States Turn To Gambling To Close Budget Holes

All but a few states now have some type of commercial gaming. New Jersey and California have taken steps toward legalizing gambling on all sports, while Massachusetts is looking at allowing the first casinos to be built in that state. Boston College economist and author Richard McGowan talks to Renee Montagne about the economics behind the rapid expansion of gambling and casinos in America.

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RENEE MONTAGNE, HOST:

Maryland is just one of several states that have turned to casinos and the gambling industry in hopes of generating revenue. In fact, all but a few states now have some type of commercial gaming. Many are looking at expanding what's available. Both New Jersey and California have taken steps towards legalizing gambling on sports. And Massachusetts is looking at allowing its first casinos to be built in the state.

To look more at the economics driving the growth of legal gambling in the U.S., we turned to Professor Richard McGowan of Boston College. He's author of several books on the subject.

Good morning.

RICHARD MCGOWAN: Good morning, Renee.

MONTAGNE: Why is the gaming industry seen as such an attractive option for states looking to make up especially budget shortfalls these days?

MCGOWAN: Well, I think most legislators view gambling as an unseen tax that they don't have to pay a political price for. And even more, for instance, you mentioned Massachusetts. Clearly this is a response in certain ways to the one-third of the patrons in Connecticut - the two Native American casinos there, Foxwoods and Mohegan Sun, are from Massachusetts. And so one of the arguments that's used immediately to justify expanded gambling is our residents are already doing it in a neighboring state. Why shouldn't we bring the revenue back home?

MONTAGNE: And when you talk about a painless tax, what does that mean exactly?

MCGOWAN: Well, it means - I'm taking a direct quote from Thomas Jefferson. He always considered lotteries and gambling as a painless tax. In other words, it's a tax on those who like to gamble and they don't really know they're even being taxed. For instance, casino revenue in Massachusetts, as you just mentioned, is going to be taxed at 25 percent. That's a lot higher tax rate than any other business in the state. And so clearly it's a source of revenue once you get people to engage in gambling.

MONTAGNE: You recently released a study looking at gambling as a tool for economic development. Does it work to develop state economies?

MCGOWAN: I think it's a wash. Clearly the state is making more money. Now, in terms of economic development, I think it depends on whether or not you can bring tourists in, and that's the ultimate question. And for the most part, I think it's a wash because you're cannibalizing businesses in the area, you're taking money out from other forms of entertainment, and people are going to the casino instead. So in other words, instead of going to movie theaters and maybe even - and pro sport events, they're going to casino.

MONTAGNE: Well, though, are there not other benefits in a state like yours, Massachusetts, if it introduces full resort casinos, would it not gain in terms of people coming in?

MCGOWAN: Oh, I certainly think there would be a gain in certain areas. There would be a decrease in other areas. In the Boston case, surely if you could get the tourists to go over to the casino, that would certainly develop that area. Now, it's interesting - I would say it would also develop the whole area. The immediate area where the casino is located at, there is an interesting prospect, because you have to hope that local businesses can actually help the casino be operated.

So for instance, if you have a casino, will they use local operators to do the laundry? Where would the food courts come from? Will the local vendors be able to put it in there? Otherwise if you open a casino and you put nothing but national chain restaurants in it, then you're probably have been a decrease. So it depends on how the legislation is made.

But I think your point is well made. For instance, just to give you an example - in Singapore right now they have to highly successful casinos. If you're a Singapore resident, it costs you over $100 to enter the casino. If you have a foreign passport, it costs you nothing. So clearly there in Singapore what they want is the tourists to play the casino. They don't want their own people to play.

MONTAGNE: Which maybe gets us to this next question - what about the social impact of easier access to gambling?

MCGOWAN: I mean clearly there are - and there're clearly social costs involved in gambling. They're much harder to measure. You could have an increase in crime. Some casino areas do have an increase in size(ph), others don't. There's usually an increase in the divorce rate. The number of bankruptcies go up. So are there definite social costs? Yes, there are. And are they - how you measure the impact of a divorce, as an economist, that's very difficult. But clearly there are the social costs and people really do have to take that into account.

MONTAGNE: Professor McGowan, thank you very much.

MCGOWAN: Thank you very much.

MONTAGNE: Richard McGowan is an economist at Boston College and the author of the book "The Gambling Debate."

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