NJ State government killed Atlantic City with three poison pills. Can anything other than bankruptcy save it?

debt-cartoon_s640x427The original NJ Casino Control Act of 1978 doomed Atlantic City with three sections that were “poison pills”.

Poison Pill #1: ?This section forced all casinos to be in big hotels with 500 rooms. ? This gave a two year monopoly to Resorts International, the owner of only hotel in Atlantic City that already had 500 rooms. ? This gave Resorts enormous profits from its two year monopoly on East Coast casino business. ? It also froze most locals out of casino ownership gave big out-of-town corporation control of the industry. ? It also killed local ownership of most non-casino restaurants, theaters, and other attractions. ? As one restaurant owner said,?”How can we make money selling meals if casinos give them away for free??

Poison Pill #2: ?This section banned all casino companies and their employees from any involvement in state or local politics.?? A casino could be fined, punished, or even lose its license if it or any of its employees contributed to any state or local political campaign ?or ran for public office.??? Even Donald Trump once testified that he was warned not to even make public statements critical of elected officials.??? In the 1980?s, Donald Trump briefly dabbled in local politics through his contractors and vendors, but quickly backed off when his casino license was threatened.? ?In 2007, the new owner of the Tropicana Casino was denied a routine license renewal for a series of minor violations unrelated to its casino operation.?? It lost most of its two billion dollar investment.? Many in the industry compared this to a death sentence for jaywalking.

In most towns, leading businesses play a big part in local politics. ? ?Pharmaceutical giant Johnson and Johnson dominated New Brunswick politics for years. ? For years, New Brunswick was a rare model of good government in New Jersey.??? Casino companies are very active in Nevada politics and manage to keep taxes and government spending under control there.???? Only Atlantic City?s leading industry has virtually no say in state or local politics.

Poison Pill #3: ? This imposed a 1.25% tax on gross casino income that casinos had “reinvest” ?in New Jersey. ? However, a highly political ?Casino Reinvestment Development Agency?? (CRDA)quickly used its power to convert that money into slush fund. ? First CRDA forced casinos to “reinvest” their money in low income housing projects in Atlantic City that did not pay real estate taxes. ? ?Later, CRDA forced casinos to reinvest in the pet projects of politicians all over the state–and to only mostly politically connected and very expensive union contractors to do the work.LibertyandProsperity_banner

These these three “poison pills” gave Atlantic City a banana republic economy where a handful of ?big corporations controlled most of its jobs and wealth. ? Although they paid roughly 80% of local and public school taxes and 40% of county taxes, casino companies had little or no say as to how that tax money was spent. ? ?As long as they had a monopoly on gambling for the whole East Coast, they didn’t care and were more than happy to pay for this privilege.

For the next 37 years, Atlantic City had taxation without representation and representation without taxation!

This caused the borrowing and spending by ?by state, county, and city government and by the public schools to explode. ?State government began with two very expensive and inefficient bureaucracies (the Casino Control Commission and the Division of Gaming Enforcement)? to investigate and control Atlantic City casinos and everyone who for or did business with them. ? ?There was no reason to control expenses because the Casino Control Act forced?casinos alone ?to pay the full budgets of both agencies.??? (That changed in 2010, but only after Atlantic City?s casino monopoly was over, and its casinos were already in decline).

State government continued to skim 1.25% of gross casino profits for ?redevelopment? on top of its regular business income and corporate taxes.??? Later, the state imposed new ?luxury? taxes on drinks and entertainment,? hotel occupancy taxes on top of the sales tax, and even a new parking tax that ended free parking at casino garages.? This state tax money paid for the pet projects of politicians all over the state.?? They included colossal failures like an abandoned baseball stadium, two empty convention halls, three bus stations, a slow-speed train to New York, ?free? beach concerts, the ?Do-AC? fiasco, and even two failed rodeos!??? The state did not allow a nickel of these new state taxes to ?cut property taxes in either Atlantic City or Atlantic County.

Atlantic City’s local government spending went from $37 million per year in 1978 ?to roughly $262 million per year in 2015?an increase of roughly $225 million or more than 16% per year!?? There were similar increases in county, library, and public school spending.???? ?During this time, Atlantic City?s population remained steady at roughly 43,000 people and casinos policed their own properties. ? ?Local government granted tax exemptions to many low income housing projects, and an outlet mall, causing their share of tax hikes to be paid by everyone else.

Every year, big real estate tax hikes were needed to pay for the big spending hikes. ? Few people cared when casinos paid 80% of local, and 40% of county tax bills. ? ?Casinos could not do much to stop this. ?They were barred from supporting opposition candidates in any way. ?The were barred from discussing this with their employees. ? Their employees were barred from running for most public offices, or even voicing their opinions.

All that started to change in 2007. ? Competing casinos opened in other states. ? The national economy collapsed. ? Atlantic City casino profits plummeted ?Casino properties lost half their market value. ?? If casino properties were properly assessed in 2008, they would only pay roughly 40% of local government and school taxes instead of 80%, and 20% of county taxes instead of 40%.???? In 2008 there was an urgent need for major restructuring and massive cuts in all levels of government spending.

Yet in 2008, local, public school, and county government borrowing and spending continued to increase as if nothing had happened.

Atlantic City?s assessor continue to assess all casino properties at pre-2007 levels even though he had no evidence to justify his actions. ? When casino corporations appealed their taxes, Atlantic City?s assessor along with state officials dragged out the cases for years. ? ? During this time, city, public school, and county government officials made budgets which assumed that the City would win, and that every casino would lose every tax appeal and pay 100% of its ?inflated tax bills.

During this time, Republican Governor Chris Christie and Democratic Senate President pushed through new state laws to ?save? Atlantic City.?? None of these measures addressed the tax appeal time bomb.promo213863266

1. ?In 2010, Christie and Sweeney bailed out the failed Revel Casino project with more than $400 million of state loans and tax breaks .

2. ?In 2011, Christie and Sweeney increased the cost of Atlantic City government by creating a duplicate ?Special Improvement District? to manage operations in half the town. ?(Ironically, both Christie and Sweeney at the same time urged other NJ towns to consolidate to save money!)

3. ?In 2011, Christie and Sweeney forced casinos to pay $150 million ?Atlantic City Alliance? to run its ?Do-AC? advertising campaign.

In 2013, the State Tax Court?finally ruled that Atlantic City was collecting roughly twice as much of what it should have from the casinos.? ??Atlantic City government was ordered to cut casino assessments in half, and return hundreds of millions of dollars it had wrongfully collected from casinos during the previous five years.

A big chunk of this money had to be collected from Atlantic County government and the public schools, since Atlantic City government did not keep all the real estate tax money it collected, but forwarded to those other government agencies.

In 2013, as in 2008, Atlantic City, its public schools, and Atlantic County government had to act immediately to avoid a catastrophe.???? Massive layoffs, cuts in pay, pensions, and benefits for union employees were (or even bigger tax hikes) were needed right away to balance the budget. ? State and county officials were fully aware of the problem.

But in 2013, both Republican Governor Chris Christie and Democratic Senate President ?Sweeney were more concerned with other things that year.?? The Governor was up for re-election.?? All 40 State Senate and all 80 State Assembly seats were also up for grabs.?? Governor Christie wanted to be re-elected by a landslide so he could be a serious candidate for President in 2016.??? Steve Sweeney wanted Democrats to keep control of both houses of the Legislature so he could be a serious candidate for Governor in 2017.

Atlantic City government borrowed $345 million between 2010 and 2015.??? None of this money could have been borrowed without the review and approval of the Local Finance Board and other state officials appointed by Republican Governor Christie.

This massive borrowing was unprecedented.??? State law requires all local governments to balance their budgets each year.??? In the past years, local officials who failed to balance ?budgets were indicted for ?misconduct in office?.? Also, when local governments borrow money, they usually buy or build an asset of equal value like a bridge, a road, or a building that benefits residents. ? ? Never before was any town in New Jersey allowed to borrow $345 million ?simply because it grossly overcharged its biggest taxpayers for years. ? Never before was any town in New Jersey allowed to borrow such a massive amount of money with absolutely no resources to repay these debts.

The failures to act in 2008 and 2013 should have exploded into an even bigger crisis in 2015. ? ?However, Governor Christie was busy running for President and did not want or need any distraction or embarrassment.?? In 2015, his Local Finance Board approved a bizarre local budget for Atlantic City and its public schools that did not force massive spending cuts or even raise taxes.??? Instead, it allowed Atlantic City government to approve a $262 million budget by getting one time ??multimillion-dollar grants and transitional aid? from state government, and by not paying its $38.9 million obligation for employee health benefit and pension contributions.??? As a result, Atlantic City government is now more than $380 million in debt. ?It is increasing that debt every day, because it did even begun to cut spending to levels its ?homeowners, business owners, and even casinos can afford.

Is bankruptcy now the only option available to Atlantic City government and its public school system. ? ?Could anything other than bankruptcy restructure Atlantic City?s debt to ten cents on the dollar? ? Who would be hurt the most if that happens? ? Who loaned all this money to Atlantic City government? ? Who owns all those junk bonds? ? Could anything other than bankruptcy restructure union contracts and allow the massive layoffs and cuts in salaries, pensions, and benefits needed to get by with less than half the previous tax receipts from casino properties?bwalk


  • Seth Grossman

    Seth Grossman is executive director of Liberty And Prosperity, which he co-founded in 2003. It promotes American liberty and limited constitutional government through weekly radio and in-person discussions, its website, email newsletters and various events. Seth Grossman is also a general practice lawyer.

    View all posts

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top