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An ongoing discussion about conservatism in New Jersey.
Christie's Atlantic City and racing reforms are interesting but wrongheaded
Peter C. Hansen  (July 28, 2010, 10:27 pm)

Gov. Christie's newly adopted plan to transform the NJ gaming and mass-entertainment industries (including the Xanadu project) is sweeping. There are no doubt serious reasons for the State to seek solutions to these industries' massive problems. Billions in taxes and economic benefits (read: jobs) are on the line. At the same time, however, there is little indication that the State can really "turn a profit" here. There is also a serious question whether the State should even be trying to fix things itself.

The first operative section of the committee report outlining the plan concerns the Nets' lease at the IZOD Center, formerly known as the Brendan Byrne Arena (pp. 6-8). This bit is business-like if depressing. It looks like the IZOD Center will be abandoned, and sitting on the NJ Sports and Entertainment Authority (NJSEA) books for the foreseeable future. There is some happy talk about a $4m early-departure fee tiding NJSEA over (minus major offsets), and the retained right to host a new NBA team. It is hard to imagine, however, that NJ will have much luck attracting a team given the presence of two major teams just over the river in NYC.

The second operative section, concerning the NJSEA's continued viability (pp. 8-10, 26-27), starts with Gov. Christie's laudable pronouncement that the NJSEA's losses must not continue. The NJSEA was created in 1971 at Gov. Cahill's suggestion to build and operate the Meadowlands Sports Complex, which includes Giants Stadium, the Meadowlands Racetrack and (as of 1981) what is now the IZOD Center. The NJSEA's remit has expanded across the State since then, and has included the Monmouth Park Racetrack, the PNC Center in Holmdel, two Atlantic City convention centers, the Camden Aquarium (now privatized) and the Rutgers sports überplex whose new football stadium looms ominously over River Road in Piscataway. The NJSEA even runs a betting parlor ("OTW" or "off-track wagering") in Woodbridge, and has land under contract for the same gig in Bayonne.

The report states that it will not delve into the NJSEA's problems, which in any event can be easily guessed. There is some happy talk about getting the NJSEA out of the State's red-ink pool. The measures seem stiff but are easier said than done, especially given their use of terms like "should" and "encourage" (pp. 9-10).

There is a similarly cheery section on remediating the Xanadu disaster (pp. 10-13), which is an ugly heap slowly being built on NJSEA land, and which has embroiled the State in mucking out a screwed-up private investment. It may be asked why the State didn't simply sell the land for cash in the first place, rather than lease it for 75 years. The State could then have pocketed the $160m paid for the first 15 years' lease (or even more cash), and let the project either succeed or go bankrupt. In the latter case, the State could then have gotten the land back for a song at bankruptcy (if the public spirit so moved it), and resold the site again at a reduced price, yet still at a profit.

The report's rather sad recitation of imaginary benefits still expected of a successful Xanadu (pp. 11-12), including numerous phantom jobs and tax receipts, does nothing to advance an argument that the State had to invest there, or that it shouldn't simply cash out now. This failure is due to the fact that there is no consideration of what benefits could flow from alternative forms of development other than Xanadu. The recitation is merely fantastical self-boosting, like a failing restaurant owner's dreaming of crowds flooding to his Merchant Marine-themed restaurant.

In a related vein is the report's useful call for State divestment from the operations of the IZOD Center and the Meadowlands and Monmouth Racetracks, as well as the postponement of any further development of the Bayonne OTW operation (pp. 9-10). In essence, the State wants to become a landlord rather than the business owner. This half-step is a good start, but it points to a serious problem with having the State involved in any sort of long-term business project: bad projects never die, they just keep bleeding. In can hardly be said that the State's holding the land as security for its investments has turned out well. The State gets saddled with an unprofitable single-use facility that angry constituencies (like horse-racing fans and suppliers) want to keep. The land can't easily be sold for a different use, and dreamy schemes to bring in better operators (like the standardbred owners - p. 10) are inferior to simply selling out completely to a promising and interested buyer.

To its credit, the report admits that NJ horseracing operations have long been unprofitable, that they are the victims of other states' hostile interests and activities, and that they are in dire need of reform (pp. 20-26). The report presents a number of options, but one particularly stands out. The report smartly wants to see a more concentrated and higher-stakes racing season, cut from 141 days to 50 days. The recommendation that a high-quality season become the attraction, rather than slots and "racinos" (i.e. racing-focused casinos), is an interesting one to say the least. The larger American social move toward luxury (like Starbucks coffee), and the post-1980s re-embrace of traditional cultural icons, could make the shorter season a major draw. It could even be hip from time to time. New Jersey would certainly burnish its image as a result.

There have been claims of a North-South divide over this plan, and criticism of Senate President Sweeney for allegedly ditching the interests of northern New Jersey for those of his more nearby and favored Atlantic City. This seems a bit much. The State has no proper business owning a racetrack, to be sure, any more than it should own shopping malls. (Freehold Raceway is privately owned, for example.) If the State is going to own a track, however, it is sensible to make a successful go of it, and in a way that makes NJ look good. If Mr. Sweeney has other motives for supporting the move, these do not detract from the move's correctness as a business decision.

It is unavailing to claim that fixing NJ racing will destroy NJ farmland by pushing horse owners into selling fields for subdivisions. Protecting farmland does not require a dysfunctional racing industry, let alone one run by the State. Targeted tax breaks, including one for keeping larger tracts open (regardless of farming), would protect remaining NJ open spaces at least as well as letting some horse owners compete at inferior races for low purses. It is possible to make one industry more efficient while preserving other perceived social goods like open space. In fact, if the improved industry provides more tax than the old one did, that extra money can be used to pay for preservation.

Saving the best matter for last here, there is in the report a lengthy section on reforming Atlantic City (pp. 13-19). In Gov. Christie's words, Atlantic City is "dying." The report notes that Atlantic City is perceived to be "unclean and unsafe," and makes quite clear that local corruption has diverted hundreds of millions in tax revenues. It sounds like the little-known, quite good 1980 film Atlantic City with Burt Lancaster still gives an accurate picture of NJ's most historic hellhole. (I remember growing up in the 1970s, hearing how the casinos had been let into Atlantic City, and how they hadn't done anything for the poor folks. It was considered a racket then, and so it remains.) Now, however, Atlantic City also suffers the same threat as does NJ horse racing: enormous and effective competition from other states.

The centerpiece of the report's recommendations for Atlantic City is a State takeover of a newly named Tourism District. Although not discussed in the plan, it has been suggested elsewhere that such a takeover will lead to Atlantic City becoming a more family-friendly destination. There is of course a certain attraction to having the State revive a glittering emblem of NJ's yesteryear. The derelict quality of the city as a whole, however, makes this a pipe dream. If hundreds of millions of dollars and a deep-pocketed gaming industry haven't fixed up a small backwater town (compare Las Vegas), the problem is not setting up some cops and infrastructure. It is instead a problem of governance.

Christie should do here what he does best – investigate and prosecute. (Even he asserts that Atlantic City pols are "historically corrupt.") Find out where all the money has gone, at least in recent years. Let the media in. In fact, do whatever one can to help out the journalists. Expose malefactors, even ones working for the casinos. Let the word go out that Atlantic City is going to be clean in every sense of the word. If most of the city government has to go to jail, get the cells ready. When the leadership is either crushed or scared straight, then come in with a comprehensive plan and a bunch of private parties ready to invest. Then the town can pay for the cops itself, and roll out the welcome wagon for families. That's how a State should function – don't do the casinos' job, or the mayor's. Force them to do their jobs properly.

So, to sum up, Christie's plan for wide-ranging reforms has some very interesting and attractive facets. The plans are, however, fundamentally wrongheaded. Their basic error is to assume that the State should be in business in the first place. There is no reason for the State to own large gaming and mass-entertainment complexes. New Jersey has a large agricultural sector, but the State doesn't own the farms. Why should it own racetracks? The State now finds itself embattled and embroiled on multiple fronts, to make the best of bad deals with often lousy private partners, or to do work for corrupt locals. The State needs to get out of its businesses as soon as possible, and to concentrate on doing what it does best – using the law to make sure that everyone plays by the rules, and that the rules promote the common good. While the report touches on this function, Gov. Christie would do well to make it the focus of his reforms.