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February 26, 2008

Snake Oil or Savior? CLAIMS ARE FLYING FROM BOTH SIDES OF THE CASINO DEBATE — SHOULD WE BELIEVE ANY OF IT?

BY JENNIFER OLADIPO AND CARY STEMLEThere are no quick fixes for a $900 million budget deficit, poor national education rankings, an aging population and a host of other issues Kentucky faces now and in the near future. Gov. Steve Beshear and others say casino gambling, twice eschewed by Kentucky voters, will go a long way toward alleviating some of those problems. Consequently, Kentucky lawmakers are now debating a proposed constitutional amendment offered by Beshear that would legalize casino gambling. The governor’s plan offered 12 casinos — seven freestanding and five tied to racetracks. Lawmakers shot back last week with a proposal for nine, five of which would be tied to racetracks; Beshear has said he’s amenable to the idea. On Tuesday, the House Elections, Constitutional Amendments and Intergovernmental Affairs Committee voted down that proposal, leaving the casino bill stalled in committee. Beshear was sharply critical of lawmakers for the move, saying in a statement that it was time for them to get their act together and move the bill. Casino supporters are banking on letting the voters decide, and surveys have shown that most voters would at least like the opportunity to vote on the issue. But what voter could be blamed for confusion about casinos with so much rhetoric on both sides: Will casinos mark the true end of morality in Kentucky? Will they help fund new education and culture initiatives? Will they invite more vice to the state? Will they attract young people with disposable income? Are we ceding our state to the whims of the unsavory? Will healthcare become more affordable if casinos are here? Examining a map of casino activity in the United States, it’s hard not to notice the complete lack of activity in the southeast. In a region where social mores often translate to paramount political issues, it was no surprise to see more than 100 people gathered inside the state capitol last week voicing opposition to casinos, sharing stories of the misfortune gambling addiction has brought to their lives and the dangers they are sure it poses to their communities. When they were replaced the following day by hundreds of college students protesting a 12 percent budget cut that could lead to tuition increases, the governor emerged to remind them and the rest of the state that a $600 million answer lay in legalized casino gambling. Such a claim is par for the course when politicians attempt to sway their constituents toward supporting new gambling ventures, and it is among the many presented in state after state during the 1990s, when a spate of casinos opened throughout the country. An examination of how those promises have panned out could guide Kentuckians on what to do in this case. Overall, casinos are apparently a safe bet — if revenue is the only concern. Casinos tend to help states become more economically competitive with their neighbors, but it’s also true that many times the mere mention of the “c” word quickly escalates competition. Casinos are like ice cream cones on a hot summer day: As soon as somebody gets one, it’s not long before everyone around him has to have his own. Kentucky’s current debate has kick-started a new race with Ohio, whose mainstream media is suddenly rife with comments from people of various groups saying they want casinos simply because we want casinos.“Indiana started the process of just taking all the money from Cincinnati. Kentucky is going to finish the job. We say enough is enough,” the co-founder of a pro-casino Ohio group told Cincinnati’s WCPO-TV last week.“Do we want our economic investments threatened with a casino right across the river?” asked a Cincinnati council member during an address to the Ohio General Assembly. “We need to respond to Kentucky’s effort.”They’ll see our casinos and raise a few of their own: A proposed change to Ohio law would allow casinos to open specifically in counties that border Kentucky. Ohio’s fears about a displaced economy are grounded in a stark reality: The American Gaming Association ranks casinos in the Lawrenceburg, Ind. area — near Cincinnati —12th in the nation in terms of revenue. Sitting on a list peppered with expected names like Las Vegas, Reno, Atlantic City and New Orleans, the Indiana area makes more money than the Downtown Las Vegas strip, which is counted separately from the rest of the strip.An argument that is perhaps nearer to Kentuckians’ hearts is that racetrack casinos, or at least slot machines, will help save the faltering horse racing industry, which is losing gamblers to states that can offer bigger purses. The Kentucky Equine Education Project planned its own trip to the statehouse to emphasize the point on Tuesday; they also planned to bring along a parade of associated organizations, with horse trailers in tow. Conversely, 11 years ago, the last time the casino issue was at the fore, news reports warned then-Gov. Paul Patton that casinos could devastate the horse racing industry. Pennsylvania’s 2004 decision to allow slot machines at racetracks appears not to have had any negative effect on horse racing in the state, but Kentucky ought not take too many cues from a state three times its size that shares borders with New York and New Jersey.The Young Professionals Association of Louisville endorsed the governor’s plan last week, claiming that expanded gaming would not only help support education with added funding, but also make the state “more attractive and exciting to the educated and motivated young professionals that Kentucky so desperately needs.”Research on how many young, educated people choose to live in a place after a winning night at a casino is hard to find if it exists, but the financial benefits have been proven again and again. Gov. Beshear has said casino gambling could allow Kentucky’s cash-strapped government to collect about $600 million per year — this figure is roundly challenged by anti-casino activists — at a time when the state faces a $900 million shortfall over the next two years. He has said the money would go toward boosting healthcare and education, a place it’s desperately needed: Kentucky ranks somewhat low in terms of high school graduation rates, possibly a result of its ranking right at the bottom for per capita spending on K-12 education, according the National Education Association. There’s no sign yet that gambling revenues will address those issues.Funds from the Kentucky lottery — pitched as a tool to fund education — were just recently earmarked specifically for university scholarships. They don’t cover the total cost of scholarship programs, but the contributions are sizeable: The Kentucky lottery reported ticket sales of about $744 million last year, of which 26 percent, or about $196.3 million, would go toward helping people pay for higher education. The lottery is the closest, albeit imperfect example of how casino gambling revenues might fare in Kentucky. Lottery money has gone into the general fund since its inception in 1989; it was dedicated specifically to student financial aid in 2006. Just over half of that goes to need-based scholarships, while the other 45 percent funds the merit-based scholarships. John Hicks of the Governor’s Office for Policy and Management said there’s no way to track how much of the money went to scholarships before 2006.Lottery revenues have grown consistently over the years, suffering a dip just after our neighbor to the south, Tennessee, began its own lottery in 2004. It’s a clue, however, about why arguments for or against gambling might already be moot. Richard McGowan, professor of economics at Boston College and author of “The Gambling Debate,” has studied the industry for more than a decade. He said it’s pretty easy to figure out how these debates will end.“If you want to predict whether or not a state’s going to have a casino, if they’re touched by a neighboring state that has a casino, 90 percent of the time they’re going to (decide to) have it,” he said in a recent phone interview. His home state, Massachusetts, is currently undergoing its own casino gambling debate, generated by the existence of two Native American casinos (governed by a different set of rules) in neighboring Connecticut. “Our governor is selling it as economic development, not revenue, but I chuckle at that,” he said.McGowan said much of the money residents spend at casinos would come from elsewhere in the local economy — they might go to the casino rather than a movie or restaurant, somewhat diminishing the idea that casinos guarantee an influx of new revenue.So will Kentucky casinos pay off? McGowan said the most successful casinos are those that bring in people from other places. Las Vegas is a perfect example. In the case of Kentucky, we would more likely be reclaiming money Kentuckians have been spending in Indiana and West Virginia casinos. “Ironically, in the beginning they bring in more money than they thought they were going to, then it levels out, and then it starts declining,” he said. The drop comes partly as a result of casinos opening in neighboring areas, and partly because people begin spending their money on other entertainment as the novelty wears off — it takes more than a building full of slot machines and card tables to keep gamblers coming.“You have to become a destination, you have to have more than just the gambling,” McGowan said. “More than half of the money spent in Vegas is on non-casino items. I don’t know why people want to go all the way out to Vegas for retail shopping, but they do.”Destination or not, Women Against Casino Gambling, Women Against Gambling Expansion and countless churches other groups stress that money — from rich, young gamblers or otherwise — should not be the only concern in this debate. McGowan, also a Catholic priest, said states tend not to give moralistic concerns much weight. “I’m not a prohibitionist, but at the same time I think it has to be very highly regulated, but at the same time the state’s making so much money that I wonder how much regulation is really going on,” he said. McGowan has also found that states generally promise to put revenues toward public aid for those with gambling addictions, but it’s often only a nominal amount in actuality. He said last year Massachusetts took in $971 million in lottery revenues. Of that, only about $200,000 went toward helping people with gambling addictions. Fifteen years ago in Harrison County, Ind., which houses the gambling boat nearest to Louisville, residents heard, and used, many of the same arguments that people on both sides of the issue now spout in Kentucky.Streets paved with gold? Check. Increased tourism? You bet. Prostitutes, thieves, bankruptcies, fraud and general moral turpitude? Sure. Traffic gridlock, infrastructure overload and wage inflation? All of that and more.Did any of it come true? Well, that is the rub. It is difficult to say. Anecdotes abound, but no one seems to maintain reliable data that proves cause and effect. LEO contacted a number of Harrison Countians who have been close observers since Caesars opened for business nearly 10 years ago in the remote southwestern area of the county, and to summarize, they think the early fears were greatly exaggerated, while many promised benefits do seem to have materialized.The money question is the easy one. Harrison County gets slightly more than $23 million a year — nearly three times more than the county’s general fund — and that money pays for many things the county could never afford from normal tax revenues. Initially, Indiana counties with riverboat gambling stood to reap larger windfalls, but shortly after Harrison’s boat went online, the state placed a cap on how much each county can derive from gaming, indexed to first-year receipts. So, $23.348 million it was, and is.Harrison boat money goes to many things, including 18 percent off the top to surrounding communities, part of a revenue-sharing agreement the Indiana Gaming Commission strongly suggested when it was considering where to award licenses.Gambling money has paid for much blacktop in Harrison County, both on main thoroughfares and on former gravel roads that many levelheaded observers say are so remote they should never be paved. But despite conventional wisdom against tapping a potentially fleeting revenue stream for recurring expenses, Harrison County politicians are no different than any who’ve figured out that blacktop can buy lots of votes.Interestingly, riverboat gambling was not on Harrison County’s radar. Long-running efforts to persuade the Indiana state legislature to allow it continually fell flat, even as Mississippi, Iowa and Illinois jumped into the game and, presumably, started siphoning Hoosier cash.Then things changed abruptly and weirdly, as a measure to allow Indiana counties to hold gambling referenda was rolled into an omnibus budget bill at the 11th hour of a 1993 special session. It was easy to figure out where the state wanted the boats: near the bigger metro areas along the Indiana border. The first casinos opened near Chicago, then Cincinnati. The commission envisioned boats in Clark or Floyd counties, right across the river from Metro Louisville, but voters in both resoundingly rejected it.Enter Harrison County, one county west. Larry Townsend, former Kentucky commerce secretary under Gov. John Y. Brown, paid the $50,000 fee to have the measure placed on the ballot, then ran a slick campaign that won by 253 votes. Harrison County then waited while the Gaming Commission drug its feet so Clark and Floyd could vote again, two years after both said no. But in 1995, Clark and Floyd again turned down gambling. All of a sudden the issue had legs in Harrison County. And there was not much time.Before Clark and Floyd voted the first time, the joint Southern Indiana Chamber of Commerce assembled a task force to dig for answers to persistent questions fueling the rhetoric around casino gambling. Task force members visited 16 communities with riverboats, asking police chiefs about crime, social workers about despair, engineers about traffic, business leaders about jobs and wages, and preachers about depravity.Again, the answers that went into the summary were anecdotes that pointed to significant upside while acknowledging a few problems. The report was issued before the first referenda, but it didn’t persuade voters. It was useful to Harrison County, however, which borrowed the idea and created its own task force. That seven-member group had less than four months to gather information before the issue went on the May 1994 ballot, and its conclusions largely mirrored those of the first report.Quite simply, gambling seemed like a strong bet, but communities should not go into it with eyes closed.Riverboat gambling has been in place for nearly 10 years in Harrison County. What do people think? The Rev. Webster Oglesby has been pastor of Lincoln Hills Christian Church in Corydon for 18 years. Before Caesars opened, he led a local chapter of Indiana Citizens Against Gambling, but the group never meets anymore. Oglesby can’t cite official studies, but he believes the boat has contributed to several personal bankruptcies, damaged marriages and lost life’s savings. He realizes the revenue has helped the county and he believes the stewards of the funds are honest and above board, but he still questions gambling as economic development.“Once you build your municipal government on gambling money, you are basically owned by them,” he said. “They call the shots. It’s bad for our entire culture.”Neyland Clark, superintendent of South Harrison Community School Corp., the largest of three county school districts, is an unabashed fan. The schools split about $4 million annually, which reduces property taxes countywide that are tied to capital projects in the schools. South Harrison also fully funds all-day kindergarten with boat money and provides free textbooks. The North Harrison system buys band instruments.“The community went into it with many concerns,” Clark said, “but county officials have been conscientious in how they manage the resources and making sure it touches everyone in the county.” Adds Darrell Voelker, director of the Harrison County Economic Development Corp.: “Has it been good? Without a doubt. The county has had steady population growth since 1976, and our needs when (the boat) came about were well beyond what our tax rate would have been able to handle. …“I am sure some people got addicted. Whether they would have otherwise is beyond my reach. Some have, and that is terrible. It doesn’t seem to be a horrifying number here. Again, if it’s your family, it is bad.”But Voelker doesn’t see the sort of hyped-up ills that were often projected by casino foes. “It was clear to the task force back then that that would not happen. Casinos need to stay in business, and they can’t afford to have pickpockets and whores walking around their parking lots.”So, riverboat gambling has clearly had a huge positive impact on Harrison County, through roadwork, tax relief, school funding, and numerous other worthy causes that only the most bitter cynic could question. Who wouldn’t want ambulance service at both ends of a large and sprawling rural county? That only occurred post-boat.It is plausible, but not guaranteed, that similar things would occur in Kentucky. For one thing, each state sets its own gambling rules. Those issues need to be hashed out before casino gambling could begin in Kentucky.Harrison County leaders lean conservative on spending revenue: It’s a weird political challenge to say no to people when there’s all that money sitting around, but the allocation process is stringent and a regular source of friction between the three-member Board of County Commissioners, who form the legislative body, and the seven-member County Council, the fiscal body. There is also a separate foundation that is growing rapidly through casino funds.Just as the sun rises, every time casinos are approved somewhere nearby, contiguous cities, counties and states start to wonder aloud. Now that Kentucky is making such overtures, Harrison Countians wonder how it will affect them. Clearly, some of the initial questions and fears that were repeated ad nauseam in public hearings and media reports — dire warnings about what happens when boats leave for greener pastures — will return to the fore.Judging by the infighting in Frankfort over the issue right now, those questions may linger for quite some time. Contact the writers at citystrobe@leoweekly.com