I have an on-going correspondence with a particular city planner who recently asked, “What pushes a neighborhood down vs. what lifts it up?” In the end I suspect this is going to be like the old joke. Ask three rabbis a question and you’ll get five answers. Perhaps I should provide a few examples of popular “solutions” that I know for a fact don’t work.
Number One on the list goes like this. “Bring in lots of good paying jobs and the neighborhood will blossom.” Not so much. How do I know this? Because I spent the bulk of my growing-up years in southern New Jersey and remember when Atlantic City was a bombed out disaster zone that looked like Berlin in 1945. The solution to this economic basket case came in the form of legalized gambling in 1976 which did in fact bring an enormous number of jobs – most of which didn’t require advanced education yet paid a middle class wage. For those of you too young to remember a time when there wasn’t an Indian casino, faux river boat, state lottery outlet, and race track on every corner in America, legalized gambling was a very rare thing in 1976. Only Reno and Las Vegas had such casino facilities so Atlantic city had a virtual monopoly on the east coast for many years.
So if you were to visit Atlantic City today you’d see the triumph of nearly four decades of accumulated wealth and a thriving middle class, right? No. The place is still a slum. Mind you, it’s a slum with a lot of very flashy casinos and resorts hot glued to the beach like a complete set of Lee Press On Nails all polished in garish colors. But step outside the multi-story parking garages (something that is exceptionally hard to do, by the way) and you’ll see blight, abandonment, and despair in all directions. Why? Because the people who were best able to take advantage of those jobs immediately carried their pay checks out of town and bought homes in other places. Left behind are the hard cases that are apparently permanently unemployable.
Number Two on the list. “Induce new commercial activity to bring in sales tax revenue.” This doesn’t work either. All the hotels, gift shops, restaurants, ocean-pier-cum-shopping-malls, and gaming halls did, in fact, delivered a tsunami of revenue into the city coffers over the years. Then came the premium outlet malls and chain restaurant pods and more tax revenue poured in. The primary argument in favor of legalized gambling back in 1976 was that a dedicated stream of tax money from tourism would be used to improve public schools and other government services. So I walked around and found some local schools near the casinos.
Here’s a handsome old Roosevelt era public school a few blocks away. It’s been completely mothballed and sits empty. I’m perfectly well acquainted with the process here. These old schools are forced to shut down due to lead paint, asbestos, a lack of ADA compliance, et cetera. Atlantic City isn’t unique in dealing with this type of situation. The cost of retrofitting an historic school building usually exceeds the cost of building a new school from scratch. Fair enough.
So here’s the new “charter” school directly across the street. It consists entirely of a collection of rented glue box portable classrooms sitting on a fenced parking lot. Notice that they are in fact up to code, handicap accessible, and in line with all state and federal regulations. And because they’re rented the city didn’t have to spend much up-front money on them. Also notice that they’re complete crap in spite of the cheerful accent paint and strip mall inspired signage. So where was all that sales tax revenue spent?Google
People go to Atlantic City, as the name suggests, to enjoy the ocean. So hotels were built pressed right up against the beach. Unfortunately the sand on barrier islands like the one Atlantic City is built on are constantly shifting. Sand washes away in one spot and builds up in another. Over time the island maintains itself, but not in the same shape from year to year. Consequently, beachfront property is continuously in danger of storm surges and an ever eroding beach. The sensible thing to do is build farther back behind intact sand dunes. But hotels don’t like being so far from the water. So, many millions of dollars are spent on artificial beach replenishment where sand is mechanically pumped up from the bottom of the shallow waters and spit up on to the shore. This isn’t a one time thing. It needs to be done over and over again. I was in town during a long holiday weekend and crews were working twenty four hours a day on Saturday, Sunday, and the holiday Monday with bulldozers chugging and flood lights blazing. That costs real money. In fact, you could build a really nice school with that kind of cash. You can be sure that the hotels aren’t paying out of pocket for this work. That’s a government function…
Number Three on the list goes something like this. “If we invest in infrastructure the town will thrive.” No. Not even close. There came a point when the 1980’s era beach boardwalk casinos became self evidently tacky – even for a place like AC which had a pretty low bar to begin with. Cheap airfares to newer more extravagant entertainment complexes in Las Vegas during the 1990’s lured well heeled people away from Atlantic City leaving a decidedly lower rent clientele behind. Places like Branson, Missouri and “Indian” casinos in Connecticut and elsewhere proliferated and started to cut the gambling pie into smaller and smaller pieces. The city itself had failed to revive and was an eyesore as well as a safety hazard for tourists.
Consequently a new wave of isolated “destination” resorts were built on the bay side of the island at a physical remove from the rest of the city. In order to get wealthier tourists to and from the mega complexes new highways had to be built. These new roads needed to do more than just move traffic. They needed to completely segregate tourists from the rest of the urban fabric so that drivers never even saw the city itself. The entire vista was a ribbon of water, marshland, and well maintained roadside shrubbery. These roads were fantastically expensive, but revenue from the casinos would pay for it all, right? Not so much as it turns out. In the last year four of AC’s dozen major casinos have declared bankruptcy. Of the eight remaining, three are in pretty bad financial shape. 9,000 people have lost their jobs and tax revenue of all kinds are down dramatically. Of the remaining five tolerably solvent casinos sales are only half compared to their peak in 2006. As is typical the casino owners have negotiated tax holidays and new subsidies for themselves in the name of employment preservation. They got everything they asked for.
Number Four on the list might go like this. “Provide financial assistance to your home industries to help them set deep roots and ride out the rough spots.” Oh noooooooo. This usually takes the form of tax holidays, interest-free government backed loans, free land, infrastructure upgrades, and all manner of subsidies. In the end companies either thrive or they don’t. If they thrive they’re never grateful for the assistance and only ask for more in order to remain in town. If they fail they’ve wasted tax money at the expense of truly productive enterprises which have to carry a proportionately larger share of the tax burden.
Let’s go back to 1976 and remember why casino gambling was enacted in the first place. The casinos would generate tax revenue, create jobs, and transform the local economy. Today the casinos are massively in debt, many millions of dollars behind on their tax bills, receiving multi-million dollar emergency loans and bail outs from the state, and have left the city with a fantastic amount of very expensive but useless infrastructure that needs to be maintained. Even the mainland suburbs that did relatively well during the good years are now failing since the middle class jobs from the city are evaporating. This entire forty year experiment was a complete disaster and there is no cure.
Now if you’re thinking that Atlantic City is a special case full of corrupt officials, greedy developers, idiot liberals, racial minorities, obstinate labor unions, and other assorted unsavory individuals that has absolutely nothing to do with the kind of town you live in… you’d be surprised. Do you have a regional shopping mall in your town? How about a Costco? Walmart? How about a big car dealership? Supermarket? National chain drive-thru fast food joint? Each and every one of these places routinely asks for, and receives, heavy subsidies by local governments as part of “business friendly” “economic development” policies which are designed to encourage employment, generate sales tax revenue, and cultivate economic growth. It’s exactly the same set of arrangements with precisely the same eventual results as Atlantic City. Some towns do it with more flash and fail more spectacularly. But it’s all the same.
What does actually work to build durable long term wealth in a community? That’s a topic of another blog post.