The Future of Atlantic City: Not by Gambling and Tourism Alone Will It Survive
Can a new private development agency pull Atlantic City back from the edge and help it head in a far more financially promising direction?
“It would be difficult to overstate the precarious condition of the Atlantic County economy, and the acute need for community leaders to implement short- and long-term economic development strategies … “ While the words of the action plan released late last month by Atlantic County economic leaders were somber and nuanced, there was no mistaking the urgency of the message: If the county and its chief city are to move beyond the current state of near-bankruptcy, they must drastically reduce the their nearly single-minded dependence on gaming and tourism and foster immediate regional cooperation and workforce training.
If Atlantic City and Atlantic County are to survive, they cannot do so on gambling and tourism alone.
To oversee this radial realignment, the report called for the creation of a private-sector regional economic development corporation to rebrand and “aggressively market and recruit” business. Without one, the authors cautioned, Atlantic County risks projecting an “unfocused and inexperienced” image that will prevent it from making national and international companies aware of its potential for investment and development.
But calling for a new initiative can be risky given that over the past five years the city’s gone through five state-led efforts -- a veritable alphabet soup of initiatives -- that couldn’t get the job done.
One possible answer is the city’s latest effort, a private nonprofit redevelopment firm that will provide something of a model for county efforts.
This economic development engine, called the Atlantic City Development Corp. (AC Devco), is run by the same highly respected group that’s played a major role in revitalizing downtown New Brunswick.
It’s important to note that this private initiative comes at a time when critics of Gov. Chris Christie accuse him of delaying solutions by waiting indefinitely to sign an important bill package that would reform casinos’ property-tax structure; shut down an unpopular destination-marketing agency; and redirect a significant funding stream from the Casino Reinvestment Development Authority (CRDA), the powerful state authority that owns city land and oversees and funds zoning, redevelopment, and convention services in the city’s 1,700 acre Tourism District.
How does AC Devco aim to revitalize Atlantic City?
Sensing opportunities in a city where real estate has become a bargain, New Brunswick Devco (NB Devco) president Chris Paladino suggested the idea for AC Devco. Paladino serves on the governor’s New Jersey Gaming, Sports and Entertainment Advisory Commission, a group that Christie tasked to “fix” some of the state’s most intractable problems such as horse racing, Atlantic City, and the American Dream mall in the Meadowlands.
Instead of waiting for someone else to take responsibility for creating AC Devco, Paladino joined three associates, among them commission chairman Jon Hanson, the founder and chairman of a Morristown real estate investment firm and a close Christie ally, to replicate NB Devco’s efforts in Atlantic City.
“Devco is like any developer in Atlantic City but it has not-for-profit status,” Paladino explained. The company will assemble large parcels of land and groom and market them for private investment.
Paladino and his partners launched in May with $2.5 million in seed money from the CRDA at an interest rate of 3 percent for 15 months. According to Paladino, AC Devco will use the funding to hire architects and engineers to evaluate and prepare a parcel on Albany Avenue called “AC Gateway” that could become a site for a Stockton University annex and headquarters for the parent company of South Jersey Gas. The CRDA has already approved the tourism district construction, and Paladino says AC Devco will pay back the loan with profits from the development.
For now, Hanson serves as chair of AC Devco’s board and Paladino runs it out of his New Brunswick office. They’re both uncompensated, though they hope to hire staff and open a local office as soon as they generate some income. Paladino says they’re taking things “one block at a time” with the exception of a second possible project that may become a medical complex and school for osteopathic medicine run by Rowan University and AtlantiCare Regional Medical Center.
Paladino says that’s the extent of AC Devco’s current relationship with the CRDA, which can sell, lease or give land it owns to the corporation, which doesn’t have the power of eminent domain as the state agency does.
“There always has to be a symbiotic partnership with the government but being part of the government just doesn’t work,” he said.
At first, Mayor Don Guardian said he was wary of the AC Devco idea, fearing the agency would overlap too much with existing organizations, like the municipality itself. But last month mayoral chief of staff Chris Filiciello told NJ Spotlight, “I think we can make it work if they’re able to bring in new resources.”
What is the CRDA’s function?
The CRDA was created in 1984 to spend the 1.25 percent of annual gaming revenues that New Jersey casinos are compelled to pay toward community reinvestment. Over the past 31 years, the CRDA has leveraged $1.5 billion in loans and bonds to projects that may otherwise not have been undertaken in Atlantic City and has spent $0.3 billion on similar projects across New Jersey.
During the Christie administration, the agency has grown stronger. In 2011 the governor signed a comprehensive law to formally restrict CRDA spending to the city, while simultaneously increasing its local reach by creating an official tourism district for it to plan and manage. The law subsumed two independent state-run tourism and management agencies -- the A.C. Convention and Visitors Authority (ACCVA) and the Special Improvement District -- into the CRDA and gave it ownership of the convention center and Boardwalk Hall. It also established the Atlantic City Alliance (ACA), a nonprofit organization to promote the destination to leisure tourists. It’s funded independently with casino money and run as a public/private partnership with the CRDA.
Last year, the authority dissolved the ACCVA, which had handled all tourism marketing before 2011, and replaced it with a nonprofit organization, called “Meet AC,” which would market conventions and sporting events. The CRDA, which can exercise eminent domain within city limits, now manages, oversees, or finances the bulk of the city’s large-scale commercial development, destination marketing and sporting and special events.
How did these changes come about? In 2010, the so-called Hanson commission recommended that casinos band together to fund marketing to their core constituents -- leisure travelers -- while the CRDA take over management of these and all other tourism efforts. As part of the 2011 bill, lawmakers did just that. They created the Atlantic City Alliance to promote leisure travel to the city for five years using an annual $30 million allocation from the casinos that had previously been propping up the state’s horse-racing industry.
For a time, the ACA promoted the city to individuals and the ACCVA mainly worked on attracting groups. But the existence of two destination-marketing organizations muddled the message. They had different slogans, logos, websites and communications teams along with duplication of staff and budgets.
CRDA executives eventually decided to dissolve the ACCVA and spin off convention sales to Meet AC. The ACA remained intact.
What does Meet AC do?
Meet AC books some events at the Convention Center and Boardwalk Hall, which remain under direct CRDA ownership, and runs the film commission and newly formed Atlantic City Sports Commission. It receives $8.1 million annually from the CRDA, which approves its budget and marketing plan along with its results. Though Meet AC has its own board, President and CEO Jim Wood reports to the CRDA quarterly.
Who governs the CRDA?
The governor wields a huge amount of influence over the CRDA. Of its 17 board members, the state’s chief executive either directly or indirectly appoints all but one of them -- the mayor of Atlantic City. Longtime Camden County union leader Jim Kehoe chaired the CRDA’s board from 2008 until he stepped down in April. Kehoe has close labor, political, and social ties with Christie’s chief South Jersey allies, Senate President Steve Sweeney (D-Gloucester) and Rep. Don Norcross (D-Camden). Kehoe also sits on the board of Rowan University, which has benefitted from substantial interest from Christie, Sweeney, and Norcross.
Serving as his temporary replacement is Robert Mulcahy, whom Christie appointed to the board in 2011. Mulcahy was fired as Rutgers athletic director in 2008 on allegations that he spent public money to engage in secret financial and contractual deals that benefited his friends, coworkers, and family.
What’s happening to the ACA?
When Christie established the ACA – famous for its “DO AC” campaign -- its mission was to promote the city as a year-round destination with plenty of fun to be found outside the casinos. The agency has had its successes -- including some highly visible and well-attended beach concerts -- but has met with more failures, many beyond its control.
Just months after the ACA formed, a drug addict stabbed a Canadian mother and daughter to death in the tourism district in broad sunlight. The following year, the ACA struggled to fight misperceptions that Hurricane Sandy had destroyed the city’s boardwalk, and the year after that, United Airlines pulled out of the Atlantic City airport, citing lack of demand just seven months after it had begun service. (The airline is now under investigation for allegedly establishing and eliminating New Jersey routes in exchange for political favors.)
The initiative began to fizzle last year when, at the behest of casino executives who felt they weren’t getting enough of a return on their money, lawmakers voted to dissolve it and give the remaining cash to the city. Its fate will be determined by Christie’s action on the tourism-bill package. Meantime, it remains staffed by a skeleton crew of two people; the CRDA and ACA websites are now merged; and CRDA’s spokesperson says the ACA is no longer promoting DO AC or A.C. itself.
Does Atlantic City do any of its own marketing or development?
According to Filiciello, the city serves as facilitator or “center of the wheel,” to leverage the successes of the outside entities and focus on housing, public services, cleanliness, and safety.
“We make sure the city is clean and safe,” he said. “And we market the in-between properties (like housing projects and schools), while CRDA’s marketing is mainly toward projects they fund.”
The city’s planning director works with city council to review and implement viable plans for both high-visibility and low-profile properties. The city is also rebuilding a northern section of weather-ravaged boardwalk that connects Revel Casino Hotel and Gardiner’s Basin.
The Greater Atlantic City Chamber contributes to economic development primarily by promoting and advocating for its business members and providing them with information and opportunities to network and invest. However, it does produce the annual Atlantic City Airshow, the city’s largest free summer event, and it partners with Atlantic County to produce economic reports like the one released last month.
Additionally, the Atlantic County Improvement Authority finances and manages public projects like schools, municipal buildings, housing developments, transportation and infrastructure initiatives, and convention facilities like the Atlantic City Convention Center. Currently, the improvement authority’s A.C. focus is on housing assistance.
Where does the emergency manager fit in?
On the advice of the Hanson Commission, Christie issued an executive order in January to appoint an emergency manager to stabilize the city’s finances for an indefinite period of time. Attorney Kevin Lavin was given a mandate to recommend to the governor whether to declare bankruptcy or internally restructure the city’s debt and operations.
Lavin hasn’t requested a declaration of bankruptcy and is, for now, negotiating with the city’s creditors to restructure the debt. But by most accounts, he’s accomplished little else. Reuters reports that Lavin billed the state $1.7 million in April for his staff’s first six months of work. According to critics, his required 60-day report contained no new information, and Reuters notes that he missed a deadline to submit his second report, in June.
In addition, both Moody’s Investment Service and Standard & Poor’s Rating Services dropped the city’s bond rating to junk status at the news of the manager’s appointment, and in August, S&P downgraded it even further. On September 20, S&P dropped the school board’s general-obligation rating three notches to just above junk status.
A lot depends on Chris Christie. So far, he’s stayed fairly hands off of the emergency manager’s work, while the package of Atlantic City rescue bills has been sitting on his desk all summer. Not only do the bills close down the ACA, they redirect $30 million per year away from the CRDA toward servicing debt that’s accumulated since 2010. And until they’re signed, no one can predict the most important and widely supported outcome: whether the eight remaining casinos will be allowed to make 15 annual payments of $120 million in lieu of property taxes in exchange for giving up the right to appeal their assessments. The decision will determine whether residential and commercial taxes will skyrocket in response to the casinos’ drastically declining values.
And it would be a mistake to underestimate AC Devco, the type of private organization the county recommends for moving the city and the region away from gaming and tourism and into a diverse economic future.