With the announcement by Moody’s on July 24, 2014, that the public debt of Atlantic City will be downgraded 2 steps to junk bond status, a review of the push to use casinos as the savior of New York State must be questioned. What does this reality of creditworthiness say about the future of New York and casino gaming?
To get a full picture we need to step back to 2009. At that time we stated
“Because the wanton spending of the likes of Gov. Patterson and those before him are finally catching up with them. They have so embraced the “tax the rich” concept that either the rich don’t exist as they did, or they have moved to a State with far more fair tax codes.”
The NY State total public debt at the time was $297 billion. That takes into account the move to add $150 billion in revenue by expanding the ability to gamble in New York State – via video gaming tables. Since that time, according to Census data, NY State has lost population and businesses – as it has for 60 years.
Which brings us to October 2013, where Proposition 1 was presented to the public. The image presented was that in allowing 7 full casinos to be created in New York, tax revenues to the State would grow and allow school and property taxes to freeze at current levels or be reduced in time. To that we said,
“Because New York will remain (at least in the foreseeable future) a business unfriendly, hyper-taxed, debt-ridden State. The casinos will not plug the hole that is Albany spending.”
The NY State total public debt for 2013 was $353 billion. That’s after increases in taxes and freezes on property taxes and a host of other political campaign promises. New York debt is still increasing. By 2015 it is projected to his $373.7 billion, and that includes the windfall from the casinos granted by Proposition 1 in 2013.
Since 1960, New York State has net lost population and congressional seats, while the debt has grown for those that remain. But Proposition 1 promises to change that, because casinos will spur economic growth for the State ranked 50 for business friendliness.
Which brings us back to Moody’s and the latest bond ratings.
Atlantic City was a boom city after it legalized gambling in 1976. Becoming known as the east coast Las Vegas, and being the most popular tourist destination in 1989. But then neighboring States got jealous, especially as the economy soured. Today, the outlook is that,
“Moody’s outlook on the New Jersey city remains negative because the credit rating agency expects regional gaming competition to further weaken the city’s prospects.”
Consider that for a moment. Atlantic City, after decades of successful promotion and the influence of the top rated casino companies in the nation, is considered a negative credit risk. New York State has none of these benefits even with Proposition 1.
As was cited in our aforementioned 2013 article, Atlantic City had 1% less poverty, and 13% less home ownership than Binghamton, NY. The median income comparison is a difference of $1,741 in favor of Binghamton, a city without a single casino. Yet, Moody’s outlook for the future is one of continued negative growth, even as NY seeks to emulate this failing economic model.
Given the history of New York State overspending, the negative outlook for Atlantic City due to competition, and the general malaise of the US economy, why should anyone expect New York State to improve due to casino gambling? Exactly how are cities like Binghamton, NY expected to grow when casinos are added to the economic mix, when far more successfully marketed cities are failing with the formula being adopted?
Still we will not end this on a negative. There is one big winner in the expansion of gambling in New York State. That is New York State itself. As reported by the Albany Business Review on May 30, 2014,
“…the state [NY] takes in $3.2 billion from gaming annually, the highest in the nation — more than California and Florida combined.”
While the current 4.6% of NY State budget that is represented by Lotto and other existing gaming has failed to lower property or school taxes, nor decrease the State deficit, there can be no doubt that any short-term gains created by casinos will be spent as quickly as possibly by the Albany leadership. While that may not help residents, or businesses, it is sure to enable enough additional spending to guarantee NY maintains the bluest, least business friendly, severely in-debt status that the State has come to be known for.