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Cash in on Atlantic City - Casinos Broaden Role
In Redevelopment Projects
With the August 24, 2001 signing of the Casino Reinvestment Authority Urban Revitalization Act, Chapter 221 of Public Law 2001 (the "Act"), New Jersey's casinos have broadened their role not only in the redevelopment of Atlantic City, but in designated geographic areas throughout the State of New Jersey. The Act, which was sponsored by Senator William Gormley (R., Atlantic), is being touted as a major boost to the State's economy. While it is designed to transform Atlantic City's boardwalk area into an upscale dining and entertainment complex able to compete with Las Vegas, it also provides much needed funding for redevelopment projects throughout the entire State.
Under the Act, the Casino Reinvestment Development Authority (the "Authority") is authorized to establish Real Estate Equity Funds to serve as vehicles for investments in projects approved by the Authority in designated geographic areas. The Real Estate Equity Fund will be a closedend investment fund which will receive funds from participating casinos in an aggregate amount not to exceed $10 million. While the Authority has had the power since 1984 to invest in projects in the form of equity investments or loans, or a combination of both, and to approve direct investment by casinos in redevelopment projects, this marks the first time the Authority has taken a major step towards reinvestment in geographic areas throughout the State.
And The Lucky Six Are...
In early September 2001, the Authority named six urban districts in the State which would be eligible for partnership with casinos for redevelopment projects. Those districts include Camden,Trenton, Newark, South Amboy, New Brunswick and a combined district made up of four Cumberland County communities and Wildwood in Cape May County. While six districts were named, only one urban-renewal plan was outlined during the Authority's September 6, 2001 meeting ö the Tropicana Casino Resort's plan to fund a $20 million redevelopment project in Newark which will refurbish the boarded-up Hahne's Department Store as an apartment/retail/dining complex. The remaining districts named are eligible for at least $10 million in funding under the program.
Although the bill creating the Urban Revitalization Incentive Program was authored by Senator Gormley, it received broad, bi-partisan support from nearly every corner of the State. "The impact of this particular legislation by Atlantic City's casinos, not just on Atlantic City but on the rest of the State, will be profound because for the first time partnerships between these casinos and urban centers will be created," Senator Gormley told the Authority. "And casino money will be pumped into these urban communities in ways that can significantly affect them," Senator Gormley stated.
Both Casinos and Urban Districts Benefit
Under the program, casinos which get projects funded must invest at least $20 million in one of the selected urban districts. Besides providing crucial financing to redevelopment projects in the urban districts, the casinos receive benefits as well. Currently, casinos pay a $2 room fee per hotel room to the State. Under the new program, any room fee derived from new projects in Atlantic City will be rebated to the casinos in the form of annual grants from the Authority. The casinos are also entitled to a rebate of all construction-related sales tax, as well as the use of the sales tax generated when the projects open. The Act also provides that an amount equivalent to the total revenues received pursuant to the "Sales and Use Tax Act" from the taxation of construction materials used for building a district project approved by the Authority shall be rebated in the form of a one time grant to the Authority for disbursement to the casino financing the project. Once the district project is complete and/or open for business, all revenues received pursuant to the "Sales and Use Tax Act" from the taxation of retail sales of tangible property and services derived from businesses in the district project will be rebated to the Authority for disbursement to the casino in an annual grant not to exceed $2.5 million. All grants are payable the earlier of December 31, 2022, or until the date on which the combined total of all grants is equal to the approved district project cost. The Act also adds 5 years to the 30-year term in which casinos must pay 1.25 percent of their annual gross revenue to the authority for the funding of development projects.
The Legislature seems to have hit the jackpot as the Casino Reinvestment Authority Revitalization Act is seen as a win-win scenario for all. The approved district projects will revitalize critical urban areas throughout the entire state by generating much needed revenue while at the same time providing a very modest return on the sponsoring casino's investment. It's as though all participants are playing with "house money."
John Fitzgerald O'Connell is an associate of the firm in the Real Estate Division. His principal area of practice is in the areas of commercial real estate, economic and business development with a particular emphasis on municipal law and government affairs.
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