A Roll Of The Dice

Like it or not, slot machines are on their way to Pennsylvania.

But the controversy and debate about what that means to the economic and social structure of the state remain. Groups focused on business profitability and social welfare remain at odds.

Pennsylvania has a unique opportunity

For example, since the legalization of gambling in Nevada in 1931, the state has overcome the influences of organized crime and gambling has become a vibrant economic engine.

Las Vegas' population grew from 8,422 in 1940 to 575,973 in 2005, and Clark County cracked $1 billion in gaming revenue by 1977. Las Vegas' successes created significant economic activity, as casinos, condominiums, resorts and other development projects expanded throughout the city and its outlying areas.

As of July 31, 2006, the city generated over $5.2 billion in economic impact from its convention business, experienced an 88.9 percent mid-week occupancy rate and produced over $4.7 billion in gaming revenues.

Las Vegas epitomizes the ultimate gambling success story.

Another success story developed a bit closer to home in Atlantic City, New Jersey. A major vacation resort area from the 1880s, Atlantic City legalized gambling as an urban development tool designed to revitalize its resorts and urban centers.

In 1978, the first casino opened its doors, leading the way for a rapid growth of the gaming industry. The number of visitors grew from 700,000 in 1978 to over 33.3 million in 2004. The city's tax base had skyrocketed from $316 million in 1976 to over $6.7 billion in 2000. Today Atlantic City sees a broadening of its investments and offerings to include retail and other recreational opportunities.

Pennsylvania hopes to emulate these successes to revitalize its horseracing industry and reduce the burden of its run-amok property taxes on its citizens.

"In that industry and in the other locations, slots facilities would create jobs," says Doug Harbach, spokesman for the Pennsylvania Gaming Control Board. "They are in the hundreds of millions of dollars that are being spent on a number of these projects, so the resulting jobs from that alone would be significant. Past that, when they are in operation, there would be, in many cases, hundreds to thousands of jobs that would be created at these facilities."

Jobs represent only one aspect of the impact, and the debate continues on what positive and negative economic and social effects gaming will produce.

Industry experts know that a variety of factors, including the level of capital investment, will determine what the economic impact will be.

"Gaming in general is essentially evolving into another form of mainstream entertainment," says Michael Pollock, managing director for Spectrum Gaming Group, Atlantic City. "The more the capital investment that means the quality of amenities, technology, variety of amenities and so forth - the greater the impact."

Since the Poconos' economy already has a strong tourism infrastructure, Pollock believes gaming will add another incentive for capital investment to the region, a critical factor for economic development.

"Attracting capital investment, improving the number, quality, appearance and variety of attractions, that's what drives tourism," says Pollock. "Gaming works best if there is an existing tourism infrastructure, and it can drive capital investment to a region that needs it."

Although the two Poconos projects vying for the slot machine license would yield different economic impacts, both would create demand for additional goods and services from the surrounding region.

In addition, the Poconos' hotel tax for tourism marketing will grow and generate additional resources to target new markets.

How widespread those economic benefits will be remains a controversial issue. For example, Las Vegas has grown into a large diversified city - while, other than the casinos, parts of Atlantic City resemble slums.

"The bigger question is the impact on economic development," says Matthew Brouillette, president of the Commonwealth Foundation. "It has certainty been overstated by many of the policymakers with regard to the benefits of bringing gaming into Pennsylvania because these same industries are certainly competing for the same entertainment dollar that may be going to other industries. This was sold as a big economic development tool that this is going to provide free money for us for property taxes, for schools, airports, convention centers, but there is no such thing as free money."

Indeed, it may not even be new money, a prime ingredient to economic success.

"The key issues on any new business are two factors: the amount of money that will come from outside the region - or it's called export base - and then the people that are likely to stay home and spend rather than going elsewhere," says Keith Schwer, professor of economics and director at the University of Nevada Las Vegas' Center for Business & Economic Research. "If it's a very small community that is not likely to attract a lot of new people, it would have a very marginal effect. If it were a small community that's likely to bring new people into the area, it could have a fairly large effect. So the size of the changes that occur and the size of the community itself will drive what the magnitude of the benefits will be."

Other economists agree.

"The only real economic impact is if you draw people from outside your region," says William J. Robinson, assistant professor of economics at the University of Nevada Las Vegas. "If all you do is get money from people who live in your region, then you are just redistributing from one economic activity to another. If you can't get those people coming in from outside your community, there is a no net gain and you have to decide whether what you are giving up is worth what you're getting."

What discriminating consumers desire today includes a package deal with a choice of gaming, entertainment, shopping or other recreational pursuits. Fortunately, the Poconos already have that mix and gaming should add an additional dimension to its offerings.

Gaming's double-edged sword could mimic the Atlantic City experience, which generated income, but also increased the need for social services. The ripple effects initially include new jobs, capital investment and additional educational offerings to train workers for jobs in the industry.

"People have this idea gaming is some panacea that will solve all their fiscal problems," says Robinson. "Generally speaking, it's helpful but it's not a miracle."

The dark side of gambling

Beyond all the hype and dollar signs lies a dark side, a side some believe will quickly undermine the projected economic benefits and tear a deep hole in the fabric of Pennsylvania's society.

"Gambling has more cons more than it has beneft," says Diane Berlin, coordinator for CasinoFreePA and vice chair of the National Coalition Against Legalized Gambling. "All these casinos are designed to really entice the locals."

According to Berlin, 20 percent of gambling addicts attempt suicide and 70 to 90 percent have considered it. The gambling industry estimates addiction rates at 3 to 4 percent of the entire population. Like other addictions, the ripple effect trickles into the lives of families, friends, businesses and communities.

"These are people who, by the time they come to their senses, have lost not only every cent in their pockets, but many of them have committed crimes," says Berlin. "There has been a lot of embezzlement."

Opponents of gaming cite the ABCs of gambling addiction, bankruptcy and crime - as reasons for their opposition. Other negative effects include divorce, homelessness, suicide and other health and social ailments.

"If the casinos had primarily winners, they wouldn't be in business," says Berlin. "They blame all the problems on the so-called consumer and then shift the cost to the taxpayers or citizens because many of these (gamblers) end up in social services that are used or are dumped on faith-based organizations or other charitable organizations that pitch in and fight all of this."

That effects of gambling extend beyond the communities where facilities are located and into surrounding municipalities and counties.

"The primary feeder market is somewhere from 35 to 50 miles around a casino," says Berlin. "It's not whether just a community or municipality thinks that this would be good, but are the other municipalities within that feeder market willing to pick up the tab? From a public health standpoint, we should be trying to make things better not dumping more costs into the system, especially when they are preventable costs."

Preventable costs and financial inequities represent two reasons Rep. Mario M. Scavello (R-Monroe), voted against the legislation.

Acceptance of the reality of gaming's introduction into the Poconos has not stopped Scavello from trying to make the best of what he considers a bad situation.

"I voted against it. Unfortunately, it's really here to stay," says Scavello. "I don't think it's going to generate the dollars for property tax reform that everyone is telling you."

Scavello now fights to change a component of the bill that requires Monroe County, a fifth-class county as of the 2000 census, to share its economic development gaming allocations with contiguous counties, including Luzerne County where the Mohegan Sun at Pocono Downs is located.

Scavello's amendment to Senate Bill 862 to delete that provision of the bill remains stalled in the House Rules and Executive Nominations Committee since March for concurrence on the amendments.

"The economic impact dollars in our county would have to be shared with all the contiguous counties," says Scavello. "For us, it could mean between $8 and $10 million a year. We would be the only county in the state that falls under that piece of legislation that has to share our dollars with the surrounding counties: Pike, Northampton, Carbon, Luzerne, Lackawanna and Wayne. None of the other locations would have to do that."

Other locations where gaming exists also recognize the added costs borne by businesses due to gaming.

"If your employees are less stable because the money that should be taking care of their kids is being expended at the casinos, that's a business cost," says Bruce Barron, president of No Dice, a Pittsburgh-based anti-gambling group. "You are creating many more addicts with negative economic costs to the region, which means all the other businesses will suffer."

Barron believes overlooked angles of gaming's effect include a push by out-of-state interests who own the facilities to feed gamblers to New Jersey, for example, where tax rates are lower.

"The profits off Pennsylvania gamblers who will leave the state far exceed any gain that will be achieved by getting some existing Pennsylvania gamblers to stay in the state," says Barron."The approval of 'Nevada East' in Pennsylvania - which is what the thought of 30- to 40,000 slot machines is called - will not just maintain levels of gambling; it will massively increase levels of gambling. We are not in a situation where we are simply trying to recapture money that is going elsewhere. We would have to significantly recruit gamblers.

Local feedback:

Monroe County stands to benefit from the introduction of gaming into the Poconos. Local and county governments would receive income from not only the gaming revenues, but from an increased tax base created by the improvements made to the properties.

"When we review any project that's proposed to be developed in the county, we do have a fiscal impact model that we run the project through and get an estimate of the net fiscal impact, which in our case is public revenues versus public expenditures," says John Woodling, director of the Monroe County Planning Commission.

For example, Mount Airy's project computed to an annual positive fiscal impact of $750,000 for the Pocono Mountain School District, $65,000 for Paradise Township and $128,000 for Monroe County. The projected financial impact was unavailable for the Pocono Manor project since the facility had not yet submitted its plans to Tobyhanna Township or Monroe County.

Those estimated funds include additional contributions from increased real estate and earned income taxes, and not from any funds generated from use of slot machines. The model then considers the additional public expenses that might be incurred for things such as increased police protection, road improvements and social services to arrive at the net impact.

"It's difficult to quantify, and conversely, it would be difficult to say we are prepared or we are not," says Woodling. "I'm not sure anyone has a real good handle on that. It gets pretty iffy."

"Iffy" is what Paradise Township is encountering, anticipating what the opening of Mount Airy, either as a resort or hotel/casino, will bring.

"We are going to expect more traffic, and our roads are really not quite up to par for that," says Reda Briglia, supervisor at Paradise Township. "They have done a complete traffic study and the intersections that need traffic fights and anything will be done."

The township also hopes changes to the legislation will rectify language in the current law that gives a secondclass township a percentage of their 2003-2004 budget as opposed to $10 million allocated for any other hosting municipality. If the changes pass, the township plans to share $5 million with five of the surrounding municipalities.

"You're talking about going from $10 million to $500,000," says Debra Brady, zoning officer. "It's a huge, controversial issue. "

But controversy doesn't seem to be the sentiment for other businesses in and around the Poconos.

Ted Patton, vice president of Martz Thailways, WilkesBarre, doesn't believe the introduction of gaming will have much effect on his motor coach business.

"I think the Atlantic City casinos will be doing more marketing than they have been to induce people to go down there, and the local Mohegan Sun casino will probably be using us to bring people from outside of town," says Patton. "We look at it in a positive fight where it's going to be positive to our business."

Martz averages four to five trips each day to Atlantic City, about half of what it used to offer.

"I don't know if it was the economy as much as it was when it was new it was a new thing and we used to average like 10 to 12 buses a day down there up until roughly about two years ago," says Patton. "Then it started slacking off a little bit. Plus there is more competition up here for us that we didn't have before. The glitter might have worn off a little bit."

Some believe the gaming glitter may be a boost to other resorts and amenities in the Poconos.

"Overall for us as a business, it's going to be very much of a positive simply because of the fact that it's another amenity that will bring people into the Poconos and it will be something that will attract people into this area," says Doug Wilkins, area managing director for Starwood Hotels, owner of Caesars Pocono Resorts. "It will give an opportunity to introduce a whole new market. It will bring an injection of infrastructure that we really haven't had for quite some time. To have an injection of capital in the area is always good for the community."

Wilkins anticipates other resorts to expand and invest in their facilities when gaming begins.

"I think you are going to start to see some other businesses come into this area. You will have a situation where it will create a tax base that is different from the mix that we currently have which is heavily residential," says Wilkins. "Not only is the gaming revenue that's going to be generated in the state going to help off-set some of those property tax burdens, I think the injection of other commercial entities into the area is going to help the entire community have a better balance of residential versus commercial, which right now we don't have."

Some businesses believe another commercial venture will add to the Poconos' attraction.

"From a hospitality standpoint, at least industry wide, gaming coming to this area would be very good for the area," says Dale McFarland, general manager of Great Wolf Lodge-Pocono Mountains, Scotrun. "It will help industry, at least the lodging and food and beverage and a number of the retailers around the area. It's something we support for the area. It's good for the economy, for the tax base, as well as the industry itself."

Experts in the tourism industry agree.

"We like having new places to talk about and new facilities here," says Robert Uguccioni, executive director of the Pocono Mountains Vacation Bureau. But Uguccioni looks beyond the effects of the individual establishments.

"I don't think if we just had a gaming hole as some places are talking about with 3- or 4,000 slot machines and no real amenities outside of that, that would have a tremendous economic impact," says Uguccioni. "The fact that the applicants are projecting building resort facilities with other amenities is really the key to what I consider the best economic impact. We are looking at (gaming) more as an amenity to our existing facilities. It's going to be part of our attraction, but it's really not going to be the only attraction in town, like Atlantic City was for a long time and Las Vegas."

Uguccioni believes gaming will also create an increased midweek convention and motor coach business.

"That's a huge business for Atlantic City and we feel that we will tap into that market pretty substantially," says Uguccioni. "It's not only the facility itself. It's the product that they buy that will help stimulate more of the economy in the area."

The economic success or failure of gaming depends on a variety of factors that remain too difficult to predict.