NATIONAL GAMBLING IMPACT STUDY COMMISSION

JOSEPH FALDETTA

Mr. Faldetta.

MR. FALDETTA: I want to thank everyone for allowing me to speak here.

There is an old African proverb which says, when the elephants battle the grass suffers. Here in Atlantic City we have our own elephants that are behemoths of the casino industry. They are at war with one another, a war for gaining patrons. Unfortunately, the local restaurants and taverns are the grass in this jungle, unable to move when we have been trampled.

Our industry in Atlantic City last year lost seven restaurants and taverns as casualties of the war. The restaurant and tavern owners supported the public referendum to legalize gambling in Atlantic City, and to work to assure its passage, confident it would, as promised, revive our declining hospitality, tourism and convention industries. We are today, without question, still in favor of casino gambling in Atlantic City.

I'd like to focus attention on the negative impact the state and local government and the Casino Control Commission's decisions have had on our business.

Atlantic City restaurants and taverns experienced staggering declines in the past 19 years of casino gaming. The 1978 directory listed 311 taverns and restaurants in Atlantic City. Nineteen years later, there are only 66 remaining, despite the promise that gaming would be good for the city's own.

Atlantic City restaurants and tavern business have continually declined in the face of tremendous growth of the same business in the casinos and in the off-shore communities.

In 1990, with the advent of casino buffets, and the beginning of the deregulation of the casino industry, our decline accelerated, and if it's allowed to continue will cause the demise of the restaurants and taverns of Atlantic City.

At this point, I'd like to make it clear that the deterioration of our industry in the past seven years is largely due to the influence of the casino industry on our elected officials and in subsequent deregulation of that industry. In a nutshell, we find ourselves in this dilemma, being in the impossible position of being supporters of casino hotels in Atlantic City on one hand, and competitors with the same hotels on the other, competitors, but not on a level playing field. Casino gaming revenue are used to subsidize beverages and entertainment, operations in their hotel. We, of course, are prohibited from conducting gaming operations in our establishments and are offered no compensating privilege to be competitive.

To make matters worse, for the privilege of competing with the casinos in Atlantic City the state has imposed a nine percent tax on the sale of alcohol, which is three percent higher than the rest of the state. Atlantic City is not the queen of resorts, it's just another casino town. The visitors are drawn to the city almost solely to gamble, with an average stay of approximately five hours.

The casino hotels attempt to provide every service to draw visitors to their properties and keep them within the confines of the hotel throughout their stay. One of the purposes of the Casino Control Act, and I quote, "... the rehabilitation and redevelopment of the existing tourist and convention facilities in Atlantic City, and the restoration of Atlantic City as the playground of the world." The restriction of casino license to major hotels and convention facilities was designed to ensure that the existing nature and tone of the hospitality industry in Atlantic City was preserved. If one of the purposes of the Casino Reinvestment Development Authority is to provide loans and other financial assistance for the preservation of existing small business, it's the consensus of our members that the Casino Control Commission and the CRDA have not focused on preserving or advancing Atlantic City's small business.

Instead, the CRDA has become the real estate agent of the casino industry, and it's tried to use the powers of eminent domain to assemble properties for the industry, taking them from local residents and business, under the pretense that this is for the public good. This is very much at odds with the original intent of the casino control legislation.

As the number of food outlets and casinos increase, the number of non-casino restaurants in Atlantic City decrease. All the casinos now have buffets, which have become so popular they are part of their marketing, another reason for the decline was the refusal of the industry to give up rooms for conventions, which caused a decline in the convention business. The State Casino Control Commission took no action against the industry, contrary to what we were promised in the Casino Control Act.

The casino rooms would always be offered and maintained as part of the hospitality facility, and not as an industry unto themselves. The legislators passed two pro-casino legislation which actually rewarded the industry by giving them $175 million in tax credit to build more hotel rooms. Casino restaurants generated $475 in food and beverage revenue in 1996. The Taj Mahal alone generates more food and beverage revenue than all the non-casino establishments in Atlantic City combined. Casino hotels provide a full range of services to keep patrons in house, including free beverages on the casino floor, complimentary food and beverage and entertainment for preferred gamblers, and coins and food for casino bus visitors.

We cannot afford to operate our businesses in this manner. Casino hotels, however, are able to do so because by law they are granted the exclusive privilege of conducting gaming in their establishments. The revenue generated from the gaming operation subsidizes the operating costs of these promotional practices and attracts gamblers and non- gamblers to their facilities. In 1996, the casino industry gave away $293 million in food and beverage costs.

We, a major force behind the drive to bring casinos to town, on the other hand, have been afforded nothing that might allow us to compete in this state- created competition. Well known, national and regional restaurant chains, such as Planet Hollywood, All Star Cafe, Hard Rock Cafe, are locating in casino hotels. They have been granted free liquor licenses by the Casino Control Commission. The Casino Control Act never intended this to happen. I quote, "No casino, hotel alcoholic beverage license which authorizes possession, sale or storage of alcohol, alcoholic beverages, pursuant to Subsection G of this section, shall be issued to any applicant who does not hold a casino license." The issuance of an unlimited number of liquor licenses had a devastating impact on the restaurants and taverns of Atlantic City. The regulating factor in the state of New Jersey, which provides for a limited number of these liquor licenses is absent in Atlantic City.

The primary asset of many restaurants and bars in Atlantic City has been significantly lessened as a result. With our large marketing budgets and name recognition, our locally family-owned establishments cannot compete. They are attracting many non-gaming customers who would otherwise patronize our business.

The fact that no new national restaurant chains elect to build facilities outside the casino would lead you to believe that they are not confident that they are going to be profitable in Atlantic City, where casino gaming revenues are used as a subsidy to discount food, beverage and hotel rooms. Casinos can compete with the restaurants, taverns, nightclubs and hotels of Atlantic City, but no one is permitted to compete with them.

When the CCC waived the closing requirement of the casinos it had a dramatic impact on our business. A number of members developed special programs to attract this business in the 38 hours a week when the casinos were closed. We lost this business with the advent of 24-hour gaming. Our members suffered another substantial loss of business when casino employees were permitted to gamble in casinos. Many of them frequented our establishments in their off hours, but now instead go to casinos where they get their drinks for free as they gamble.

Conventions have historically been a major source of business for our members. Casino hotels have dealt themselves out of the convention business by being unwilling to provide the blocks of rooms for conventions. Again, the Casino Control Act makes a number of references to casinos as tools for reestablishing and expanding convention business, but little was done to enforce this.

We believe that the current policy presently being employed by the CCC and the CRDA are counterproductive. Even though the decisions made by these two agencies profoundly affect our very existence, we are not represented on either agency, and contrary to the Casino Control Act no economic impact studies are done to establish what effects the changes in the Act will have on local businesses. Our officials think, well, if it's good for the casino industry, it must be good for Atlantic City.

The Casino Control Commission in the state of New Jersey, by their non-action, is allowing the destruction of not only the restaurants and taverns of Atlantic City, but the rest of the hospitality industry along with it.

The experts have agreed that the Act has had a negative impact on retail business. According to James Hughes, Rutgers University, Department of Urban Planning and Policy Development, Atlantic City is a case study in what not to do.

Our members' counterparts in the state of Nevada are much more competitive with their casinos, inasmuch as they are permitted to have slot machines to subsidize their expenses.

Atlantic City's unemployment rate today is still 14 percent, the highest rate in Atlantic County. Increased traffic and the use of eminent domain are forcing more businesses and residents out of the city. Two recent bills gave the casino industry a tax credit to expand their hotel operations to provide rooms for conventioneers. We are now subsidizing the casino hotel industry to build rooms so they can unfairly compete with the few non-casino hotels left in Atlantic City.

Recently, the city has allowed the casino industry to demolish the Mount Royal Hotel, the International and the Hatteras, to build parking garages. The casino industry is getting everything it wants from the Commission and the state, with no regard to its impact on other businesses.

The City Council this year, and the Mayor, earlier this year changed the zoning at the Ocean I Mall as an accommodation to ITT Caesar's. This change will cause the closing of 19 additional restaurants and taverns and all the retail shops at the mall. Council justified their action by advising the people that the change would generate new taxes that would help the city stabilize its rising tax rate. Six months later, the same City Council gave ITT Sheraton a $15 million tax abatement on its 500-room convention center hotel.

In the past two years, I have written to Governor Whitman, met with members of her staff, I have also met with our State Senator Gormley, Assemblymen LeFevre and Blee, Chairman Smith of the Casino Control Commission, Mayor Whelan of Atlantic City, and I've also written numerous letters to state and local officials, pleading for help to rectify the injustices we have been forced to endure.

The Casino Control Act, and I quote, "Legalized casino gaming has been approved by the citizens of New Jersey as a unique tool for the urban development of Atlantic City." Unfortunately, in our case, government has permitted the tool to become the weapon of our destruction.

Many people ask me what the restaurants and taverns of Atlantic City want. What are we asking for? It's the improved hospitality and convention business we were promised by the Casino Control Act in 1977. For the past 20 years, we have been deprived our ability to compete. All we ask for now is a level playing field to co-exist with the casino industry.

We, as an industry, know this co-existence can be accomplished with the assistance of state and local government. We are now fighting for our survival.

Thank you.

CHAIRMAN JAMES: Thank you.

Any questions for Mr. Faldetta?

We will continue, I'm sure, to discuss and debate many of these economic issues, but for this Commissioner there is no debate that your veal is second to none.

MR. FALDETTA: Thank you.