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.