The Bank of America Corporate Center Is Located in Charlotte, North Carolina
In its latest move to pay down municipal debts, Atlantic City sold $12 million of notes to Bank of America Corporation this week. The sell-off is part of an economic plan to repay $12.8 million in securities which is set to come due this coming week.
According to a plan approved by the City Council on Tuesday, the city has agreed to pay the remainder of the debt through cash. City officials had planned to issue new notes to pay off the debt.
Three Offers to Buy Debt
Mayor Don Guardian said Atlantic City received three offers on January 30, but had been unable to sell debt before that date. One of the bids had a 12% interest rate, which Guardian said was too steep for the city.
Charlotte-Area Bank of America
The buyer of the new notes was a bank based in Charlotte, North Carolina. The securities mature in August 2015. When they do, Atlantic City Finance Director Michael Stinson says the city will pay a 5% interest rate.
Bloomberg shows that the most top-rated municipal borrowers pay about 2.55% when they issue notes. Those numbers are based on a three-decade average. Frank Gilliam, Atlantic City’s City Council Chairman, spoke about the sad state of the destination city’s economy. Gilliam said in an interview with Bloomberg, “It says we’re in bad shape.”
Loan from State of New Jersey
In late 2014, Atlantic City had to borrow $40 million from the state of New Jersey. That short-term loan kept the gaming city from having to borrow from private finance groups, which have lowered the city’s credit rating. The city’s short-term loan comes due on March 31.
The interest on the Bank of America debt will be $300,000 and come due in August. The city has pledged $12 million in state and federal grants to repay the loan, if need be.
Atlantic City’s Woes
Despite its national fame, Atlantic City is a city of less than 40,000 people. About 70% of its property taxes come from the city’s casino industry. That economic model worked for 40 years, after the city built an east coast counterpart to Las Vegas.
California v. Cabazon Band
Back in 1989, New Jersey was the only state besides Nevada to have legal gambling. Now, 40 states have some form of legal land-based casino gambling. In 1986, the US Supreme Court reviewed California v. Cabazon Band, and determined that Indian tribes in the United States were sovereign nations, due to the treaties they signed with the United States (thus conferring international recognition).
Due to that decision, Indian reservations had the right to host land-based casino gaming, even if the state adjacent to that reservation banned gambling. The Supreme Court said the tribe needed to come to a compact with the state, but could otherwise host gaming legally. In 1988, Congress passed the Indian Gaming Regulatory Act (IGRA), which was signed into law by Ronald Reagan.
Casino Proliferation in America
With the rise of tribal gaming, more and more states become comfortable with the idea of brick-and-mortar casinos. Nearby states like Pennsylvania, Delaware, New York, and Connecticut each licensed their own casinos. Atlantic City became just another gaming destination, reliant more-and-more on New Jersey gamblers. In fact, some of those gamblers in North Jersey began going to Philadelphia-area or Upstate New York casinos. Atlantic City began to lose its customers.
From 2006 to 2013, the gambling revenues in Atlantic City went from $5.4 billion to $2.86 billion. In 2014, the numbers got worse. Four of Atlantic City’s 12 casinos closed. A city of 40,000 lost 8,000. As of the February 2015, one-third of the adults in Atlantic City are jobless. That’s a number comparable only to Great Depression jobless rates. Even Detroit ranks higher on the list of cities with more job prospects.
Atlantic City’s Mayor Don Guardian is trying to transition the resort destination city into a non-gaming tourist destination. This will take years of infrastructure build-up and wooing of businesses to the area. Currently, politicians and business leaders have suggested building a casino in North Jersey to retain players in the state and perhaps lure New Yorkers, but such a development might destroy what little remains of the Atlantic City casino industry. New Jersey State Senate President Steve Sweeney has suggested a plan that would allow New Jersey to build a casino in the Meadowlands, then use revenues generated there to fund Atlantic City’s transition costs from a gaming to a non-gaming economy.
