Gov. Phil Murphy (left) and Mayor Frank William have been and remain wary allies.
The state takoeover of Atlantic City will not end in the near future. One of Gov. Phil Murphy’s campaign promises was to end financial oversight of the cash-poor seaside gambling destination, which was placed under regulators during the administration of Gov. Chris Christie.
Nine months after he took office, Phil Murphy announced this week he would leave the state-appointed officials in charge for the time being.
While saying the Casino Reinvestment Development Authority would help alleviate local shortfalls in programs involving underage children, Phil Murphy suggested he might leave the overseers in charge the remaining three years of Christie’s appointed time table.
To show he was helping Atlantic City return to financial solvency, Murphy published a plan for helping the casino city by creating a task force, appointing researchers to study the problem, and naming committees to oversee both. As a historian once said, if you want to delay a decision, create a committee.
Phil Murphy’s Atlantic City Policies
Murphy’s administration did announce a couple of proactive policies. One, he would redirect the Casino Reinvestment Development Authority’s funds to help youth programs in Atlantic City. Two, he would create a training program for municipal department heads.
The first policy helps address complaints by locals that the takeover of the local school system’s finances had led to severe cuts in program funding — even those which helped local school children. The second policy is a way to train the next generation of local leaders.
“Clear-Eyed Sense” of the Challenge
Phil Murphy defended his position at a news conference this week. He criticized his predecessor Chris Christie’s “big-footing” of Atlantic City, then said his previous pronouncements were based on realistic and pragmatic evaluations. Murphy added, “We had a pretty clear-eyed sense of what the challenge was.”
The New Jersey governor characterized this week’s decisions as being made more in the spirit of partnership, though financial control will continue. Murphy said, “That doesn’t mean Atlantic City doesn’t need the state, that the state won’t continue to stay the course and be a partner. We’re not going away; we’re going to go out and executive this plan.”
Atlantic City Mayor Frank Gilliam, a fellow Democrat who took over for Don Guardian (also a Democrat), said that the state’s financial oversight has been difficult for local officials. Gilliam said praised Murphy’s adminstration for being receptive to questions and concerns, while retaining ultimate control.
November 2016 New Jersey Takeover
When Chris Christie announced the state was taking control of Atlantic City’s finances in November 2016, he said it was because city leaders neither could not or would not make the hard choices needed to get the city’s finances in order. Murphy’s administration backed that narrative, saying during this week’s announcement that Christie’s 5-year plan would remain in place unless there was a “significant reduction or total elimination” of Atlantic City’s reliance on New Jersey state funds.
2014 Casino Industry Financial Meltdown
That is the crux of the matter. The closure of four Atlantic City casinos in 2014 put the city’s finances in free fall. That left eight operating casinos, while robbing of the city of 8,000 casino workers (AC lost 9,000 jobs that year). In a city of 40,000 people, the loss of 9,000 jobs reached Depression-level economic devastation.
The loss in property taxes was even worse. Four of the city’s twelves biggest businesses closed within months of each other, which cost the city 20% to 25% of its property taxes. But that was only part of the problem. With four giant casinos closed, property values on the remaining 8 nearby casinos cratered.
Economic analysts suggested Atlantic City had lost as much as 70% of its property taxes, which was the key to its financial solvency. Without those revenues, Atlantic City was listed as the American city with the worst financial situation — worse even than Detroit, which had faced its own financial meltdown during the Great Recession.
Don Guardian’s Recovery Attempts
Atlantic City tried to sell bonds to raise the cash to keep the government running. Credit rating agencies continued to downgrade Atlantic City’s rating, so selling bonds or borrowing cash became next to impossible. City leaders tried a few creative ways to generate cash, but with $70 million debt payments looming and police, fire, and school payments needed, New Jersey intervened with loans. Those loans came with strings attached, including the possibility of state-level financial oversight.
The New Jersey state legislature had tried to help before. To create a stable casino tax system without endless costly tax appeals, the legislature passed a “Payment in Lieu of Taxes” or PILOT bill. Instead of assessing the property taxes at a lowered rate, the casinos agreed to pay a set tax bill of $120 million per year, because they wanted to avoid costly appellate court battles, too.
None of it was enough, which is why Chris Christie took over Atlantic City’s finances in November 2016. New Jersey was paying the bills, so New Jersey was going to call the shots. It probably did not hurt Christie’s feelings that it was a Republican administration taking over a Democrat-run city’s finances — politicians need narratives and it furthered Christie’s narrative quite well.
Jim Johnson’s Financial Recovery Plan
Which is why Phil Murphy’s decision this week surprised many. Murphy is a Democrat, so it was expected that he would undercut the narrative and put Atlantic City back on the road to independence. The fact two of the closed casinos are back — Revel Casino reopened as Ocean Resort Casino and Trump Taj Mahal returned as Hard Rock Atlantic City this year — was supposed to give Atlantic City more overall financial strength by boosting the job market and helping the property tax situation.
Jim Johnson devised the Murphy Administration’s plan for Atlantic City’s recovery. Johnson’s plan calls for the Casino Reinvestment Development Authority to redirect money to help 10,000 local children. One-third of the city’s children live in poverty. It might seem like a financial Band-Aid done for political purposes, but the Casino Reinvestment Development Authority’s actions will helps thousands of children.
Atlantic City Recover: 2018 and Beyond
Continued recovery of the casino sector and time are the best remedies. Hard Rock Atlantic City and Ocean Resort Casino should help. More and better online gambling sites should help. So should land-based sports betting revenues and mobile sports betting apps.
But that takes time and the recovery is not far enough along to declare victory. Whoever is in office in Trenton, though, it is disingenuous to say Atlantic City’s leaders lacked the skill or the will to make changes. They were wiped out by the private sector’s financial issues. No one — even Phil Murphy or Chris Christie — could have turned around Atlantic City’s financial situation from 2014 to 2016. A third of the city’s big businesses simply went away.
Atlantic City’s problems began 40 years ago, when a previous generation of leaders (in AC and Trenton alike) chose to make a small-to-mid-sized city reliant on one single industry. Casino gambling was a boon for most of those 40 years, but financial experts know it’s always best to diversify.
