economics

City By the Sea

My people are an old Atlantic City people. We go back to the grand days of the boardwalk empire. My great-grandfather was a boat captain in the inlet basin. He drove the famed Miss America speedboats. My grandmother was a show girl in the Ice Capades. She performed on Steel Pier long before it burnt down and fell into the sea. My father worked over 30 years on the Atlantic City Beach Patrol. I put in 6 myself. It’s in my blood.

Gambling came to the city the year I was born. My mother, a schoolteacher, worked as a blackjack dealer in the summers and in the evenings. She wasn’t from there. She married into Atlantic City. And it wove itself into her. She died there.

I have aunts and uncles and brothers who all work in the casino industry today. And though I left to join the navy when I was 18, and spent most of my adult life in California, Atlantic City has stayed with me. It’s the kind of town that leaves a mark-for good or for bad.

Like I said. It’s in my blood.

Something’s gone horribly wrong with America’s Playground though. To be honest, something’s always been wrong. She’s never really been on the up and up. Even when she tried. And now it looks like it’s caught up to her in a way it never had before.

This past week, the municipal government of Atlantic City received permission to shift paying their employees-cops, firefighters, teachers, etc-to a monthly basis instead of bi-weekly. Had she not, the city would have been out of money by the end of the month. This new payment schedule buys them until May. Which means that unless something changes, the first and arguably grandest destination resort of 20th Century America will be unable to pay her employees, her debt obligations or any of her other financial commitments. In which case, under normal circumstances, she would declare bankruptcy.

Except she can’t.

Because there’s something else going on in New Jersey. Something that, fifty years from now, history and political science majors will be dissecting in case studies. If we’re lucky.  If we’re not, they’ll be teaching it to our grade school and high school students learning about it the way they learn about things like Tammany Hall or the Teapot Dome scandal.  It will be one of those otherwise obscure events we teach to generations for how teachably perfect it illustrates a massive societal problem of the time, and how it served as a warning-a canary in the coal mine if you will-that ushered in change. It’s a troubling compilations of civic catastrophe.

If you’re not paying attention to it, let me help.

If you are paying attention to what’s going on in New Jersey, you’ll see what appears to be a long series of governing through press conferences. You’ll see the mayor of Atlantic City, Don Guardian with his odd bow-tie, defiantly standing at city hall trading barbs with the imposing Governor Chris Christie, fresh off of his unsuccessful presidential bid having somehow been out bullied by Donald Trump before eventually endorsing him in a tragic race to the bottom that is the political despair of the Republican Party. The mayor and the governor are at an impasse.

But over what?

Hold on tight because this gets complicated. And you may begin to think I’m joking as I explain. Sadly, I’m not.

The municipal government of Atlantic City wants to receive state assistance that is on par with other municipalities. If they do, they will be able to pay the bills. If they don’t they will likely have to declare bankruptcy. But they can’t. Because bankruptcy would have to be approved by the governor. And he won’t. Because the governor believes that Atlantic City spends too much money on their government workforce and is incapable of self government. And he’s right. So he wants state takeover of the city as a condition of increased funding. Except he can’t do that because only the state legislature can pass that type of legislation and they won’t. Because a state take-over would void all public union contracts previously negotiated by the city of Atlantic City and open up state collective bargaining agreements that would no doubt be more austere.  And if there’s one thing you don’t do as a state legislator in New Jersey, it’s take on public unions. Which brings us back to three groups pulling on the same rope in three different directions. All while the meter is running in Atlantic City who is out of money. It’s a mess that’s hard to follow but that’s about 150 words that sums it up.

So who is right?

No one.

What I just said is a massive oversimplification of the issues. But that actually doesn’t matter because the level of detail required to form an opinion on their differences and take a side isn’t required. Because no one’s right. Which is good for me because if I actually had to take sides, family barbecues would be uncomfortable. It’s a remarkably small town and I’ve got family on both sides of this issue all the way to the top. Me glossing over the details isn’t for lack of information or understanding. It’s because it doesn’t matter.  Because what they actually can’t agree on, won’t be what is taught in history classes fifty years from now.  How they’ve gotten to this stand off and what it says about early 21st Century America, will be.

If you took the time to listen to what Governor Christie said in his press conference earlier this week, you would have heard him run through a litany of items showing a gross mismanagement of tax payer money by the Atlantic City government officials.  He called out the fact that police and fire department employees, allowed to retire in their 40’s are able to cash in unused sick pay and vacation time to walk away with $300K “boat checks” on retirement. And that health care plans divested by the state decades ago but still in use in Atlantic City were costing the government $4M more a year than they need to. And that there are over 100 municipal employees that make over $100K a year. And that the utilities managed by the city are inefficient and have needed to be reformed or privatized for decades. All of these things are clear and inarguable mismanagement for a city of 39,000 people. That’s right. There are only 39,000 people in Atlantic City. Hold that thought.  We’ll get back to it.  The list goes on and on to make the point:

Horrible greedy government workers are manipulating the system for personal gain while their city goes broke.

That’s the message.

Here’s the thing with those claims. They’re reasonably accurate. For the most part, these are indefensible positions for the municipal government to have. And they are in need of reform. And they probably don’t deserve to receive state assistance unless they fix them.  But here’s one other thing to consider.

None of it matters.

Not a bit of it.  Because the budget gap for Atlantic City is about $100M. Annually. You could fire every one of those high paid employees and save $10M. Great. Now you’re down to $90M. In fact, you could fire every police officer and fireman in the city-don’t worry this is hypothetical- and still only be about 2/3 of the way to solving your problem. And one other thing. It’s 2016. $100K isn’t really that much money in NJ where you’re going to pay 4% property tax on your highly valued home. So when it comes down to it, this massive over spending is wrong and it needs to be fixed. Because of principle and future impacts. But fixing it isn’t solving the problem. At least not on a material level. Let’s ask a better question.

How did a city with 39,000 people open up a budget deficit of $100M?

Here’s where this story actually starts to matter. Because on a microeconomic scale, it’s an extreme but accurate portrayal of what is happening in 21st century urban America.  The city has a massive infrastructure that is designed to support it’s singular industry, casino gaming. Over 30 million people a year visit the city. Another 40,000 are employed by the casinos. None of them live in Atlantic City. Because the city of Atlantic City has 39,000 people. 75% of those people own no property. Which means that the city’s lone source of income, property taxes, is funded almost entirely by the lone industry in the city-casinos. 80% of city revenue comes from the property taxes paid by the casinos.  Which is great. Until the economy takes a turn for the worse, and a neighboring state opens a few casinos and then the industry tanks.

In 2015, four of Atlantic City’s 11 casinos closed.  And the fifth, the Borgata, the largest tax payer in the city was awarded a $150M tax ruling that makes it so they don’t have to pay taxes to the city for years or until the debt is paid off. Which means that Atlantic City lost about half of its tax revenue, almost overnight.

That’s how 39,000 people get behind a $100M eight ball.

In Atlantic City it’s the casinos. In Detroit it was the auto industry. In Baltimore, it was the steel industry. Name the town and the outcomes are the same. High paying, working class jobs have left urban America because they’ve moved overseas, been automated or moved to the suburbs.  And those that do work in the cities live outside of it. That’s always been the case in Atlantic City. So those left behind, the urban poor, live in a city that quickly runs out of money during an economic downturn and the basic services, schools, police and safety and general infrastructure-see Flint, MI-break down. And the urban gap widens.

In the four decades that Atlantic City has had gambling, the revenue generated by that gambling is in the tens of billions of dollars. The property values have increased over 600%. But the people of Atlantic City haven’t benefited much. They have double the unemployment rate of the rest of the state. Their median income is a third of the rest of the state. Their crime rate is six times the rest of the state. 30% live under the poverty level. Beyond the gaming and tourist attractions-the ones still open are actually amazing-the city of Atlantic City is an urban wasteland. And in about a month, they’re about to stop paying their teachers…and their cops…and their firefighters. It’s a cycle of despair we don’t have a way out of.  And it’s bad for all of us, not just them.

Enter the State of New Jersey. The bow-tied mayor has a point. This is why municipalities organize into counties and why counties organize into states and states organize into a union. They do it to minimize risk. The state clearly benefited by the fact that South Jersey’s economy boomed in the last decade. And the city gets 0% of the gaming revenue, unlike the 2% being proposed for the cities hosting the development of proposed North Jersey Casinos-which will kill Atlantic City by the way. But in the mean time,  now that Atlantic City is suffering, it’s time to help them weather the storm. Right?

Here’s the second part of the discussion that actually matters. The governor can’t help.  Because the state is broke too. Not the same way that Atlantic City is broke. The state can pay its current bills. It just can’t pay it’s future ones. Here’s why.

When you look at New Jersey’s government spending on a macro level, it looks pretty unremarkable. New Jersey has the 8th largest budget in America for the 8th largest economy in America generated by the 11th largest population. New Jersey spends just over $11K per citizen, which is 12th highest in the country. As bad as taxes feel in New Jersey, the state collects about $10K in taxes per citizen which is the 17th most in the country.  Which means that the state runs about about a thousand dollars per citizen in the red each year. Which sounds bad but it’s actually better then neighboring Pennsylvania, New York, Connecticut and Massachusetts. Only 10 states run at a surplus. The others close the gap with planned federal funding or other assistance programs. So what’s wrong with New Jersey?

Well, the big one is this. For the last 20 years, the state government has decided not to fund it’s pension program.

If you listen to the governor talk about the issue, you’ll hear him speak  of a massive out of control pension program that has suffered mismanagement resulting from public unions having their way with the government contracts. Which there’s certainly truth to. But when you actually look at the numbers, it’s about on par with other states expenditures. New Jersey spends about $1,100 per citizen on pensions, the 8th most in the country, entirely aligned with the size of its economy-less than New York, about the same as Pennsylvania. There’s one difference though. New Jersey hasn’t fully funded its pension fund for the last 20 years. In fact, from 2001 to 2004, they didn’t fund it at all. And now, New Jersey has a $37B pension gap for a state with $100B budget.  Which means they can pay pensions to those currently retired, but unless something changes, those retiring in the future will have nothing.

Now, the details of how the Governor has handled the pension problem are a source of great frustration and anger for state and local employees in New Jersey. They claim that he’s  been a bully, called people names and gone back on his word. And they’re right. He has. Partly because of who he is. But mostly because he’s trying to jam reform down the throats of New Jersey citizens to close a gap that even draconian reform won’t solve.  Because the damage is done. The ship has already hit the ice berg. And the only thing that’s going to help New Jersey is massive increases in revenue-yes that means taxes. Or a complete scrapping of their pension system. Which means that people who have paid into a pension system that legally have the right to expect a return on it when they retire, will not get one. Which is wrong. And no one can tell anyone that it’s right. And telling them they are greedy and that the pension system is bloated is political crap designed to lubricate the populous for change. Just like calling out how many employees in Atlantic City make over $100 a year.  It’s the same thing.

You can ignore it all.

Because it’s detached from the real tragedy here. Which is this. Unfortunately, all the expectations that the citizens of New Jersey had for their retirement, assumed one thing.  That the public representatives that they elected to office, the legislature, the governors, all of them, would do their civic duty and responsibly manage the states finances. For 20 years they did not. So all bets are off.

Democracy has consequences.  Electing the wrong people has consequences.

So what does this have to do with Atlantic City?  It’s not a long leap. The governor can’t let them declare bankruptcy because places like Camden and Patterson and a list of other urban areas in New Jersey that are in similar boats would quickly follow suit. And if the governor capitulates and simply hands Atlantic City the funding, he has the same risk. So he’s using Atlantic City as an opportunity to drive reform because in the end, the state can’t pay its own bills and it can’t run the risk of paying municipal bills for the failing urban areas. So here’s the message. We can help. But it’s going to be painful for you. And any of you other places thinking about going this route, take notice.

In the end, both sides have valid arguments. And the men standing at the podiums trading political jabs aren’t the ones that put their respective organizations in this mess. And what will probably happen is some level of anti-climactic agreement that involves some state take over and assistance and both Atlantic City and New Jersey will live to fight another day, having successfully kicked the can down the road, the way American politics in 2016 does.

So why will they be teaching this in civics classes 50 years from now?  Because in one small package- 4.1 miles of build-able land to be exact-the Atlantic City crisis illustrates two of the most troubling issues about American society today. The first is urban decay that has resulted from the de-insdustrialization of America. The crumbling infrastructure and failing socioeconomic climates in our cities is a massive problem driving racial inequality and driving citizens in the most powerful country in the world down to a quality of life that is massively at odds with our national wealth. The second is that we have a cataclysmic entitlements problem in our country. At the state level, we are under funding our pensions by a trillion dollars collectively. That’s 20% underfunded. And if you think that’s bad, social security at a federal level is 32% underfunded, that’s a shade under 26 trillion dollars. Right now about 40% of our federal budget goes to social security and medical costs.

And it’s not enough.  Not by a long shot.

So, while we select the next leader of the free world, candidates from both sides are waving the shiny objects of traditional values, immigration and wars on women. But probably the only two things that really matter is that our economy can no longer support our urban inhabitants and we’re going to go broke because we can’t fund our entitlements without massive cuts in other areas or higher taxes. Those are hard problems. Give a listen for solutions in our national political debate. You won’t hear them. And as we plod forward on our path as we do, eventually we’ll fall over when the issue becomes so big that we have no choice. What Atlantic City is telling us is when we do fall, we’re left with men standing at podiums shouting bad options at each other. Because all the good ones went away when the tide of irresponsible governing receded.

I’m saying prayers for my friends and family back home that they make it through this difficult time as whole as they can. In the end, it’s the people that suffer. But it’s also the people who elect. So we’ve got a choice here.  Learn the lesson Atlantic City and New Jersey are teaching us. Or face the consequences.

I’ll mourn the canary. Those are my people. Everyone else, worry about the coal mine.

Democracy has it’s consequences.

 

17 replies »

    • A quick fix, would be a city wage tax. (40,000 workers)($30,000 avg. wage)(.025)= $30,000,000.00/yr. Now, we’re down to $70M(100M-30M). Another 3M/yr. could be generated from just charging an additional dollar for each casino parking space that goes to the city. 50M cars pass the Pville Toll Booth each year. I don’t think hiking the toll another .25 to a dollar, that .25 going to AC, is asking too much, is it? That would generate another $12.5 M /yr. So, right off the bat, here are 3 ways to generate over the 40M/yr. needed to keep AC running and buying time without pumping anything into infrastructure right away. In time, there are many things that can bring the city back. Maybe inviting an Ivy League School to open an internationally renowned campus at Bader Field. 5 to 10,000 students will be a nice booster of economic conditions in AC. Could you imagine the revenue generated from parking, housing, restaurant sales, and everything else that goes with a university education? How about dredging the Inlet and having an additional Ferry system besides the one in Cape May, here in Atlantic City. People won’t have to drive to Cape May from either Philly or NY. Boats can leave and come back from all points on the east coast and the Islands. Can you imagine the impact of a Ferry system here in Atlantic City? The trick to getting Atlantic City back in shape is to make in inviting and give business, other than gaming, an incentive to come into town. people who work in professions, manufacturing and service industries other than gaming, would have some disposable cash to go out and have a good time on their off nights at casinos, night clubs and restaurants, just as they do in Philly. There are a lot of things that can be done in this city to revitalize it. But with leaders like the Christiball in Trenton, the garbage we have on counsel, and all the jealous pieces of trash that run the adjacent towns, nothing will ever get done. the only thing they see is that cops and firepersons, make too much money and have too extensive benefits, when that isn’t the case at all. It’s all based on jealousy. I really believe it when governor Christi said that the Chief of police makes more money than he does, and he’s the governor. Why don’t he get his fat ass up and go be a cop if money is his problem.

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  1. Funny he doesn`t mention how the CRDA took/spent millions of dollars on ridiculous projects through-out the city only to have them torn down within months….or all the property the CRDA owns all over the city that generates NO tax revenue….he says no one lives in the city ..yet Chelsea Heights is a thriving community.as is Bungalo Park the South inlet and Chelsea…Now since he uses a hypothetical ..I will too…suppose instead of saving unused sick time municipal firefighters and police used their sick time..the cost in overtime and manpower shortages would cost even more..and suppose all municipal employees used all the vacation time they have ( some 5 weeks or more)…more overtime and manpower shortages..and a bigger expense to the city.( the state mandates how many firefighters must be on a shift..not the union..and how many are needed to fight a fire for example)…Now suppose even further …that 4-5 employes called out sick and 1-2 were on vacation…do you think the overtime rate for a 20 year employee comes cheap…..by banking unused time employees save the city money…regardless of the size of the “boat check”..and by the way Christie must fund the pensions…maybe he should trim the fat (pun intended!) from the state payroll…North Jersey employees make a lot too.he could start uo there…the writer also states that the Borgata does not have to pay taxes for years …that is simply not the case..they are in violation of municiple tax laws and are not paying while the city owes them money…It seems the writer was writing to amuse himself…I`m surprised he didn`t bash Trump while he was at it.

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  2. I agree with you Bob Frei .. The young man covered only part of the story . We understand our circumstances are dire , but they may be less dire if we were to collect on those properties that the CRDA owns and we may have a fighting chance if were treated as other municipalities are treated .. The bonding that we have undertaken has to be negotiable .What says we can’t be the ones to sit at that table . If the referendum for casino’s in North Jersey fails , as I expect it will . We can expect the casino industry in Atlantic City , to in some way work with Atlantic City and quite possibly come to the consensus , that’s it’s better to work with the local government , than to work against it .. We haven’t been given that chance and Christie is not going to bully his way into negotiating the debt , it’s going to take diplomacy and thinking outside the box .. Everyone concerned knows these are untenable conditions .

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  3. Gentleman, thanks for taking the time to read and your thoughtful feedback. You’re clearly versed in the details. I chose to avoid, purposefully, some of the political back and forth because my point was to focus on the macro-economic and broader political issues of unfunded entitlements that are at the core of both unmanageable city and state budget shortfalls. The points you make will likely have impact on the local solutions, but, as you point out, I didn’t cover. Adding them to the discussion can only help so thanks for your input.

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  4. Pretty interesting read and I get Mr. Hughes was focusing more on the macro issues rather than some of the local issues. But a topic only partially addressed was the economics of the city population. AC was never an industrialized urban center so there were never manufacturing jobs to be lost. the citizens of AC have 2X the unemployment rate and 30% live below the poverty line. Meanwhile most of the employees of the city and casinos live outside AC. My simple question : What aren’t the citizens of AC employed by the city and casinos ?

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  5. 100 municipal worker make over 100k a year. People with Masters degrees dont make that much mmoney. The city is such a slum the workers don’t even live there. Greed and corruption is rampant in NJ. Too many fists in the cookie jar. The rich get richer and the poor are on food stamps. It’s just a matter of time before AC is a ghost town.

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    • WHO makes $100k. ? The bosses? Yes the city is a slum. I.Live in the most slummy part, right by the revel. With the vacant land that the scum who stole all the MONET from 1978-present, . Not touched by human hand, like king Kong. Land set on fire by the Freddy scrum, raped & pillaged, & in the end it is the same or worse, than the time people actually lived here. But the real truth. All of u sleepy sheep, let them get away with this crime.

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  6. Great report. He should put the same intensity into investigating the numerous authorities that operate in NJ with minimum oversight and large balance sheets

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  7. When I first started reading this article, I wanted to hate it. My family has lived in AC since before the Great Depression. I have moved my young family to the suburbs, but i still work in the city and I still believe in this city as much today as I did as a kid growing up here.
    I am lucky enough to be able to travel a bit and when I tell people i am from Atlantic City, the look I recieve back is as if ive told someone that my aunt just died. It is a look of sorrow and pity. “You live in Atlantic City, oh you poor thing”. It’s sad and hurtful even though it’s not intended to be. I was ready to absorb another punch to the stomach as I began to read your article.
    Suprisingly I found your article to be INCREDIBLY well written and absolutely spot on to the current predicament we find ourselves in here in AC and also throughout the country. Based on your stated age, I am about 2 years younger than you, and, like you most of my family has lived and worked in this city and continues to do so until this very moment. With every perilious moment that we pass as a community, i can feel my entire familes life, and the lives of those around me hanging in the balance. The stakes have never been higher, and we are all unsure how this chapter of this great city will conclude.
    As unsure as we are of the ending, i can tell you that we will continue to hold our heads high in AC. We will continue to work towards a brighter future, to reinvent ourselves and polish our hospitality culture to attract new and repeat guests. We will continue help those who cannot help themselves and we will hold onto the hope that we will come through this situation even more resilient than we are currently.
    Atlantic City is not dead, and we will never be dead. This surely isnt our finest moment, but we will continue to push forward towards a brighter tomorrow.
    I commend you for a well written, accurate and thoughtful article. Thank you sir!

    Liked by 1 person

  8. Guess I’ll join the group and reply also. The story starts out sounding like my family and experience. 74 now and retired in Fla., I grew up on the beach of Old A.C. as my father did, as his father did and also both my Great grandfathers did! They all had beach chair and umbrella concessions in middle of the city. One of my Great grandfathers supposedly invented the chair’s foot rest. Another owned one of the first lumber yards in A.C. and was in the A.C.’s Who’s, Who. I read a newspaper article from the Absecon Library how he was proud of the 5 HP elect. saw he just bought for the lumber yard. One was an architect that had worked on the plans for Blatt’s department store. About 40 years ago, I heard a story from an old timer in his 90’s then, of how he watched Blatt’s being built. On one floor they where not sure it was right. A circus was in town and they lent out and brought an elephant over to walk around the floor that was being built. The sure footed Elephant had no problems so they resumed building. I only have his word for the story? Anyway, I have seen many times of stress and problems in the Grand Old City and heard many stories from family, of the good old times, the 500 Club, The Inlet where some family lived and Also my wife as a child, and going through the Enoch Johnson period. My father’s, father, who was head carpenter at Haddon Hall, told me about the days the hotel was made into a hosp. during WWll. and how he walked to work and home every day from Pleasantville when a young man. My father, born in 1912 started working on the beach at 13 for his mother , who inherited it from her father. Then I started when I was 13 there myself. Somehow I feel the city that was once called, “The worlds Playground” down to , “America’s Playground” will come back like it always has. Not looking so good at the moment, but hopefully it will come back maybe to be — “NJ’s playground!” OH yes! My Grandmother was also a dancer on the Steel pier!!

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  9. A quick fix, would be a city wage tax. (40,000 workers)($30,000 avg. wage)(.025)= $30,000,000.00/yr. Now, we’re down to $70M(100M-30M). Another 3M/yr. could be generated from just charging an additional dollar for each casino parking space that goes to the city. 50M cars pass the Pville Toll Booth each year. I don’t think hiking the toll another .25 to a dollar, that .25 going to AC, is asking too much, is it? That would generate another $12.5 M /yr. So, right off the bat, here are 3 ways to generate over the 40M/yr. needed to keep AC running and buying time without pumping anything into infrastructure right away. In time, there are many things that can bring the city back. Maybe inviting an Ivy League School to open an internationally renowned campus at Bader Field. 5 to 10,000 students will be a nice booster of economic conditions in AC. Could you imagine the revenue generated from parking, housing, restaurant sales, and everything else that goes with a university education? How about dredging the Inlet and having an additional ferry system besides the one in Cape May, here in Atlantic City? People won’t have to drive to Cape May from either Philly or NY. Boats can leave and come back from all points on the east coast and the Islands. Can you imagine the impact of a ferry system here in Atlantic City? The trick to getting Atlantic City back in shape is to make it inviting and give business, other than gaming, an incentive to come into town. People who work in professions, manufacturing and service industries other than gaming, would have some disposable cash to go out and have a good time on their off nights at casinos, night clubs and restaurants, just as they do in Philly. There are a lot of things that can be done in this city to revitalize it. But with leaders like the Christiball in Trenton, the garbage we have on counsel, and all the jealous pieces of trash that run the adjacent towns, nothing will ever get done. The only thing they see is that cops and firepersons, make too much money and have too extensive benefits, when that isn’t the case at all. It’s all based on jealousy. I really believe it when Governor Christi said that the Chief of police makes more money than he does, and he’s the Governor. Why don’t he get his fat ass up and go be a cop if money is his problem?

    Like

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