The State of New Jersey Doubles Down on Gambling

One day at the end of August, an armored truck left the still-open Revel casino with bag of $21,000 cash on its roof.  As the truck proceeded through the streets of Atlantic City, Jersey's gambling mecca, the bag was swept by wind out into the street. The money was lost forever.



This story can be seen as an omen for New Jersey's experience with legalized gambling, which has been on a downward spiral for some time now.  Just to reprise the events:

     -- With gambling revenues down almost 50 percent from their peak in the mid aughts, four casinos closed in Atlantic City this year.

     -- One of the closed casinos, the Revel, had cost $2.4 billion to build and was in bankruptcy for the second time since 2012.  It was sold at auction for $110 million.

     -- The auction winners declared a couple weeks ago that they were pulling out of the deal because of unanticipated expenses, including $1.7 in annual payments to the owners and bondholders of the system that provides the 1,400-room resort with electricity and hot and cold water.  Operating the system would cost another $1.5 million.  These expenses might be manageable if the hotel and casino were running at capacity, but no one including the buyers expected that to happen anytime soon.

     -- Caesar's Entertainment, probably the best casino operator in the business, has admitted that its most challenging property, worldwide, is in Atlantic City.  It has expressed no interest in buying the gorgeous but never-profitable Revel.

     -- Donald Trump, who opened two casinos in Atlantic City, has closed one and made no secret of his wish to close the other.  Failing that, he wants the Trump name removed from the Taj Mahal, the second property.

History

New Jersey's political leaders opened down-at-the-heels Atlantic City to gambling in the 1970s, making it the first such city outside Nevada.  The stated purpose was the revival of an aging resort town; also appealing was the opportunity to collect taxes, including 9.25 percent of gross gambling revenues.

This worked well for several years until other states decided to do the same thing.  Their new casinos siphoned revenues from Atlantic City as gamblers came to favor casinos nearer their homes.   Not much thought had been given to adding other attractions to bring tourists to Atlantic City even though the state had collected taxes for such "investments."

As gambling revenues declined, more than 8,000 jobs were lost in Atlantic City.  More jobs still could disappear.

Gambling Going Forward

Now New Jersey is considering new, more audacious plans to revive gambling revenues, create jobs and, coincidentally, top up state coffers.  Here are the ideas:

     -- Opening a big new casino just across the river from New York City.  Two potential problems could arise with this.  First, it will pull more business from Atlantic City near the state's southeast border.  Second, if it is successful New York state is likely to respond by allowing other casinos to open near the Big Apple.
      Still, the appeal of taxes is high.  As soon as plans for the new casino were floated, a New Jersey legislator proposed a 66 percent state tax on its gross gambling revenues.

     -- Getting into the sports gambling business.  There seem to be federal barriers, and most sports leagues, from NCAA to the NFL to MLB to the NHL, are not keen on the idea.  (An NBA spokesman didn't rule the idea out completely.)  But the state's leaders seem to believe that if one kind of gambling isn't doing so well these days, maybe another kind of gambling will cure the problem.
     Obviously, this courts the same response as Atlantic City gaming did.  If it works, surrounding states will get into the sports gambling business as well.

State Revenue Ploys

Gambling isn't the only activity that has drawn the attention of states eager to collect more taxes.

Now states are opening up to recreational marijuana use, which formerly was illegal and causing a a lot of problems because there was little heart for enforcing marijuana laws.
      An amusing side show to legalization has been legislators trying to ascertain how high they can set marijuana taxes without encouraging competing black markets or motivating the mass of pot enthusiasts to get permits to buy less taxed "medical marijuana."

Sugar is now a bad thing.  (In fact, we may see states that used to ban marijuana pull back from that and instead consider bans on large sugary beverages; funny when you think about it.)  Recently, voters in Berkeley, CA, approved a per-ounce sales tax on sodas.  More such taxes appear likely.

This has happened before, of course.

Just about every state also adopted huge taxes on cigarette prices, all to discourage people from smoking, but coincidentally to  beef up states' general funds.

And, for many years, states have operated public lotteries and scratch-off games that offer even worse payouts than the one-armed bandits and blackjack games found in casinos.

People are free to do as they wish.  They don't have to gamble or smoke marijuana or drink large Pepsis or smoke cigarettes or buy lottery tickets.  Done to excess, any of these activities can be dangerous.  It is unfortunate that the states have set things up so that state coffers benefit most when people make poor decisions.