the city, the state, and the casinos.
The job loss numbers in Atlantic City have been a decade in the making, thanks to casino revenue that’s been cut in half since 2006. In 2014, when four casinos were shuttered, the bottom fell out. At its high water mark Atlantic City had twelve casinos; today, it has eight with several on the watch list.
There are rumors that not only will the sale of the Municipal Utility Authority be forthcoming, but the buyer is already lined up: New Jersey American Water. Their lobbyist is the brother of New Jersey powerbroker George Norcross. Nothing of political significance happens in South Jersey without the blessing or cajoling of George Norcross.
Governor Christie, fresh off of his unsuccessful presidential run, moved to more fully take over city finances a month ago. More recently the State Senate set into motion a full state takeover bill. The President of the State Senate, Stephen Sweeney, is a South Jersey guy with gubernatorial ambitions. He is driving the process.
The Mayor called the state action fascistic (always a crowd pleasing phrase), because it removes control from democratically elected officials. Sweeney says the state has to enforce tougher fiscal medicine than the city is willing to take and therefore needs more control.
Whether the city goes into a formal bankruptcy or the state takeover succeeds, the result is going to be a dramatic renegotiation of contracts, debt, and employment. It may also result in a restructuring of certain services.
Many local political and civic leaders are wary that all this will lead to a sale of city assets, particularly the Municipal Utilities Authority. And there are rumors that not only will the sale of the Municipal Utility Authority be forthcoming, but the buyer is already lined up: New Jersey American Water. Their lobbyist is the brother of New Jersey powerbroker George Norcross. Nothing of political significance happens in South Jersey without the blessing or cajoling of George Norcross.
Behind the battle over the control of the city are two cautionary tales that other cities would be wise to note and learn from: One is the fragility of a single industry city, and the other is the unwillingness to embrace an important lesson about revitalizing cities—the prominent role of small residential and business owners.
The one-horse farm: The emergence of gambling competition from surrounding states cut short Atlantic City’s grand Las Vegas experiment in urban renewal. Once, Atlantic City was the only site for legal casino gambling outside of Nevada. The heyday of gambling growth in Atlantic City lasted through the 1980’s and 1990’s, peaking in 2006. But, like most monopolies, this one succumbed to competition.
Gambling casinos were legalized in Atlantic City in 1976 with the first casino coming on line in 1978. By the mid 1980’s the Supreme Court and Congress gave the go-ahead for Indian reservation casinos…and the race was on. Since then state after state has expanded gambling through casinos, lotteries, and in a few cases, sports betting. Pennsylvania now has twelve casinos with a thirteenth under development.
The overreliance on this kind of government monopoly rarely works. Eventually adjoining governments come in for their cut of the pie. Who can forget the bizarre video of former Governor Rendell screaming at Leslie Stahl of 60 Minutes about why gambling is so important for Pennsylvania. Why? To take revenue away from places like New Jersey! This is the economic development of short-term winners and long-term losers.
When it had a temporary monopoly, Atlantic City did not convert its advantage into a sustainable future. Most of its planning and development efforts through casino reinvestment funds went into increasing the local casino and tourism trade (along with a good number of politically motivated projects), with not enough going into rebuilding the city’s housing, retail, and community infrastructure.
Moreover, the 25-year boom in taxing capacity and casino tourism did not do much to fix the city’s municipal effectiveness. It is no longer Boardwalk Empire, but with all due respect to the present Mayor who has tried, the government has not been a model of cost efficiency.
Cities and towns never make it if they are only developed for outsiders: a deeper redevelopment requires residential and small business consensus about the future, which in turn attracts people who rehabilitate housing units, create businesses, redefine older spaces for new uses, and become involved in the civic life of the place.
Single industry towns—whether steel or gambling—are always fragile: A sudden market shift, a change in technology or buying habits, and it can all be transformed. Pittsburgh had a terrible time when the steel industry collapsed in the U.S. but today it is a remarkably diverse and stronger city, with capacity in technology, healthcare, financial services, as well as manufacturing.
Atlantic City has always been built on the buying power of tourists and outsiders. Yes, the casinos are also entertainment venues, but the city needs more options and more consumer demand, if it is to avoid the weakness of a one-lane economy.
Small is beautiful: Which brings us to the issue of restoring Atlantic City for those who live there today and might want to live there in the future. Casinos are inherently inward focused, which runs counter to the public life of cities. The idea of a casino is to keep everyone inside, control the environment, and eliminate public facing activity. They sap value from the street, including Atlantic City’s most famous street: the boardwalk.
The small-scale business and residential economy of the city, already damaged by high levels of poverty, racial segregation, and declining amenities by the 1960’s and 1970’s, was further buried by the casino industry. There was no longer a reason for the middle class to view the city as a place to invest, visit, or live—only to work or gamble. The city became a jumble of zones of poverty, vacant lots, and grand casino developments. As with other shore towns there was no movement of people to buy up small lots and restore old buildings. The future was no longer on the street.
You drive the Atlantic City Expressway and park in the casino parking lots, never having to see the city. Or you work in Atlantic City casinos but live in a nearby town with better amenities, drive to work and park on one of the parking lots west of the city, where a casino shuttle picks you up. But the city is flyover territory for gamblers and casino workers, with little to mediate their interest.
What we have learned so well during the past few decades is that cities and towns never make it if they are only developed for outsiders. A deeper redevelopment requires residential and small business consensus about the future, which in turn attracts people who rehabilitate housing units, create businesses, redefine older spaces for new uses, and become involved in the civic life of the place.
There is no other way.
The Atlantic City of casinos froze the decline of the shore town and grafted upon it an artificial boomtown that never connected to the fabric or history of the place, except as a kind of commercialized nostalgia. There have been attempts at non-casino strategies, including an arts district. But again it was largely driven from top down planning rather than lodged in the living possibilities of the place: what people were already doing.
We are back at a moment in time when Atlantic City can be re-thought once again. Let’s hope it is based on more than slot machines, state planning, and political cronyism. That would be a welcome relief.
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