Astute Business People Know You Can’t Gamble Your Way into Prosperity

Casinos are Bad for State Budgets

Casino proponents across the United States have predictably overstated revenues to be gained, understated revenues to be lost, and have used inflated multipliers to estimate their positive economic impact. Gambling-related tax revenue is in fact one of the most expensive ways of funding government programs. Government should prosper when its people prosper. Government programs should not be funded by the losses of its citizens.

Gambling Taxes are Worse than a Conventional Tax Collecting Identical Revenue

A conventional tax implies social costs per extra dollar collected of $1.25-$1.45. Taxes on gambling revenues cost $2.53 per dollar of tax collected if the tax rate is 50 percent, a number that rises above $4.82 per dollar if the gambling tax rate is 20 percent. Even using conservative cost & benefit estimates, costs to benefits are greater than $3:$1 in public dollars cost vs. gained.

Casinos increase burdens on public budgets and create economic costs for society and taxpayers, including non-users.

On a per pathological gambler basis, studies in different parts of the nation conducted since 1994 conservatively estimate costs to be $10,100 per year. Casinos are also well documented sources of the following:
o Increased Crime: Aggravated assault, rape, robbery, larceny, burglary, auto theft, embezzlement, fraud; costs include apprehension, adjudication, incarceration and additional law enforcement.
o Business and Employment Costs: Lost productivity, lost work time, unemployment-related employer costs.
o Increased Bankruptcy: Bankruptcy growth rates in casino counties are 100% higher than those in non-casino counties nationwide.
o Increased Suicide
o Increased Illness: Stress-related illness, cardiovascular disease, anxiety, depression, and cognitive disorders.
o Social Service Costs: Treatment, unemployment & other social services.
o Direct Regulatory Costs
o Family Costs: Increased divorce, separation, child abuse, child neglect, domestic violence.

Gambling is a Slippery Slope

What is easy for one state to do, others can do. When talking about casinos, this policy mentality generates a race to the bottom. Kentucky money goes to Indiana and Illinois all the time through dozens of businesses other than casinos. The $200 million KEEP estimates as tax revenue paid in Indiana by Kentuckians constitutes a fraction of a percentage of Indiana’s total budget appropriations. More money lost by Kentuckians siphoned from local economies by outside corporations to subsidize the horse industry will not improve a bad situation.

If you consider the experience of states with casinos, then Kentucky’s budget situation will worsen with casinos. Even it that wasn’t the case, casino revenues do not represent immediate relief for Kentucky’s budget situation. They would take years to produce, and then their costs will far outweigh their benefits.

Casino Group Gives Early Indications of How Gambling Industry Will Seek to KEEP Control of State Government

The gambling explosion in the United States since the early 1990’s is chock full of examples of the gambling industry’s willingness to say and do anything to advance their agenda. Historically, the industry has readily and regularly distributed misinformation and facilitated governmental corruption. Recently, national media attention was fixed on lobbyist Jack Abramof and his efforts to influence members of Congress through campaign donations generated by casino owners. Abramof’s web of corruption is only now being fully exposed and will likely result in the disgrace of many national governmental officials.

Here in Kentucky, gambling supporters are demonstrating their own willingness to control our state legislative process through campaign donations. KEEP, a Kentucky-based casino organization, is molding the financial resources of its wealthy members and casino operators into a potent political force intended to intimidate lawmakers into supporting legislation favorable to casino advocates.

In an article by Ryan Alessi in the February 27, 2006 edition of the Lexington Herald-Leader, KEEP Chairman Brereton Jones reportedly said that KEEP’s Political Action Committee and wealthy casino advocates “will write campaign checks for candidates who back their position on expanded gaming.”

In a more targeted statement, Jones warned legislators: “If this bill is not passed, the Democrats won’t be getting campaign donations from KEEP.”

John-Mark Hack, Chairman of Say No to Casinos, a business and industry group committed to distributing the facts on the business and economic impact of casinos, urges Kentuckians to get involved in the consideration of this issue: “Citizens of the Commonwealth should contact their legislators and tell them they shouldn’t be for sale,” Hack said. “Citizens should tell their representatives in Frankfort that they shouldn’t be offering our Commonwealth for sale either.”

Hack cites the history of gambling expansions in the United States to support his organization’s argument: “In the three waves of gambling expansion since colonial times, legalized expansions have all been rationalized by how gambling will aid popular causes, and the two previous expansion waves came to an end when governmental corruption was exposed. If you think what we’re seeing now is not so bad, just think about what casino supporters will be willing to do with the obscene profits they make from casinos. They will attempt to own state government for their own betterment, not for the betterment of our Commonwealth.”

Casino supporters simply can not be trusted to do the right thing. KEEP, the Lexington-based casino group, recently expressed its own willingness to equivocate on two basic principles on which they had established their campaign for casinos in Kentucky: that casinos be located at race tracks only and that the resulting public revenue be dedicated by constitutional amendment. Organization leaders rationalize their equivocation by suggesting that it’s the legislative process that’s changing their principles.

In today’s Herald-Leader article, Alessi reported the following: “Jones says the future of any gambling legislation hangs on how lawmakers compromise on two key issues: which sites should be allowed to have casinos and whether the amendment should specify how the state’s share of gaming revenue should be divvied up.”

Jones reportedly said, “If we those issues straightened out, I think we can pass the bill in the House.”

This pattern of behavior replicates all other efforts to expand gambling in the United States. KEEP is willing to say and do anything to get casinos for its wealthy members, just as other casino proponents before them have done. Their leaders told Kentuckians they would oppose legislation that would legalize casinos at locations other than race tracks and that would fail to dedicate revenue by constitutional amendment. Now, they’re apparently willing to throw both principles out the door in order to achieve their ultimate goal of profiting from the losses of Kentuckians.

Can Kentuckians trust casino supporters to do the right thing? Should we entrust our state government to them? Say No To Casinos encourages Kentuckians to KEEP control of their state government, and tell their legislators and casino organizations that Kentucky is not for sale.

The Kentucky Chamber of Commerce and a few other well-meaning but terribly uninformed business organizations have expressed their support for casino gambling in the Commonwealth. It is a profound disappointment and a sign of needed reform that the leaders of these organizations are supporting casino gambling, because any objective look at the experience of other states and localities with casinos would lead them to a wholly different conclusion. The explosion of gambling expansion since the 1990’s has done little if anything in the way of positive economic development, but it has wrought terribly expensive consequences for business, families and governments. When the leaders of our business groups fail to do their homework on an issue as important as this one, perhaps it’s time for us to start talking about new leaders and/or new business groups.

Organizations supporting casinos tell us that casinos will be good for Kentucky, that casinos will bring new jobs, profits, tax revenue and the all-important subsidies for Kentucky’s thoroughbred industry. Dr. Earl Grinols holds two Summa Cum Laude degrees, the PhD from MIT, served as Senior Advisor to the President’s Council of Economic Advisors, and has published more than 80 books and articles. Since 1990, he has studied the economics of gambling in a comprehensive investigation funded independently of both gambling supporters and opponents. His findings and those of other studies we cite have resulted from exhaustive analysis of data generated from the casino explosion in the United States since the 1990’s.

Job Cannibalization

The favorite tactic of casino advocates across the country has been to cite the number of jobs created by casinos. Dr. Grinols (Gambling in America: Costs and Benefits, 2004, Cambridge University Press) found that casino jobs rarely if ever represent new employment and economic development. Rather, they compete with established businesses in the service and entertainment sectors for employees. Employees in service sector jobs are often from outside the community. The payroll taxes paid by casinos are generally a substitute for payroll taxes already paid by existing businesses. The economic gains casinos supposedly add to local economies result from the losses of existing businesses. Casino employment displaces local economy jobs without improving resident well-being.

Revenue Losses

Casino supporters often suggest that the presence of a casino produces new economic activity and revenues. In reality, casinos reduce revenue from general merchandise and miscellaneous retail and wholesale trade. The effect of an additional $1000 in casino revenue is to reduce sales in these categories by $142 within 0 to 5 miles from the casino, and an additional $217 for businesses 5 – 10 miles away. The average loss for an additional $1000 of casino revenue increases to $381 when also considering businesses 10 – 30 miles away. Given KEEP’s current projections of $1.2 billion in casino revenue, Kentucky businesses within 30 miles of casinos will lose more than $400 million, resulting in job losses and reduced tax revenue.

Employee Related Costs

Casino supporters will never report the well-documented other costs to businesses in casino communities. These additional costs include lower employee productivity, higher employee absentee rates, and gambling-related crimes. The social costs of casinos born by other businesses are indisputable based on experience from elsewhere. Entertainment business including hotels, restaurants and destinations suffer in casino trade areas. Downtown businesses, including those in several of our Renaissance Kentucky communities, will suffer the most when casinos locate in suburban areas.

In summary, the casino sector only provides growth that is in equal proportion to the shrinkage of other economic sectors. Casinos operate like a toll house that uses a community and surrounding areas as a platform for conducting its business, extracts its profits and takes them elsewhere.

In a stunning revelation about his organization’s casino agenda, KEEP Executive Director Jim Navolio made the following statement to the Lexington Ad Club on 2/8/06:

“This is motherhood and apple pie all wrapped up in a slot machine.”

No, you didn’t misread it. About 50 or so people in the Lafayette Club at the top of the Chase Bank building on Main Street in Lexington heard the same thing. How ridiculous is it for someone to compare a slot machine to the most precious relationship in most people’s lives?

Navolio revealed how low he’s willing to take Kentucky citizens by comparing motherhood to a form of casino gambling that undeniably preys on the poor. At least one member of KEEP, Chairman Brereton Jones agrees, saying in 2003 about slot machines, “It’s a terrible way to fund government. It preys on the poor.”

Navolio’s statement reveals much about him and the campaign he represents. More and more everyday, Navolio makes our task easier as he reveals himself as nothing more than a mouth piece of the casino industry, and a highly ineffective mouthpiece at that. He’s willing to do and say anything to convince Kentuckians to support his gambling agenda.

In his remarks to the Ad Club, Navolio also boasted that included in the $5 million-plus raised by his organization are numerous $5 memberships solicited from and purchased by members of county 4-H Horse Clubs. Navolio bragged about the 4-H members of his organization, giving no consideration whatsoever to how appalling it is to use money from children as young as age 9 to support his organization’s push for casino gambling in Kentucky. Did they know they were supporting a push for casinos when they joined this organization, or were they told they were supporting the horses they love?

I served as an Extension Agent for 4-H/Youth Development for 3 years (1994-1997) . I managed 4-H horse shows for the Bluegrass Area. It would contradict all my experience with 4-H kids and their families for them to knowingly support a casino agenda. It is terribly offensive that these children and their families would become KEEP’s pawns in their desperate attempts to expand gambling so a few of their members can make a whole lot of money while tens of thousands of Kentuckians lose a lot of money, to paraphrase former Governor Jones..

Just as KEEP’s recent efforts to influence the special election in Louisville with enormous contributions to Perry Clark’s Senate campaign serve as a reliable prediction of how casino supporters will attempt to buy public policy in Kentucky, so Navolio’s comments should serve as an indication of the type of people that casino money will put in positions of leadership in our state. It’s not a pretty picture, but KEEP’s representatives are doing us all a favor by making it increasingly clear.

KEEP’s latest message is designed to mislead the people of Kentucky into thinking that their rights are somehow being violated if they don’t get to vote on whether or not to have casinos. Here are a few facts related to constitutional referendums:

1. The Kentucky Constitution prohibits use of the referendum process for the purpose of achieving financial benefit for a well-financed, narrow special interest.

Sound familiar?

2. In order for the KEEP Amendment to make it to the ballot, the people of Kentucky have to surrender this constitutional protection so that this particular well-financed special interest can achieve its goal of taking money from working Kentuckians to transfer it to relatively wealthy Kentuckians and many others who reside outside our state, but happen to own horses here.
3. The proposed amendment would fundamentally change the structure of state government by taking away the General Assembly’s constitutional duty and right to appropriate public resources. Democracy as practiced in the Kentucky General Assembly isn’t always easy to watch, but it’s far preferable to allowing a small group of wealthy people abuse the referendum process for their own personal gain.
4. We live in a representative democracy that gives every citizen the right to elect our representatives. We don’t have the right to decide every issue that comes up by constitutional referendum, unless our elected representatives decide to afford citizens such a right. Our system is designed so that our elected officials can make decisions following informed debate that includes all sides of an issue, not just those represented by people with a lot of money. Once those decisions are made, we expect to be able to hold our elected officials accountable for their decisions.

KEEP’s strategy is to avoid informed debate and accountability. Why? Because they lose miserably on both counts. Why not use all that money, more than has ever been raised for a single public issue campaign in Kentucky, to deceive the people of Kentucky into thinking their rights are being violated, and then manipulate them with a pro-casino mass media campaign?

That’s their strategy plain and simple. Avoid informed debate and political accountability, dupe the people, and laugh all the way to the bank.

Join us in our efforts to protect the Commonwealth by going to the Add Your Voice link.