A.C. needs fundamental help

Today, Atlantic City teeters on the edge of bankruptcy and economic collapse. A long experiment with legalized gambling, approved in 1976, failed to reenergize this once-iconic locale, which fell into decline as tourists started turning away in the 1950s. The revival foundered largely because state officials - despite pledges to keep corrupt influences, especially the Mafia, out of the casinos - failed to clean up the culture of corruption and profligate spending that characterized Atlantic City's government.

Run for decades by political machines, the city squandered riches brought in by its long near-monopoly on East Coast legal gaming. Now, as competition from other gambling locations intensifies, the prospects for another tourism-driven revival seem increasingly remote.

Born from a physician's dream to provide a place for healthy leisure, the Shore town quickly metamorphosed into a place "dedicated to the fast buck," governed by dangerous racketeers and corrupt politicians, as Nelson Johnson, author of Boardwalk Empire: The Birth, High Times and Corruption of Atlantic City, puts it. At its 1930s apex, Atlantic City welcomed 16 million tourists every summer.

But city officials regularly tussled with state and federal investigators while operating what newspapers dubbed an "open city" - or, during Prohibition, a "wet city" - where the laws that other municipalities followed, including restrictions on gambling, prostitution, and alcohol, simply didn't apply.

Atlantic City's decline began during World War II at the hands of the Army, which clamped down on vice when it used the resort as a training depot. The war strengthened both the federal and state governments, which were more effective at preventing the city from reestablishing its outside-the-law practices. As vacationers went elsewhere, jobs declined and residents moved away.

Atlantic City's culture of corruption made things worse. Even as the city's fortunes hit rock bottom in the early 1970s, federal prosecutors convicted seven high-ranking Atlantic City officials, including two mayors, of extortion and conspiracy for shaking down contractors. News reports quoting state investigators accused the city's police of conspiring with known criminals.

It was against this backdrop that Atlantic City leaders began their improbable but ultimately successful quest to legalize gambling. State leaders vowed to keep gambling clean after voters approved casinos in 1976, but corruption remained rampant within local government.

In 1984, the feds indicted Michael Matthews, Atlantic City's first post-legalization mayor, on charges of accepting bribes and of extortion; he served prison time after a guilty plea. Matthews' mayoral successor, James Usry, pleaded guilty in 1991 to campaign violations. More recently, in 2006 and 2007, three City Council members were convicted of taking bribes in exchange for city contracts. A reporter for The Inquirer wondered if "corruption is so interwoven into the fabric of Atlantic City that it has become a constant, like the Boardwalk."

Into this crooked political culture flowed tens of millions of dollars of new public money from the casinos. Atlantic City's annual property-tax revenues rose from a pre-referendum $21 million to nearly $69 million within just five years. The public schools' take rose to nearly $14 million, up from $4.6 million.

Local government did little with the wealth to enhance Atlantic City's quality of life, and new casino employees balked at living there. Despite having among the highest-paid cops in the state, Atlantic City consistently recorded the second-highest crime rate in New Jersey, behind only Camden - a devastating situation for a tourist locale.

Nor has skyrocketing spending on Atlantic City's public schools - now at an astonishing $26,000 per student - helped their performance, which is among New Jersey's worst. Atlantic City's high school ranks ahead of just 13 percent of Jersey's secondary schools in overall academic achievement and beats only 31 percent in its graduation rate.

Atlantic City's mismanagement left it vulnerable to legalization of gambling elsewhere, a trend that gathered speed in the early 1990s and most recently included the opening of casinos in Pennsylvania beginning in 2006. Because Atlantic City's budget has come to rely almost solely on casino-paid taxes, the city government is now insolvent and in crisis - with upward of $500 million in liabilities that it can't pay.

Any hope of revival will require tackling the city's fundamental urban problems - above all, its high crime. Fixing the police won't be easy, given the department's long history of corruption and ineffective crime-fighting. One alternative might be to follow a path that has worked in Camden, where the city, despairing of fixing its ineffectual and expensive police department after decades of trying, finally disbanded it in 2013 and turned control over to a new, bigger, more professional county-run force. Camden violent crime fell significantly.

Even if the city can attract new business and stabilize its employment base, it won't lure casino workers to live in town without an adequate educational system. Residents currently have few educational alternatives.

It's clear that Atlantic City needs more radical education reforms. One approach, currently underway in New Orleans, might be to emphasize school choice throughout the city: an all-charter system, where parents have the option to send their kids to any public school - not just one designated by their zip code - so that schools that don't attract students can't stay open.

Atlantic City wasn't the first American municipality dragged down by two demons of urban decline - corrupt politicians and a one-industry economy - but it had a better shot at a comeback than many other struggling urban areas, and blew the chance. Without fundamental reform, what's next doesn't look pretty.

Steven Malanga is the senior editor of City Journal, a senior fellow at the Manhattan Institute, and the author of "Shakedown: The Continuing Conspiracy Against the American Taxpayer"

This article is adapted from the 25th-anniversary issue of Manhattan Institute's City Journal (http://city-journal.org/).