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The Price of Free Money

Proposed image of a casino at the redeveloped Metro Toronto Convention Centre.

The sure bet that no casino choice will work as planned

Knowledgeable Canadian observers expect that Toronto will soon get a casino—if not downtown, then somewhere in the Greater Toronto Area, because the career civil servants who run the lottery and gambling agency for the Province of Ontario have convinced a lot of people that a big, government-owned casino will be a revenue bonanza.

Forty miles closer to Buffalo, the increasingly self-aware, incrementally progressing Rust Belt city of Hamilton, however, will probably not go for a casino. In Hamilton, a broad coalition of activists, editorialists, and public-health experts have joined with the business community to ask local elected officials to vote it down for their downtown.

The Ontario casino conversation is underway in the college town of Kingston, way east near the St. Lawrence River, and in the near-north city of Barrie. The casino discussion in Hamilton features big red signs that say “No” and flashy videos promising an elegant hotel and high-paying jobs, debates pitting former mayors against other former mayors, and a Toronto guy who has been trying to sell his big boat, which now holds a restaurant, but who will convert it to a floating casino if anybody wants. The provincial government itself has been running ads promoting a casino.

The parallels with New York State government’s casino choices are remarkable: Governments want the revenue, but after a decade of casino proliferation all over North America, citizens and leaders are questioning the extravagant promises casino developers usually succeeded with a decade ago. Evidence is mounting that casinos in anyplace that isn’t either a megalopolis or a resort town fail to generate new economic activity simply because their clientele is mainly local.

Cuomo’s dilemma

Governor Andrew Cuomo has been making the case that New Yorkers spend their gambling dollars elsewhere, and the issue is not whether gambling casinos will keep getting their money, but whether New York State will see any piece of that money.

Indian casinos operate in Connecticut and commercial casinos in New Jersey, right next to the New York City metro area. New Yorkers help enrich the Mashantucket Pequots and the Mohegans at Foxwoods and Mohegan Sun, which yield hundreds of millions in revenue to the State of Connecticut. The state’s dependence on that money is a problem, and their problem will get worse should New Yorkers stay home to gamble. Since a high of $430 million in 2007, the comptroller of that state says that the revenue numbers are going to continue to shrink to around $300 million by 2015. The story is the same in New Jersey, where commercial outfits run casinos. Overall spending at casinos was $5.2 billion in 2006, but only $3 billion in 2012. Everybody points to the twin disasters—the 2008 financial crash and Hurricane Sandy—but also admits that new casinos in Pennsylvania, Rhode Island, and Massachusetts, and potentially in New York mean that fewer out-of-town customers can be expected.

If New York State puts state-owned casinos in the Catskills, in the New York metro area, and Upstate, the revenue bounty will be real for this state. But the novelty of easily accessible gambling is wearing off.

Indian and non-Indian casinos

Scholars at the National Bureau of Economic Research recently examined a different issue: whether Native American communities have benefited from casinos. William Evans and Julie Topoleski answer in the affirmative. Indian-owned casinos have result in “young adults moving back to reservations, fueling an 11.5 percent population increase; adult employment increasing by 26 percent; and a 14 percent decline in the number of working poor,” they found.

But Douglas Walker, one of the academic investigators who has done dozens of studies of various aspects of casino economics, summarized his own and others’ findings, including this: There is a negative economic reality to casinos. “The casino industry may partially or entirely ‘cannibalize’ other industries,” he writes. Anybody who has walked the area around the Detroit casino has witnessed first-hand the Niagara Falls phenomenon: There may be some redevelopment happening nearby, but there isn’t much of it. Detroit’s overall demographic collapse, like the ongoing shrinkage in Buffalo, Niagara Falls, and other cities where casinos exist, demands the question: Isn’t a locals-only casino just another way of taxing local residents?

That leaves New York State government with the same dilemma other governments have: Either get into the business with state-owned, privately managed casino operations, or to do like Connecticut does, and accept a piece of the Native American casino action.

Some citizens have an answer to that dilemma: Don’t do either. Citizens for a Better Buffalo recently held an event at the Pierce Arrow Museum at which participants in the ongoing lawsuit against the United States government reiterated their hope that Federal Judge William Skretny will once again find that the existing Seneca Gaming Corporation casino on Michigan Street is illegal and should be shut down. Meanwhile, however, construction continues on a larger casino building than the one currently operating.

The State of New York is in arbitration with the Senecas over past-due revenues that the Senecas have been withholding from Niagara Falls, Buffalo, and the state because, the Senecas argue, Albany violated the terms of the 2002 gaming compact by allowing “racinos”—horse-racing tracks with slot machines—to operate in Batavia and Hamburg, which are inside the geography that the compact deemed the Senecas’ exclusive gambling marketplace. The state would seem to be in a very strong bargaining position, though: Not only is there legislative momentum for legalizing casino gambling throughout New York, but that compact will have to be renewed because it expires in 2016. People familiar with the Seneca position argue, however, that as long as the federal government says that the Senecas can operate casinos on non-reservation land in Niagara Falls and Buffalo, the Senecas will operate casinos in Niagara Falls and Buffalo—and maybe in Rochester, too.

Today, there are many unknowns about how these issues will be resolved. A revenue-hungry state government may get its wish, and legislate itself the opportunity to capture some discretionary, disposable income that New Yorkers currently spend in Connecticut, New Jersey, and at the Native American casinos inside New York. Maybe the US District Court will restate its previous decision, and this time, with a new secretary of the interior-designate soon to take office, get the Obama administration’s support for upholing the fairly straightforward 1989 law that specified that no off-reservation casinos can enjoy the same status as on-reservation casinos.

Casino operations have had a profoundly different impact on Native Americans, including those who work for the Seneca Gaming Corporation, than on the overall regional economy. In the next year, an economic disaster could conceivably hit the reservation communities west of the Genesee River, should both the governor prevail with policy and the federal government change course—unless, of course, the Senecas immediately identify, acquire, and profitably operate a whole new set of ventures. But that potential loss won’t be offset by a regional economic gain should New York State go into the casino business. Theire might be a slight gain in net revenue to state coffers, true, but with 85 percent of the trade at the flagship Seneca Niagara Casino already originating within the 716 area code, it’s unlikely that there will be any measurable change in economic impact.

Meanwhile, nearby Canadian communities pursue their own resolution of the casino question, in full view of a shuttered “racino” at Fort Erie Racetrack and a downsized casino presence in the international tourism destination known as Niagara Falls, Ontario. Decisions up north are due in Hamilton, Barrie, and Kingston before summer, and perhaps sooner in Toronto, where the public health authorities have recently condemned the proposal to locate a casino. Health concerns, economic-impact concerns, and law-enforcement issues discussed there may have as much weight as they’ve had here—that is, less weight than concerns over revenue. But at least in Hamilton, the pushback may succeed.

Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His recent book, Borderland: Essays from the US-Canada Divide, is available at bookstores or at www.sunypress.edu.

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