New Jersey Comes to Atlantic City’s Rescue

With revenues in freefall, the state has stepped in to save a city in decline.
by | November 2011
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In July 2010, New Jersey Gov. Chris Christie stood in front of Atlantic City’s Boardwalk Hall, the original home of the Miss America pageant and one of the few remaining iconic edifices in town, and pronounced, “Atlantic City is dying.” A special advisory commission on gaming, sports and entertainment -- nicknamed the Hanson Commission -- had just released a new report titled An Economic Recovery Plan for the State of New Jersey. Gaming revenues -- and concomitant taxes -- were ailing. Atlantic City’s gaming industry, the report said, was in “freefall.”

To be sure, the numbers are grim. Total visitors peaked at nearly 35 million in 2005 -- and dropped below 27 million in 2010. Casino employment in July, the industry’s busiest month, fell from a recent high of 50,000 to 38,000. And casino net revenues, having grown every single year from the casino advent in 1978 up to a flush $5 billion in 2006, can’t stop skidding. Revenues were down 30 percent to $3.5 billion in 2010, with a resultant $175 million dip in state taxes, and they’re off another few percent for 2011.

Much of this decline is par for the recessionary course, but there has also been a parallel, revenue-siphoning force at work during these years. Delaware added table games and a limited form of sports betting to its three racetrack casinos. Maryland legalized slot parlors. New York introduced video lottery terminals, which are much like slot machines, at eight racetracks. And in 2007, Pennsylvania opened 10 slot parlor casinos statewide, with table games recently added on. In the Mid-Atlantic arms race for one-armed bandits, convenience is trumping cachet.

But where these other states cozied up to casinos as an opportunity to plug holes in their revenue dikes, New Jersey, which had grown dependent on this revenue for three decades, saw its dam breaching. “In the face of such challenges,” the Hanson Commission reported, “it is reasonable to ask if Atlantic City gaming is ‘save-able.’”

Despite the dour buildup, the commission’s verdict on this issue was a definitive yes: Atlantic City’s particular commercial and environmental assets are still quite valuable. With brand improvement, a latent demand could return the city and industry to renewed potency. The model the commission believes the city should apply is what many refer to as “Las Vegas East.” This entails drumming up convention business, improving transport options, creating a “clean and safe” Tourism District, and forming a public-private partnership charged with marketing the city, streamlining and easing some regulatory procedures.

To make this happen, the state ordered that the modest gaming revenue tax previously allocated to the Casino Reinvestment Development Authority (CRDA) for projects in the city, county and state, now be dedicated entirely to these city projects. The governor’s office also offered a $261 million tax rebate to the stalled-in-mid-construction Revel casino and hotel. That infusion of cash jump-started an additional billion dollars in private investment. The sleek glass Revel tower is now slated to open in May.

Unanimously, gaming industry executives are on board with the Vegas East idea. If Atlantic City is to have any chance of resurgence, they say, it must become a “destination resort” with fine retail, dining, entertainment and recreation offerings. According to one statistic, the average stay in Las Vegas in 2009 was 4.6 days, while the average Atlantic City visit was only 15 hours. The Boardwalk casinos earn only 10 percent of their revenues from non-gaming activity while the corresponding number on the Strip is nearly 60 percent.

Indeed, 15 years after the Mirage opened and began the Las Vegas renaissance, Atlantic City was just seeing the first brushstrokes of a makeover. The Borgata, a glossy, alluring, Strip-style casino hotel, opened in 2003 with prime entertainment bookings and robust business. The CRDA-aided outlet mall The Walk rose from the mouth of the Atlantic City Expressway shortly after. Celebrity chefs opened outposts in Atlantic City casinos. Storefronts along the Boardwalk were remodeled.

Then the bottom fell out. “There were a number of projects on the drawing board ready to go -- big new casino hotel developments,” says Frank J. Fahrenkopf, president of the American Gaming Association, the casino industry lobby in Washington, D.C. “And just when this was on the verge of really breaking loose is when everything came to a stop. Then you start to come out of the recession, and Atlantic City gets bombed with competition.”

Don Marrandino, the Eastern Division President for Caesar’s Entertainment, which owns several Atlantic City properties, takes a realist approach. “That $5.2 billion gaming business is gone forever. But we’re still the second largest gaming destination in the country,” he says. “We have to reinvent our product to say, ‘How do you make this a very profitable, thriving community at $3.5 [billion] or $4 billion?’ The way you do it is to expand your base through non-gaming amenities.”

Atlantic City Mayor Lorenzo Langford says he mostly agrees with that argument, even if his vision understandably skews a little more toward residents than conventioneers. “I think we would do better if we would diversify the experience here and go more in the way of family oriented attractions,” he says. “This is a town that doesn’t have a movie theater. We don’t have a roller skating rink or bowling alley.”

Even though there’s a general consensus among leaders about the direction Atlantic City development should take, the city-state partnership has grown increasingly acrimonious during this past year of legislation and implementation. In February, the Legislature officially instated the Hanson Commission’s recommendations. Perhaps its boldest move was to shift some of the regulatory framework and significantly augment the powers of the CRDA, an agency whose board is composed primarily of gubernatorial appointees. Even more controversial, the state wrested authority over planning and zoning in the designated Tourism District from the mayor’s office to the CRDA.

The most rancorous clash came over the April vote on Tourist District boundaries, which were drawn to contain more than half of Atlantic City’s land. This includes everything within a couple blocks of the Boardwalk, a large field recently used for festival concerts and the major roads connecting Atlantic City’s spit of land to the rest of New Jersey. Langford likened the bifurcation of the Tourism District to “an apartheid,” saying the CRDA “divided the city and put all the traditional white neighborhoods in the district, which is going to receive resources, financial and human, to the exclusion of the African-American neighborhoods.”

While few others are speaking in such polarized terms, Langford is not alone in his concerns about disenfranchisement and disentitlement. Harriet Newburger, a researcher in the Community Affairs Department of the Federal Reserve Bank of Philadelphia, co-authored a 2009 report on the effects of the gaming industry on Atlantic City. In it, she describes how in the 1980s, the CRDA had a stated mission of using its share of gaming taxes as a “unique tool” to improve blight in low- and moderate-income areas.

Over the past two decades, however, the CRDA has changed tacks and instead given increasing focus to aiding casino projects and other top-down economic development. “My recollection from reading the legislation is that there’s really very little attention paid to the residential areas,” Newburger says today. “It’s the pattern that has always been there, but the Tourism District has made it sharper and more explicit.”

One lingering question, then, is whether the state can make the Tourism District sustainably “clean and safe” when it abuts areas marked by high poverty and unemployment. Unlike the downtown areas that have seen recent gentrification in many big cities, the Tourism District largely lacks the infrastructure of housing and storefronts from which a stable, attractive urbanity could arise.

This situation reflects the other great conundrum facing Las Vegas-style redevelopment in Atlantic City: the cost of land. The Las Vegas boom of the 1990s and 2000s was abetted by the fact that developers could essentially disregard space. Land in the Nevada desert was cheap and endless. They could pick up and build away from downtown -- which is precisely what they did on the Strip. Not so in Atlantic City, which has a defined, contained grid. Historian Bryant Simon, author of Boardwalk of Dreams, explains that the land grab following the legalization of casinos in 1976 led to astronomical property value inflation. Speculators bought up swaths of housing to sell to operators, who would then demolish the homes to build casino hotels and parking lots. “When you drive around Atlantic City,” Simon says, “what you see are big, vast holes. And those are from a kind of speculation that you didn’t have in Vegas.” While the casinos create a skyline much grander than that of any other city of only 40,000, they resist street-level integration.

For its part, the CRDA appears to at least recognize these obstacles to development. (The CRDA did not respond to numerous interview requests.) The agency’s current request for proposals for master planning services in the Tourism District seeks planners who can map out all the available plots of land to determine what assets and infrastructure they’ve got to work with and what sorts of developments could fill in the blanks. Then the CRDA can assemble and prepare sites and put out design concepts for prospective developers, mitigating the start-up costs and time spent getting approvals. Or it could offer subsidies and loans to encourage particular types of developments and locations.

That’s doable, says Alan Mallach, a Brookings Institute senior fellow and former executive director of the Atlantic County Improvement Authority. “This is not exactly a secret,” he says. “I’m sure [the CRDA is] very sensitive to the reality of what’s involved. But are they going to be able to pull together enough money, in this economy, to actually make that happen?”

For 30 years, Atlantic City has been something of a grand experiment: What happens when you suddenly plunk a multibillion dollar industry, virtually wholesale, into an existing city? Given recent mixed results, the one certainty is that the state and gaming industry now acknowledge that they can no longer expect to rake in reliable returns while turning away from the larger urban landscape. For better or worse, Atlantic City’s problems are New Jersey’s problems.