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                             Wyomingites for a Better Economy Today and Tomorrow
WyBETT   Wyomingites for a Better Economy Today and Tomorrow
 
 A Second Look at Gambling, by William B. Keleher

The Albuquerque Economic Forum, in January 1996, adopted a resolution recommending that the New Mexico State Legislature adopt no changes in the laws of New Mexico which would expand in any way the present laws relating to legalized gambling. The January 1996 action of the Economic Forum was taken after study by the Government Affairs Committee of the Economic Forum and presentation of the Committee findings to the full Forum.

The 1996 New Mexico Legislature took no action to modify the then-existing laws of New Mexico prohibiting most, but not all, forms of gambling in New Mexico. However, and notwithstanding the November 1995 New Mexico Supreme Court decision that electronic slot machines and other casino forms of gambling were illegal, various Indian Tribes continued to operate casinos contending that, under the theories advanced, the Indian casinos were legal. To date, the Indian position has not been sustained by the federal courts as three separate federal district court judges have held that Indian casinos in New Mexico are illegal. However, all Indian casinos continue to operate, as two of the three federal district court decisions have been stayed and the U.S. Attorney, by agreement with the Mescalero Apache Tribe, consented to the reopening of the Mescalero Apache casino. The three federal district court decisions were appealed to the United States Circuit Court for the Tenth Circuit, Denver, Colorado, and oral argument was heard November 20, 1996, in Albuquerque, New Mexico.

If the Tenth Circuit sustains the Federal trial court decisions and follows the decision of the New Mexico Supreme Court, it is anticipated that the New Mexico Legislature will, during the 1997 session (or perhaps at an earlier special session), consider whether or not the laws of New Mexico should be changed to authorize and permit gambling. Various options to legalize gambling may be considered, such as:

  1. Casinos within Indian Lands.
  2. Casinos within Indian lands and at resort areas.
  3. Casinos within Indian lands, resort areas, and Race Tracks.
  4. Casinos, as outlined in 3 above, plus electronic slots at fraternal lodges and other social clubs.
In anticipation of proposed legislative action, a subcommittee of the Economic Forum was established to review the Economic Forum=s January 1996 Resolution and determine whether or not the Economic Forum should change, affirm or reverse its position. This report has been prepared for the use of Economic Forum members in determining whether or not the position of the Economic Forum should be confirmed, modified, or rescinded. PART II: EXPERIENCES IN OTHER STATES WITH GAMBLING

A great deal has been written regarding the economic effect of gambling. New Mexico's experience with casino gambling is limited and we therefore turned to studies prepared by others, based on the experiences in other states, which have had a longer period to experience the effects of legal gambling.

What follows in Part II of this paper is a review of studies and published reports of the economic and social impacts of gambling.
A. An Illinois Study

In an unpublished paper by E. L. Grinols and J. D. Omorov, September 1996, Development or Dreamfield Illusions?: Assessing Casino Gambling's Costs and Benefits the authors quote Adam Smith, who wrote in the late 1770=s, with respect to lotteries, as follow:
There is not, however, a more certain proposition in mathematics, that the more tickets you adventure upon, the more likely you are to be a loser. Adventure upon all the tickets in the lottery, and you lose for certain; and the greater the number of your tickets, the nearer your approach to that certainty. (p. 2)
The Grinols and Omorov paper is based primarily on data from Illinois, which legalized riverboat casinos as part of an economic effort to overcome the 1990-91 recession. The paper addresses the premise of promoters who advanced gambling as a regional development tool, as well as the monetary aspects of gambling, the links between both problem gamblers and pathological gamblers, and the effect of gambling on employment. The abstract of the Grinols and Omorov study is quoted in full, as follows:
Casino gambling entails policy questions relating to the size of harmful externalities it causes and to the size of the associated consumer, producer and tax benefits gained from placing casinos in new geographical areas. This paper evaluates the social costs of expanded casino gambling and finds that they are between $112-$338 annually per adult. The paper constructs and analyzes a measure of consumer benefits from closer proximity to casinos. Producer, consumer, and tax benefits are no greater than $56. Based on available data, therefore, casino gambling fails a cost-benefit test. The evidence suggests that casinos of the type that have opened in many states do not act as tourist attractions in most areas and therefore are not economic development tools in those cases.
Grinols and Omorov conclude:
  1. Somewhere between one-third and one-half of the population never, or almost never, gambles." (p. 2)
  2. The remaining less than 10 percent of the population can be characterized as consisting of heavy betters, problem gamblers (2 to 3 percent of the overall population) and pathological gamblers (1 to 2.5 percent of the overall population). (p. 3)
  3. A Pathological or addicted= gamblers impose costs on the rest of society in the form of crime, related apprehension, adjudication, and incarceration costs, and social service costs for themselves and their families. (p. 3)
  4. Although the percentage of pathological gamblers in the population is small, it is typically a tiny portion of the population that creates the enormous social costs that must be borne by the rest. The percentage of pathological gamblers, for example, should be compared to the percentage of the population who engage in robbery, drive drunk, or abuse illegal drugs. (p. 3)
Grinols and Omorov report that Nevada, a state which legalized gambling years ago (i)has the highest suicide rate in the Nation, more than double the national average, (ii) among the highest divorce rate and rate of child death by abuse in recent years, (iii) among the highest rate of accidents per vehicle mile driven and (iv) is also notable in other areas including school dropout rates and crime. (p. 3) Grinols and Omorov state:
Focusing just on social costs that can be measured - primarily apprehension, adjudication, incarceration, direct regulatory costs, and lost productivity costs - leads to annual cost per pathological gambler between $15,000 and $33,000 in current dollars. Combining this information with prevalent studies implies that the social costs are between $210 and $770 per adult each year spread over the adult population. (p. 4)
The costs quoted above are reduced by Grinols and Omorov because Americans have had access to casinos in Nevada and Atlantic City for many years. Therefore the difference, i.e., the increased social costs, comparing the figures for the year studied to a pre-1990 situation, due to the introduction of gambling in a state like Iowa or Illinois would be smaller. They estimate the increased social costs to be between $112 and $338 per adult. (p. 4) Grinols and Omorov found:
. . . the primary benefit of casino gambling to new regions is improved access to gambling on the same terms as is currently available in existing gambling outlets. Thus, the relevant direct benefit for those who can unharmfully gamble comes from the greater convenience of geographically closer casinos. (p.6)
To arrive at the benefits from new casinos the authors analyzed Illinois data, using the pre-1990 situation (when casino gambling was available only in Atlantic City and in Nevada), the population within 35 miles of a casino, the population within 150 to 300 miles of a casino, and the population more than 300 miles from a casino. Gambling expenditures per visit to a casino and the annual number of casino visits per gambler were used to determine the value of increased profits and increased taxes. The taxes lost to other sectors were subtracted. Their conclusion:
Taken together, direct net benefits from expanded gambling would be no greater than $43.08 per adult and increased producer surplus and taxes would be no greater than $12.50, for a total of $55.58. Social costs from expanded gambling would be $112 to $338 per adult. Thus costs outweigh benefits. It therefore appears that gambling is among the class of activities that, while privately profitable to casino owners are socially harmful. (pp. 8, 9)
The above is for the nation as a whole and does not take into account regional employment effects. (p.9)
To assess regional employment effects Grinols and Omorov cite employment figures for pre-riverboat and post-riverboat gambling and conclude that, with the possible exception of Alton, Illinois (a riverboat town near Chicago) there is no discernible pattern to the unemployment data after a casino opens compared to before. (p. 11) Grinols and Omorov state:
Several possibilities can explain the fact that little or no impact on unemployment can be seen. One is that most hiring did not take place from the pool of local unemployed: If jobs were taken by people from outside the area, or by individuals who left other jobs for casino employment, we would not observe a reduction in the number of unemployed. Another explanation might be that casinos attracted large sums of money to the communities involved, but also removed large sums of money so that local net expenditure increase was negligible. A combination of these explanations also might be responsible. (p. 11)
Grinols and Omorov, find a direct link between casinos and both problem and pathological gamblers, stating:
Among Minnesota gamblers seeking help for gambling problems, for example, sixty-six percent attributed their problems to casinos compared to only 5 percent who attributed their gambling problems to the lottery. (p. 4)
Studies cited by Grinols and Omorov report ". . . one percent of gamblers waged 50 percent of all the money, and 10 percent of betters were wagering 80 percent . . ." of all money spent on lottery tickets. (p. 5) These figures imply ". . . that 52 percent of casino revenues come from the 4.11 percent of the population who are pathological and problem gamblers. (p. 5) The use of casino revenues to treat problem gamblers and pathological gamblers would, of course, reduce casino revenues unless the casinos could attract replacement gamblers. If the average adult lost $200 per year, then it is estimated that 37.5 percent of revenue of casinos in the area came from problem gamblers and pathological gamblers. (p. 5)

In summary, Grinols and Omorov conclude that gambling fails a simple cost-benefit test.
B. A Florida Study

The conclusion of Grinols and Omorov as to the economic effects of casinos who rely, for the most part, on a local customer base, is substantially similar to a Florida study, prepared by the Executive Officer of the Governor, State of Florida, entitled "Casinos in Florida and Analysis of the Social and Economic Impacts. The Executive Summary of the Florida study reads as follows:
Casino industry officials promote the legalization of casino gambling as an incredible economic development tool, producing substantial revenues for government and growth in local economies. Research demonstrates this to be true - for small or isolated jurisdictions.
Gambling destinations appear to be successful to the extent they can export their product. Traditional views of gambling picture tourists coming from all over the nation to participate in this unique experience. As gambling continues to spread across the nation, market saturation reduces the pool of potential tourists and forces casinos to rely upon local residents as patrons.

In examining the impacts of legalizing casinos in Florida, it was determined that:

  1. State gaming tax revenues (at a rate of 16 percent on revenues) would range between $324 million and $469 million each year.
  2. Existing annual pari-mutuel and Lottery revenue sources would decrease by at least $14 million and $85.5 million, respectively.
  3. Recurring sales tax revenues would experience a net decrease of at least $84.7 million as Floridians diverted some of their existing taxable spending to casinos.
  4. Crime and social costs attributable to casinos would total at least $2.16 billion annually.
  5. When comparing annual projected state tax revenues to costs, the state would experience a substantial deficit each year.
    Annual projected state tax revenues related to casinos are sufficient to address only 8 to 13 percent of annual minimum projected costs related to casinos.
    Florida's substantial population and geographic size make it impossible for the state to export its casino problems to other areas while retaining revenues in state. This system works well for Atlantic City, New Jersey, which draws substantially off the gambling markets of New York City, Washington, D.C., Philadelphia and other heavily populated areas. It has also supported the City of Las Vegas which initiated casino gambling when there was relatively no other competition. Still, the City has required major adjustments to maintain its tourist market, such as appropriating a $48 million tourism promotion account each year and developing Orlando-style theme parks.
    Unlike Mississippi, which suffered from some of the most impoverished conditions in the nation, Florida has much to lose from casino gambling and, apparently, little to gain. The stakes are high and the payoff low.
The Florida study states that problem gambling behavior is one of the most significant, but least often considered, cost associated with casino gambling." (p. 67) The American Insurance Institute is cited as estimating that 40 percent of all white-collar crime has its roots in both legal and illegal gambling (p. 67). Further, . . . as many as 10-17 people may be innocent victims of each compulsive gambler (cite omitted), including spouses, children, parents, other relatives, employers, co-workers and friends. Two out of three compulsive gamblers will commit illegal activities in order to pay gambling related debts and to continue gambling. (p. 68)

The study cites a Maryland Department of Health and Mental Hygiene task force as determining that ". . . its 52,000 adult gambling addicts cost citizens $1.5 billion in lost work productivity, moneys stolen and embezzled, bad checks and unpaid taxes. (p. 67)

The bottom line was a recommendation that Florida reject expanded gambling.
C. A Wisconsin Study

A report published by the Wisconsin Policy Research Institute, April 1995, Vol., 8, No. 3 entitled "The Economic Impact of Native Americans Gaming In Wisconsin," concluded that 80 percent of the revenues of the 17 casinos on 11 Indian reservations come from residents of Wisconsin and 20 percent of the revenues come from residents of other states (p. 1, 4). The following points from the Executive Summary of the Wisconsin study, are among the major findings.
When viewed geographically, the gaming revenues and the other visitor revenues result in clear economic gains to both the areas with casinos and the state overall, unless social costs are deducted from the gains.
The areas around the casinos -- within 35 miles -- cumulatively enjoy a $404.1 million net economic gain from the gaming revenue and other new visitor spending minus the outflow of money from the areas. However, also considering a low estimate of the social costs of compulsive gamblers in the areas reduces the net gain to $338.63 million.
Overall, the state gains $326.72 million in net revenue (inflow of funds minus outflow, direct and indirect) from the presence of the casinos. However, this figure is reduced substantially -- to $166.25 million -- when even the lowest estimated social costs of compulsive gambling are included in the calculations. With mid-range estimated social costs, the overall impact becomes negligible, while with higher social-cost estimates, the impact becomes clearly negative.
The economic gains of the areas with casinos are derived from both out-of-state residents and residents of areas of the rest of the state not served by local casinos. Without considering the social costs of compulsive gambling, the "rest-of-the-state" areas lose -- or, transfer in -- $223.94 million to the local gaming areas. Considering the lowest estimated social costs of problem gambling, the rest of the state currently loses $318.61 million to gambling.
Gaming estimates are, indeed, estimates. If we are to better understand the impact and scale of this new industry, public officials will need to have access to more data on the industry than current agreements allow.
 
The social cost of gambling was estimated using 50 percent of published estimated numbers per gambler ($13,000 to $52,000) per gambler per year and using 0.7 percent (said to be a low number) of increased problem gamblers (the high was 4 percent) within the population. The result was:
Range of Compulsive Gambling Costs to Wisconsin:
Low.................$160.46 million per year
Medium...........$320.92 million per year
High.................$456.69 million per year
based on an adult population of 3,526,000 adults. (pages 41, 42)
 
The Wisconsin paper cautioned that much of the data set forth in the report were estimates, as information from the Indian casinos themselves was confidential. The report states:
It is regrettable that the State of Wisconsin, as a matter of public policy, has decided that information about Native American casino gambling within its borders must be kept confidential. The state's position, as conveyed to the researchers by personnel of the Wisconsin Gaming Commission, may have been negotiated into compact agreements by the tribes of Wisconsin. However, in the interest of good policy -- policy that seeks to result in benefits for Native Americans as well as other residents of Wisconsin -- public information should be public. Rational, public-policy processes require full, open access to all pertinent information if good decisions are to be the result of the processes. (p. 6)
 
The Wisconsin study analyzed data for the economic effect of casinos on the local area (within 35 miles of a casino) and the state as a whole The economic effect of out-of-state visitors was included. The conclusion (p. 42) is:
Casino gambling is an economic transfer policy - money is transferred from some people to other people.
The Indian Casinos have a positive economy effect on the Tribes and local areas surrounding the casinos in terms of economic analysis.
The authors of the study did not see the gambling activity as a major loss for the Wisconsin economy overall - in terms of direct analysis; however losses do occur when social costs of gambling are added into the total equation.
 

We can safely conclude that the gaming enterprise is not a major money maker for the State combined economy. (p. 42)
D. The Iowa Replication Study

Gambling and Problem Gambling in Iowa, A Replication Survey, by Rachel A. Volberg, Ph.D. is an in depth report of a survey of Iowa's non-problem gamblers, problem gamblers, and pathological gamblers interviewed in February and March 1995. The findings of the report are as follows:
The hypothesis that increases in the availability of legalized gambling lead to increases in the prevalence of gambling-related difficulties in the general population is clearly demonstrated.
The rate of lifetime gambling participation in Iowa has risen significantly since the first survey of gambling and problem gambling in 1989. Increases in gambling on machines and on games of skill are particularly associated with the overall increase in lifetime participation in gambling.
There has been a substantial and significant increase in the prevalence of lifetime problem and probable pathological gambling in Iowa between 1989 and 1995. Problem and probable pathological gamblers in Iowa are increasingly likely to be male, under the age of 30, non-Caucasian and unmarried. The greatest increase in the gambling involvement of problem and probable pathological gamblers between 1989 and 1995 is in gambling on machines.
There has also been a significant increase in the proportion of respondents who do not meet criteria for problem or probable pathological gambling but do admit to some gambling-related difficulties. This suggest that there may be even greater increases in the prevalence of problem and probable pathological gambling in Iowa in the future.
Young men with relatively high levels of education and income are the respondents most likely to have ever gambled in Iowa in 1995. These respondents also report spending the greatest amounts on gambling per month.
 

The 1995 Iowa Survey compared the results to a similar Iowa 1989 survey, conducted by the National Institute of Mental Health and the Iowa Department of Human Services. In 1989 legal gambling in Iowa was minimal. Six years later gambling was substantially increased, as six river boats and three Indian casinos were in operation as well as the Iowa lottery. Thus, a replication study permits a comparison with the baseline.

Based on the 1995 survey, Volberg estimates that in Iowa at a minimum there are 10,300 adult Iowa residents experiencing severe difficulties related to their involvement in gambling. (p.35) Volberg states:
According to the 1990 census, the population aged 18 and over in Iowa is 2,057,575 individuals. Based on these figures, we estimate that between 53,500 and 90,500 Iowa residents aged 18 and over can be classified as lifetime problem gamblers. In addition, we estimate that between 26,700 and 51,400 Iowa residents aged 18 and over can be classified as lifetime probable pathological gamblers. (p. 13)
 

E. The Minneapolis Star Tribune

In four consecutive articles published in December 1995, the Star Tribune reported on the experience of Minnesota, a state with legalized Indian casinos since 1988. The Readers Digest printed a condensation of the Star Tribune articles in the April 1996 issue. The two concluding paragraphs of the Readers Digest condensation are as follows:
Gambling has significant social and economic impact. It results in ruined lives, families and businesses, in bankruptcies and bad loans; in suicides, embezzlements and other crimes committed to feed or cover up gambling habits - and increases in costs to taxpayers for investigating, prosecuting and punishing those crimes.
Few of these problems have been documented as communities and states across the nation instead focus on gambling as a way to boost their economies and increase tax revenues. But for Minnesota the social costs of gambling are emerging in vivid and tragic detail.
 

F. The Federal Reserve Bank Of Boston - A Symposium

On June 1, 1995, a symposium, sponsored by the Federal Reserve Bank of Boston was held on the subject Casino Development - How Would Casinos Affect New England's Economy? Fifteen papers were presented at the symposium. The results were published in a Special Report, dated October 2, 1995. Many of the participants cited the success of the Foxwoods Casino, owned by the Pequot Tribe, Connecticut, which exploded in instant success.

The Pequot Tribe, has clearly experienced an economic bonanza for legal gambling on Pequot Tribal lands has been an overwhelming success for the Pequot Tribe (Symposium, Rose, p. 31).

The economic and social cost of the Foxwoods, as well as other casinos in the adjoining states, was characterized by Grinols, and for the most part has been summarized above as part of the Grinols and Omorov paper, subparagraph A above. Grinols did observe at the Symposium as follows:
A sufficiently small region can take money from its neighboring regions through gambling, as Las Vegas does from California, but it is a logical impossibility for every region or city to gain at the expense of its neighbors (Symposium, Grinols, p. 3).
 

Grinols noted that the casinos in Minnesota cater to patrons who are more than 93 percent from Minnesota and 92 percent of the gamblers in Peoria are from within Illinois (Symposium, Grinols, pp. 7, 10).

But, of more importance, was the focus of Grinols on Influence buying, engaged in, he says, by the gambling industry and those who want to be casino owners. He cited a Chicago Tribune report of an offer of $20 million to two government insiders if they could obtain a state casino license (Symposium, Grinols, p. 5, 6).

Two of the speakers at the Symposium were attorney generals, one from Massachusetts and the other from Rhode Island. Both cited increased crime experienced at Atlantic City and in the Foxwoods area. The Massachusetts attorney general stated that the Ledyard, Connecticut crime rate had doubled each year that Foxwoods has been open, citing forgery, bad checks, credit card fraud, vandalism, drunken driving and the like (Symposium, Harshberger, p. 121). He also stated that in nearly every state that has casino gambling, instances of public corruption has occurred (Symposium, Harshberger, p. 123).

The Rhode Island attorney general also cited increased crime since the opening of the Foxwoods Casino, and concluded his remarks as follows:
Finally, we keep hearing about how successful Foxwoods Casino is, making millions of dollars a day. That may be true, but we must think seriously about the consequences of this success, the impact it has had on the communities and families of Connecticut, Rhode Island and elsewhere. The question for casino owners and those who will decide whether to allow a casino in the community is, just how are we going to measure success? What is its definition in these times? At what cost to society will this so-called success be achieved? (Symposium, Pine, p. 129).
 
Howard J. Shaffer, Associate Director, Division on Addictions, Harvard Medical School, made a presentation at the Symposium based on a paper he co-authored, entitled The Psychosocial Consequences of Gambling. The paper, reproduced in the report of the Symposium at page 130, stated that there is a paucity of scientific research focusing on the psychosocial consequences of gambling, particularly among youth. (Symposium, p. 130) However, with the information available, Shaffer reports:
77.9 to 83 percent of youth have no problem.
9.9 to 14.2 percent of youth have some symptoms - but do not meet the test of pathological gamblers - and are at risk.
Between 4.4% and 7.4% of youth can be classified as compulsive or pathological gamblers; and
About 1.7% of youth are in treatment for compulsive or pathological gambling. (pp. 132, 133)
 

The problems with youth who gamble result in problems at home, work and school. Shaffer foresees emerging addiction of youth as gamblers and fears America is becoming dependent on gambling - generated revenues. (Symposium, p. 136) III. INDIAN VIEW 

Without any doubt, the casinos operated either by or for Indian Tribes in New Mexico are successful. Reports of the economic benefits to the Tribes, as reported in newspaper articles and paid commercials, attest to the success of the Indian casinos. Studies have been made available which support the Indian position.
A. The January 1996 Study Prepared For Indian Tribes

In a study entitled "The Benefits and Costs of Indian Gaming in New Mexico" prepared for The New Mexico Indian Gaming Association by the Center for Applied Research, Denver, Colorado, dated January 22, 1996 the modeling technique known as "input-output analysis" was used to assess the impacts of Indian gaming. In its preface, the report stated as follows:
The socioeconomic and fiscal costs of Indian gaming also need to be recognized so that they can be weighed against the benefits that may accrue to the Indian Tribes and general public. (p. i)
 

The study reports the total spent on gambling in 1995, within New Mexico, was $231 million with a casino net profit from operations amounting to $46 million. Of the $231 million spent on gambling at Indian casinos, the estimate was that $59 million was spent by tourists and visitors to the state (approximately 26 percent). (p.7) The report reflects the visitors to New Mexico who spent the $59 million on Indian casinos also accounted for an additional $216 million in expenditures for hotels, motels, eating and drinking establishments in 1995. (p. 6-8)

According to the study, Indian casinos account for loss of 1,480 jobs and a loss of $15.8 million dollars in wage/salary income within certain sectors of the New Mexico economy; however, an offsetting net gain of 11,360 jobs and $216 million in income in other sectors also occurs. (p. 8)

The report dismisses the possibility that pathological gambling will become a problem in the state, in the following language:
While little is known about pathological gambling in New Mexico and the possible commensurate fiscal impacts it may be fostering, the prospect that pathological gambling either has or will become a pronounced problem in the state is probably remote (p. 17).
 
The report states that over 60 percent of New Mexico's residents visiting Indian casinos do so for "entertainment," 3 percent visit casinos with the intention of A... supporting [sic] their ordinary incomes, and only 19 percent believe they will actually win money. (p. 17) The study does not report on why the missing 18 percent (unless part of the "over 60 percent") visit Indian casinos. In focusing on crime, the report states:
A related concern often linked to Indian gaming and gaming generally, is that gaming promotes a higher instance of crime, or an environment that is conducive to criminal activity. This perception is contradicted by the statistics on crime and other facts and circumstances surrounding gaming throughout the United States. (p. 18)
 

The foregoing quoted material leads into a discussion of Indian gaming in New Mexico and throughout the country being highly regulated and carefully managed by Tribes. The focus of the report on the higher incidence of crime, or an environment that is conducive to criminal activity, is with regard to the management of casinos and crime within casinos -- not on potential criminal activity by the losers at the gambling casinos.

The report does not include any assessment of the economic and financial income impact of the Tribes' net gambling revenue. The statement is made in the report that this report relies on two relatively new and important sources of data on Indian gaming in New Mexico: survey data from the University of New Mexico's Institute for Public Policy, and gaming financial data from the various gaming tribes. (p.3) However, the report does not address, except in very general terms, and without any specificity, what the Indian Tribes are doing with the money.
 

B. Report On The Economic Impact
Of The Mescalero Apache Tribe
On The Village Of Ruidoso, July 1996
 

A report prepared for Wendell Chino, President, Mescalero Apache Tribe, dated July 1996, finds that the business activities of the Mescalero Apache Tribe (AMAT) have a positive economic impact on the economy of Ruidoso. Visitors to Ski Apache and the Inn of the Mountain Gods, which has a casino, restaurant and golf course, are said to do all of their retail spending off reservation, since such services are not available on Tribal land. MAT and its various enterprises employed 2,635 people in 1995, second in number to Holloman Air Force Base. (p. 1) The Inn of the Mountain Gods spent $1,769,059 with Ruidoso based vendors of goods and services. (p. 2) Contributions to the Ruidoso economy by both Tribal and non-Tribal employees was estimated at in excess of $10.7 million annually. (p. 1) Thus, the economic effect of MAT's activities is very positive for Ruidoso and surrounding areas.

The report does not disclose who prepared the report or disclose MAT total revenues, casino revenues, net profits from business activities of MAT or the cost of possible adverse social effects in the Ruidoso area.
C. The October 1996 Study Prepared for the Indian Tribes

In a study entitled "Indian Gaming and the New Mexico Economy" prepared for the New Mexico Indian Gaming Association by the Center for Applied Research, Denver, Colorado, dated October 30, 1996, the Executive Summary reads as follows:
This report, "Indian Gaming and the New Mexico Economy", indicates that Indian gaming has become an integral part of New Mexico's tourism and entertainment industries. Based on actual data through September 30, 1996, and estimates for the fourth quarter of 1996, Indian gaming is indicated to be the source, directly and indirectly, of over 15,000 jobs, $250 million in personal income and $24.8 million in state tax revenue. Tourists, specifically drawn to New Mexico by Indian gaming, will spend approximately $66.9 million this year at the State's eleven Indian gaming facilities, while New Mexico residents will spend approximately $195.4 million. The "net win" of the eleven gaming tribes in 1996 is thus estimated to be $262.3 million.
The tribes' disposition of this $262.3 million (the "net win" of their gaming operations) fuels economic activity and tax revenue collections throughout the State economy.
In 1996, the gaming tribes will spend:
  • $56.4 million on wages and salaries for 4,275 employees at the various Indian gaming enterprises;
  • $79.1 million on goods and services purchased in-state to operate the gaming enterprises; and
  • $126.8 million on capital investment projects on reservations and tribal savings and investments made through New Mexico financial institutions.
The State wide expenditures of the eleven gaming tribes for goods and services are lower in 1996 than they were in 1995, due to: [1] the exceptionally high level of capital investment made by tribes in 1995 to either expand existing gaming operations or to inaugurate new gaming operations; and [2] the uncertainty of the outcome of certain legal challenges to Indian gaming that have been mounted by two special interest groups opposed to Indian gaming enterprises. The litigation directed at Indian gaming has suspended the tribes' capital improvement and construction activities, and it has also resulted in the suspension of some $13 million in annual revenue sharing payments that were to have been conveyed to the State by gaming tribes in 1996.

The disposition of revenue by the gaming tribes generates other, secondary economic activity, resulting in additional jobs and personal income being created throughout the State. The 15,000 total jobs attributable to Indian gaming in 1996 is comprised of 4,275 employed directly by the gaming enterprises and 10,738 jobs that are generated as a result of the State-wide expenditures made by gaming employees, tourists and the tribes themselves (i.e., the "multiplier effect").

Tourists, drawn to New Mexico specifically by Indian gaming, will spend in addition to their wagers, $250 million in the State: $117.5 million on lodging; $30 million on transportation; $12.5 million at eating and drinking establishments; and $70 million in the trade sector. These expenditures combine with the personal consumption expenditures of the 4,275 employees of Indian gaming facilities and are a source of business income and tax revenue throughout New Mexico.

In spite of the fact that Indian gaming is a non-taxable activity, the State of New Mexico will realize a net increase in gross receipts and State income tax collections in 1996 due to Indian gaming. The economic activity stimulated directly and indirectly by the tribes' in-State expenditures for labor, goods and services, by tourist expenditures and by the Tribes' savings and investments more than off-sets the gross receipts tax exemption at the gaming enterprise level. Net 1996 gross receipts and income tax collections (i.e., net of the loss in State tax collections due to resident expenditures on non-taxable reservation-based gaming), will total $24.8 million in 1996.

The 1996 report does not take into account the job loss and corresponding loss of wage/salary income to other sectors of the New Mexico economy, which the 1995 study does reflect. It should be noted that the 1996 study reports the dollars spent by tourists at Indian casinos are $66.9 million (p. 4) and uses the same figure ($66.9 million) for "Tourists, specifically drawn to New Mexico by gaming . . .@ (Executive Summary, p. I). The $66.9 million is then used as one part of the equation to arrive at the multiplier effect. For the results to be valid one must assume that the tourists spending the $66.9 million at Indian casinos would not have come "but for" the Indian casinos. The study does not calculate the negative economic effect that results from New Mexico residents and out-of-state tourists spending their money at Indian casinos rather than at alternate places of entertainment or the social costs to New Mexico imposed by problem gamblers. The study does strongly support the position of the Indian Tribes that the Tribal economy are substantially improved, the net profits (net win less expenses) is $126.8 million. (p. 4) IV. THE NATIONAL GAMBLING IMPACT STUDY COMMISSION ACT OF 1996 

As a result of the proliferation of gambling throughout America, primarily at river boats and Indian casinos, Congress passed the National Gambling Impact Policy Commission Act which established the National Gambling Impact Study Commission. Congress has directed the Commission to study the economic impact of gambling in the United States. The matters to be studied are set forth in the Act and include a study of the relationship of gambling and crime levels as well as an assessment of social problems and associated costs. A report is due in two years. V. NEW MEXICO 

New Mexico's population in 1990, aged 18 and over, was 1,068,328. Based on the data of the 1995 Iowa Study by Volberg, it might be estimated that New Mexico should expect between approximately 11,000 and 21,000 current problem gamblers and between 3,500 and 10,500 current pathological gamblers. At an increased cost of between $112 and $338 per adult New Mexican (not per gambler) (the Grinols and Omorov Study), New Mexico can be estimated to incur between $120 million and $360 million annually in social costs. At the cost estimated by the Wisconsin study (with an incidence rate of between 0.7 percent and 4 percent of the adult population projected to have problems) the number of problem gamblers in New Mexico can be estimated at between 7,478 and 42,733. As Wisconsin estimates the annual cost is between $13,500 and $52,000 per problem gambler, the low social cost to New Mexico is $100 million (0.7% x 1,068,328 x $13,500) and the high social cost will be $388 million (0.7% x 1,068,328 x $52,000) per year if the lowest incidence rate per current problem gambler is used. If, as is possible, a higher incidence rate is determined to exist (more than 0.7% of the adult population) the projected cost would be much higher.

In an effort to determine whether gambling in New Mexico is having an adverse financial effect on New Mexicans, bankruptcy statistics from the United States Bankruptcy Court, District of New Mexico were obtained.

It is obvious that the trend to fewer bankruptcies from 1992 to 1994 was sharply reversed in 1995. Nine months of 1996 almost equals all bankruptcies during 1995. A chart prepared by the Bankruptcy Court Clerk's office showing the total quarterly bankruptcy filings from 1989 to September end 1996 is attached as Exhibit "A." The Bankruptcy Court does not determine why bankruptcies in New Mexico decreased each year from 1992 to 1994 and then began an upswing in 1995.

Although the evidence of an increase is clear-cut; however, subcommittee cannot assert the increase should be attributed to bankruptcies caused by increased gambling. It is apparent that the increase in bankruptcies over the recent period corresponds to the increased availability of casino gambling and the New Mexico Lottery; however, the increase may be attributable to increased credit card availability. The Albuquerque Journal, October 20, 1996, reported that Americans are burdened by credit card debt resulting from imprudent spending and nationally the number of bankruptcies were increasing.

The Albuquerque Tribune, August 14, 1996, reported that four new pawn shops had applied to the City for business licenses, stating A. . . in a memo to the Mayor's office, City Treasurer Lou Hoffman attributes it to the growth of casino gambling. In Billings, Montana, the number of pawn shops rose from zero to 49 after gambling arrived there, Hoffman said.

The New Mexico Taxation and Revenue Department in a report dated September 19, 1996 estimated that fiscal 1996 gross receipts tax were nearly $23.2 million lower than projections. The question is - why? Several possible reasons are listed with TRD reporting that TRD's model cannot isolate a specific factor. TRD's Summary and Conclusion is as follows:
TRD analysis supports the conclusion that there were significant changes in certain sectors of the economy beginning in the fourth quarter of 1994, concurrent with the expansion of Indian casino gambling in New Mexico. While the expansion of Indian casino gambling can not be directly linked to the documented change in the structure of the state's economy, the persistence of those changes in those sectors most likely to be affected, indicates a strong correlation between the two. In the most recent fiscal year, weather conditions did have a negative impact on the revenues from tourism, but neither statistical or anecdotal evidence supports a permanent contraction of tourist activity. Therefore, TRD analysis can only conclude that some portion of the decrease in general fund revenues from gross receipts taxes is attributable to the introduction of Indian casino gaming in New Mexico. Without operating and net win information from the casinos themselves, it is impossible to quantify exactly the gross receipts tax impact of Indian gaming on the state general fund and local governments. (TRD Report, pp. 5, 6)
VI. CONCLUSION 

The weight of the studies I have reviewed leads me to conclude:

  • that gambling has a positive economic effect on casino owners and operators (the "winners"), a severe negative effect on the problem and pathological gamblers and their families (the "losers") and an overall negative economic effect on the community as a whole unless the larger "outside" money is sufficient to offset the overall negative economic effects.
  • Casinos, unless part of destination resort casinos, cannibalize tax revenues and consumer spending from other local businesses, however, if the casinos are taxed (or, in the case of Indian Casinos, a revenue sharing agreement is in place), the revenue effect on the state may be neutral.
  • In spite of a revenue neutral effect on state tax revenues, gambling creates costs for all within the state (or region) who do not gamble. Such costs are borne by all, including the social-non problem and non-pathological gambler.
  • The social costs of gambling may not appear suddenly, rather the social costs may take time, perhaps months or two or three years, to surface.
  • The availability of legalized gambling leads to an increase in gambling and the number of problem and pathological gamblers in the population.
  • The closer a casino or other gambling outlet is, geographically, to a potential patron, the more likely it is that the individual will be a gambler and the greater the opportunity for an individual to become a problem gambler, or pathological gambler.
  • The social costs of gambling to the population outweigh the benefits to the owners of casinos, their employees and vendors.
William B. Keleher
November 26, 1996