Atlantic City is facing a fiscal crisis. Its mayor says that the local government may shut down on April 8 for several weeks unless the New Jersey state government sends emergency funds. But state aid is tied to a New Jersey bill that would put the state in charge of Atlantic City’s finances.
But the fight over budget power misses the crux of Atlantic City’s problem: the city and state gambled on one industry and lost the bet.
Atlantic City opened its first casino in 1978. At the time, New Jersey and Nevada were the only two states with commercial casinos, and Atlantic City lined its boardwalk with towers built for gambling and not much else.
But as casinos popped up across the country and gambling moved online, fewer people flocked to Atlantic City. According to the Center for Gaming Research at the University of Nevada, Las Vegas, New Jersey’s casino gambling revenue fell from its peak of $5.2 billion in 2006 to $2.7 billion in 2014. The state’s share of US commercial casino revenues fell from 14.8 percent to 7.2 percent.
The casinos’ losses were also Atlantic City’s losses. In 2014, 4 of the city’s 12 casinos closed, and thousands of people lost their jobs. Atlantic City still has not replaced those jobs, even as New Jersey and the United States added jobs over the period.
The casinos were also central to the city’s tax revenue because their value accounts for roughly half of the city’s property tax base. A 2015 report from the city’s emergency manager Kevin Lavin—appointed by Christie that January—said Atlantic City’s property tax base declined from $20.5 billion in 2010 to $7.3 billion in 2015.
It’s still not enough to bridge all the budget gaps. No amount of austerity or state control can save a one-industry town when that industry collapses.
A similar story is playing out in states and towns that went all-in on oil and natural gas. Alaska gets nearly all of its tax revenue from oil, so when the price of oil plummeted and revenue dried up, the state was forced to discuss creating an income tax or sales tax to replace the funds. The state still has not figured out how to respond.
States and local governments should invest in economic development—specifically, smart economic diversification that is more than just offering tax breaks and propping up declining industries.
Pittsburgh is a hopeful example. When the US steel industry collapsed, so did the finances of the “Steel City.” But over time, its government’s investments in universities and medical sector (“eds and meds”) helped drive economic growth and increase tax revenue.
Governments do not have to invest in another industry—investments in education, workforce training, infrastructure, and new business ventures are big parts of economic development. But it all requires government support.
So far, New Jersey’s only response has been to double-down on casinos. As gambling revenue declined, New Jersey approved millions of dollars in tax breaks for a massive new casino, the Revel. The state never spent the money because the Revel never turned a profit and closed despite the state’s help. One new idea from the legislature is tax breaks for “A-list performing artists.”
State oversight of city finances can work. It’s helped Detroit and other cities get their budgets in order. But more than fiscal oversight, Atlantic City needs the state government to help it figure out what other industries to invest in to diversify its future economy.