Newsletter
For the American Economic Development Council


Is Gaming the Best Bet For Your Community?
In 1963 New Hampshire introduced the first modern state-run lottery and initiated an explosion in the growth of legal gambling that Newsweek called "one of the most significant social developments" of our times.  At last count, you could place a legal bet of one kind or another in all but two states -- Utah and Hawaii.  Gaming has become a $35 billion  industry and a topic of discussion for economic development boards all across the country.

Moral issues aside, gaming remains a controversial subject.  Enthusiasts say that casinos generate jobs,  enhance investment, promote development and increase tax revenues.  And there are places where that's exactly what's happening.

Success Story ?
Deadwood, S.D., for example, should almost certainly be considered a success story.  In 1988 South Dakota decided to legalize slot machines, poker and blackjack in Deadwood, the former home of romantic luminaries like Wild Bill Hickock and Calamity Jane.  Before the casinos opened Deadwood was slowly fading into oblivion  The city didn't even have the resources to cope with fires in its historic old downtown buildings.  Just a few years later a Newsweek study found that Deadwood's finances had turned entirely around .  There were new water lines, new sidewalks, new sewers and a new electrical system.  Downtown Main Street was paved with bricks, and then lined with old-fashioned iron street lamps.  Gaming in Deadwood had been so successful that even its promoters were surprised. 

The city of Deadwood pulls in about $5.5 million a year in gambling license fees and gambling taxes.  The state of South Dakota gets a similar amount.  The taxes generated by restaurants and hotels in Deadwood have grown at a rate that is eight times the figure for the rest of the state.  And even though the opening of the casinos pushed many of Deadwood's retail businesses into surrounding communities, retail sales have expanded by 16.8% per year, more than doubling the rate for South Dakota as a whole.  Some 2100 new jobs were created in just the first two years.  Investors have included the likes of Kevin Costner, who named his casino "the Midnight Star."

Of course, there have been some growing pains.  Nestled in a valley in the Black Hills, Deadwood has limited space for development.  So when casino operators started to buy the existing buildings, Deadwood's indigenous business owners either relocated in neighboring towns or closed down entirely.  There were soon 81 gaming establishments in Deadwood, all of them tiny by Las Vegas standards, but together they managed to occupy most of the available space. Main Street in Deadwood has become a smaller version of the Las Vegas Strip, and there isn't much room for anything else.  Deadwood residents have had to get used to doing much of their shopping in nearby Spearfish, where taxable sales have grown by 25 percent each year.

Gambling has brought other changes as well.  With the influx of tourists came an increase in the crime rate.  Serious crimes have nearly doubled, and even traffic violations are up 40 percent.  State's attorney and Deadwood resident Jeffry Bloomberg told Newsweek that he didn't feel comfortable letting his daughters walk down Main Street anymore, and another resident commented that it felt strange to walk down the street and see no one but strangers.  Gambling may have saved Deadwood from fading entirely away, but .it's definitely not the quiet little town that it used to be.

Part of Deadwood's secret is steady tourism.  It's located off Interstate 90, used by vacationers on their way to places like Yellowstone National Park, the Custer Battlefield, Devil's Tower and the Badlands.  But the same formula may not work everywhere.

Riverboat Gambling
When Illinois passed legislation permitting riverboat gambling in the state, the statute proudly announced that riverboat gambling in Illinois would "enhance investment, development and tourism in the state of Illinois."  A study by Professors William N. Thompson and Ricardo C. Gazel of the University of  Las Vegas suggests that  the Illinois boats don't really get the job done.  In fact, the professors say, the Illinois boats are actually a drain on their local economies. 

Gambling "hasn't increased tourism or generated new income," says Jim Edgar, governor of Illinois.  "Most gamblers come from within a 10 or 20 mile radius of the casinos."  More than half live within ten miles of the boats, and 85 percent live within 50 miles.  (Compare that to  Las Vegas, where 85 percent of the gamblers come from another state.  Or Wisconsin's Oneida casino, which draws heavily from Milwaukee, two hours away.) The money the riverboats make isn't coming from outside the communities they do business in; it's coming directly out of the host communities themselves.

In other industries , success might prompt you to expand your business, creating new jobs and new growth.  But Illinois gaming is tightly regulated, and the casino companies don't have that option.  The statutes more or less require them to take the profits elsewhere.

In Las Vegas  you have all those tourists bringing in money from out-of-state, says J. Terrence Brunner, executive director of the Better Government Association, in Chicago, Ill.  If the Mirage is doing well, they don't take all that money home and hide it under the mattress.  They turn around and build Treasure Island; they reinvest.  It produces construction jobs; it produces new jobs at Treasure Island.  But you cant do that here.  So what happens is that all that money gets taken out of the system.

That's not to say that the host communities want to get rid of gaming any time soon.    Joliet, Ill., built a new police department , improved the fire department, and nets as much as $2 million each month in casino revenues.  East St. Louis has new squad cars.  A resident of tiny Metropolis, on the Ohio River, says that their riverboat has helped keep families together -- when young people can find jobs, they don't have to move away.  Best of all, gaming lets a city increase revenue without a corresponding increase in taxes.

"There are opponents who would argue that that money could have been spent on other entertainment venues." says Sam Lee, senior manager for E&Y, Kenneth Leventhal Real Estate Group, in Chicago, Ill., "And I don't think anyone has been able to draw a one-on-one correlation yet; that "x" amount of gaming is equal to "y" amount of movie house proceeds, for example.  But  I think that both the opponents and proponents of gaming will eventually come to a general consensus that the tax revenue is definitely a plus."

What's the economic development angle?  After payroll and other operating expenses, Thompson and Gazel believe that the casino companies end up draining a combined $239.7 million out of the ten regional economies that support riverboat gambling in Illinois.  The city governments may be happy with the arrangement, and there are certainly some positive effects on the decaying old riverfronts.  But "if you don't draw 'new tourists' you end up cannibalizing your own businesses," says Brunner.  "You're merely transferring sales from local businesses to the casinos.  If you could increase tourism and get the percentage of  locals down to perhaps 70 percent, the casino system would probably be a winner.

"We get 50,000 tourists per day," says AEDC member Mike Olivier, of Gulfport, Miss.  where legal gambling draws 60 percent of its players from Florida alone.  (In just four years Gulfport has seen $2 billion in new investment and added 16,000 gambling-related jobs.  Two new casinos are currently under construction, and together they represent a $750 million investment and 6000 more jobs.)  "And the gaming market is still growing.  It's not necessarily taking business from Las Vegas, either.  More people are being exposed to gaming as a form of recreation.  And although they may enjoy gaming, they may also enjoy golfing, fishing, sunning on the beach -- and that's what we offer.  If we were just feeding off the locals we wouldn't survive."

Other Considerations
Economic developers know that existing businesses generate most of any region's economic growth, and that it's important to consider their interests when making long-range plans.  When Hartford, Conn.,  flirted with the idea of gaming the idea was abandoned in the face of opposition from Hartford's huge insurance industry.  Gaming has its advantages, but it doesn't give a city the conservative image that an insurance company prefers.  In Tunica, Miss., a casino created new jobs, just as planned.  But it also created problems for an existing business. 

The moment the new casino started hiring, the local catfish processing plant lost 77 of its 110 workers

"Gaming isn't the economic development solution for every community, says Olivier.  There are a lot of  factors to consider.  And if  you're not bringing in discretionary income dollars from other areas, then gaming is not  going to have the positive economic impact that you're looking for.  You'll just be robbing Peter to pay Paul."
 


 


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