Casinos Help Turn Around Local

¶ … Casinos Help Turn Around Local Economies

Casinos have become increasingly popular in the past few years as a tool to boost the growth of local economies. This is quite different from the traditional economic development tools. In a few aspects, however, it is similar to other approaches in the sense that it does generate local employment opportunities and enhances the local income. The differences lie in the economic vs. fiscal impacts, provision of public goods, corporate-community relations, market development and the role of the State. (Felsenstein; Littlepage; Klacik, 1999)

Many local communities have embraced casino gambling as a strategy to develop their local economies. The rationale behind developing casinos in their areas was to produce tax revenue and to keep the local gambling money within the community instead of losing it to other casinos outside the local community. Many U.S. cities have been witnessing deteriorating fiscal health and have been exploring ways and means to turn around this situation. Casino gambling has steadily been emerging as one of the ways to attract revenue since the 1990s. In spite of being a popular choice as an economic development tool, the growth of casinos in the U.S. has sparked off debates about the possible impacts on moral, social and religious life of the people. From the perspective of formulation of public policies, this debate is basically about four vital issues: (a) how casino gaming would contribute to the local economy, (b) impact on the local crime rate, - social pathology and (d) effect on people, business and bankruptcy. (Moufakkir; Holecek, n. d.)

The first legalized casino can be traced back to 1931 when Nevada opened its first casino. As compared to the gambling scene twenty five years ago, the U.S. has added more than 600 new casinos in various counties. Out of these 400 are commercial casinos and 248 are tribal casinos. Most states in the U.S. have legalized casinos except for 19 states (as of 2003) which are still resisting the legalizing of casinos. The adjusted gross revenues (AGR) from commercial casinos have increased from $19.7 billion to $26.5 billion in a period of 3 years from 1999-2002, a growth of around 10% per year. Tribal casinos have also grossed a substantial amount of money. The figures available from 28 U.S. states in 2001 shows a growth of approximately 14% per year starting from 1997 when the AGR was $7.5 billion to 2001 when the AGR stood at $12.7 billion. This growth has affected the social costs of gambling like that concerning the pathological gambler and bankruptcy. The unanimous opinion about pathological gamblers is that they indulge in various criminal and illegal activities and gradually destroy their families by running up huge debts. In some cases, they end up killing themselves. (Goss; Morse, n. d.)

With the legalization of casinos and increased opportunities of gambling avenues in the local vicinity, pathological gambling may become even more rampant. With the spurt in casino gambling in the 1990's the rate of personal bankruptcies also grew substantially. The total personal bankruptcies in the whole of U.S. grew by 67.8% in the 1990s. Inversely, business bankruptcies reduced from 63,365 to 37,183 in the same time period. During this period, many other demographic and economic factors were also going through a phase of transition so it would be inappropriate to attribute the growth of personal bankruptcies specifically to the growth of casinos. Notwithstanding these facts, many economists, sociologists as well as politicians have put the entire blame of the increase of U.S. bankruptcies on the growth of casinos. A regression analysis performed on U.S. bankruptcy data in the 1990s reveals that the U.S. states that had legalized casinos also suffered personal bankruptcy rates that were 100% higher than the counties that had no casinos. Inversely, the states with casinos had 35.4% lower business bankruptcy rates than states without casinos. (Goss; Morse, n. d.)

According to a study conducted in the casinos of Detroit in the period between 1996 and 2000, it has been found that the casinos have made a significant contribution in increasing the tourism activity in the local area. Casinos had a positive role of attracting tourists to the community and as a result generated extra money. Casinos increased local employment opportunities as well as generated taxes. It also contributed to ancillary businesses linked to the tourism industry. Another interesting finding was that cases of bankruptcy filed did not go up even a year after the casinos opened in Detroit. Criminal activity also did not go up in the local area during the study period. Since the study period was relatively short, the interplay of different factors could not be taken into account so it is definitely possible that not all the effects of casino gaming are positive. (Moufakkir; Holecek, n. d.)

The debate over the legalization of casinos stems from the fear of the supposed link between organized crime and casinos. However, the entry of large hotel corporations like the Hilton has improved the credibility of this industry to some extent. The general belief is that due to the massive amounts of revenue garnered by the casinos, citizens and lawmakers would instinctively be alerted to the possibility of corruption but this has not been the case. Casino gambling is increasingly becoming acceptable as well as legitimate and this has made the citizens, journalists and legislators turn a blind eye to the law violations made by casinos. Casinos are being seen as a panacea to the economic ills plaguing a city and this has made the city guardians to appeal to the government to legalize casino gaming. (Pierce; Miller, 2004)

Cities with declining economies can be assisted by the government up to a certain limit but the rest of the revenue needed to revitalize the city must come from external sources. Outside visitors to the state can bring in revenue by spending at the casinos as well spending money on the other businesses in the area. (Pierce; Miller, 2004) the players who entered into this market early on benefited from the lack of competition and the influx of patrons from those states where casino gaming had not been legalized as yet. Those who entered into the fray later on had to face a lot of competition. This resulted in an unhealthy trend of spending exorbitant amounts in order to create an alluring gambling atmosphere. The new Wynn Las Vegas hotel spent a whopping $2.7 billion becoming one of the most costly properties in the city. This trend has generated a lot of skepticism in the capital market about the future profitability of this industry. Except for Las Vegas, the idea of tourist-based gambling proving to be a political and economic panacea for the economically ill local communities may prove to be a very difficult feat to achieve. (Morse; Goss, 2007)

Whether building a casino in a particular area is beneficial or harmful for the local economy or not depends largely on the potential of that place to attract visitors to that area. Casinos situated in places like Las Vegas specialize in exporting casino gambling services to visitors, thus attracting new money to the community. Money spent by a visitor in a casino can find its way to a local business which supplies food items to the casino which in turn may be spent on other products in the local market. This multiplies the effect of the money spent by a tourist in a casino. A visitor normally does not spend much on the local businesses surrounding a casino built in a resort-style. Thus, the secondary benefits of a casino come from indirect spending in the local businesses enhanced by visitors to the casino and not from direct spending in the shops and other local establishments. Casinos that are patronized by the local people do not benefit the local economy since the money spent in casinos would otherwise have been spent in some other goods or recreational services in the same area. It is possible to have positive secondary economic effects only if it can manage to attract tourists from outside to state or local community. (Brome, 2006) casino patronized by the local community can have a positive economic effect only if it can generate employment opportunities for the local populace. These effects are higher for new casinos that are opened in places with a history of high unemployment. On the other hand, if a new casino is opened up in a place where the labor market is tight, it may end up as a labor competitor for other service sectors. Various studies conducted on the impact of casino gambling have suggested that as the competition in this industry intensifies, the profits of individual casinos will go down. Another study has shown that a casino that primarily caters to the local population still manages to attract a small percentage of people from outside the local community and their spending has a multiplier effect in the local market. (Brome, 2006)

Money lost by the local community in a casino can be taken as an income for the local economy if we consider that the money might have been spent for some other goods or services outside the local area. Casinos also pay taxes to the government which again means that the local community loses the money gained by the casino. Another way in which the local economy does not benefit from the casino is when the casino gets its supplies from external suppliers or the casino owners live outside the casino's economic area. Some of the casino profits can also be lost as a result of government services provided in that area like providing better roads and traffic control to the casino. (Hsu, 1999)

The casino may also require additional police protection and judicial activity in case criminal activity goes up in the region. Las Vegas has also had its own share of problems as an off-shoot of the phenomenal success of casinos there. It has had to deal with air pollution, shortage of water, inadequate methods of mass transportation and other infrastructure related problems. Despite these problems, Las Vegas has become a classical case of casino success with 30 million tourists flocking to the Las Vegas casinos every year. Approximately 90% of the money in the Las Vegas economy comes from casinos. The casino leadership is extremely strong and is aware of the needs of the local community. It is prepared to deal with the problems associated with casino gambling so that the community remains economically strong. As a result, not many people are bothered about the impact of casino gambling on the local community. (Hsu, 1999)

It has been found that a casino can eat into the profits of other local industries. This cannibalization can affect the local economy to some degree. In order to attract more customers, casinos often resort to offering several goods and services free of cost or at heavy discounts. These goods may take the form of food or beverages which may compete with local dining industries and often drive them out of business. Legalized casino gaming can also reduce the profit margins of other forms of legalized gambling like dog racing, horse racing or bingo. (Pierce; Miller, 2004) a study conducted by the National Opinion Research Council under National Gambling Impact Research Commission in 1998 found that pathological gambling in the State cost the society $5 billion per year. In terms of creditor losses and productivity reduction, the cost to the society was $40 billion. On the other hand, apart from increased tourism activity, tax revenues and property values, casino gambling has also spurred the growth of the hotel industry as well as construction activities in the local area. (Florida Council of Compulsive Gambling, Inc., 2004)