“Stressing there is no risk to the county taxpayer, the Atlantic County Improvement Authority moved Thursday to allow Citigroup to help sell the tax-exempt bonds for a planned waterpark next to the Showboat Hotel in Atlantic City. . . Previously the Casino Reinvestment Development Authority (CRDA) granted the project an “Entertainment Retail District designation. This will allow the project to receive $2.5 million per year in NJ state sales tax rebates for the next 20 years”. PressofAtlanticCity.com July 30, 2021.
“What are the odds that people will make smart decisions about money if they don’t need to make smart decisions–if they can get rich making dumb decisions? The incentives on Wall Street were all wrong; they’re still all wrong.”
― Michael Lewis, The Big Short: Inside the Doomsday Machine (2010)
“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong”. Thomas Sowell
- Government that gives its officials absolute discretion to make profitable partnerships with some private businesses, but not others, quickly becomes complicated, expensive, and corrupt.
When Atlantic City was great (1854-1965), we had the greatest hotels, restaurants, entertainment centers and amusement attractions in the world. We also had the fastest trains. Taxes didn’t pay for any of them. People with good ideas saved their own money and borrowed from friends, family, private banks and investors. If their projects succeeded, they all made money. If they failed, they all lost money–and got smarter for their next project.
Since the “Great Society” of 1966, little was built in Atlantic City (other than the 15 casinos of the 1978-2003 East Coast monopoly years), without some “economic development project” or “public-private partnership” funded by taxpayers. Most of these projects failed to produce enough money to pay for themselves. However, they made big profits for everyone involved. Th developers, banks, lawyers, architects, and construction companies all made money when their projects failed and lost money. These failures included the Revel Casino, two convention centers, a train station, two bus stations, a baseball stadium, a slow-speed train to New York, a rodeo, a hockey team, the last years of Miss America, and dozens of empty shops and restaurants of “The Walk”. The Boscov’s department store in Egg Harbor Township was a rare success.
These “economic development projects” or “public-private partnerships” make government complicated. That is because government officials need to study and approve or reject and make new rules for every proposed project that comes before them. It is much more simple when government officials are like umpires or referees who apply the same basic rules equally to everyone. Because government that also runs the economy is complicated, it is also expensive to hire all the planners, lawyers, accountants, and other “experts” and their staffs who are needed. Finally, this kind of government is corrupt . That is because government officials can do special favors for only a handful of the people who apply for them. When government officials have absolute power to do favors for some, but not others, there is much temptation for officials to do favors for those developers who help them and their families . Thanks to many levels of complicated, expensive, and corrupt government at the state and local level, Atlantic City is a shell of what it was in 1965, in spite of 43 years of casino gambling.
2. Atlantic County Taxpayers ARE at risk. If the project fails, Atlantic County government will almost certainly bail it out with property tax hikes.
These are “revenue bonds”. They are supposed to be paid back only with income from a specific project. If the project fails to produce income, “revenue bonds” are supposed to become worthless. They are supposed to have far more risk than “general obligation bond”. General obligation bonds force state and local governments to raise taxes to pay back loans.
However, the failure of a “revenue bond” ruins the credit ratings of every government agency in the state. Also, Wall Street experts usually warn that failure by government agencies to pay back their bonds threatens a “financial crisis” that can damage the worldwide economy. As a result, New Jersey taxpayers routinely bail out insolvent agencies that default on their “revenue bonds”, even when they have no legal obligation to do so. In 1992, Republican Governor Christie Todd Whitman bullied Atlantic County into bailing out its Utilities Authority. The Atlantic County Utilities Authority had used “revenue bonds” to borrow $82 million to build a trash incinerator that was supposed to pay for itself. However, the $82 million was spent and the incinerator was never built. Five years ago, Republican Governor Chris Christie and a Democrat State Senate and Assembly bailed out “revenue bonds” of the insolvent NJ Transportation Trust Fund Authority even though they had no legal obligation to do so. They did it by giving us hikes in tolls and gasoline taxes almost every year since 2016.
3. Projects like this may put NJ public employee pensions at even greater risk.
These Water Park “revenue bonds” are much like worthless “mezzanine” bonds used to borrow money for the Revel Casino project in 2011. Two proposals for a Water Park at the closed Atlantic Club (ACH Casino a/k/a Hilton a/ka Bally Grand a/k/a Steve Wynn Golden Nugget) site failed six years ago. Why are local politicians of both parties so sure that Bart Blatstein’s water park project in a less desirable uptown location certain to succeed? Is this to thank Blatstein for saving Stockton University from disaster when Blatstein bought Stockton’s failed $18 million Showboat project for $22 million in 2014?
In 2009, Democratic NJ Governor Jon Corzine promised state support to complete construction of the Revel Casino when the developer was about to walk away from it. At that time, Corzine was campaigning for re-election. That November, Corzine was defeated by Republican Chris Christie. However, in 2010, Republican Christie kept Corzine’s promise to bail out the Revel and worked with Democrat leaders in the legislature.
In 2011, NJ’s “Economic Development Authority” (EDA) put together a very risky $1.15 billion loan package of “junk” bonds. When the Revel Casino closed two years later, the project was sold to Florida developer Glen Straub for only $82 million. Roughly two thirds of investers got back less than 8 cents for every dollar they invested. The rest got nothing. Only then was it learned that politically connected “hedge funds” hired by Christie to invest New Jersey pension funds had bought these junk bonds for the Revel Casino.
4. Reckless use of government borrowing for private business caused New Jersey’s first economic collapse in 1837. New Jersey’s new Constitution of 1844 was supposed to stop this from happening again.
For years before 1837, New Jersey state and local governments reckless borrowed money to benefit private businesses. This led to “systemic corruption”. Private businesses could not succeed without loans and permits from government officials. Government officials depended on bribes and support from the businesses they helped. Many of the projects financed by government failed to earn enough income to pay back the loans. Others were outright frauds from the beginning. When the projects failed, the loans were not repaid. Since many of these loans were given by banks, the banks failed. When this happened many businesses and households lost their entire savings. This caused a six year economic depression that almost destroyed America. Because of this, New Jersey and most other states adopted new state constitutions. These state constitutions made it almost impossible for state and local governments to borrow money. New Jersey government was virtually debt free until 1965. During this time, we had no state sales or income tax. Tolls were low and collected only to pay back the cost of construction. However, everything changed after 1965. The NJ Supreme Court created a loophole. It said that while it was still hard for state and local governments to borrow money directly, they could borrow money indirectly by setting up “independent” authorities like the Atlantic County Improvement Authority, Utilities Authority, Casino Re-investment Development Authority, or the NJ Economic Development Authority. Right now New Jersey government authorities are doing the same “pay to play” deals and borrowing massive amounts of money just like what New Jersey state and local governments did just before 1837.
As in 1837, there seems little we or anyone else can do to stop this. As Rush Limbaugh often said, “You can’t fight Santa Clause”. Most voters support projects that “create jobs” without raising taxes. Bad things that “might” happen years ago do not concern them. As in the years before 1837, it looks like this will continue until there is a total financial collapse. Only then will most voters again agree to a new State Constitution to end this.
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Seth Grossman, Executive Director