Adding two North Jersey casinos? Not a good idea
While attention is focused on the presidential and congressional elections, there is a ballot issue that carries great importance for the South Jersey economy: Voters will decide whether to allow two casinos to be built in North Jersey.
While attention is focused on the presidential and congressional elections, there is a ballot issue that carries great importance for the South Jersey economy: Voters will decide whether to allow two casinos to be built in North Jersey.
The outcome will not only have impact on the entire Atlantic City regional economy, but it also could affect casinos in Pennsylvania, as well. Unfortunately, little good is likely to come from a "yes" vote.
Currently, New Jersey limits gaming activities to Atlantic City. The constitutional amendment on Tuesday's ballot, which would allow for two casinos to be built at least 72 miles from Atlantic City, is bare bones. No locations were specified, nor were the casino tax rates stipulated.
Estimates of potential casino revenue have been thrown around, but without a specified tax structure, it is impossible to determine their accuracy. Adding to the uncertainty, the Legislature did not finance an economic-impact study to confirm that the new casinos would make economic and financial sense.
Therefore, voters know only that two casinos might be built somewhere and raise some amount of revenue.
Why add casinos outside Atlantic City? Since North Jersey gamblers frequent New York and Pennsylvania casinos, there is significant revenue that could potentially be captured by closer facilities. Local politicians are often supportive, because the casinos mean more tax revenue and jobs. Gov. Christie and State Senate President Stephen Sweeney supported the idea.
Is there a downside to allowing two more casinos to be built? Yes, and it is huge.
Though the Legislature didn't research the issue, its opponents did. Resorts Casino Hotel commissioned a study by Morowitz Gaming Advisors LLC and Global Gaming & Hospitality LLC (GGH) that was published in January. Using generally accepted modeling techniques, the analysis clearly identifies the devastating impact the two casinos could have on the greater Atlantic City economy.
The Atlantic City gaming market has stabilized, and profits at the current casinos are starting to grow. Though 72 miles may seem to be a long distance, the North Jersey casinos' market areas would overlap Atlantic City's, creating significant new competition that would unwind those gains.
According to GGH, the added competition would likely cause a minimum of three and possibly as many as five of the remaining seven casinos to close. The critical mass of casinos needed to identify Atlantic City as a destination location could be lost. Multiple hotels with a variety of amenities are necessary to attract those who come for nongaming reasons. Without them, tourism would tank.
Once casinos started shutting down, a negative economic cycle with widespread impact would kick in.
Casino suppliers would suffer reduced sales. As unemployment surges, the housing market would crater, lowering property values and property taxes. School districts and local governments throughout the region could be forced to retrench. Bond ratings of townships, school districts, counties, and even the state could be put at risk.
At the same time, spending on social services needed to support the unemployed and their families would rise steeply, burdening the finances of the state as well as local governments.
Even the Atlantic City Expressway would be affected, as fewer visitors mean reduced toll revenue.
The resulting economic slowdown would reverberate through the entire regional economy, reducing revenue even for companies not directly involved with the gaming sector.
The costs, according to GGH:
Total job loss of all impacts: 23,000 to 30,000.
Income losses: $709 million to $934 million.
Economic output loss: $1 billion to $1.36 billion.
Unemployment rate: 25 percent to 30 percent.
Undoubtedly, some offsetting factors could mitigate these impacts: Atlantic City is diversifying its economy, and gaming is no longer the major reason visitors go there. Some unemployed workers might find jobs at the new casinos.
The estimates are likely a worst-case scenario, but they do show the potentially massive problems the Atlantic City region could face.
The impacts don't stop at the New Jersey border. Facilities, such as Parx Casino in Bensalem and Mount Airy Casino Resort in the Poconos, whose market areas overlap with potential North Jersey locations, could lose customers.
Given an already largely saturated Northeastern U.S. gaming market, the new casinos are not likely to generate enough additional revenue or economic activity to pay for all the negative financial impacts on all the governmental entities and also cover the added social costs arising from Atlantic City casino closings.
The proposal to allow two casinos to open in North Jersey makes little sense. It will be interesting to see whether the voters of New Jersey agree with that view.