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Legalized gambling Essay The Economic Impacts of Legalized Gambling Introduction The effect of gambling on the standard of living will be pronounced if the gambling activity is regressive, meaning that the rate of participation (as a percentage of income) declines as people earn higher incomes. In other words, if most gamblers are poor, then gambling is more likely to affect the standard of living among the poor. One study showed many forms of gambling to be regressive. Impact on Surrounding Communities Much of the economic research investigating the ancillary economic benefits of casinos has focused on riverboat casinos. Riverboat casinos are a uniquely American establishment. They began operating in Iowa in 1991 and quickly expanded throughout the Midwest. By 1998, over 40 riverboat casinos were in operation in Illinois, Indiana, Missouri, and Iowa. 2 Nearly 50 riverboat and dockside casinos were in Louisiana and Mississippi (NGISC, 1999). There does not appear to be empirical evidence of economic growth as a result of the expansion of riverboat casinos. In terms of generating local tourism, riverboats seem to have been most successful in places such as Galena, Illinois, where the tourism industry was already established. Case studies suggest that the bulk of patrons of riverboat casinos are day-trippers who spend virtually no time at local non-gambling establishments (NGISC, 1999). There, thus, appear to be few, if any, positive economic spillovers to the local hotel or restaurant industry. In support of the cannibalization hypothesis, Siegel and Anders (1999) provide empirical evidence that riverboat gambling in Missouri led to a displacement of revenue from industries that constitute substitutes for gaming activity, such as entertainment and recreation services. 3 Evans and Topoleski (2002) conduct a rigorous examination of the economic and monetary impacts of Indian casinos for both Indian tribes themselves and surrounding communities. Impact on Native American Tribes An explicit goal of the IGRA was to promote tribal economic development, self-sufficiency, and strong tribal governments. Tribes frequently refer to casinos as the new buffalo, meaning the new source of economic sustenance for their communities. The tribes point to repaired infrastructure; diversifying economies; rising employment; augmented health, housing, education, and monetary budgets; greater indigenous language retention; and generally renewed community vitality (Taylor, Krepps, and Wang, 2000). Evans and Topoleski (2002) find that four years after tribes open casinos, tribal population is up by 12 percent and tribal employment has increased by 26 percent, resulting in an increase in tribal employment-to-population ratios of five percentage points (12 percent). Because the current program seems to be generating jobs does not necessarily mean that granting reservations a monopoly in a particular industry is a desirable policy. 9 Impact on Public Revenue Casino businesses are subject to taxation and, therefore, have a direct impact on public revenue. Maximum tax rates on gross gaming revenues in American casinos range from 6. 25 percent in Nevada to 35 percent in Illinois. Taxes on casinos are not an important source of public sector revenues for most states in the United States; only Nevada is heavily dependent on tax revenue from casino gaming. Non-Indian casinos paid over two billion dollars in taxes to states on gaming revenues in 1997, compared to state lottery revenues of approximately ten billion dollars in the same year (Eadington, 1999, p. 187). By law, states cannot tax the profits of tribal businesses. But in some states (e. g. , Connecticut, Michigan, Wisconsin, California, and New Mexico), tribes have agreed to make annual payments to state governments. These fees are typically payments for the monopoly rights the state have granted the tribe to provide certain forms of gambling. In 2003, tribes contributed over $759 million to state and local governments via various forms of revenue-sharing (Meister, 2004, p. 1). Table 2 lists tribal contributions to state and local governments by state. As shown, there is tremendous variability across states. The two tribes that operate Mohegan Sun and Foxwoods in Connecticut alone account for over half of these payments. 10 Casinos might indirectly affect public revenue as well. Insofar as casinos generate additional business income, they might indirectly increase other forms of tax revenue. Insofar as they cannibalize sales from other businesses, they might decrease net tax revenue. Anders, Siegel, and Yacoub (1998) find that as a result of the introduction of two Indian casinos into Maricopa County, Arizona in 1993, employment and retail sales in the restaurant and bar sectors declined. Popp and Stehwien (2002) estimate a similar model to examine the effect of New Mexicos 11 Indian casinos on gross state tax receipts using quarterly data from 1990 to 1997. They also find a negative effect of Indian casinos on state sales tax revenuesthe introduction of a single Indian casino is found to be associated with a one percent decrease in county tax revenues, but the introduction of a second Indian casino in the county if found to reduce sales tax revenue by more than six percent. While suggestive, these analyses are limited in scope and their results do not necessarily generalize to the experiences of other states. Additional research on the link between casino gambling and state sales tax revenue is warranted. Casinos could also cannibalize sales from state lottery operations. Three studies offer evidence suggesting that they do. Siegel and Anders (2001) investigate the relationship between Indian casinos and state lottery revenue in Arizona. The authors empirical analysis finds that a ten percent increase in the number of slot machines is associated with a 2. 8 percent decline in lottery sales. Elliott and Navin (2002) examine the impact that the introduction of riverboat casinos between 1989 to 1995 has on state lottery sales. They find that riverboat gambling expenditures have a negative and statistically significant impact on state lottery revenues. Fink and Rork (2003) build on this work by examining data on 48 states from 1988 to 2000 and using actual tax receipts from all forms of commercial casinos. Also, like Elliott and Navin (2002), the authors perform a Heckman two-step selection correction, but in the first stage, the authors model the adoption of a commercial casino, rather than the adoption of a state lottery. Their analysis finds a strong cannibalization of state net lottery revenue by commercial casino tax revenue. Specifically, they find that an increase of one dollar in commercial casino revenues reduces net lottery revenues by $0. 56. Economic Impacts on States Casinos are good business, say their proponents. Case studies show that legal casino gaming can increase tourism, employment, sales of noncasino goods, and tax revenues. In Nevada, gaming employs 211,000, or 24. 41 percent of the workforce. Direct annual state gaming taxes total over $500 million, or more than 42 percent of the state budget. In contrast, the cost to regulate the gaming industry was less than $21 million. Las Vegas alone attracts thirty million visitors annually. New Jersey, the second state since 1931 to legalize casino gaming, also realizes significant revenues. In 1996, total direct tax revenues were over $232 million. Since casino gamblings inception, the state has realized $3 billion in direct taxes and millions more in property and luxury taxes. Gaming has resulted in 91,600 direct and indirect jobs, and community reinvestment money from casinos has totaled about $500 million. In South Dakota, the government predicted that it would generate $1 million in tax revenues in the first year of operation. From November 1989 to August 31. 1990, the City of Deadwood alone received more than $4. 3 million in taxes. Taxable sales increased 41 percent in the first year of operation. Tourism increased 300 percent. In this formerly depressed area, the casinos created more jobs than there are residents. Consequently, some workers must commute from surrounding communities. Perhaps the greatest beneficiaries of casinos have been some Native American tribes. While previously plagued by high unemployment, poor medical care, poor infrastructure, and other problems, many reservations now enjoy employment, job training, new schools, new hospitals, and college scholarships, all provided by casino gambling. Some tribes have wisely invested their revenues in new businesses that are not casino-related to provide diversity and a new economic base. Effects of Gambling on Local Economies Gambling has expanded at all levels and has even brought a rise in attendance at church bingo games. The new gambling outlets were impressive for their variety: electronic slot machines in rural South Dakota bars; imitation Wild West casinos in old Colorado mining towns; riverboats along the Mississippi River, from the distressed industrial communities of Iowa to the Gulf of Mexico; and gambling establishments on Indian reservations from coast to coast. (James, 2000) New Orleans was now building what promoters tout as the worlds largest casino, while the mayors of Chicago, Philadelphia, and other big communities enthusiastically embrace gambling proposals. (James, 2000) Casino companies often enjoy economic advantages that are available to few other businesses. Since they are usually granted exclusive government franchises, they are able to generate short-term profits on a scale that proprietors of other businesses can only dream about. (James, 2000) Earnings of five to eight percent of revenues are the norm for most American businesses. In the gambling industry, however, yearly profits between 30 and 50 percent are not unusual. It is not extraordinary for companies to be able to pay off their total investments in one or two years. One Illinois riverboat company reportedly tripled the return on its investment in just six months. (Laurence Armand French; 2000) More and more Americans are being persuaded to try their luck. According to casino industry sources, the number of American households in which at least one member visited a casino doubled between 1990 and 93 from 46 million to 92 million. More than three-quarters of this upsurge was the result of community people visiting casinos outside Nevada and Atlantic City. (James, 2000) In 1994, gambling industry leaders and other business observers were predicting even more spectacular growth. By the year 2000, said Phil Satre, president of Harrahs Casinos, one of the worlds largest casino companies, 95 percent of all Americans will most likely live in a state with legal casino entertainment. (James, 2000) A Large Business Since the governor signed Fort McDowells compact, the tribe has expanded twice, more than tripling the casinos size. Completed in 1994, this is the building that stands today. Now it has 475 slot machines, more than 70 poker tables and a 300-seat restaurant. As Fort McDowell has grown bigger, so has its purchasing power. Businesses come to the reservation now, seeking contracts for everything from the satin jackets sold in the gift shop to office furniture and bingo cards. They visit us just like they would a factory outlet center, says Nunez. The casino has become one of the areas largest businesses, employing 1,300 workers, most of whom commute from nearby cities like Phoenix, Mesa, Fountain Hills, Scottsdale and others. It takes a mix of talent to run a casino: everything from skilled accountants, managers, slot technicians and poker dealers to minimum-wage food servers and money changers. Many people think that Americans/Canadians enjoy gambling, that the gaming industry brings new jobs and money with them when they come to a community. Government sees it as an important source of revenue. Moreover the funds and support that gambling business provides for monetary sector especially for education is significant. In my opinion, our society should be more open to the expansion of gambling that will benefit the whole community. The devastating Hurricane Katrina, which squashed New Orleans, may hit the business and revenues generated by the Casinos operating in the region. End Notes 1. Thomas Barker, Marjie Britz; 2000, Jokers Wild: Legalized Gambling in the Twenty-First Century Praeger Publishers, 2000 2. Ambrose I. Lane, Esteban E. Torres, Terry L. Pechota; 1995, Return of the Buffalo: The Story behind Americas Indian Gaming Explosion Bergin Garvey, 1995 3. Laurence Armand French; 2000, Addictions and Native Americans Praeger Publishers, 2000 4. Gambling with Our Future? The Costs and Benefits of Legalized, March 5, 2004, 5. http://collection. nlc-bnc. ca/100/200/300/fraser/fraser_institute_digital/gambling_with/gamblingwithourfuture. pdf 6. Scheherazade Daneshkhu et al. , Online Betting Operator Jailed: Internet Gambling Decision Could Slow Growing Business, FIN. TIMES, Aug. 11, 2000 7. James W. Prado Roberts, Jail Unlikely to Slow Cyber-Gambling, ASBURY PARK PRESS, Aug. 13, 2000 8. Michael D. Cox, The Indian Gaming Regulatory Act: An Overview, 7 ST. THOMAS L. REV. 769, 770 (1995). 9. Indian Reservations and the New Mexico Economy: Monograph 2: Tourism, April 6, 2004, 10. http://www. sandiapueblo. nsn. us/sandia/gaming/car_tourism. html Works Cited Ambrose I. Lane, Esteban E. Torres, Terry L. Pechota; 1995, Return of the Buffalo: The Story behind Americas Indian Gaming Explosion Bergin Garvey, 1995 Gambling with Our Future? The Costs and Benefits of Legalized, March 5, 2004. Accessed, November 30, 2005, from: http://www. sandiapueblo. nsn. us/sandia/gaming/car_tourism. html Indian Reservations and the New Mexico Economy: Monograph 2: Tourism, April 6, 2004. James W. Prado Roberts, Jail Unlikely to Slow Cyber-Gambling, ASBURY PARK PRESS, Aug. 13, 2000 Laurence Armand French; 2000, Addictions and Native Americans Praeger Publishers, 2000 Michael D. Cox, The Indian Gaming Regulatory Act: An Overview, 7 ST. THOMAS L. REV. 769, 770 (1995). Scheherazade Daneshkhu et al. , Online Betting Operator Jailed: Internet Gambling Decision Could Slow Growing Business, FIN. TIMES, Aug. 11, 2000 Thomas Barker, Marjie Britz; 2000, Jokers Wild: Legalized Gambling in the Twenty-First Century Praeger Publishers, 2000.