Boom or bust? Casino gaming and host municipalities.

Alexander, Ross C. ; Paterline, Brent A.

Introduction

A myriad of literature exists that addresses the impact of legalized casino gaming on cities that host the venture from a multitude of perspectives--socially, economically, culturally, morally, psychologically, with regard to crime, in terms of gambling addiction, and even from an individual and family stress perspective. Whereas many of these studies insist that legalized gaming has had a net negative impact, others extol its positive virtues, especially economically. In sum, existing literature on the topic is contradictory, ambiguous, and difficult to analyze because, whether pro or con, most offer valid arguments that are quite persuasive. The trend among most scholars studying this phenomenon is that someone makes a claim and someone else deconstructs it by arguing the exact opposite. It is frustrating to say the least! Who is to be believed?

On the negative side, the best constructed and most often cited arguments warn largely against the economic pitfalls and social evils associated with legalized casino gaming. These studies assert that casinos "cannibalize" or take profits away from local businesses or that, because most gamers are local, there is no net fiscal gain for the local economy. As a consequence, monies gambled are simply dollars exchanged among local gamblers rather than monies infused into the local economy by outside sources.(1) With regard to the perceived social ills associated with gambling, many scholars argue that costs such as increased crime and gambling addiction outweigh any potential positive fiscal impact derived from legalized casino gaming over the long term.(2)

On the positive side, many authors maintain that gaming results in a net positive gain for municipalities more often than not, especially economically. Some of these studies refute the cannibalization thesis as being based on poor methodology or the infallibility of trying to quantify social costs.(3) Others maintain that the vast quantities of revenue being generated into blighted and needy communities (over $30 million annually, in some cases) outweighs almost any negative social impact.(4) Still others contend that the effect on crime has been exaggerated.(5) Finally, placing the debate in a political context, the best argument for gaming, according to some of its advocates, may be that since citizens and politicians favor it and neighboring states possess it, states and municipalities should invest in it lest they lose valuable revenue to their neighbors.(6) Thus, as one can see, with few exceptions, there is little middle ground surrounding the gambling debate.(7)

This study does not attempt to undertake a comprehensive examination of the gaming debate. Rather, it examines the impact that gaming has had economically on municipalities that possess it. The authors of this study have surveyed those officials in host communities who may not be best qualified to comment upon the overall impact of gaming on the municipal economy, but who do possess unique insight into the economic health and priorities of their respective communities--economic development professionals--appointed officials (for the most part) well-versed in all aspects of the economic affairs of their respective communities, including casino gambling. These officials are not gaming lobbyists, but rather professionals hopefully making decisions in the best interests of the community they serve in the realm of economic development.

This study does not try to make any value judgments regarding the gaming debate. Rather, it focuses on a simple research question: "In your opinion, how has legalized casino gaming affected the economy of your municipality?" The findings of this study suggest that economic development professionals in those cities that possess it support gaming overwhelmingly. According to those surveyed, gaming seems to have had a significant positive overall economic effect in most host cities, especially those with riverboat or land-based non-Native American gaming enterprises.

Methodology

A nineteen-item questionnaire was mailed to economic development professionals in every city that possesses some form of legalized casino gambling in the United States, excluding those communities that have multi-site, extensive, land-based casino developments (i.e., Las Vegas, Atlantic City, and cities in coastal Mississippi), to guage opinions about the economic effect that gaming has had upon their respective communities as well as the level of local support for the enterprise in general. The survey focused on these officials because they are uniquely qualified to comment upon the overall economic health, direction, and priorities of their communities with a modicum of professionalism and accuracy.(8) Ultimately, the authors of this study tried to determine the effect that a single (or, in some cases, two or three) casino development has had upon the local economy.

Of the approximately 350 communities that possess some form of legalized casino gaming in the United States (riverboat, land-based Native American, or land- based non-Native American), 140 local economic development professionals from twenty-two states returned the survey, an encouraging response rate of forty percent.(9) The survey attempted to glean attitudes and opinions regarding the economic viability, effect, and influence of gaming on individual host communities as well as distinguish its viability as a revenue generation mechanism as opposed to an economic development mechanism (or both in many cases). In short, did the casino development infuse a significant amount of money into the local economy which then spurred secondary or tertiary economic development? The survey also tried to determine exactly how much revenue the development generates annually, how that money is allocated, what types of projects or developments have been financed with gaming money, and whether or not the official would recommend legalized gambling as a viable economic development or revenue generation strategy for other communities.

The dependent variable of "support of gaming" was measured on a Likert-type scale--the higher the scale-score on this measure, the greater the support of gaming.(10) The variable has a mean of 3.7 with a median of 4.0. The model utilized six independent variables as predictors of the dependent variable--support of gaming. The independent variables include: revenue from gaming, type of gaming, the effect the casino has had upon the community, the number of years gaming has existed in the community, whether or not the casino development is a destination-type attraction or local-type attraction, and how important casino gambling has been to the overall economic development of the host community.

Results

Of the 140 municipalities surveyed, 49.6 percent possessed a Native-American casino development. Municipalities received a mean of $7.7 million annually from gaming. The median for this variable was $6 million, with a standard deviation of $6.5 million. The mean number of years gaming has existed in municipalities is 8.8 years, with a median of nine years and a standard deviation of 4.5 years. Eighty percent of the casinos were described as destination-type attractions rather than a local-type attraction. Over three-quarters of the respondents (78.6 percent) stated that casino gaming has affected their community in a "positive" or "very positive" manner. Fifty-nine percent of the respondents stated that the casino has caused secondary or tertiary development near the gaming development or in other parts of the community. Respondents were generally supportive of gaming within their respective communities; sixty-one percent expressed a "supportive" or "very supportive" attitude toward gaming.

The zero-order correlation results for all of the variables in this study are presented in Table One.(11) The strongest predictor of one's support of casino gambling is the perception of how important casino gambling has been to the economic development of the community. Those who believed that casino gambling has been an important part of community economic development were more likely to express strong support for casino gambling (r= .66). There were several other important predictors of support of gaming. The more money a community received from gaming, the greater the support of gaming (r= .59). The more casino development has affected one's community economically, the greater the support of gaming (r= .32). Municipalities that had non-Native-American casinos in their communities exhibited greater support of gaming than those that had Native-American gaming. The type of casino, whether it is a destination-type or a local-type attraction, was not a significant predictor of attitude toward gaming (r= .02). Nor did the number of years the casino had been in operation prove to be a significant predictor of support for gaming (r= .03).

There are several correlations between the independent variables that may be worth noting. First, communities received more money from non-Native-American casinos than Native-American casinos (r= -.33). Accordingly, non-Native-American casinos seem to have had a more positive effect on community economic development (r= -.57). Interestingly, destination-type casinos did not generate more revenue for local economies than did local-type casinos (r= .01). Yet, destination-type casinos were more vital to the economic development or redevelopment of their respective communities (r= -.59). There was no significant relationship between how long a casino had existed and the amount of money it generated for a community (r= .05) or how it affects the community's economic development (r= .02).

In order to fully examine the influence of the independent variables on support of gaming, a multivariate regression analysis was performed.(12) For this regression analysis, the full range of scores on the dependent variable of support of gaming were used, dichotomized variables were treated as dummy variables, and ordinal measures were treated as interval. Only standardized regression coefficients were used to assess the relative importance of each independent variable. The regression model is presented in Table Two.

The dependent variable (support of gaming) was regressed upon the six independent variables. The total amount of variance explained is thirty-eight percent (R squared=.38). The result of the regression analysis indicates that the strongest predictor of support of gaming is the amount of money a community received from gaming (beta=.46). This relationship is significant at the .01 level. There is a weak positive relationship between economic development and support of gaming. Those who believed that casino gambling has been an important part of community economic growth are more likely to support gaming (beta = .23). This relationship, however, was not significant at the .05 level. None of the other independent variables--type of gaming, type of casino, year that gaming was established, or the effect casino gambling has on one's community--are significant predictors of support of gaming.

Discussion of Results

Several of the aforementioned results warrant further discussion and analysis. First, surveyed municipalities receive an average of $7.7 million annually from their local casino establishment either contractually or as the result of philanthropic gifts from the casino development owner/operator.(13) It should be noted that there is a significant amount of variation in dollars received dependent upon casino type. Those communities in the Midwest which host riverboat gaming reap the largest rewards, upwards of $20 to $30 million annually in many cases. Rural communities that host Native-American casinos collect the least revenue, only a few hundred thousand dollars per year in many cases.(14)

To better understand this disparity, the intent or purpose of the legalized gaming initiative must be examined. There is a significant difference in the economic and political intent of each type of gaming operation. The purpose of riverboat gaming in the Midwest is to provide funds for downtown and riverfront redevelopment in formerly industrial host cities.(15) The purpose of Native-American gaming is to generate money for host tribes, not host municipalities.(16) It thus should come as no surprise that: (1) non-Native-American gaming developments generate far more revenue and have a larger economic development than their Native-American counterparts; and, (2) officials in those cities possessing nonNative-American gaming feel more positively about legalized gaming as a revenue generation and economic development endeavor than those officials in communities possessing Native-American gaming.

Perhaps most significantly, over three-quarters of respondents stated that casino gaming has affected their community in either a "positive" or "very positive" manner. If nothing else, the results strongly suggest that gaming has been a valuable revenue generation source in the studied communities. It seems that many communities have turned to gaming when few other viable, large-scale economic development or revenue generation alternatives exist. The "it's better than nothing" or "beggars can't be choosers" thesis may ring true in many cases where no other endeavors that produce millions of dollars annually for the city coffers exist. (17) Most respondents explained that, contractually, casino profits must be utilized for projects that benefit the entire community, which often include large-scale capital improvement projects, educational funding, equipment for police and firefighters, community grants, downtown revitalization, libraries, and debt relief.

The results also suggest that gaming profits provide far more than mere revenue generation; it spurs economic development community-wide, at minimum encouraging secondary or tertiary development near the casino development itself. Fifty-nine percent of respondents indicated that gaming has caused or kick-started economic development in their respective communities. It should not come as a surprise that those who have a positive view toward gaming see the endeavor as integral to the economic development/redevelopment of their community. The most common types of development associated with the casino development, according to the respondents, are: restaurants, shopping centers, hotels/motels, community/civic centers, recreational facilities, and riverfront/downtown redevelopment.

It should also be noted that the majority of respondents explained that gaming money allows the municipality to undertake projects or fund programs that would not be funded if gaming dollars did not exist. Such projects include: downtown revitalization, stadiums, parks, civic centers, infrastructure improvements, new municipal facilities, and debt relief. From a strictly monetary perspective, without any consideration of potential social costs, this represents a net economic gain for these communities.

The results also indicate that while destination-type casinos did not significantly generate more revenue for host cities compared to local-type casinos, the former were more important to economic development efforts in host communities than the latter. Gamers who view the casino as a tourist destination are more likely to spend money at hotels, restaurants, gas stations/convenience stores, and recreation outlets near the casino development. Perhaps this economic reality explains why some states have passed restrictions prohibiting casinos from being located within fifty miles of one another.(18) In this case, the theory that the most successful casinos are those that can attract non-local gamers seems to, at least in part, ring true; that for cities to reap the maximum reward from gaming (in terms of tertiary economic development), outside, non-local money needs to be attracted or infused into the gaming development and surrounding areas.(19)

Opponents of legalized gaming as a long-term economic development initiative contend that the novelty of gambling will wear off; that it may cause a short-term spike in revenue generation, but it will lose its appeal and fail to sustain a significant stream of profits for the community over the long-run. The results presented here seem to refute that contention. According to economic development professionals, the length of time a casino has been in operation does not have an effect on either revenue generation or economic development potential. In fact, in the case of several Midwestern communities that possess riverboat casino developments, gaming profits have increased dramatically over time since gaming was established in the late 1980s and early 1990s. (20) Finally, not surprisingly, officials in those communities that reap more financial reward (in terms of dollars received) as a result of gaming are more supportive of the endeavor in their own communities and more supportive or optimistic of its ability to serve as a long-term revenue generation and economic development engine.

Conclusion

Several conclusions can be drawn from the results presented in this study. First, in the opinion of those surveyed, legalized casino gaming is an important revenue generation endeavor for the majority of the communities examined here. It offers an opportunity to reap millions of dollars annually when few (if any) other options exist. Second, most officials view gaming as a valid, important, and legitimate economic development option for their respective communities, one that spurs secondary or tertiary development near the casino development and elsewhere in the community. Third, casino profits allow host municipalities to undertake projects and fund programs that would normally not be fundable without casino dollars, particularly large capital improvement endeavors. Fourth, communities that possess non-Native-American gaming (especially riverboat gaming) reap the largest financial rewards from legalized gambling. Fifth, gaming appears to represent a sustainable economic development presence over time, rather than simply being a short-term novelty, for most of the communities studied here. Finally, with regard to long-term economic development success, destination-type casinos that attract non-local gamers offer the greatest benefits for host municipalities. Thus, based on the opinion of economic development officials surveyed for this study who can offer unique, professional, and reliable insight regarding the gaming phenomenon and its impact on host cities, legalized casino gaming is both a viable revenue generation and economic development strategy for host municipalities.

Table One
Zero-Order Correlations among Variables (N = 140)

 (1) (2) (3) (4)

(1) Support of Gaming l
(2) Money from Gaming .59 * 1
(3) Type of Gaming -.41 * -.33 * 1
(4) Effect on community .32 * .34 * -.14 1
(5) Year gaming established .03 .05 -.12 -.01
(6) Type of Casino .02 .10 .00 -.14
(7) Economic Development .66 * .70 -.57 * .30 *

 (5) (6) (7)

(1) Support of Gaming
(2) Money from Gaming
(3) Type of Gaming
(4) Effect on community
(5) Year gaming established 1
(6) Type of Casino -.12 1
(7) Economic Development .02 -.59 * 1

* p <.01

Table Two
Regression Coefficients for (Standardized)

Independent Variables Support of Gaming

Money from Gaming .462 *
Type of Gaming .065
Effect on Community -.071
Year Gaming Established .094
Type of Casino -.049
Economic Development .229
R Squared = .384

* p<.0l

ENDNOTES

(1) Ricardo Gazel, "The Economic Impacts of Casino Gambling at the State and Local Levels," Annals of the Academy of Political and Social Science 556 (March 1998):66-84; Ricardo Gazel, William N. Thompson, and Dan Rickman, The Economic Impact of Native American Gaming in Wisconsin (Milwaukee, WI: Wisconsin Policy Research Institute, 1995); Ranjana G. Madhusudhan, "Betting on Casino Revenues: Lessons from State Experiences," National Tax Journal 49 (September 1996):401-12.

(2) Robert Goodman, The Luck Business: The Devastating Consequences and Broken Promises of America's Gambling Explosion (New York: Free Press, 1994); John Warren Kindt, "The Economic Impacts of Legalized Gambling Activities" Drake Law Review 43 (1994):51-66; Mary O. Borg, Paul Mason, and Stephen Shapiro, "The Incidence of Taxes on Casino Gambling" American Journal of Economics and Sociology 50 (July 1991): 323-32.

(3) Douglas M. Walker, "Legalized Casino Gambling and the Export Base Theory of Economic Growth," Gaming Law Review 3 (1999):157-63; Douglas M. Walker, "Methodological Issues in the Social Cost of Gambling Studies," Journal of Gambling Studies 19 (2003): 149-84.

(4) Michael Przybylski and Laura Littlepage, "Estimating the Market for Limited Site Casino Gaming in Northern Indiana and Northeastern Illinois," Journal of Urban Affairs 19 (1997):319-33; Ross C. Alexander, The Effects of Casino Gaming on Selected Midwestern Municipalities: Gauging the Attitudes of Local Government Officials, Local Business Officials, and Civic Leaders (Bloomington, IN: Authorhouse, 2003); Daniel Felsenstein, Laura Littlepage, and Drew Klacik, "Casino Gambling as Local Growth Generation: Playing the Economic Development Game in Reverse?" Journal of Urban Affairs 21 (1999):409-21.

(5) See, for example, Walker, "Methodological Issues in the Social Cost of Gambling Studies," 149-84; Jon Griffin Donion, "Excessive Zeal: A Response to John Kindt, The Economic Impacts of Gambling Activities," Gaming Law Review 1:4 (Winter 1997):53947; Christian Marfels, "Development or Dreamland Delusions: Assessing Casino Gambling's Costs and Benefits--A Comment on an Article by Professors Grinols and Omorov," Gaming Law Review 2:4 (Winter 1998):415-19.

(6) Frances Stokes Berry and William D. Berry, "State Lottery Adoptions as Public Innovations: An Event History Analysis," American Political Science Review 84:2 (June 1990):395-416.

(7) William R. Eadington, Director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada-Reno, provides the most balanced and fair accounts on the overall effects of gaming from a myriad of perspectives. See, for example, William R. Eadington, "Contributions to Casino-Style Gambling to Local Economies," Annals of the Academy of Political and Social Science 556 (March 1998):5365; William R. Eadington, "Economic Development and the Introduction of Casinos: Myths and Realities," Economic Development Review 13 (Fall 1995):51-54; William R. Eadington, "The Legalization of Casinos: Policy Objectives, Regulatory Alternatives, and Cost/Benefit Considerations," Journal of Travel Research 34 (Winter 1996):3-8.

(8) Surveys were addressed to the Economic Development Director or Community Development Director in most cases. However, in many instances, especially in smaller communities, no one person was solely responsible for economic development activities. In these cases, the authors of this study addressed surveys to Person Most Responsible for Economic Development. It should be noted that in almost every case, these officials are professionals--economic development directors, community development directors, city managers, city administrators, mayors--dealing with many aspects of the local economic and community development, not just casino gaming, and should therefore not be viewed as mouthpieces for or advocates of the gaming industry. They are appointed and elected officials serving the interests of the citizens in their respective communities, not paid lobbyists of the gaming industry. Questions asked of officials included: When was gaming established in your municipality? What type of gaming do you have? Would you consider the casino to be a destination-type attraction, a local-type attraction, or a mix of both? Approximately how much money does your municipality receive per year from casino gaming based on your agreement with the gaming facility operator? How is that money allocated? How has the casino development affected your community economically? Has casino revenue allowed your community to undertake projects or developments that would not have been possible without casino revenue? If yes, what types of projects? In the long-term, how do you view casino gambling as an economic development growth strategy or redevelopment strategy for municipalities in general? Overall, how important has casino gambling been to the economic development or redevelopment of your community? Has the casino development caused secondary or tertiary development near the development or in other areas of the municipality? If yes, what types of development? How would you describe your level of support of gaming today? (Dependent Variable) Overall, has casino gambling been an economic positive or negative in terms of revenue generation for your community? Overall, has casino gambling been an economic positive or negative in terms of economic development or redevelopment of your community? Would you recommend casino gaming as a revenue generation or economic development strategy for other municipalities?

(9) Officials from each of the following states responded to the survey: Illinois, Iowa, Indiana, Wisconsin, Missouri, Minnesota, Michigan, Louisiana, California, Arizona, Colorado, Kansas, Mississippi, Montana, New Mexico, New York, North Dakota, Connecticut, Oklahoma, Washington, Oregon, and Idaho.

(10) Likert-type scales generally ask people to what degree they either agree or disagree with a given statement. The Likert scale primarily utilized in this study had five possible answer categories: "very negatively," "negatively," "neutral," "positively" and "very positively" to describe agreement/disagreement with various questions and/or statements presented in the survey instrument.

(11) Pearson's Correlation Coefficient was used to determine the zero-order correlations between the variables in this study. The instrument is used to measure the linear or straight-line relationship between two variables with scores of + 1.00 and -1.00. The coefficient expresses the strength of the relationship and the direction of the relationship is indicated by the sign (positive or negative) of the correlation coefficient. A zero-order coefficient includes no control variables.

(12) Multiple Regression is a statistical technique that allows one to use two or more independent variables as predicators of a dependent variable, showing the effects of each independent variable on the dependent variable while controlling for the effects of each independent variable. The effect of each independent variable is measured by a standardized regression coefficient and the variance (R squared) tells how well a set of variables explains a dependent variable.

(13) Forty-five communities surveyed in this study receive no funds from the gaming endeavor contractually, but most of them receive significant philanthropic and charitable gifts from casino operators.

(14) Elgin, Illinois and Joliet, Illinois are the two that generate the most money (within the $20 to $30 million annually range). Rural northern Michigan casinos reap the smallest financial rewards, most notably Marquette, Michigan and Escanaba, Michigan. See Alexander, The Effects of Casino Gaming on Selected Midwestern Municipalities, 68-120.

(15) Like, for example, Elgin, Aurora, Joliet, and East Preoria in Illinois; East Chicago, Gary, and Hammond in Indiana; Bettendorf, Davenport, and Council Bluffs in Iowa; and Kansas City, St. Charles, and St. Louis in Missouri.

(16) For additional detail, see Alexander, The Effects of Casino Gaming on Selected Midwestern Municipalities, 121-34.

(17) Ibid., 68-105.

(18) Wisconsin, for example.

(19) Gazel, "The Economic Impacts of Casino Gambling at the State and Local Levels," 66-84.

(20) Alexander, The Effects of Casino Gaming on Selected Midwestern Municipalities, 68-105.

ROSS C. ALEXANDER is an Assistant Professor of Political Science and BRENT A. PATERLINE is an Associate Professor of Criminal Justice at North Georgia College & State University in Dahlonega, Georgia.