Should taxpayers pay $300 million for casino in Atlantic City?

Mar 9, 2010 — Asbury Park Press

Jean Mikle

Mar. 6, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- Fresh from using $10 billion in federal bailout money to save itself, Morgan Stanley (NYSE:MS) is now gambling that its investment in a 1,900-room casino-hotel on Atlantic City's boardwalk will hit another type of jackpot.

The financial services company, which has invested hundreds of millions of dollars in the project, is betting that state leaders will grant it $300 million in tax breaks to help finish the partially built casino.

"I'm struggling to pay my taxes, and we're giving Morgan Stanley $300 million to build a casino," said Bob McDevitt, president of Unite Here Local 54, the largest casino employees union in the city. "Why should the people of New Jersey finance this project?"

Morgan Stanley, which repaid the $10 billion in Troubled Asset Relief Program (TARP) funds it received from the federal government, recently gave $14.4 billion in bonuses and compensation to its employees. Morgan Stanley declined to comment for this story.

Morgan Stanley has provided most of the financing for the $2 billion casino project being built by Revel Entertainment Group in Atlantic City's South Inlet section. Work has continued on the exterior of the structure, but construction of the casino's interior was halted in January 2009 to await additional financing.

Revel is believed to be seeking at least $700 million to finish the casino in a gambling market that is experiencing a prolonged downturn caused by the economy and increased competition from neighboring states.

When completed, Revel's casino would include two nightclubs, a spa, a wedding chapel, a 5,500-seat event center, 150,000-square-feet of casino space and 19 restaurants.

Revel has applied to the state's Economic Development Authority for a grant that would allow the company to pay about 25 percent of its state sales and room taxes over 20 years. The grant could help make the project more attractive to potential investors by making more cash available for Revel to pay off its debt, company officials have said. The issue has sparked a wider debate on the usefulness of a recently enhanced state tax rebate program, Economic Redevelopment and Growth grants, that can provide millions of dollars in tax savings for businesses that build or relocate in the state.

On the one side are those who argue that such grants are necessary for New Jersey to compete for jobs with other states in a difficult economic environment.

"The old saw is: Companies game the system; they would come here anyway," said Ted Zangari, a redevelopment lawyer who founded the Smart Growth Economic Development Coalition. "The reality is, there is no way to really know the true intentions of executives. . . . When other states are throwing millions of dollars across the border, when everything else is equal, we need to do something extra."

Zangari and other proponents of economic incentives argue that the new jobs and the millions of dollars in wages and other income related to redevelopment projects more than make up for any tax breaks. The $300.7 million in tax breaks Revel is seeking is revenue the state would not receive at all if the project is not finished.

On the other side are those who contend a state facing an $11 billion budget gap and potential cuts in services should not be giving millions of dollars in tax breaks to major corporations.

"These are dollars that cannot be used for state and local programs and services," said Sarah Stecker, a policy analyst at New Jersey Policy Perspective who is studying tax incentive financing, or TIF. "The core of our questioning of this is, the developer may have finished a hotel, or an office, without the help, and for up to 20 years these revenues can be diverted."

The grant sought by Revel is a form of tax increment financing, or TIF, which allows states and towns in New Jersey to divert to developers the monies from more than 20 local and state taxes. The money can be used for a variety of purposes, such as funding to help a developer complete a project or to pay for roadway improvements or other infrastructure on a site.

TIFs exist in 48 other states, but only New Jersey and New Mexico allow the diversion of such a large pot of potential revenue to developers, according to Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based organization that studies economic development.

New Jersey's TIF law was revised last year as part of the Economic Stimulus Act of 2009. Before the revision, nine taxes, including one state-level tax, could be included in a TIF grant. Now 11 state taxes and 11 local taxes can be diverted to developers for up to 20 years.

The money can be used to finance up to 20 percent of a projects' costs in designated areas of the state. The developer must contribute 20 percent of its own capital toward construction.

"I watched from a distance and was aghast," LeRoy said of the revisions to the TIF law. "It's highly unusual to allow that much of a diversion."

Research into the impact of TIFs has been mixed. Some studies argue that tax incentives draw jobs and investment to a region, while others found very little correlation between TIF grants and economic development.

State Sen. Raymond Lesniak, D-Union, sponsored the Economic Stimulus Act and also co-sponsored S-920, a bill that would ban referendums on local redevelopment ordinances. The latter bill, which was approved by the full Senate Feb. 22, was in response to Unite Here members' attempts to have a city ordinance authorizing the tax incentive plan revoked through a public referendum.

"Revel is not just another casino," Lesniak said at a Senate Economic Development Committee hearing on S-920 held Feb. 1. "It is a $2 billion investment in making Atlantic City a tourist destination, something that must happen for it to compete with new gambling operations in neighboring states."

S-920, Lesniak said, is about "jobs, jobs, jobs, jobs, jobs, jobs."

Gov. Chris Christie so far has expressed reservations about Revel's application.

"It's interesting that they're looking for a tax break," Christie said in February. "I don't know that's something that's necessary. I would be skeptical about that. I don't want to say no outright, but I'm going to be Missouri on that one; they're going to have to show me why that's absolutely necessary and convince me."

In a 2004 paper that appeared in the "Journal of the American Planning Association," University of Iowa professors Alan Peters and Peter Fisher said that the benefits to states are unknown.

"Since these programs probably cost state and local governments about $40-50 billion a year, one would expect some clear and undisputed evidence of their success. This is not the case," the professors wrote.

Revel spokesman Joseph Jaffoni said the project's ability to secure financing does not rely solely on the TIF grant, but it is an important factor.

"It's a tool to help perhaps secure the last piece of financing to basically finish out the interiors," Jaffoni said of the grant, which the company projects would save the casino $300.7 million by 2031.

Of four major casino projects planned for Atlantic City in the past three years, only Revel actually began construction.

Revel claims in its state grant application that the hotel-casino will create 5,500 permanent jobs and generate $134 million annually in state and local taxes and fees, not including state income and payroll taxes. Another 2,600 construction workers will be employed on site while the casino is completed; 750 people are working there now.

Revel has also sought a $56 million municipal bond to help with road improvements around the project, and has applied for a five-year property tax abatement from Atlantic City that would save the company $50 million in local property taxes.

Testifying before the state Senate's Economic Growth Committee on Feb. 1, James B. Kehoe, business manager of the Plumbers and Pipefitters Union Local 322 in Winslow, said the Revel project will provide much-needed jobs for union members.

"We desperately need this project," Kehoe said. "My local alone, along with most of the building trades in South Jersey, has almost 50 percent unemployment and there is nowhere to go."

Building and construction unions in South Jersey are united in their support for the casino project.

But opposition to the tax breaks has joined Atlantic City's largest casino workers' union and The Sierra Club with two conservative political advocacy groups.

Unite Here Local 54, and the groups Americans for Prosperity, and Liberty and Prosperity have created a Web site, www.nomorganstanleybailout.org, panning the proposal. Americans for Prosperity has paid for radio ads condemning the tax breaks.

Unite Here President McDevitt has called the Revel project "corporate welfare," and has rejected claims by Revel that he is putting pressure on the developer in an attempt to get a better deal for casino workers at the new site.

Steve Lonegan, state director of Americans for Prosperity, said his organization has found common ground with the union because both oppose what Lonegan terms "a taxpayer subsidy" for the casino.

"Not only are you creating an unfair playing field, but you're doing it with taxpayer dollars in a state with the highest taxes in the country," Lonegan said. "When you give a property-tax rebate to one taxpayer, their taxes get paid by other people. Other casinos are already paying their fair share of taxes."

Seth Grossman, executive director of Liberty and Prosperity, said his conservative group objects to government interference in the free market.

"Government should treat everybody equally," Grossman said, pointing out that there were no special deals to help previous casinos that ran into financial trouble and eventually went out of business.

McDevitt, who lives in Atlantic City near the Revel site, said the new project could threaten three existing, smaller casinos -- Resorts, Trump Marina and the Atlantic City Hilton -- that already are struggling. Nearly 5,000 jobs would be lost if all three gaming halls were closed, he said.

He pointed out that Revel already has downsized its project, building only one of the two hotel towers it initially had planned.

Union members say they would not oppose the new casino if it was not seeking tax breaks.

"All the other casinos that came into Atlantic City had to pay their own taxes, and now they have to subsidize this one," said John McLaughlin, 67, a bartender at Trump. "No casinos in Atlantic City ever got money to open."

Newstex ID: KRTB-0137-42710511