Of Gambling, Casinos and Economic Growth

For the record, I thought I'd register my opposition to the placement of a casino in Rhode Island. However, I do support the people of Rhode Island being able to vote on the matter, so long as it is presented legally (unlike the fiasco last summer). During the controversy last summer, I posted about a research detailed in a ProJo Oped piece by Richard A. Hines of the Advisory Board of Citizens Concerned About Casino Gambling. Hines took a look at the socioeconomic impact made by the Connecticut casinos on the communities surrounding them. Hines found that the revenue claims touted by the casinos in Connecticut were overstated and that, in fact, Lincoln Park and Newport Grand generated more revenue, per capita, for the state of Rhode Island than did Foxwoods and Mohegan Sun for Connecticut.

But on a per-capita basis, Rhode Island actually collects more from Lincoln Park and Newport Grand than Connecticut collects from Foxwoods and Mohegan Sun. Per-capita revenue from these sources in Rhode Island is $186, compared with only $115 in Connecticut.

To repeat from my aforementioned post

to me anyway, the social costs have always outweighed any purported financial "gains" that a gambling casino would bring to the state. Hines further explains that the Conneticut communities that host the casinos have seen "increased traffic, demand for emergency services, crime, and need for affordable housing, schools and other municipal services have driven public expenditures far higher than any increased revenue from the casino taxes" and he provides figures to support his claims. (I note that he doesn't make apparent all of his sources for these figures, though many appear to be from various State of Connecticut studies.)

For some examples of these social costs, read either my original post or Hines' piece or this study.

I bring this up because there is now a new drive to vote on casino gambling via a new referendum that, it is hoped, will pass constitutional muster. Meanwhile, BLB Investors, a firm trying to purchase Lincoln Park, is doing its best to prevent the building of a casino in the state. In this effort, it has the qualified support of Governor Carcieri.

On Monday, BLB. . . offered to purchase Lincoln Park from its British parent company, Wembley plc, for $435 million. . . it is seeking an 18-year contract spelling out its tax rate and state approval for 1,750 additional video-slot machines at Lincoln Park. In exchange, the company has pledged to spend $125 million on renovations and an expansion of the track. . . .

The most dramatic element in the 10-page bill is the parity clause.

The state gets about 60 percent of revenues at Lincoln Park and Newport Grand. The casino that Harrah's is proposing with the Narragansetts would pay a much lower tax rate. Last year, the Las Vegas company offered to pay on a sliding scale that ranged from 25 percent to 35 percent.

The parity clause that BLB proposes essentially says that if Harrah's gets a 25-percent tax rate, Lincoln Park's tax rate must be lowered to that same level.

Brown University political science Prof. Darrell M. West said that if the clause passes, "it would guarantee there would be no casino. . . . It really is a killer amendment for a casino" West said lawmakers would not want to bring in a casino if it meant lowering the state's take from Lincoln Park. Such a move "would bankrupt the state . . . nobody in state government can allow that to happen because so much of the state budget now is dependent on gambling revenue."

Gambling revenue accounts for about 11 percent of the state's income. This fiscal year, slots at Lincoln Park and Newport Grand are expected to generate $255 million for the state.

Within the proposal is an attempt to cater to the needs of the Narragansetts (OK, it's an attempt to buy them off).

The legislation also calls for 5 percent of the revenue from the 1,750 new machines to go directly to the Narragansetts "for the purpose of encouraging and promoting economic development."

The 5 percent would provide about $6.3 million to the tribe when the new machines are installed. Within 10 years, the figure could grow to $9.3 million a year, according to estimates by the state Economic Development Corporation, based on data from BLB.

The draft bill also provides for "a hiring preference and training program at the facility with respect to qualified applicants" from the tribe, and a preference for "contractors owned and controlled by" tribe members.

When compared to the money they can make off of a casino run in their name, I doubt the Narragansett's wil be amenable to this offer.

As far as the Governor's qualified support of BLB's offer, the qualifications were outlined in this story

Governor Carcieri, who fiercely opposes plans to build a casino in Rhode Island, said this week that he would entertain the possibility of more VLTs at Lincoln on three conditions: BLB could not add hotel or convention space; some of the new slot revenue must be dedicated to property-tax relief; and another share of that new revenue must go to the Narragansett Indians.

I've already spoken on the last qualification, and I think that the Governor and BLB are dreaming. The other two seem reasonable, but the Governor's qualified support points to the degree to which the tentacles of gambling have a hold on the state government and its operating needs.

The money from Lincoln Park is too good for Carcieri to pass up.

In the past 12 months, gamblers there have lost more than $306 million in the slot machines, according to the Lottery Commission. The state's share was nearly $184 million. (The state also took in $50 million from its other slot parlor, Newport Grand.)

Gambling at the Lincoln and Newport sites, and from traditional lottery tickets, accounted for 11 percent of all state revenues last year. Each year, gambling represents a larger and larger portion of the state's income. Only the state income and sales taxes bring in more money.

The money is easy revenue for a state that hasn't seen an income-tax hike in years. It helps build roads, teach children and provide health care for the poor. (This story also details how Video Slots addict people, I urge all to read it)

Nothing like generating revenue through vice to accomplish virtuous ends, huh? I'm not being a Pollyanna: I realize this goes on all of the time. Cigarette Tax, Alcohol Tax, Gas Tax, etc. Yet, while these gambling related machinations are interesting, as I've said before, the root problem is not the particular gambling vehicle: the problem is that the state has come to rely on gambling to such a high degree.

I believe that the most overlooked argument for or against a casino, or gambling in general, centers around the degree to which state revenue will rise or fall. This fosters a "quick-fix" attitude and increase the attractiveness of the "casino solution" in both the general population and the state government. With this solution deemed a legitimate possibility, a whole host of economic side effects occur. The best argument against gambling as a revenue generator is that a reduction or elimination of this revenue could handicap Rhode Island's spendthrift government. Conversely, by relying on gambling, government continues to get the sustenance it needs to grow and to "provide much-needed services." Easy money is a disincentive to fiscal responsibility.

Secondly, the casino and gambling revenue stream paradigm subtract from efforts to promote more stable and "virtuous" businesses. While small businesses may not be so fast to generate revenue for themselves or, via taxes, for the state, they do offer better jobs with better pay than do casinos. The same can be said of larger companies.

To the Rhode Island State government, gambling revenue has become a drug. As the cigarette lawsuit settlement windfall has disappeared, our lawmakers turned to another "get rich quick scheme" in an effort to fund a plethora of "pet" and, yes, needed programs. (If nothing else, we can be confident that the more money the General Assembly has at its disposal, the more money it will spend, including much that will be used towards patronage and, thus, the further entrenchment of the same old political actors). Whether we should approve a casino or not is not what we should be debating. Whether we should depend on gambling to the degree we do is the real question that needs to be asked and answered.