C Horn C A Symposium Sponsored by the Federal Reserve Bank of Boston Robert Tannenwald, Editor Special Report No. 2 Published in October 1995 Preface / iii Welcome and introduction / v Cathy E. Minehan Panel I: impact on income and Jobs The extent to which casino development fosters the economic growth of a state or local area has been vigorously debated. What evidence of the economic effects of casino development do we have, based on both theory and empirical research? What can New England ]earn from regions where casinos are more widespread? What are the methodological issues in estimating casinos’ impact on jobs and income? Introduction Robert Tannenwa]d The Impact of Casino Gambling on income and Jobs / 3 Ear] L. Grino]s Gambling and the Law®: Endless Fields of Dreams® I. Nelson Rose indian Gaming’s impact on income and Jobs / 47 S. Timothy Wapato High=Stakes Casinos and Economic Growth / 52 Arthur W. Wright Panel ll: Implica~ons for Public Sector Revenues Casinos pay substantial taxes and fees to state and local governments. What is the optimal way to tax casinos? To what extent do taxes and fees collected from casinos displace public revenue generated by other forms of state-sponsored gambling, such as lotteries and parimutuel betting? Do revenues from casino taxes displace revenues from sales taxes? Who ultimately bears the burden of casino taxes? introduction / 59 Gary S. Sasse The Promise of Public Revenue from Casinos Charles T. Clotfelter Steven D. Gold Finances: The Case of New Jersey / 74 Ran3ana G. Madhusudhan Perspective of the Treasurer of Massachusetts / 87 The Honorable Joseph D. Ha]one Evaluating a State’s Gambling Strategy: The Relationship between Lottery Sales and Casino Gambling / 91 Richard A. Mcaowan, S.J. Pane~ ill: Social Costs The extent to which casinos impose costs on society is one of the most controversial issues surrounding casino development. How will casino development affect costs of law enforcement and regulation? Do casinos require expansion of municipal services at taxpayers’ expense? Can one quantify the economic costs associated with an increase in compulsive gambling behavior? Introduction / 1o5 Helen F. Ladd Social Costs of the Casino ~ndustty / 1o7 a. Michael Brown Findings of Recent Studies / 115 Robert Goodman Perspective of the Attorney Genera~ of Massachusetts / 12o The Honorable L. Scott Harshbarger Perspective of the Attorney Genera~ of Rhode island / 127 The Honorable Jeffrey B. Pine The Psychosocial Consequences of Gambling / 13o Howard J. Shaffer Timothy P. Ryan About the speakers / 15o ii In 1992, Connecticut became the first New England state to allow casino gambling within its borders. Since then, the region’s other states have seriously considered whether to follow Connecticut’s example. One of the most controversial, unresolved issues in these debates has been the economic effects of casino development. While interest in this issue is intense, relevant empirical evidence is scant. For this reason, the Federal Reserve Bank of Boston held a one-day Symposium on Casino Development on June I, 1995, bringing together experts from academia, government, Native American nations, and the gaming industry. This special report summarizes the participants’ remarks. Since the Symposium, regional interest in casino development has remained high. Although Connecticut still has the only casino in New England--Foxwoods in Ledyard, CT--several proposed casinos in a number of states are on the drawing board. We hope that this report will help to inform the continuing debate over this important issue. The editor would like to thank Lynn Browne, Jeannette Hargroves, Sue Rodburg, Jim Sharpe, and other members of the Research Department of the Federal Reserve Bank of Boston for helping to plan the conference, Joan Poskanzer for editorial assistance, and Maria Mason for preparing the report. iii The final panel will examine the extent to which casinos impose medical, legal, and other social costs on society=-potential social costs with an economic dimension. There has been much discussion about the extent to which the spread of casinos will raise the incidence of problem and pathological gambling behavior, for example. Victims of these disorders tend to be unproductive workers and may commit crimes to support their habit. If casino development exacerbates these problems, then society as a whole pays the price. The panel will discuss evidence concerning the extent of these problems, and how potential social costs should be weighed against the economic costs imposed by constraints on casino development. We at the Federal Reserve Bank of Boston hope, by putting on this program, to inform the public policy debate in New England and to promote constructive, informed discussion of one of the key issues now confronting New England. vi Cathy E. Rinehart* I am pleased to welcome you to our symposium on Casino Development. Eight years ago, only two states, Nevada and New Jersey, allowed casinos to operate within their borders. Today, 24 states, Connecticut among them, permit some form of casino gambling within their borders. Now other New England states are considering whether to follow suit, and this has become an unusually controversial issue in the region. State policymakers from Augusta to Hartford have debated casino gambling’s economic effects, yet few independent researchers have evaluated them. They are difficult to quantify and casino development is, after all, a fairly recent phenomenon. This symposium aims to bring together experts to discuss what we know and do not know about the economic impact of casinos. The symposium has been organized into three panels, each focusing on a different set of potential economic effects. The first panel will discuss the impact of casinos on jobs and income at the state and local levels. Proponents argue that casinos can dramatically improve the economic conditions of the jurisdictions in which they operate. By contrast, opponents argue that casinos simply alter the mix of employment and income among industries, without stimulating aggregate economic growth. This panel will critique existing evidence and identify key assumptions policymakers must make to assess the casino’s macroeconomic effects. The second panel will consider the implications of casino development for public sector revenues. Many casinos pay substantial taxes and fees to state and local governments. The issues examined by this panel will include the importance of these taxes and fees in the total revenue collections of states and municipalities, the_extent to which casino taxes displace public revenue generated by other forms of state-sponsored gambling, and who ultimately bears the burden of casino taxes. *President and Chief Executive Officer, Federal Reserve Bank of Boston. Robert Tannenwalde Clearly casinos employ people° In fact, big casinos employ a lot of people and pay their employees benefits and salaries; casinos also buy goods and services from other firms that also have payrolls. But are many casino employees simply hired away from other employers? Would people obtaining a job attributable to casino development have eventually found a job anyway, with or without casinos? If so, in the absence of casinos, how much longer would it have taken them to obtain employment? Under what conditions do casinos exert the strongest impact on jobs and income within a state or local area? To what extent do these conditions obtain in New England? How would the economic stimulus provided by casinos change if they were to proliferate throughout the region? How do casinos affect the employment and income of Native American communities? These are some of the questions that this panel will broach. This symposium is addressing these questions first because, in considering any public policy, its impact on jobs and income is always an intense, widespread concern. Yet, in some ways, these questions should be considered last. The underlying issue in legalizing any forbidden activity is whether the attendant social costs outweigh the gain in economic satisfaction resulting from greater economic freedom. Until recently, most states prohibited casino gambling because, according to widespread belief, it bred crime, corruption, compulsive gambling, and other behavior detrimental to society. Avoiding these social costs was considered to be worth the dissatisfaction of potential casino gamblers forced to divert their dollars to other uses. Ironically, the impact of casinos on jobs and income becomes most significant in the special case where some jurisdictions within a region *Senior Economist, Federal Reserve Bank of Boston. permit casino gambling while others forbid it. Such has been the situation in New England since Foxwoods casino opened its doors in Ledyard, Connecticut in 1991. Because Foxwoods has enjoyed a regional monopoly, some allege that Connecticut, or at least its southeast quadrant, is siphoning off dollars from the economies of other New England sub-regions. According to this view, casino patrons from areas outside the vicinity of Foxwoods are forgoing purchases of goods and services to gamble in southeastern Connecticut. As a result, so the argument goes, the communities around Foxwoods are gaining jobs and income at the expense of many other communities throughout New England. How much southeastern Connecticut is gaining as a result of Foxwoods’ regional monopoly is one of the questions that this panel will address. In short, Foxwoods has allegedly created a border problem for much of New England. If so, the only way to alleviate this problem is to permit casino gambling to spread. How much would other jurisdictions gain? How would the magnitude and distribution of the gains vary with the extent of proliferation? Our panelists will address these questions. Ea~l L. Grinols~ From the national perspective, the economics of gambling can be summarized as a cost-benefit question: Is it worth adding another social problem for another form of entertainment? Were gambling to be introduced everywhere in the country, for example, the social costs would be roughly equivalent to the costs of an additional recession every decade.