States Gamble On Casinos To Generate Revenue More and more state and local governments have approved casino gambling in order to generate new jobs and tax revenue. But does it work? Economist Richard McGowan outlines why states are turning to gambling to solve their fiscal crises -- and now upping the ante even more.
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States Gamble On Casinos To Generate Revenue

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States Gamble On Casinos To Generate Revenue

States Gamble On Casinos To Generate Revenue

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For decades, Las Vegas was the only place in the United States where casino gambling was legal. Atlantic City legalized gambling in the late '70s, and since then, more and more state and local governments have gotten into the game, lured by the promise of new jobs and tax revenues. Forty states now permit some form of casino gambling.

We wondered how the rush to gaming has worked out for the state and local governments that embraced it, especially since so many states are suffering serious budget crises these days.

We turned to Richard McGowan, an economics professor at Boston College who's studied and written about gambling for years. McGowan is also a Jesuit priest. His latest book is called "The Gambling Debate." He spoke with FRESH AIR contributor Dave Davies.

DAVE DAVIES: Well, Richard McGowan, welcome to FRESH AIR. It's been widely reported, of course, that states and local governments are in fiscal trouble with the recession and the decline of tax revenues and pension funds that are stressed by weak investment portfolios. Are more state and local governments turning to expanded gambling now as a source of new revenue?

Professor RICHARD MCGOWAN (Economics, Boston College; Author, "The Gambling Debate"): Well, Ohio just approved it in the last election. They usually use the gambling revenue, not so much to support, it's usually used for a very specific purpose. So, for instance, in the state of Pennsylvania, the slot machines and the casino gambling is used to help support elderly pay property taxes. And in other states it's used for education purposes. For instance, in Georgia, the lottery proceeds go to support college students and paying tuition.

Gambling is always associated with a good cause, and that's how you get the bill through. In other words, the good cause in Pennsylvania was the elderly. In New Jersey, it's the same thing. In Massachusetts, the lottery supports local towns and cities. So it's the good cause that it's used for. So it's not usually just used for general revenue purposes.

DAVIES: Okay. Now in any place where there's a debate about whether gambling will be legalized in an area, the boosters will claim that jobs are created, economic activity will be generated, which you wouldn't otherwise see in the region. Then, of course, after it comes, we see statistics affirming that, indeed, jobs have been created and new economic activity has been generated. To what extent are these statistics and claims reliable?

Prof. MCGOWAN: Well, there - you do create jobs when you open a casino. But the casino is a form of entertainment. So has the casino then cannibalized other forms of other forms of entertainment? And that's very tough to get statistically down. In other words, for instance, if you open up a casino and it has a restaurant in it, will the restaurants in the area be negatively affected because now people will go to the casino and go to the restaurant in the casino? Will people go to movies less because they can go to the casino and - rather than go to a movie or other forms of entertainment? So I would probably say in all the -it's sometimes just a wash. And in other words, people will shift their entertainment funds from one form of entertainment to another.

DAVIES: Now, I wonder if there is not another effect. One of the things you see about gambling is that it's far more heavily taxed than other forms of entertainment, like bowling or movies. Does that have the effect of transferring some income from the pockets of consumers and from local areas to state government if people are now spending more time in casinos as opposed to other places, and that activity is heavily taxed? Is it, in effect, kind of a, you know, kind of a grab by the state government for revenues that would otherwise stay in local areas and in consumer's pockets?

Prof. MCGOWAN: Well, I couldn't agree more with you. I've often called gambling the painless tax. In other words, people don't realize the taxes they're paying on it. The tax rate, it does vary from a high in Illinois of 51 percent - which is why, ironically, the neighboring state, Indiana, has a much lower tax. And so they've actually opened up more casinos than Illinois.

But clearly, I mean, your point is well taken: gambling, it is highly taxed. It's highly regulated, and well it should be, but, you know, I don't think consumers realize how much money they are giving to the state. But the one thing is they seem happy to give the money to the state. It's a - by the way, Thomas Jefferson always thought that the lottery was the best form of taxation.

DAVIES: Is that right?

Prof. MCGOWAN: Yes, he did.

(Soundbite of laughter)

DAVIES: And was there a lottery in Virginia in the 18th century?

Prof. MCGOWAN: Well, ironically, Thomas Jefferson was a great man in lots of different ways, but he was a horrendous businessperson. So Virginia allowed him to operate a lottery to pay off his debts. And luckily, the lottery just finished before he died. And so he died just about breaking even, but it was a lottery that he ran that helped him break even.

DAVIES: Now when Pennsylvania was debating whether it would legalize casino gambling - and this is a debate that went on for many, many, many years - I was always skeptical of the arguments of new revenue and new jobs because it would probably - I figured it would probably displace, you know, other forms of economic activity. But there was one argument that did seem compelling, and that was the fact that at the time, thousands and thousands of Pennsylvania residents were streaming into Atlantic City, New Jersey to gamble, and that's entertainment spending that was lost to Pennsylvania that was gained by New Jersey. And to what extent are states around the country expanding gambling to recapture revenue that they've been losing to neighboring states that already had it?

Prof. MCGOWAN: I would probably say that is the primary reason why states now legalize gambling. So, for instance, you just mentioned Pennsylvania and New Jersey. In 2008, New Jersey made $4.5 billion on gambling. Pennsylvania made $1.6 billion. And in 2009, then Pennsylvania went from just having slot machines in the racetracks to opening up full-scale casinos. Just to show you the difference: New Jersey went down to $3.9 billion, Pennsylvania went up to almost $2 billion. So you have a gain in revenue in Pennsylvania of around 20 percent. You had a negative affect in New Jersey of around 13 percent.

So clearly, Pennsylvania declared war on New Jersey. It also declared war on Delaware, by the way. Delaware had racetracks, and so it's an arms race, by the way, about who is going to outdo - that's exactly the argument: Ohio just approved it in their last election. And the reason why Ohio approved it was because it's surrounded by states now -everybody except Kentucky has casino gambling in it.

DAVIES: All right. So are we approaching the kind of detente in which every state has all kinds of gambling and nobody is stealing revenue from anybody else but nobody is really any better off?

Prof. MCGOWAN: Well, that's an interesting point. Right now there's 40 states that have some type of gambling. So, for instance - well, Hawaii never has to worry about it.

(Soundbite of laughter)

Prof. MCGOWAN: Hawaii is sitting out there by itself. But yeah, there's various ways states declare war on other states for gambling. California basically cut a deal with all its tribes. They will let them open up a series of Native American casinos all over the state of California and then California got 25 percent of the revenue from the slot machines. And clearly California was declaring war on Nevada and it's hurt Nevada. There's no doubt it's hurt Nevada and you see this in state after state after state.

I'm in a state right now, Massachusetts, the argument in the legislature that's going to win the day is the fact that one third of the patrons in the two Native American casinos in Connecticut are from Massachusetts. And that's why Massachusetts, I mean right now, once again, the speaker of the House in Massachusetts says we have to revisit this issue and he and the governor have arguments about - it's not about having casino gambling, it's where to have it and how much to have. So the argument isn't about having casino gambling, it's just where and when.

DAVIES: You know, when you and I spoke before, you said you sometimes think states get more addicted to gambling than problem gamblers do. And I'm wondering in states that got in early and found that there was money to be made by having this unique form of entertainment to offer, and now that others have caught up, what's been the impact on those states? Has that put them in more budget trouble than they would otherwise have been in?

Prof. MCGOWAN: Well, again, not to pick on New Jersey, but New Jersey right now is immediately talking about OK, we have to revisit sports gambling. In other words, they are going to up the - excuse the pun here - they are going to up the ante on gambling. In other words, they're going to...

DAVIES: So they don't allow sports betting now but they...

Prof. MCGOWAN: Right now they do not. But they'll say OK, to make the Atlantic City casinos more attractive we will start sports gambling there. Clearly, the two Native American casinos in Connecticut, I'm sure they are thinking about sports gambling. So that's another whole area that nobody wants to touch right now, but clearly they're going to have to touch it. The Internet gambling issue and the sports gambling are the two hot-button issues that haven't been touched yet.

But I think you, Dave, you've hit it right on the head, states, in order to make up the revenue they're losing to other states, they are going to up the ante. They are going to put other additional forms of gambling in their casinos.

DAVIES: We're speaking with Richard McGowan. He's a professor of economics at Boston College. He's written several books on government expansion and regulation of gambling. We'll talk more after a break. This is FRESH AIR.

(Soundbite of music)

DAVIES: If you're just joining us, our guest is Richard McGowan. He's a professor of economics at Boston College who has studied government expansion and regulation of gambling in the United States.

You know, we've talked about issues of job creation and tax revenues, but there are also other downsides to gambling. Generally speaking, what are its drawbacks?

Prof. MCGOWAN: I would say the two major drawbacks are the compulsive gambling issue, which would mean that families would probably suffer from a higher divorce rate, there'd be - personal bankruptcies would go up and even just crime might go up. And then the other would be the cannibalization of local businesses. If a casino opens with a couple of nice restaurants in it and with a hotel, you could very well negatively impact the restaurants around where the casino is going to be located at and even the local hotels and motels who were hoping that more people would stay at those hotels and motels because the casino were there won't because they'll stay at the casino.

DAVIES: Has that been a phenomenon people have reported? Hospitality industry folks that were excited and then disappointed?

Prof. MCGOWAN: I would say for instance in the two Native American casinos around Foxwoods and Mohegan Sun, that certainly has been the case. It's hurt the restaurants in those areas and the hotels and motels in those areas are not doing well at all.

DAVIES: Yeah, that's Connecticut, right? Yeah.

Prof. MCGOWAN: It's Connecticut.

DAVIES: Let's talk about some of the kind of issues of principle and morality that enter in the debate here. In Pennsylvania, where I live, if you play the number in the lottery it pays 500 to one if you win. But the odds of hitting the number are 1,000 to one against you. And I've always just found it appalling that the state government spends a lot of money to put cute ads on television with groundhogs and chipmunks and whatever, encouraging people to bet their hard-earned money on this game. Am I alone here? I mean should government be really - it's one thing for government to permit gambling. Should they be encouraging it?

Prof. MCGOWAN: I mean I couldn't agree with you more. I've advocated for many, many years now that the states should put the odds of the winning right next to where all the machines are being sold. They should also be - have to put out the percentage of winning that they get back to the better.

So for instance, there is no doubt about it that the lottery is -certainly is for the mathematically illiterate. I mean you cannot win. For instance, the daily number is by far the worst bet you can make. Some of the instant tickets might pay back maybe 60 to 70 or 80 percent. By the way, the worst casino game pays back around 90 percent. All right, so it's not to advocate that casinos are fairer than the state governments in lotteries, but clearly the lottery is something that the state's trying to make you feel good by making a bad bet because you are going to be giving it to a good cause. Now that has been an American institution for a long, long, long time.

If I took you to Harvard Square - every building in Harvard Yard, by the way, was built through a lottery, where Harvard University went to the state of - the Commonwealth of Massachusetts and said please let us run a lottery to pay this for this building. And again, they were 50-50 payoffs.

So, I mean, there is a long-term American tradition to use lotteries to pay for things but I do think the state should be a lot more honest about what it's paying back and yeah, the cute - I mean for instance, New York uses if you don't play you can't win. Well, I might also say if you don't play your odds are better keeping much - and so, yeah, we use all kinds of cutesy - in Massachusetts, for instance, the lottery shows the new fire engines that the town bought because of the lottery. So you are supposed to feel good for being ripped off.

DAVIES: Right. Now, there's an argument that state-sanctioned gambling displaces criminal gambling. That, you know, the mob used to run the lottery, the state comes in, now it's clean, it's taxed, it's regulated, it's honest, you know, at least it, you know, the number isn't fixed and thereby, that, you know, diminishes the power of criminals and collects taxes on the winnings. What about that?

Prof. MCGOWAN: There's a bit of truth to it. When Massachusetts first opened its daily number games the state police went to the North End and raided the bookies in the North End. Found out how the bookies set up their number game, the state made sure that it paid a little better than the local bookies. But it's an interesting argument to use that you put - I mean, and by the way, that same argument is now being used to legalize sports gambling - saying it's - right now it's a huge industry, the mob is making the money from it, why not just legalize it and have the state use it?

DAVIES: It sounds as if you're saying that the research generally shows not an enormous benefit in terms jobs and economic activity from gambling, and there are some troubling social impacts. But I know from our conversations you've said you're not a prohibitionist. I don't know, if I'm the governor and you're advising me on this issue, where do you come down? What's your bottom line?

Prof. MCGOWAN: My bottom line would be if you're going - if you think you need the revenue that badly OK, but make sure you provide for those who are going to be negatively impacted. In other words, especially make sure you provide enough revenue for those who are going to be addicted, for the compulsive gambling commissions in your state. Make sure that the local communities are going to be reimbursed because local communities really, all of the sudden their traffic doubles, their use of emergency equipment doubles or triples and so they have to be reimbursed.

But again, would I say absolutely no? No. It's how - make sure you regulate it well. Make sure that people are aware of the dangers of gambling. And - but would I say absolutely no to it? No.

DAVIES: I guess I should ask, are you a betting man? Do you enjoy gambling at all?

Prof. MCGOWAN: Not at all.

(Soundbite of laughter)

Prof. MCGOWAN: Basically I don't like playing a game where I know I have to lose in the long run. Now, do I think it's a legitimate form of entertainment? Yes I do. But no, I do not particularly like to gamble at all.

DAVIES: I'm sure you've gone into a casino just as a researcher.

Prof. MCGOWAN: Oh, many times and I'm overwhelmed by the noise. I can see where people get fascinated by it. I don't particularly like smelling all the smoke in lots of casinos and, but just think, all of your senses. I mean there's the drinking, the smoke, the bells, the whistles, it's a bit overwhelming I think. But again, but lots of people really, really enjoy it. And so, you know, I'd sit there and say it's not for me, it might be for them.

DAVIES: Yeah, and I think you said your dad likes to take a trip to the casinos.

Prof. MCGOWAN: Oh, sure. My father probably goes down once a month. Now, there are 40 elderly people on a bus go down there. They go down there at 8:30 in the morning, get down to Atlantic City by around 10, they have their breakfast or brunch, play till around three or four o'clock, hop on the bus and they're back in the Philadelphia area around 5:30, six o'clock at night. And again, I, you know, my father gets - he -that's a great day out of the house for him. I understand where it's legitimate entertainment. I always ask him how he made out and he always says well, I broke even, so I always kind of chuckle which probably means he didn't break even. But, you know, it's a day of entertainment for him.

DAVIES: Well, Richard McGowan, thanks so much. It's been interesting.

Prof. MCGOWAN: It's been great to be with you, Dave.

GROSS: Richard McGowan spoke with FRESH AIR contributor Dave Davies. McGowan is an economics professor at Boston College. His latest book is "The Gambling Debate."

You can download podcasts of our show on our website,

(Soundbite of music)

GROSS: I'm Terry Gross.

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