Shouldn’t New Jersey be thinking about taking over Atlantic City?

One of the most under-appreciated causes for municipal fiscal distress is state officials’ deep reluctance to get involved. As a legal matter, nothing’s stopping them, but governors and legislatures see little in it for themselves in taking over a distressed city. They put off intervening for too long, with the result that the costs grow and the politics and policymaking become that much more challenging when a takeover becomes unavoidable.

Last year, Pew and I argued for more proactivity in states’ approach to fiscal distress, so as to prevent further deterioration of exactly the type of crisis now on display in Atlantic City, New Jersey. According to the city’s finance director, the property tax base will soon fall to $10 billion or less, a 50 percent drop in five years. To compensate, homeowners have seen their total property tax rate go up 85 percent since 2010.

The cause of course is the collapse of the gambling industry, upon which the city relies for almost half of all jobs. Within the last year, four casinos have announced plans to close, a loss of 7,000 jobs. Atlantic City’s fiscal problem is clearly structural, not cyclical, rooted in the gaming industry’s loss of market share to regional competitors. Casino revenues started falling in 2006, before the last recession began, and have fallen every year since. With Atlantic City’s Detroit-esque stats, the articles are writing themselves, and we can expect the media’s focus on to intensify. The financial press likes to cover catastrophes.

Obviously, the silver lining here is that Atlantic City’s struggles will help other states and cities to see why gambling is such a defective revenue source. The timing couldn’t be better for this referendum in Massachusetts. Maybe Detroit should reassess its prediction that its casino revenues, now almost 20 percent of all general fund revenues, will steadily grow over the long term after recovering from a temporary setback through FY15 “due to competition from Ohio casinos.”

As for Atlantic City itself, the Christie administration commented thusly in a July Bloomberg piece: “This administration is committed to our partnership with Mayor Guardian and the people of Atlantic City…We will continue to work closely with the city to address its financial challenges as well as those of the gaming industry and to help secure their future.” Back in 2010, Gov. Christie was doubling down on gaming in Atlantic City. The project he pushed will be closing next month. The current mayor’s plan is to “transition…from strictly gaming centric tourism destination to a non-gaming tourism destination with gaming as a supplement.” He has in mind how Las Vegas diversified with the convention center industry.

But it’s hard to see how Atlantic City grows its way out of this one. If a fiscal solution—as opposed to an economic one—is necessary, Christie will have to swallow his pride and move more aggressively to forestall insolvency. Or leave the mess for his successor. Though Atlantic City has the misfortune of not posing a systemic threat to the fiscal health of New Jersey’s other cities and towns, that shouldn’t justify postponing the inevitable. It’s the perfect occasion to apply “intervene earlier,” an important public management lesson produced by the Great Recession.

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