NJ Spotlight

Posted November 28, 2011

Gambling on a Comeback for Atlantic City

The state has taken over virtually every aspect of the ailing resort's gaming industry, but critics argue that the real problem is competition from gambling outlets in nearby states.


Six months after the state's takeover of Atlantic City's tourism district, a new man has been installed at the helm of the city's powerful redevelopment agency, and state officials are working quickly to detail plans for reviving this ailing resort.

John Palmieri, a 30-year economic development veteran, began his job last month as head of the powerful Casino Reinvestment Development Authority (CRDA), a state agency that has taken control of the planning, development and marketing of the city's casino district. The zone, dubbed the Atlantic City Tourism District, encompasses the beach, boardwalk, casinos, Marina District, Gardener's Basin, Bader Field, and downtown retail and entertainment districts.

Palmieri says he's held discussions with retired State Police Lt. Col. Tom Gilbert, who is overseeing police operations in the Tourism District, about upgrading the department's communications and technology systems, such as digital recordkeeping and crime-mapping. (Gilbert reports directly to state Attorney General Paula Dow). Palmieri's also trying to figure out how to convince property owners in the district, which is dotted with dilapidated buildings and vacant lots, that improving their properties will benefit everyone.

Whether Palmieri can fix what ails Atlantic City remains to be seen. Palmieri certainly has the experience to do so, since he previously headed up arts and entertainment projects in Hartford, CT., Charlotte, NC, Providence, RI, and most recently, Boston. But many critics believe the problem with Atlantic City is that it has too much competition from local gambling outlets in Delaware, Pennsylvania and New York.

Palmieri's priority right now is drafting a master plan that would spell out the short- and long- term goals for the district. The CRDA must have a plan on the governor's desk by February 1, 2012, according to the legislation that created the tourism district.

The authority hired the consulting firm of Jones Lang LaSalle Americans Inc. last month to come up with recommendations, which will focus on the district's zoning and land use. The consultancy is currently meeting with government officials, neighborhood groups, and property owners as part of its research. In the meantime, the authority has adopted the city's existing zoning ordinances.

"We're on a very aggressive schedule," Palmieri said. "We just hired the team a couple of weeks ago, and they will have what amounts to four months to complete their assessment and identify recommendations."

The plan was mandated by the commission Gov. Chris Christie convened in February 2010 to come up with recommendations on how to fix the state's faltering casino and horse racing industries. The resulting state takeover of the tourism district removed almost all local control, and handed it over to the CRDA, a 17-member authority that includes state officials, developers, and members of the casino industry.

Meanwhile, casino regulations have already been overhauled. Oversight of the casino was moved from the more independent Casino Control Commission to the Division of Gaming Enforcement under the Attorney General's office earlier this year. Casino regulations have been streamlined to encourage new investment.

For instance, a new law allows for two "boutique" casino hotels be built in the city, for a short time lowering the number of rooms needed for a new hotel from 500 to 200. Casinos are also no longer required to have state inspectors on the floor or present when money from the tables is counted. And the process for getting new slot machines on the floor was shortened, from several months to 30 days.

The process for obtaining a gaming license was also streamlined. Previously, everyone above a certain level in a corporation was required to be vetted thoroughly, making it a laborious process for private equity groups, which have a multitude of investors who might come under scrutiny. The new rules are less rigorous, enabling large groups to apply.

Under the same legislation, the massive $2.5 billion casino project being built by the Revel Entertainment Group, which hit financial snags a few years ago but is slated for completion next year, received tax breaks and shared financing with the state. The result is that the original 1,900-room hotel will be just 1,100 rooms but will cost about half what the developer was going to pay. The state's interest is clear: not only will the project provide tax revenues and an estimated 5,500 jobs, but also state officials hope the project will spark a turnaround in Atlantic City and entice other developers to build there.

The reduction in the number of hotel rooms was particularly important, observers say, because with the 500-room requirement, investors needed about $1 billion to buy into Atlantic City. At 200 rooms, it's possible to build a high-end product – with spas and fine dining for a younger, hipper crowd -- for well under $500 million.

Although the law authorizes two such boutique casinos, only Hard Rock International has applied thus far. The deadline for others to come forward was extended to next April. In the meantime, Hard Rock is currently seeking Department of Environmental Protection permits and is expected to begin construction by next year.

Changes made on the regulatory side should have been done a long time ago, said Frank Catania, an attorney who represents gaming interests and is a former director of the division of gaming enforcement. Catania said the Casino Control Commission was duplicating functions that belonged to the gaming enforcement division.

"The Casino Control Commission had become very bloated. I think limiting its powers and reinforcing the duties of the division of gaming enforcement was something the industry was glad to see happen," he said.

But critics say over-regulation is not what ailed Atlantic City. They say casino owners saw the state's zeal to fix the problem as an opportunity to roll back regulations they viewed as costly.

"This was industry-driven, and it may have gotten rid of things the industry considered burdensome. But the regulatory system is not the problem. Competition is the problem," said Carl Zeitz, a public relations consultant and former member of the Casino Control Commission, from 1980 to 1988. "If people can get on a subway and travel to Aqueduct, why are they going to get on a bus for two hours and travel to Atlantic City, unless you can give them something special -- a special place and a special experience to make the trip worth doing?"

Christie believes the best chance at turning Atlantic City's fortunes around is to turn it into a family destination where people don't just gamble but enjoy the city's entertainment and beaches. To that end, casinos are no longer required to contribute $30 million a year to subsidize purses for the state's ailing horseracing industry. That money will now go to the Atlantic City Alliance, a new casino-funded nonprofit group created under the Tourism District legislation, to be used on marketing. Las Vegas spends about $70 million a year on advertising. Atlantic City spends about $10 million. Moreover, the CRDA's revenues will be spent solely in Atlantic City. In the past, that money could be spent on projects throughout the state.

But it's not clear that what ails Atlantic City is fixable. Even the governor's commission acknowledged in its report that competitive forces may make it impossible for Atlantic City to fix its gambling franchise.

At the very least, it needs something to create, or even supplant, its loss of mid-week traffic, given that many of those day trippers now gamble closer to home.The best way to address that issue may be through conferences and conventions, said Jack Plackter, an Atlantic City-based attorney with Fox Rothschild. He notes that there are about 23 million people within a 200-mile radius, which certainly helps.

"It's all about driving midweek business. Because on summer weekends, you can't get a room there," he said.

Part of the challenge will be whether the CRDA will have the political will to clean up the blighted areas that give some the impression the city is unclean and unsafe. Without doing that, many say it will never be a tourist destination.

"We always joke in our office that when you go outside and walk during lunch, you're looking at the same buildings that were there when we all started practicing 30 years ago. That's the real problem. No one's put a nickel into them," Plackter said. "It doesn't feel like somewhere you'd want to vacation except if you wanted to gamble."

Potential investors are also waiting on the sidelines to see how the landmark 60-story Revel project, Atlantic City's first large casino project in 10 years, fares when it opens next May. That is, will it bring new blood to Atlantic City or will it simply shift the clientele currently there from one casino to another?

"It's the most important thing that's happened on the waterfront in a decade," Palmieri said.

Palmieri says he's been talking to several parties interested in investing in the city. He says he's not at liberty to discuss or characterize those discussions, but the talks have left him optimistic about the city's prospects.

"I've been encouraged by the meetings I had and the interest expressed on the part of private investors," he said.

At least one investor is taking the plunge. Hard Rock's chief executive officer, Jim Allen, told the New Jersey Casino Control Commission earlier this month that his company plans to start construction on the first of a two-part project next summer. The casino, which will include a musical history museum, should be open by the Spring of 2014. The hotel would be 208 rooms but would eventually expand to 850. The company had been moving forward with obtaining DEP permits for its property, but until recently, it was unclear whether it was really coming.

It wouldn't be the first time someone tried to turn this seashore resort around. Once a mecca for Philadelphians and New Yorkers trying to escape the summer heat, it began to decline after World War II, when transportation enabled people to travel outside the state for their holidays. But when the casinos arrived in the late 1970s, the city's fortunes changed – at least for a time. Now, with neighboring Connecticut, Delaware, Pennsylvania and New York having opened their own casinos, people who used to go to Atlantic City can now gamble locally. Casino revenue has fallen from a peak in 2006 of $5.2 billion to $3.6 billion at the end of last year. The number of casino workers has dropped from 50,000 to 38,000.

State officials feel the dip directly because the casino industry represents one of New Jersey's largest industries, accounting for nearly $1 billion in state and local taxes each year.

When Gov. Christie pledged in July of 2010 to revive this resort town, he blamed part of its malaise on local officials, who he claimed had squandered hundreds of millions of dollars in casino revenues from when the city had a monopoly on gambling instead of using them to turn the city into a first-class tourist destination. Indeed, the city's mayor, Lorenzo Langford, was not on the governor's study commission.

But even Atlantic City attorney Plackter, who largely agrees with the state assuming certain functions in the key tourism district, did not think it needed to take all of its zoning and planning powers away. If a developer wants a site plan approved for a new casino, for instance, it is the CRDA and not the city that will approve it. Plackter, who oversaw the Borgata casino's planning and zoning applications, says he didn't think the city's oversight of that function was flawed.

"As an attorney who specializes in development, that was an area that did not need to be fixed," he said.

More controversial will be whether and how much the CRDA uses eminent domain to take over businesses no longer deemed appropriate for the tourism district. While the use of eminent domain left a black mark on redevelopment in shore towns like Long Branch, where residents were displaced, many of the properties in Atlantic City's tourism district are businesses like adult book shops and stores that buy gold.

"I'm not quite sure what the legislation provides for, but there's been some discussion about what tools we've been given for development," Palmieri said. "We're looking at it now."


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