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Atlantic City’s downfall provides lessons for the nation

Those who fail to invest and strategize long term are doomed to fail when the economic winds change

July 3, 2015 2:00AM ET

Nearly four decades ago, herds of buses began thundering down the highway to Atlantic City, where in windowless factories built next to the sea, paper and plastic were extracted from leather wallets.

About 32 million people a year spread across the carpeted factory floors. Thousands of workers and machines efficiently mined the wallets for their valuable contents before sending the gamblers back home to refill them.

Today the herds of buses have thinned almost to extinction. It’s not that the gamblers have given up, only that they no longer have to roam so far from home to lose their money.

Atlantic City is fast falling back into economic tragedy, a tale rich with lessons not just for New Jersey and its beleaguered taxpayers but for all of America about how the power of government can be abused to benefit a few (in this case, casino owners) at the expense of the many.

Competition and decades of bad political choices are killing what was once a highly profitable monopoly on legal casino gambling outside Nevada. That competition may soon intensify because the state legislature in Trenton is considering bills that, with voter approval, would allow gambling halls in the rich and densely populated northern end of the Garden State.

Thousands of Atlantic City jobs have been lost to legalized gambling in Pennsylvania, Delaware and New York. Once robust Atlantic City now has the nation’s eighth-worst unemployment rate, as 12 percent of area jobs vanished in a decade. House values collapsed. This week the Atlantic County sheriff lists 635 foreclosed properties for auction.

Just as abandoned industrial factories in the Midwest created a Rust Belt, casino hotels built by Donald Trump, Steve Wynn and the old Holiday Inn and Ramada hotel chains now sit idle, doors locked, windows grimy.

None of the four vacant boardwalk casinos have been abandoned — yet. But without money spent to cope with freezing winter temperatures, corrosive salt air and the occasional downpours that flood Absecon Island, these huge buildings will become high-rise safety hazards.

Two boardwalk casino hotels have already been leveled. The Atlantis sank beneath a sea of red ink, and the Sands was lost to the sands of time.

Stockton State University, its budget in dire shape, bought the old Showboat casino for just $18 million. It plans to turn its 459 hotel rooms into dorms and conduct classes in the casino space. Investor Carl Icahn, the biggest casino operator in town, is fighting the plan, saying a city with round-the-clock drinking and gambling is no place to encourage scholarship.

The casino owners won huge property tax refunds. Bonds sold to pay them doubled the city government’s debt in less than five years.  Experts who worked on the Detroit municipal bankruptcy arrived, studied and left without offering any real solutions because there are none, except for eventual default.

Interest and principal payments equal $300 a month for a family of four. For a city of 39,500 with a median household income of just $2,400 a month, about half the national median, the burden is oppressive.

Across the country, thousands of so-called economic development agencies are throwing tens of billions of dollars each year at corporations, often without evidence they created or even saved a single job.

While Atlantic City households do not directly bear all that burden, the heavy municipal debt helps explain the pervasive despair I encountered in my latest visit to the city, which I covered for The Philadelphia Inquirer from 1988 to ’92 and wrote about in my book “Temples of Chance.” 

In June I found the casinos mostly empty, the workers mostly indifferent and the once vast array of restaurants cut down to a few with meager offerings. I stayed midweek at the bankrupt Trump Taj Mahal and at Caesars, paying an average of $75 a night for rooms with an ocean view. The hotel hallways were eerily quiet, the elevators empty.

While all monopolies eventually fall, whether to new technology or changes in the law, Atlantic City did not have to fall back into the awful and worsening conditions it faced in 1975. But just as executives of public companies think in terms of 90-day profit statements rather than long-term wealth creation, the local powers lacked the imagination and resolve to create a broadly prosperous future.

Within days of arriving from Los Angeles 27 years ago, I wrote articles documenting the unstable foundation on which the local economy was built and warned that an economic hurricane of destruction was coming in the form of other states legalizing casinos.

Starting with then-Mayor Jim Usry, a former school administrator, I spoke with politicians about how they might develop an economy that would prosper after the legal gambling monopoly was lost.

The Atlantic City airport had a 10,000-foot long runway and space aplenty but virtually no commercial air service. I asked, How about developing an import business, with jumbo jets full of fresh flowers from South America and fresh fruit and fish from the Caribbean and Europe? These valuable products could easily be trucked to the densely populated cities along Interstate 95 from New York to Washington. The mayor thought I was daft, expressing disbelief that jet freighters full of flowers and fish landed every night at Newark Airport at the northern end of New Jersey.

How about building attractions such as a huge aquarium, much bigger and diverse than those in Baltimore or Monterey, California? The state later built one, but it is an hour away in Camden, across the Delaware River from Philadelphia, and humdrum.

And what about developing Atlantic City as a center for financial services? How about a back shop for Wall Street, data processing or even movie making, as Wilmington, North Carolina, has done? How about developing the ocean with aquatic farms raising oysters and salmon?

The casinos threw off tons of money to the Casino Reinvestment Development Authority. But instead of building a solid foundation for a rich matrix of enduring businesses, the agency evicted poor people from dilapidated ocean view homes and built condos that it sold for 25 cents on the dollar spent to build them.

Only a few people in casino management and the state bureaucracy, none of them natives, proposed any substantive vision beyond the casinos. These few said there was no political will to do more than react to the casino owners. One sage, who later became a developer in another state, said local leaders “think they are an island apart, and when they leave Atlantic City, they cannot wait to get back on their little island.”

Atlantic City gambled away its future by failing to develop its natural advantages, failing to think long term and failing to invest its windfall strategically. This should be a lesson for the rest of America.

Across the country, thousands of so-called economic development agencies are throwing tens of billions of dollars each year at corporations, often without evidence they created or even saved a single job.

Every taxpayer should be asking, What is the strategy? Unless taxpayers demand a disciplined and strategic vision, their results will follow the tragedy of Atlantic City. When the inevitable economic storms come, the sandy foundations of their local economies will wash away.

David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of “Perfectly Legal,” “Free Lunch” and “The Fine Print” and the editor of the new anthology “Divided: The Perils of Our Growing Inequality.”

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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