New Jersey Taxpayer Grant of $261 Million to Revel Casino Project--How many things are wrong with this picture?
The state Economic Development Authoritys . . . $261 million Economic Redevelopment and Growth Grant for the Revel project is . . . a no lose proposition for New Jersey. First, the term grant is misleading. . . the state pays nothing upfront. Rather, it provides Revel with a portion of the sales and other taxes it generates over a 20-year period. It is money the state would never see if the Revel is not completed and operational. . . Joseph D. Kelly, President, Greater Atlantic City Chamber of Commerce
Mr. Kellys published letter praising public-private partnerships like this reminds me of the Highlights for Children magazine in the doctors office when I was a kidHow many things are wrong with this picture?
1. First, this $261 million grant is an upfront taxpayer guarantee of a $305 million sub-prime construction loan. Revel is paying $1.15 billion to union contractors for a project that will be worth only $850 million when finished. Since private lenders dont loan more than a finished project is worth, Revel needed a second mezzanine loan of $305 million with no security– on top of the $850 million loan secured by the property. Only politicians would pledge 20 years of future tax collections from the Revel to repay $261 million of the unsecured $305 million mezzanine loan. Only construction union bosses would use their members pension funds for the rest of it.
2. If Revel does worse than expected, the state taxes it pays wont be enough to make the quarterly payments on that $305 million unsecured loan. Since voters never approved of this loan, as required by our state constitution, this should not be our problem. Only investors who buy the bonds should get stuck. But in the past, state government always covered the bad bets of authorities like the E.D.A. Right now, NJ taxpayers pay roughly three billion dollars a year– more than 10% of the state budgetfor the unfunded debts of state authorities like the EDA and independent state pension funds.
3. And suppose we want to cut state taxes in the future? The 15% hotel tax in Atlantic City, 7% sales tax, luxury tax, parking tax, and other high business taxes are killing the economy. If future politicians cut those state taxes, business might boombut the state would collect less tax money from Revel to repay the loan.
4. I agree that roughly 2,100 highly paid construction workers will be busy on the project for a year. But when the work is done, wont most of them go on unemployment at $550 per week for three years? Wont this hit every employer in the state with more surchargesand kill even more jobs?
5. Revel claims it will create 5,500 permanent jobs when it opens, and that this will create 10,000 other permanent jobs in the area. Doesnt this assume that every customer of the new Revel will be a brand new visitor to Atlantic City. But if the Revel takes its customers from other casinos, wont each new job at the Revel kill one existing job at another casino?
6. Last year, Senator Whelan admitted that two or three casinos will probably close when the Revel opens. If he is right, then the state will gain one tax-exempt casino, but lose two or three full taxpaying casinos. What tax hikes will the state then need to make up the difference?
7. I personally think the opposite will happen and that Revel will fail. Investors are now buying used Atlantic City casinos for about $40 million, and renovating them for roughly $200 million. You can buy and fix up five used casinos for the price of one new Revel! Imagine that Revel is a restaurant paying $1,200 per month rent, trying to compete with similar restaurants that are each paying only $240 a month rent.
8. If the state keeps jacking up electric bills to pay for new solar panels and ocean windmills to keep union workers busy, how will Revel, and the other casinos, pay their summer electric bills?
9. Giving a sweetheart deal to one company, while making everyone else pay a fortune for taxes, permits, and construction perpetuates New Jerseys rotten pay-to-play business culture. In this state, pleasing politicians is far more important than pleasing customers.
As in Highlights for Children, a lot more things are wrong with this Revel picture. But I ran out of space to tell you about them.