Friday, July 07, 2006

New Jersey Heads Back to Work, Accepts Offer it Couldn’t Refuse

New Jersey has accepted a state budget that should get the casinos up and running today.  The deal that was struck may be bad for New Jersey (though no one will tell you so), but it is certainly good for gaming, who was loosing an estimated $20M per day, a number that stood to increase as we moved into yet another summer weekend.  

The budget crisis forced reached a stalemate on Saturday, July 1st, and suddenly all state workers were out of a job.  This included some 45,000 state workers, a large number for such a small state; but it also effected a number of other businesses who needed state functions to be operating in order to open, including the casinos, who require state inspectors to be on site at all times.

$20M a day!  Did we really think our friends with the crooked noses were going to let the casinos stay closed while they lost that type of revenue?  Not likely!  First, the casinos did a bit of legal maneuvering to assure that they were not shut down during one of their most lucrative weekends of the year, staying open until July 5th.  Now they’ll be one of the first businesses to reopen.

The casinos employ some 36,000 workers, and all have been out of a job, waiting for the return of casino inspectors. While no one is indicating that the mob-run casinos had anything to do with the signing of a budget that looks to hurt the state coffers overall, the casinos are about the only groups hailing the budget agreement as a victory.

Operators and their customers criticized the state for ordering the closings, saying the $1.3 million in daily tax revenue they add to state coffers made them the wrong targets for cost-cutting in a budget crunch. "We're just happy it's resolved, and let's move on," said Alyce Parker, a spokeswoman for Harrah's Entertainment, which operates four casinos.

Daniel Heneghan, public information officer for the New Jersey Casino Control Commission, said once Corzine's office lifts the emergency shutdown order, the commission chair will sign an order to open the casinos. "We have inspectors on call, ready to respond whenever that happens," he said. "As soon as that happens, we will open up casinos as soon as possible."

Anyone else lining up to praise the new agreement?  Well, surprise, surprise, surprise, it’s the unions!

"We're extremely pleased that we have reached a settlement so that folks can get back to work and get on with their lives. More importantly, we have a budget that breaks with the budgets of the past in that it's fiscally sound," said Carla Katz, president of Communications Workers of America Local 1034.

But is this budget fiscally sound?  Not in the eyes of this economics major! The new budget is supposed to relieve the state’s $4.5B budget deficit by increasing the state sales tax was raised from 6% to 7% statewide. The thought is that this will generate an additional $1.1B in state revenue per annum.

But there are problems with the plan.  First, democratic lawmakers were unwilling to pass the new budget unless half of the new revenue would go towards easing the state property taxes of its residents, among the highest in the country. So already, there is a sharp decrease in the amount the deficit will be eased by the plan.

But perhaps more troublesome to me is the lack of recognition that the increased sales tax will greatly effect the number of sales made in the state of New Jersey. While lawmakers are busy drooling over the $1.3M in state revenue being lost daily from the casino closures, they forget that a tremendous amount of New Jersey’s state revenue comes from operations in Port Jersey and sales in the surrounding towns.

For years, North Jersey has made a tremendous amount of money because consumers and businesses in New York City find it cheaper to travel across the bridge and buy goods in NJ as opposed to paying the exorbitant prices in New York City. The increased sales tax will decrease the price gap, causing many New Yorkers to purchase goods in their home state, or make a trek to a location such as Delaware, which is farther away but tax free.

Plus, increased sales taxes will hit the New Jersey state residents hardest.  Initial estimates are that a New Jersey family will have to pay an additional $275 a year from the tax hike, but the numbers could be much higher. Considering the already low standard of living in New Jersey, this may result in people moving out of the state.

There were a number of measures that could have been pursued that would have targeted tourists specifically, generating more revenue than the tax hike and taking that revenue from a tourist trade that is loyal to the casinos and beaches and often willing to spend money.  But these measures could have hurt the casinos and thus were not considered seriously.

Only time will tell if this new budget will do anything to help the state’s budget crisis; my belief is that it actually will do little to nothing to help reduce the state deficit. But what the resolution does, without question, is open up the state’s casinos, which were loosing big bucks daily.  Perhaps these are the interests the state was defending in the first place.

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Posted by Scottage at 10:21 AM / | |