Phony capitalism is defined as success in business being dependent on a close relationship with the government. Think TARP, or Solyndra, or the auto industry bailout. By any other name, it would be called liberal fascism, but what’s in a name? It takes on many forms: bailouts, special loans, too-big-to-fail, favors, mandates and tax breaks. It is one thing where true fiscal conservatives converge with the Occupy Wall Street types when it comes to ideology. Too bad they could not articulate that anger beyond crapping on the nearest police car.
As everyone is aware, several casinos recently closed their doors in Atlantic City, New Jersey leaving over 8,000 people unemployed: The Atlantic Club, Trump Plaza, Showboat and the Revel. Other casinos, like The Claridge, have been transformed into non-casino hotels. Now comes a plan from Democratic state senator Steve Sweeney to save Atlantic City. This plan, endorsed by the casino industry, is being sold as creating an environment of tax certainty which will lead to reinvestment in the city and hopefully reopen some casino doors.
Under the plan, casinos would pay $150 million to the city in lieu of property taxes for the next two years with the amounts determined by a complex formula based not on their property’s value, but on their gross revenue. Additionally, another $25-$30 million would be diverted from a fund for the city’s redevelopment to the city itself to help shore up their finances. The city would have to find and implement $72 million in cuts in their government services and school system. Finally, all casinos would have to offer their employees some baseline health insurance coverage and a retirement plan.
The stated reason these casinos listed above closed was because they could not profitably operate a casino/hotel. The reason was not necessarily the city’s tax rate, but competition from other states and general ineptitude on the part of Atlantic City and the casino operators. The city got a big black eye from the negative coverage and the fear is if the Trump Taj Mahal closed- as threatened- it could be the death knell for the city.
The only problem with this entire scheme is that it is simply the state cow-towing to the casino industry and Trump Taj Mahal in particular. One need only look at how the entire scheme benefits certain players and hurts others. Harrah’s operates three casinos- Bally’s Park Place, Caesar’s and Harrah’s. They would receive a $17.1 million tax break. Carl Icahn, who owns the Taj Mahal and Tropicana, would get an $18.8 million tax break. That leaves three independent operators- Borgata, Resorts and Golden Nugget. Borgata would see a $2.7 million tax break (the most profitable casino) while the other two would pay an additional $7.5 million in taxes.
Resorts and Golden Nugget have recently become somewhat profitable after going through some tough times by readjusting their marketing strategy and renovating their properties. Golden Nugget, in particular, has turned a financial corner after the Landry Corporation purchased it from Trump and the owner sunk $34 million of his own money into the transformation. Essentially, both Resorts and Golden Nugget have lived within their means and although Resorts still carries some debt for which bankruptcy proceedings helped alleviate, Golden Nugget is basically debt-free. In other words, they have thrived in their own little ways despite the financial maelstrom around them.
Clearly, this scheme is designed to benefit two players in Atlantic City- Carl Icahn and Harrah’s Entertainment. And this scheme appears to have the backing of Governor Christie. If you are going to get $35 million in tax breaks, you would be for it if you were Carl Icahn or Harrah’s Entertainment.
This is a classic case of phony capitalism. The casinos that closed were all the victims of bad management, ineptitude, neglect, or trying to be something they were not. And Christie is no stranger to phony capitalism as the sweetheart deal worked out to complete the Revel illustrates only to have that monstrosity close 2 years later. That building is relatively new and should attract a buyer of some kind. Already, the Richard Stockton College (soon to be University) purchased the Showboat and intends to transform it into classrooms and needed student housing space. Trump Plaza sits at the base of a major artery into the city- prime real estate for some purpose, if not a casino-hotel.
We can criticize all we want about Atlantic City in general, but as a resident of the state and someone who had to travel into that slum of a city some days is well aware, they had a long monopoly on East Coast gaming and they dropped the ball with one hand while grabbing the cash with the other. Of course, that is little consolation to the over 8,000 unemployed workers. The requirement of health insurance and a pension plan are payoffs to the local service worker’s union. Given that monopoly, the city should not have streets reminiscent of the lunar landscape. There should not be homeless people living under the boardwalk. There should not be 15 superintendents in their school system!
It should also be noted that the real losers in this plot are the taxpayers in Atlantic County. Because property taxes are collected also for the county, to make up for the anticipated shortfall in payments from the casinos, every other town in the county will see a tax increase. Thus, a few casinos are saved while Carl Icahn and his Taj Mahal extracts concession after concession from the state and city all in the name of keeping their doors open. Mind you- this is a casino that believes placing duct tape over rips in their carpeting is considered a capital improvement.
In a capitalist society, the successful survive on their own or they perish on their own. While it may be great to blame neighboring states for Atlantic City’s demise, they fail to explain their inability to develop the resort when it had a monopoly on East coast gaming. While it may be great to blame unions for their demise, they ignore the fact that they signed those agreements with the unions in the first place. While some casinos have actually turned themselves around financially in a tough financial and competitive market, the losers now cry to the state for help. This is phony capitalism plain and simple.
One final note: if Chris Christie was to be a president like he is Governor of New Jersey, it should give serious pause to any true conservative who disdains phony capitalism. The aforementioned Revel disaster and his apparent support for this proposal would indicate that he would be another leader giving handouts in the form of corporate welfare. If it was wrong for Obama to bet on and lose with Solyndra, for example, it is wrong for a Republican Governor to bet on and lose with the casino industry in New Jersey. Again, he may be the best thing- relatively speaking- for New Jersey, but certainly NOT for the country.