Why Casino-Driven Development Is a Roll of the Dice
Walk into the Commerce Casino in California at 7 a.m., and you’re greeted by the chirps and beeps of a metal black cage that carries tokens to the tables. Three large Egyptian sphinxes at the entrance; overhead, the ceiling is adorned with golden lanterns.
It’s quiet for a casino: There are no slot machines, just table games. You hear the clinking of chips and the flitter of cards, the dealer’s hook sliding across the green felt, a blender whipping up an early-morning piña colada. R&B music is playing, but this is mostly a place of intense, silent concentration. Men and women sit around card tables in sunglasses and baseball caps, to stifle a “tell.” Welcome to the American Dream.
Gambling is often criticized as a “tax on the poor” because of the disproportionate number of lower-income Americans who participate in it. At the same time, more state and local governments are embracing forms of gambling as economic development tools. Casinos create jobs that struggling cities need. But how far do the public benefits go, and how long do they last?
State lotteries began in the U.S. (outside of Puerto Rico) in the 1960s, and by the late Eighties, the majority of lottery ads emphasized opportunities for players to change their lives. New Jersey’s lottery slogan at the time was Give Your Dream a Chance. In 1989, the New York Lottery took out a billboard in New Jersey that showed a couple with eight children in a tenement apartment, with writing in Spanish: The New York Lottery helped me realize the great American Dream. One thing that may attract the poor to gambling and playing the lottery is that being poor is already a gamble, in a way; just as in casinos, the proverbial house is rigged against you.
People keep consuming Lotto, though, and welcoming casinos into their areas. That is what the city of Inglewood, California, was banking on when it opened the Hollywood Park Casino in the late Nineties. The casino was planned as L.A. reeled from the aftermath of the 1992 riots; Peter Ueberroth, then chairman of the initiative Rebuild L.A., said the idea to open a casino beside the Hollywood Park Racetrack and make it a “racino” was the kind of private-sector initiative needed to revitalize the area. When the casino opened, it had a mock-Art Deco interior with hot pink neon lighting, and the gamblers sat on what looked like office chairs.
Inglewood is one of those places where the economy has nowhere to go but up. Before the Hollywood Park Casino opened, city officials predicted the card club would generate up to $10 million each year for the city. (In California, slots aren’t legal outside of Native American casinos, only card games and pari-mutuel or pooled betting. So these casinos are also known as card clubs or card rooms.) Instead, the Los Angeles Times reported, the club contributed less than $5 million to the city annually for the first several years after its opening; that dropped below $3 million in 2012 and 2013.
Meanwhile, Inglewood ran up an $18 million deficit, and in 2012, its school district was taken over by the state.
The economic impact of gambling depends a lot on where casinos are being built, says Patrick Pierce, a political scientist and the co-author of Gambling Politics: State Governments and the Business of Betting. Casinos have produced the greatest economic benefits where the local economy is struggling. If there are no existing businesses, there is nothing for them to cannibalize.
However, this translates into poorer populations gambling. According to a report on gambling in West Virginia that Pierce co-authored, legalized gambling probably induces marginally greater economic inequality in the state, since low-income people tend to lose money through legalized gambling, recouping it only if they win (or indirectly, as states invest revenue or adopt policies that create lower-skill employment).
Casinos do create lower-skill jobs. Analyzing the jobs impact of commercial casinos in the U.S., based on data from the American Gaming Association, I found that the overall number of casino jobs in the U.S. has increased since 2012, but in at least 10 states, there has been a decline in casino jobs since then. The bulk of jobs were created in Maryland, at 5,514 compared to 499 in 2012. The most jobs were lost in Mississippi.
The typical lifecycle of a casino-driven boom and bust can be seen in places like Tunica County, Mississippi, formerly dubbed “America’s Ethiopia” by Jesse Jackson because of its deep-seated poverty. The town of Tunica became a flashy casino destination in the 1990s, and at first the casinos overhired—in a matter of months, the county’s unemployment rate (formerly the highest in the country) fell to 4 percent. But of the hundreds of millions of dollars in gambling revenues, just 2.5 percent was used for social programs. The poverty rate remained high. Then, in 2014, the largest casino of Tunica’s nine closed, ending 1,300 jobs. The jobless rate grew to 12.3 percent that year.
Today, Tunica has dilapidated homes on boggy ground, a 30 percent poverty rate, a 57 percent high-school graduation rate—and a new golf course, museum, riverfront wedding chapel, and Olympic-sized pool, all built as the county slashed property taxes.
Job security for casino workers is closely linked to gaming revenues. Lucy Dadayan, a senior researcher at the Rockefeller Institute of Government, found that states derive the bulk of gambling-related revenues from three major sources: lotteries, accounting for about two-thirds; commercial casinos; and racinos (race tracks with casinos). Lottery revenue declined by 0.7 percent in real (inflation-adjusted) terms in fiscal year 2015, with 27 states reporting declines. Between 2008 and 2015, inflation-adjusted tax and fee revenues from casinos grew by more than $1.3 billion in states with new casinos, but declined by $1.4 billion in states with established casinos, for a net decline of 1.5 percent nationally.
In short, the public returns from gambling decline over time—often quite fast. This may be due to competition with other states for a limited market (saturation), or competition between different forms of gambling (substitution). The results are short-run yields, longer-run deterioration.
Revenues come largely from low- and moderate-income households, whose incomes have declined along with their spending. The expansion of state-sanctioned commercial casinos has also affected existing Native American casinos. These low-income communities found a source of income in casinos, but competition from new commercial casinos can reduce their yields.
The pattern of diminishing returns has prompted casinos to find new ways of drawing in customers. Today, immigrants wait at unmarked bus stops in Chinatowns across the country to take a day trip into their respective gambling cities. They’re given a gambling coupon valued at $40 in exchange for purchasing a $15 bus ride. The idea is to entice them into gambling, with nothing to do all day but spend money until the bus leaves.
Many people get hooked, but some don’t, like Grace Wong of Monterey Park, California. She’s never gambled. She packs her own lunch, sells her card, and then does what she can to pass the five hours until the bus returns back to town. “It’s the only job I can get,” she says.
“This is not a special tour bus,” says Les Bernal, national director of the organization Stop Predatory Gambling. “Buses are pulling in the poorest members of the society, especially targeting Asian Americans. It’s racial profiling that employs the most predatory practices of any kind of business. It’s common in any state where there’s a Chinatown.”
States that are close to one another, like Illinois and Iowa, compete for gambling revenues and experience a market saturation that continues to influence gambling laws and leniency, affecting decisions like whether to keep riverboat casinos docked or increase betting limits. The Los Angeles area’s poorest cities seem to replicate this pattern.
Hollywood Park’s rival, Bicycle Hotel & Casino in Bell Gardens, launched a $50 million overhaul last year. The renovation and expansion provided for 300 construction jobs and 250 ongoing jobs, mostly entry-level positions that pay from nine to 15 dollars an hour. The project was privately funded.
Phil Wagner, the city manager of Bell Gardens, says the Bicycle complex has improved the area. There are no other industries that bring revenue to this part of southeast Los Angeles, he points out, and because of Proposition 13, cities in California can’t reap the same property-tax revenues as in other states. The card club and its hotel and restaurants together are the main employer in the community: “They’ve revitalized it,” Wagner says.
People ask him about crime all the time, he adds, “but in the 18 years the club has been around, there has been no crime increase.” Although he’s not fond of the competition, Wagner says he doesn’t worry about cannib
alization because of the moratorium on clubs. There are only six licenses in all of Los Angeles County.
Nevertheless, only about 70 miles away in Highland, the San Manuel Band of Mission Indians has completed a nearly $50 million upgrade of its own casino. And Larry Flynt, who owns the Hustler Casino in Gardena, 15 miles from Bell Gardens, bought the nearby Normandie Casino, too.
Cities such as Commerce, Bell Gardens, Colma, Hawaiian Gardens, Gardena, and San Pablo depend on local card rooms for a significant portion of their revenue. This has raised questions as to whether they can properly regulate the clubs, since they are in essence municipal partners.
In 2002, the Bicycle Casino accounted for 51 percent of Bell Gardens’ budget, and Commerce Casino for 35 percent of the City of Commerce’s. Hawaiian Gardens now gets an estimated 70 percent of its general fund revenue from its card club. Bell Gardens’ schools are run by the Montebello Unified School District, not the city, and after a grant runs out, student-teacher ratios are expected to rise as high as 35 to 40 students per class.
Pierce found that in the first year after a state lottery begins, there is typically an increase in spending for education—yet in the second year, state legislatures (and governors) use the lottery revenue to replace some of the general revenue that would normally have gone to education, enabling them to shift that general revenue to other purposes, or to cut taxes.
In this way, the revenues from both the lottery and gambling are fungible. It’s one of the reasons why state legislators like lotteries and casinos—there is far more flexibility as to where the additional revenue goes. A governor with political ambitions can cut taxes and run for higher office, campaigning as a governor who ran a tight fiscal ship, thanks in part to shifting the monies from gambling. One example, Pierce suggests, is former Indiana Governor Evan Bayh, who implemented a $1.6 billion tax cut, the largest in state history, 10 years after a state constitutional ban on gambling was lifted.
Asked what he deems the most important points about looking to gambling for revenue, Pierce says there are two. “One, citizens should be more than a little upset that their support for these lotteries and casinos has been obtained through misrepresentation from state advocates, about where the money would go and what it would do. For the most part, those claims simply haven’t [been] borne out, but rather shuffled around and substituted for the general revenue that was going to go there. Secondly, be nervous about this being a small but significant part of the state’s revenue.”
Just two miles from the Commerce Casino, a free shuttle full of Asian gamblers from Monterey Park pulls up to the Bicycle Casino in Bell Gardens. There’s a cat with a busted leg skirting the parking lot. Inside, a computer monitor displays a ticker with the jackpot. There are gamblers in hooded jackets, sunglasses, and trench coats, and the dealers raise their hands calling for more chips.
People sip burgundy, eat fries, and rub Tiger Balm on themselves, or get a table-side massage. Greasy noodles are served in the Lotus room adjacent to the Asian Gambling parlor. People come for the Pai Gow and stay for the American Dream.
Melissa Chadburn has written for Guernica, Buzzfeed, Poets & Writers, Salon, American Public Media’s Marketplace, Al Jazeera America, and dozens of other places.
Co-published with CityLab.