Why Atlantic City Is Atlantic City

For 25 years, Atlantic City had a monopoly on East Coast gaming.  Wishing to enter the lucrative market, there was a rush of land speculation.  Originally pitched by then-Governor Brendan Byrne as a “unique tool of urban renewal” and as a means to help senior citizens, New Jersey residents eagerly voted to legalize gambling.  Billions of dollars flowed into the town and the state used the taxes generated by the casinos as a cash cow.

Unfortunately, despite all that money, the city squandered the opportunity to transform the city into Las Vegas on the East Coast.   Although there were several master plans for the city’s improvement, most of it came to naught.  Then came the competition from neighboring states.  Responding to these new harder times, the state relaxed many of the regulations which were outdated and cumbersome.  Regardless, many casinos found themselves hopelessly in debt and it culminated in a spate of closures over a short period of time.

To illustrate how Atlantic City shoots itself in the foot, I am going to use two examples- that of the former Showboat and the former Revel.  The Showboat is owned by Caesars Entertainment.  Showboat fell on hard times and the casino closed its doors and eventually found a buyer in the local college- Stockton University- which is located in neighboring Galloway Township.  The current campus sits in an area known as the Pinelands and development in that area is regulated by the State Pinelands Commission.  Faced with soaring admissions, the Galloway campus cannot expand much further.  Hence, they bought the former Showboat for increased housing and classroom space.

The Showboat does not sit in a particularly nice part of town and its only real neighbor is another casino- Trump Taj Mahal which is owned by Carl Icahn.  But, a strange thing happened along the way.  It appears that there was a restrictive covenant on the deed of the property upon which sits the Showboat facility that the building be operated as “a first class casino.”  This covenant was written into the deed by none other than Trump when they owned the Taj Mahal.  Further complicating the scene is another covenant written into the deed by Caesar’s Entertainment which stated that should it ever close, it would remain a non-casino for ten years.  Some people are blaming Stockton for this dilemma, but they were unaware until a title search was completed.  Taj Mahal is insisting that the original covenant be enforced using the argument that a college campus near its doors would result in an underage gambling problem.

The state, through Stockton University, is suing Caesars claiming fraud and wants their $18 million investment back.  They claim Caesars knew of these covenants and that they received assurances that Taj Mahal would waive the covenant and that their subsequent covenant essentially negated the original one.  The result is an ugly legal quagmire while a building sits vacant.  The problem is what could have been.  As stated, this is not a nice part of town.  But, with an influx of people, although not to gamble, there would be support development around the city campus.  There could have bookstores, art galleries, night spots and bars, other stores- in short, a sort of mini-college town atmosphere that would have transformed that area of Atlantic City for the better.  Most of the area is zoned commercial anyway.

In the end, Stockton University is now putting up students in area hotels and motels for the upcoming 2015-2016 year.  Technically, the state legislature can step in and wipe away those covenants, but there is no impetus to do so.  Why?  When it was first proposed last year, the state senate committee on tourism killed a bill since several casinos were closing at the time, they did not want to interfere in casino business operations and threats from Taj Mahal at the time that they too might close their doors.  This could have been a major tool for the area’s redevelopment with the college’s proposed city campus as the anchor.

Enter the Revel which received a lucrative deal from the state and massive infrastructure improvements including its own power plant- the source of the current controversy.  Billed as the second tallest building in New Jersey, the Revel was doomed from the start.   The “front door” is a parking garage.  Within a year of its opening, which the state promised would happen after an infusion of tax breaks and cash, they filed for bankruptcy and changed their marketing theme.  But it was too late and it eventually closed its doors.  A spanking new facility sat vacant after only two years of operation.

A Florida developer- after a protracted fight- eventually bought the facility for pennies on the dollar and decided to convert the building into a first class non-casino hotel by using the available space to build an indoor water park.  It is an attraction that Atlantic City lacks and would have been open year round.  However, the owner of the power plant cut electricity to the building rendering it dark and dangerous.  The city ordered the developer- Glenn Straub- to provide electricity by either purchasing it from the power plant owners, or buying the power plant.  It should be noted that this power plant was built exclusively for the Revel.  He did neither and instead brought in portable generators.

Unfortunately, the State Department of Environmental Protection (they make the federal EPA look like Girl Scouts) deemed the generators a threat to local air quality and ordered them off.  Straub has recently told the courts in the ongoing litigation that he intends to tap into the existing Atlantic City grid for electricity and that the substation infrastructure exists.  The power plant claims those substations are their property and if Straub touches them, they will sue him for trespass.  As of today, an interim agreement was reached at the insistence of the city that Revel have some source of electricity to power their fire suppression system.  He is currently purchasing it from the neighboring closed Showboat.

This illustrates two things: (1) the State should have stayed out of the desire to get Revel opened, and (2) how the city and state treat developers with plans to revitalize the city.  The web of regulations from the city and from the state are delaying efforts to convert the Revel.  Chris Christie in particular placed billions of dollars on the line with the Revel- dollars the state is now on the hook for.  Meanwhile, the city loses property tax revenue while the Revel sits vacant.  The same goes for the Showboat which was bought by Stockton University.  Being a state college, it was not obligated to pay property taxes, but agreed to pay a yearly lump sum regardless to the city and the resulting surrounding development would have paid property taxes.

As a result, Atlantic City now faces a huge budget deficit.  The city’s school budget has been seriously slashed leading to elimination of over 220 teaching positions.  Fire and police cuts are likely coming next as well as a reduction in the public works department.  This comes at time when residents were facing draconian property tax hikes to make up for the lost revenue from closed casinos.

This is Atlantic City!  They want the investment, but they make the investors jump through regulatory and financial hoops.  They want the development, but place environmental and regulatory hurdles in the way.  They want new, innovative and non-casino attractions, then do everything to keep it from becoming reality.  In less than a year- with so much promise on the line- they have followed through on a well-worn Atlantic City tradition- shoot yourself in the foot.