Skip to main content

Full text of "The national impact of casino gambling proliferation : hearing before the Committee on Small Business, House of Representatives, One Hundred Third Congress, second session, Washington, DC, September 21, 1994"

See other formats


.On 



THE NATIONAL IMPACT OF CASINO GAMBUNG 
PROUFERATION 



Y4.SH 1:103-104 

The National Inpact of Casino Canbl... 

HEARING 

BEFORE THE 

COMMITTEE ON SMALL BUSINESS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



WASHINGTON, DC, SEPTEMBER 21, 1994 



Printed for the use of the Committee on Small Business 



Serial No. 103-104 







U.S. GOVERNMENT PRINTING OFFICE 
83-277 CC WASHINGTON : 1995 

For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-0A6866-3 



\\, THE NATIONAL IMPACT OF CASINO GAMBUNG 
\ PROUFERATION 



Y4.SM 1:103-104 

The National Inpact of Casino Canbl... 

HEARING 

BEFORE THE 

COMMITTEE ON SMALL BUSINESS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 
SECOND SESSION 



WASHINGTON, DC, SEPTEMBER 21, 1994 



Printed for the use of the Committee on Small Business 



Serial No. 103-104 







^p»? 1 1 



m 



^Siaaafc-Si. 



U.S. GOVERNMENT PRINTING OFFICE 
83-277 CC WASHINGTON : 1995 

For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office. Washington, DC 20402 
ISBN 0-16-046866-3 



COMMITTEE ON SMALL BUSCSTESS 



JOHN J. LaFALCE, New York, Chairman 

JAN MEYERS, Kansas 

LARRY COMBEST, Texas 

RICHARD H. BAKER, Louisiana 

JOEL HEFLEY, Colorado 

RONALD K. MACHTLEY, Rhode Island 

JIM RAMSTAD, MinnesoU 

SAM JOHNSON, Texas 

WILLIAM H. ZELIFF, JR., New Hampshire 

MICHAEL A. "MAC" COLLINS, Geoiigia 

SCOTT McINNIS, Colorado 

MICHAEL HUFFINGTON, California 

JAMES M. TALENT, Missouri 

JOE KNOLLENBERG, Michigan 

JAY DICKEY, Arkansas 

JAY KIM, California 

DONALD A. MANZULLO, Illinois 

PETER G. TORKILDSEN, Massachusetts 

ROB PORTMAN, Ohio 



NEAL SMITH, Iowa 

IKE SKELTON, Missouri 

ROMANO L. MAZZOLI, Kentucky 

RON WYDEN, Oregon 

NORMAN SISISKY, Virginia 

JOHN CONYERS, JR., Michigan 

JAMES H. BILBRAY, Nevada 

KWEISI MFUME, Maryland 

FLOYD H. FLAKE, New York 

BILL SARPALIUS, Texas 

GLENN POSHARD, Illinois 

EVA M. CLAYTON, North Carolina 

MARTIN T. MEEHAN, Massachusetts 

PAT DANNER, Missouri 

TED STRICKLAND, Ohio 

NYDIA M. VELAZQUEZ, New York 

CLEO FIELDS, Louisiana 

MARJORIE MARGOLIES-MEZVINSKY, 

Pennsylvania 
WALTER R. TUCKER III, California 
RON KLINK, Pennsylvania 
LUCILLE ROYBAL-ALLARD, California 
EARL F. HILLIARD, Alabama 
H. MARTIN LANCASTER, North Carolina 
THOMAS H. ANDREWS, Maine 
MAXINE WATERS, California 
BENNIE G. THOMPSON, Mississippi 

Jeanne M. Roslanowick, Staff" Director 
Jenifer Loon, Minority Staff Director 






i 9M 



(II) 



CONTENTS 



Page 

Hearing held on September 21, 1994 

WITNESSES 
Wednesday, September 21, 1994 

Bloomberg, Jeffrey, State's attorney, Lawrence County, South Dakota 14 

Franklin, Webster, executive director, Chamber of Commerce, Tunica County, 

Mississippi 18 

Goodman, Robert, director. The U.S. Gambling Study, Lemelson professor 
of Environmental Design, Hampshire College, and professor of regional 

planning, University of Massachusetts 4 

Grinols, Earl, professor of economics. University of Illinois 8 

Lorenz, Valerie, director. Compulsive Gambling Center, Baltimore, Maryland 1 1 

Wednesday, September 21, 1994 

APPENDIX 

Opening statements: 

Baker, Hon. Richard H 33 

Klink, Hon. Ron 36 

LaFalce, Hon. John J 37 

Prepared statements: 

Bloomberg, Jeffry 42 

Franklin, Webster 50 

Goodman, Robert 56 

Grinols, Earl 71 

Kindt, John Warren 77 

Lorenz, Valerie 82 

Additional material: 

Letter and statement of Ada Deer 93 

Letter and statement of Arnold Hewes 98 

Letter of A.J. Holloway 89 

Letter and statement of Christine MUUken 108 

Letter and statement of Ray Scheppach 144 

Letter and statement of Tim Wapato 159 

Statement from Hon. Frank R. Wolf 87 



(III) 



THE NATIONAL IMPACT OF CASINO 
GAMBLING PROLIFERATION 



WEDNESDAY, SEPTEMBER 21, 1994 

House of Representatives, 
Committee on Small Business, 

Washington, DC. 

The committee met, pursuant to notice, at 9:05 a.m., in room 
2359-A, Raybum House Office Building, Hon. John J. LaFalce 
(chairman of the committee) presiding. 

Chairman LaFalce. The Small Business Committee will come to 
order. 

The Small Business Committee meets this morning to examine 
the impact of casino gambling on the Nation. We are drawn to this 
topic due, in large part, to the fantastic growth of the casino indus- 
try in recent years. If you pick up a newspaper from just about any 
city, in any State in the country, you can read about a local ref- 
erendum on casinos or the construction of a new gambling complex. 
A recent New York Times Magazine cover story offers a striking 
portrayal of casino gambling proliferation. 

"Gambling is now bigger than baseball, more powerful than a 
platoon of Schwarzeneggers, Spielbergs, Madonnas, and Oprahs. 
More Americans went to casinos than to major league ballparks in 
1993. Ninety-two million visits. Legal gambling revenues reached 
$30 billion, which is more than the combined take for movies, 
books, recorded music and park and arcade attractions." 

The article goes on to state that within a decade virtually all 
Americans will live within a 4-hour drive of a casino. 

What is the cause of this phenomenal growth? I suspect there are 
three primary reasons, all centering on a competitive atmosphere 
to attract the gambling dollar. First, States are competing with In- 
dian tribes, both in a race to build casinos ahead of the other. 

Second, States are competing with other States to lure potential 
gamblers across State lines. 

Finally, with the recent success of a casino development in Wind- 
sor, Ontario, where 80 percent of the patronage consists of Detroit 
residents, there is a competition between border States and Cana- 
dian communities to our north, 

I hope to explore the causes of casino proliferation in the future. 
Today, however, we shall focus on the impact of this proliferation, 
examining the benefits and costs to individual communities and to 
the Nation as a whole. 

In terms of benefits, there is no question that casinos generate 
revenue, not only for casino owners but for local and State govern- 
ments. Recent windfalls in casino revenues have provided relief to 

(1) 



many resource-strained State and local governments, allowing, in 
some cases, for levels of spending on education, building-preserva- 
tion and other public services that have not been seen in years. 

This is new money flowing into what have been some of the poor- 
est regions in our country. The casinos themselves have provided 
jobs in places where the opportunity to work has long been absent. 
These are clearly social and economic benefits accruing directly 
from the recent emergence of casinos in places like Tunica, Mis- 
sissippi, and Deadwood, South Dakota. 

If this were the end of the story, if casinos were typical busi- 
nesses in the recreation industry, there would be little reason for 
us to focus on the impact of their explosive growth, except to ap- 
plaud the success of casino owners. But casinos do not appear to 
be typical businesses. In social and economic terms, casinos may 
have significant externalities that we do not see in other businesses 
or other industries. 

Specifically, I am very concerned about the consequences of ca- 
sino proliferation in three areas: The impact on other small busi- 
nesses and, more broadly, on the economic well-being of commu- 
nities nationwide; the impact of casino growth on gambling addic- 
tion; and the impact on levels of crime. 

In each of these areas, there is an emerging body of evidence to 
suggest that the pace of future casino development should be more 
measured and further growth should receive more careful scrutiny 
at the local. State, and national levels. 

At the national level, the impact of casino proliferation on exist- 
ing small businesses appears to be mixed. Some businesses will 
likely benefit from the increased traffic in a community that casi- 
nos create. On the other hand, we know that Americans have a 
fixed amount of entertainment income; if they spend more of it on 
gambling, then it would seem that they will spend less of it on 
movies, restaurants, sporting events, et cetera. This is one impor- 
tant question we will consider today: Do those who gain from casi- 
nos do so at the expense of other businesses, other communities 
and other States? 

Turning to the issues of gambling addiction and crime, evidence 
suggests the two are inextricably linked. The American Insurance 
Institute estimates that as much as 40 percent of all white collar 
crime is committed by individuals who have serious gambling prob- 
lems. Another question for us to consider today is to what extent 
does casino proliferation lead to a proliferation of' compulsive gam- 
blers? 

This morning we will want to hear the full story on casino pro- 
liferation. We hope to gain considerable insight into the benefits 
and costs associated with casino proliferation, both for individual 
communities and for the Nation as a whole. To help us identify the 
costs and benefits of casino gambling to our Nation, we have an ex- 
pert panel of witnesses. 

First, we are pleased to welcome Robert Groodman, Director of 
The U.S. Gambling Study and Lemelson Professor at Hampshire 
College. Professor Goodman's study, fimded by the Aspen Institute 
and the Ford Foundation, stands alone in its superb synthesis of 
collective knowledge nationwide on the topic at hand. 



We also welcome Professor Earl Grinols, professor of economics 
at the University of Illinois. Dr. Grinols has devoted a considerable 
effort to analyzing of the economics of casino gambling, both at the 
State and national levels. 

Also, Dr. Valerie Lorenz, director of the compulsive gambling 
center in Baltimore, Maryland. Dr. Lorenz is a nationally recog- 
nized expert on compulsive gambling and has devoted much of her 
career to bringing more national attention to the issue. 

We will then turn to two local perspectives on the casinos issue, 
welcoming Jeffrey Bloomberg, State's attorney for Lawrence Coun- 
ty, South Dakota, and Webster Franklin, executive director of the 
Tunica County Chamber of Commerce, in Tunica, Mississippi. Both 
have seen their communities change dramatically due to casino de- 
velopments, and we look forward to their valuable insights today. 

We will also be submitting two statements for the record, first 
that of Representative Frank Wolf and second that of the Honor- 
able A. J. Holloway, Mayor of Biloxi, Mississippi, who was invited 
but was unable to attend the hearing todav. 

[Mr. Wolfs statement may be found in the appendix.] 

[Mr. Holloway's statement may be found in the appendix.] 

Chairman LaFalce. I would, at this time, call on other members 
of the committee who may have an opening statement. 

Chairman LaFalce. Representative Bilbray of Nevada. 

Mr. Bilbray. Yes, thank you, Mr. Chairman. 

Of course, representing the First District of Nevada, which is 
composed of Las Vegas, I probably have a different perspective 
when it comes to casino gambling, having been bom in an area and 
living around gambling all my life. Most of us who have lived 
around it all our lives don't gamble. I do not gamble. I go to casinos 
and do not gamble. Maybe it is because I have lived around it all 
my life. 

But the fact is that Las Vegas is unique in that it started as a 
town of 3,000 people when casino gambling was legalized, and now 
it is approaching a million people. The small businesses that are 
around gambling in Nevada are based on the fact that they 
wouldn't be there if it was not for casino gambling. 

I am very concerned about the lack of regulations in States other 
than New Jersey and Nevada on controlling their gambling, and of 
course we have Mr. Bloomberg from the commonwealth or County 
Attorney for the Deadwood area who will be discussing the situa- 
tion today in that area. 

But one of the areas that I hope that this committee will look 
at in the future is Indian gaming and what effect the national com- 
mission that regulates Indian gambling will have when they only 
have eight investigators for the entire country to make sure that 
gambling is run as it should be, fair to both the operators and to 
the customers that come in. 

In Nevada, we have over 300 agents just for our own State, and 
the national commission has eight for the entire United States. 

But I hope that when the witnesses testify today they will look 
at it objectively, not only the effects it would have where you have 
good regulation, good control and good management versus the 
helter-skelter way that it is being developed throughout the coun- 
try. 



I am anxious to hear the testimony from the witnesses, and I will 
have a series of questions for them when they complete their testi- 
mony. 

Thank you. 

Chairman LaFalce. I thank the gentleman from Nevada. 

Does anyone else have any opening statement they wish to 
make? Then I would call all the witnesses to the table at this time. 

I know this is going to be difficult, but I am going to ask each 
of you to attempt to confine your opening statement to no more 
than 10 minutes, and if you should fall short of 10, you can con- 
clude at that point, too. 

Chairman LaFalce. We will first hear from Professor Goodman. 

TESTIMONY OF ROBERT GOODMAN, DIRECTOR, THE U.S. GAM- 
BLING STUDY, LEMELSON PROFESSOR OF ENVIRONMENTAL 
DESIGN, HAMPSfflRE COLLEGE, AND PROFESSOR OF RE- 
GIONAL PLANNING, UNIVERSITY OF MASSACHUSETTS 

Mr. Goodman. Thank you, Congressman LaFalce. Thank you es- 
pecially for the compliment you paid to our research efforts over 
the last couple of years. I have told people in the past who have 
complimented us on it that my hope is that our efforts will be obso- 
lete within a year. We see the need for a great deal move research. 
We were able to put together a lot of research over that period of 
time, but there is still a lot of work that needs to be done. 

As you know, the project was conducted at the University of 
Massachusetts at Amherst, with funds from the Ford Foundation 
and the Aspen Institute, and we spent a great deal of tinie inter- 
viewing quite a number of business leaders, political officials, At- 
torneys General, people in the media over that period of time and 
studied quite a great deal of research in the area. 

We have been heartened by the response to it, by the number of 
thymes we have been asked to testify, by the talks I have been 
asked to give in various parts of the country, including national 
conferences of State legislators and Attorneys General. 

But in spite of the positive response there has been also some 
negative response. To be quite honest, I was at first surprised by 
the intensity of some of the attacks against the study by political 
leaders and people in the gambling industry. 

Complaining letters were written to the University of Massachu- 
setts president which questioned my right to do this research at a 
State university. Unnamed sources called newspaper reporters to 
describe the Ford Foundation and the Aspen Institute as, quote, 
moral crusaders against gambling. 

In spite the fact that I openly acknowledged that I sometimes 
gamble myself, I have been also attacked as an anti-gambling mor- 
alist. 

The intent of the study was to look at the economic consequences 
of gambling. To that effort we looked at a number of economic im- 
pact studies that were done. We looked at experience in many 
parts of the country. 

In the process of studying and debating the economic con- 
sequences I have come to imderstand why gambling industry ex- 
ecutives and politicians were disturbed by criticism of this indus- 
try. Clearly, from the industry perspective, having a Government 



monopoly — essentially, in many cases, Government-sanctioned 
monopoly — gives them an immensely profitable position, and criti- 
cism can be seen as threatening to those profits. 

But I think from the political perspective criticism is also always 
threatening but I think for more complex reasons, and these stem 
from, really, the limited opportunities for economic development in 
many parts of this country, and the introduction of gambling is 
really a symptom of that problem rather than a long-term solution 
to it. 

Having to deal with downsizing by major private firms, having 
to bear the brunt of reduced Federal aid and other problems that 
you are familiar with in the cities, any new enterprise which prom- 
ises large numbers of jobs and revenue can give the appearance of 
salvation and economic revival. With constituents hurting, with 
more productive solutions very hard to come by, even desperate so- 
lutions can seem better than no solution. 

Just to give you an idea of how desperate this has become, last 
year in Detroit, a city once identified as the world's leading pro- 
ducer of automobiles, where the unemployment rate has soared, 
during the fall, the local casino developer announced that he was 
accepting applications for jobs, even though no casino has actually 
been legalized. These applications were being sought, according to 
the developer, in order to have time to train workers in the event 
that the company's proposed casino project might be legalized. 

On a cold November morning, 3 hours be^re the doors opened 
for applications, hundreds of people began lining up. As the day 
wore on, more people arrived. The streets were closed off. By the 
day's end it was reported that over 10,000 people, most of them 
black, had filled out applications for what were essentially 
nonexisting jobs. 

The mayor had called that a cruel tactic to raise people's hopes 
in a ploy to create political pressure to legalize casinos in Detroit. 
But this is a dangerous form of economic development, using gam- 
bling as government policy to create jobs. 

It is clearly different than what happened, say, since early 1930's 
in Nevada and since the late 1970's in Atlantic City. In those cases, 
you clearly had what we would call a monopoly export economy. 
That is, people came there as destinations, tourists. They gambled. 
Thev left a great deal of money in those locations. 

Tne money had a multiplier effect in the sense of creating jobs 
not only in the casino industry but other industries there. AJthough 
there is some significant problem of gambling addiction in both of 
those locations, for the most part, the tourists took those problems 
with them — that is, the gambling addiction problem — and re- 
turned to their communities. 

That model of gambling as economic development does no longer 
exist in this country. Unfortunately, many communities are looking 
toward that model that no longer exists as a source of creating jobs 
and revenue. 

What you have now is what the casino industry itself refers to 
as convenience gambling. In the question period, if you would like, 
I can cite you many references by people in the casino industry 
themselves that are saying this new form of gambling is not what 
it has been made out to be by some of the promoters. That is not 



a method of creating jobs and enhancing local economic develop- 
ment. 

That is not just the conclusion of my report but that is the con- 
clusion of casino developers themselves. As I said, I would be 
happy to go through that with you if you like, but there is not 
enough time right now. 

So, what you are finding in this convenience gambling economy 
is that essentially that money, discretionary dollars that are being 
spent on other forms of entertainment and consumer expenditures, 
are now being shifted into casinos. That is not economic develop- 
ment in any real sense of the word. It is basically shifting dollars, 
and this is creating an onerous financial burden on future genera- 
tions by simultaneously undermining what remains of America's 
productive economy. 

It seems a very strange paradox to me that while the Federal 
Government is trjdng to develop new partnerships with the coun- 
try's most productive job-enhancing and economy-expanding indus- 
tries by providing research assistance for high technology firms and 
semiconductors and the information superhighway and developing 
a clean car, for example, at the same time. State and local govern- 
ments are moving in just the opposite direction. 

These governments are developing new partnerships with busi- 
nesses in some of the most unproductive sectors of the economy, 
helping to expand an industry whose success increasingly depends 
on cannibalizing dollars from other businesses and whose expan- 
sion will create serious future problems for other businesses and 
governments to deal with in the ftiture. 

In effect, State and local governments have created an industrial 
policy but a regressive industrial policy with casino gambling. To 
continue in this direction would contradict the extensive efforts 
going on in the Federal Government at targeting help for those 
businesses which can take the lead in enhancing the Nation's com- 
petitiveness in the face of increasing global competition. 

At the Federal level, you have these resources going into develop- 
ing programs that deal with international trade, patent protection 
to help expand American business, protect against predatory for- 
eign trade policies. Yet it seems to me the Federal Government has 
done little to protect American businesses, especially small busi- 
nesses, against the predatory industry or process, I should call it, 
not simply an industry but a predatory process at home, those 
State and local government partnerships with the gambling indus- 
try whose monopolistic powers will have a devastating effect on 
large portions of the existing economy. 

In the process of doing this kind of quick relief, quick-fix eco- 
nomic development we are creating some enormous problems. Po- 
tential investment capital is being reduced. Existing businesses are 
losing consumer revenues, being pushed closer to decline and fail- 
ure. 

Using our own research findings, we have conservatively esti- 
mated that each problem gambler costs Grovernment and the pri- 
vate economy $13,200 a year. As an example of that, if you simply 
increased the incidence of problem gambling in a small State like 
Iowa — that is, by introducing more and more new gambling ven- 
tures — if you increased that prevalence by only V2 of 1 percent 



of the adult population, it will cost private business and Govern- 
ment at least $73 million a year. 

The same slight increase, V2 of 1 percent in a much more popu- 
lated State like California, would result in yearly costs of $780 mil- 
lion. That is a very conservative number. We have seen other 
economists estimate costs as high as 30,000. We have even seen it 
up to 100,000. But we only include costs that we could absolutely 
feel were relevant in terms of problem gambling. 

What do those costs have to deal with? This includes such costs 
to the private economy as money which problem gamblers borrow 
and don't pay back, work time lost to private industry by problem 
gamblers who are ineffective on the job, salaries lost by problem 
gamblers laid off as a result of their problems, private insurance 
losses as a result of fraud by problem gamblers, losses that result 
from embezzlement, check fraud. 

In addition, there are the public costs of processing public gam- 
blers through the criminal justice system, including the cost of 
keeping some of those people in jail for some period of time. 

I am going to — since you have given me less time than I was 
told initially, I am going to skip at this point to my — some of the 
recommendations that we made, and perhaps in the question and 
answer period I can cover some of the other points. 

There are four basic recommendations. One is a more extensive 
and objective assessment of the impact of expanded gambling on 
the American economy. This should include an ongoing, objective 
assessment of the economic and social impacts of problem gambling 
on private and public economies in the United States to really de- 
termine what are the real costs and benefits. We found that most 
of the research that government leaders rely on was done by the 
gambling industry itself or researchers who worked primarily for 
the gambling industry. 

Second, we believe there ought to be an assessment of the im- 
pacts and implications of State and local gambling economic devel- 
opment policies on Federal Government and private sector efforts 
to improve the national economy. How, for example, are national 
efforts and improving America's global competitiveness being im- 
pacted by State and local government gambling industrial policies? 

Third, we believe there should be a plan for coordinated and co- 
operative effort among Federal, State, local and tribal governments 
in expanding the economy. This would include a coordinated effort 
at national gambling policy and an end to State gambling policy 
being used simply to protect local discretionary dollars from cross- 
ing borders. 

Fourth, the development of something that I am working on now, 
what I call a winner/winner gambling opportunity for the public as 
opposed to a current models of State-sponsored gambling based on 
winner/loser models. These would be opportunities which recognize 
that people have a desire to risk their money in the hope of gaining 
more money, but would move in the direction of combining an in- 
vestment approach with gambling rather than an all-or-nothing 
wagering approach. 

One such alternative, as I say, I am currently researching and 
developing, is called the investment lottery. This is based on a 300 
year-old idea for lotteries that was first developed in England. In 



8 

these games when players bought tickets and they didn't win they 
were paid back their original purchase price plus interest over a 
period of time. Some of the players won large prizes. It was really 
an inducement for people to lend their money to governments so 
that government would be able to do certain forms of development 
they could not ordinarily do. 

I want to thank you very much for the opportunity you have 
given me this morning, and I would be happy to answer any ques- 
tions you might have. 

Chairman LaFalce. Thank you very much. We will withhold 
questioning until we hear from all the members of the panel. 

[Mr. Goodman's statement may be found in the appendix.] 

Chairman LaFalce. Our next witness will be Professor Earl 
Grinols of the University of Illinois. 

TESTIMONY OF EARL GRINOLS, PROFESSOR OF ECONOMICS, 
UNIVERSITY OF ILLINOIS 

Mr. Grinols. Thank you. My name is Earl Grinols, I am an 
economist at the University of Illinois, and I have been studying 
the economics of gambling for the past 4 years. 

The essence of the gambling debate from an economic perspective 
can be understood by asking the question: Does America need an- 
other form of entertainment so badly that it is willing to add an- 
other social problem to the list that it already deals with such as 
crime, alcoholism, teen pregnancy, illegal drug use and so on? 

From the Federal Government's perspective, a good analogy 
might be the following: Imagine if a pharmaceutical company in- 
vents a new pharmaceutical. There are already other drugs avail- 
able for the same purpose. The product works extremely well for 
98.5 percent of the people who use it. However, for 1.5 percent of 
the people who use it, the drug completely ruins their life. Would 
the FDA license this drug? 

To see how gambling differs from other entertainment, we can 
ask, how would gambling have to be "sanitized" to make it like 
other forms of entertainment? I think at least three things are 
needed. 

First, we would have to eliminate the 1.5 to 5 percent or so of 
the population who we know will become pathological or compul- 
sive or addicted gamblers. 

Second, we would have to eliminate those who gamble beyond 
the point of recreation or entertainment. Though gambling is a 
sterile transfer of money from one pocket to another, it does use 
time and resources. Gambling for nonrecreational or 
nonentertainment purposes reduces national income. 

Third, we would have to eliminate the massive concentration into 
the hands of a small group in the gambling industry of money and 
influence, and especially its effect on the legislative process in 
statehouses and city councils across America. 

If all of these three things were done, gambling would be little 
different than the opera, major league sports or any other type of 
entertainment about whose growth we need not be concerned. 

Let's take a closer look at the negative concerns. The social dam- 
age from gambling derives primarily from the 1.5 to 5 percent of 
pathological gamblers. As with a small list of other activities such 



as alcohol, drugs or crime, it is a tiny percentage of the people who 
creates the enormous social costs that must be borne by the many, 
even those who do not gamble. 

Gambling social costs include direct regulatory costs, lost produc- 
tivity costs, direct crime costs, in which would be included appre- 
hension, adjudication and incarceration costs, as well as harder-to- 
price costs such as suicide, family disintegration and such things 
as increased car accidents. 

Multiplying the costs per compulsive gambler times the number 
that will be created by gambling s spread implies social costs in the 
range of $100 to $300 per adult per year in a region where gam- 
bling is prevalent and has been present long enou^ for these prob- 
lems to materialize. 

Were the Nation to introduce gambling everywhere, the damage 
would equal the costs of an additional 1990/1991 recession everv 8 
to 15 years. Equivalently, this would be like the costs of an adfdi- 
tional Hurricane Andrew, the most costly natural disaster in Amer- 
ican history, or two Midwest floods every year in perpetuity. 

The gambling industry says we should accept such costs because 
gambling will provide economic development. How do we evaluate 
these claims? A factory, when it locates in an area, sells to the rest 
of the country. Its payroll, materials purchases, and profits spent 
locally are new money to the area that represents tangible goods 
produced. 

On the other hand, adding a new restaurant that caters to local 
population in an area simply takes business from local firms. The 
question for a particular region therefore is: Is a casino more like 
a factory or a restaurant? 

In Las Vegas, casinos are more like factories because they sell 
gambling services to the rest of the Nation. In most other parts of 
the country, gambling is like a restaurant, however, drawing 
money away from other businesses, creating no economic develop- 
ment, but leaving social costs in its wake. 

A study I did of Illinois casinos, for example, examines 10 coun- 
ties where casinos were opened from September, 1990, to June, 
1993. Although the direct gambling jobs were 7,806 added to an 
employment base in those counties of 118,000, jobs rose in those 
counties in total by only 2,038, and the decrease in the number of 
unemployed was only 21. 

When the job gains that would have occurred anyway in those 
counties were accounted for, the net effect of gambling was that 
roughly one job was lost for each gambling job created, an increase 
in the gambling industry, but not economic development. 

So far, we are describing the normal forces of competition when 
one business that competes for consumer dollars expands at the ex- 
pense of its rivals. In the case of gambling, however. Government 
restrictions prevent other small businesses from competing. Casi- 
nos can offer food, liquor and entertainment, but existing small 
businesses cannot offer gambling. 

In response to such a one-sided and unfair competition, small 
businesses have no choice but to seek to have all gambling banned 
or lobby for gambling licenses of their own. It does not t^e much 
insight to see that licensing everyone who asks means that we 
could have casinos on every corner in America, like McDonald's 



10 

hamburger stands, but to what end? The social costs of that, as we 
have said, would be massive. 

In general, it seems that consumers take gambling money from 
purchases of a type where postponement is possible. It is always 
possible to put off buying clothing a little longer, for example pre- 
liminary results from my studies show that casinos draw money 
from expenditures that would have gone for items such as apparel 
and that other expenditures for consumer durables such as fur- 
niture can also be negatively affected. 

Interestingly, food purchases within 10 miles of the casino are 
also negatively impacted. A study conducted for the State of South 
Dakota shows similar declines for clothing stores, recreation serv- 
ices, business services, auto dealers and service stations. 

In Minnesota, restaurant business within a 30-mile radius of ca- 
sinos with food service was reported to have fallen by 20 to 50 per- 
cent, and this has been verified in press accounts by restaurant 
owners near Illinois casinos. It is well-known that in Atlantic City 
the number of restaurants declined from 243 in 1977, the year 
after casinos were legalized, to 146 10 years later, and that retail 
business and employment in Atlantic City has continued to decline, 
despite the presence of gambling. 

In my longer written submission I emphasized the harmful social 
dynamic that gambling has engendered across the country. The in- 
centives that apply to the different State and regional players that 
gambling affects induce poor social outcomes. Gambling promoters 
have an incentive to do whatever is necessary to get their gambling 
license. Can we blame them that in Illinois nearly two-thirds of the 
members of the legislature have received gambling industry money, 
with the largest recipients just happening to be the speaker of the 
House one year, a Democrat, and the president of the Senate, a Re- 
publican, the next? 

The proposal for casino gambling in Chicago has been defeated 
three times in Illinois, but the prognosis is that it will be brought 
up again and again until the gambling promoters succeed. 

In another major State where casinos are also being planned, my 
contact, a former president pro tem of that State's Senate, tells me 
in his words that gambling interests, "own the legislature". 

In spite of millions of dollars in gambling advertising, Missou- 
rians voted down a change to their Constitution in April to allow 
games of chance, but the question is being put back on the ballot 
this fall, 6 months later. The phenomenon of staging multiple 
revotes is a scenario being played out in Detroit, Iowa and other 
places. 

I might add that I am going to be traveling to Blackhawk Coun- 
ty, Iowa, where gambling was voted down in a referendum on May 
19th. It is back on the ballot for September 27. Is this good Govern- 
ment? 

State representatives have no incentive to view gambling in 
terms of its overall effect on the country. To them, it is a way to 
raise tax money — hopefully from people of neighboring States who 
will take their problems back home — even though the social costs 
for an additional dollar of tax raised through gambling is in the 
range of $3.50 per dollar raised, compared to only $1.45 for raising 
taxes the old-fashioned way, by raising taxes. 



11 

City councils want to believe that they are being told the truth, 
that gambling will bring economic development — even at the ex- 
pense of neighboring jurisdictions. Yet when everyone has gam- 
bling, no region gains at the other's expense. 

Racing to see who can get gambling first means that when we 
all arrive at the goal the only thing we will find is a new social 
problem that should be prevented now by a national, coordinated 
policy. 

That is the economics of gambling in a nutshell. Thank you. 

Chairman LaFalce. Thank you very much, Professor. 

[Mr. Grinols' statement may be found in the appendix.] 

Chairman LaFalce. Our next witness is Dr. Valerie Lorenz. 

TESTIMONY OF VALERIE LORENZ, DIRECTOR, COMPULSIVE 
GAMBLING CENTER, BALTIMORE, MARYLAND 

Dr. Lorenz. Thank you, Mr. Chairman. I have been in the field 
of compulsive gambling for 22 years, and let me make it very clear 
from the beginning, I am not at all against gambling. I am cer- 
tainly not against legalized gambling. I never have been, and I 
doubt if I ever will be. 

However, that does not mean that I am not concerned about the 
unparalleled proliferation of gambling in this country and the lack 
of national policy to address the consequences of this legislation 
and the lack of State government policies to address it within their 
own States. 

I have prepared a statement for you. Rather than reading it, let 
me select some high points from it and make some other com- 
ments. 

Back in 1975, the U.S. Commission on the National Policy To- 
ward Gambling issued a report after a 4-year study. The study 
stated in brief, one, that if this country is going to increase legal- 
ized gambling, first of all it should allocate funds for law enforce- 
ment and crime prevention. That has not been done. 

It further stated that there should be regulations. As Congress- 
man Bilbray said, that has not been done. 

The report also addressed the problems of compulsive gambling 
and recommended that funds be set aside to prevent compulsive 
gambling and to treat compulsive gambling. That, Mr. Chairman, 
has not been done either, not by Congress and not by States except 
recently. Very few States have done some very minimal amount of 
work in that effort. 

Back in 1975, Nevada was the only State that had a total gam- 
bling climate, and this congressional study found the incidence of 
compulsive gambling was more than double in that State than it 
was nationwide. 

Since that time, our country now has legalized lotteries in at 
least 36 States, I believe, plus the District of Columbia. I believe 
21 States now have casino gambling. 

What are we finding in terms of compulsive gambling? That the 
typical profile that existed 20 years ago of the white, middle-aged, 
middle-class, well-educated businessman who could afford to fly to 
the casinos and gamble is no longer the typical profile of the com- 
pulsive gambler. 



12 

What we are seeing now is senior citizens, people who are 70 
years old who lose everything they have ever earned in their entire 
lives, who are destitute, sometimes homeless and who don't have 
the money to pay for treatment. We are seeing teenagers who are 
compulsive gamblers, who are facing legal charges, who are drop- 
ping out of school, who have felonies against them at age 18 or 20. 
What future is there for them? 

We are seeing minorities, women, black people, low-income peo- 
ple, people who now gamble because it is so readily available. 

I ask you, what has this country done to prevent compulsive 
gambling? 

The National Institute of Mental Health has repeatedly refused 
any kind of request for research funds. There are no funds to do 
early intervention or prevention programs in schools. There are no 
funds for treatment. 

Our State of Maryland in 1978 was the first to recognize that 
compulsive gambling created a major socioeconomic problem in our 
State. It funded the Johns Hopkins Compulsive Gambling Treat- 
ment Program for 4 years. It has not funded any treatment since 
1985. 

It funded a national hotline for 7 years to the tune of $24,000. 
Mr. Chairman, it costs at least $100,000 to operate a 24-hour na- 
tional compulsive gambling hotline. Our Department of Health 
withdrew that $24,000 funding this year on the statement that it 
had no money to support it, and yet our State government this year 
had a $60 million surplus. 

I suspect it is because the State government did not want to hear 
the statistics that we were presenting to them, to our legislature, 
to our health officials, to our Attorney Greneral, about the incidence 
of compulsive gambling and the associated crime, broken homes, 
medical problems, indebtedness, bankruptcies and everything that 
goes with it. We have been silenced by so many voices all across 
the board. 

Dr. Goodman said that he has received all kinds of threats. So 
have I. I am referred to as the antigambling lady in Missouri and 
by the gambling industry because we did go to Missouri, because 
the businessmen there found that the riverboat casinos was not a 
good thing for them econpmically, nor was it good for the quality 
of life. The citizens want quality of life in their communities. They 
want healthy families. Gambling does not lead to healthy families 
or quality of life. 

I was interested to hear Congressman Bilbray express his con- 
cern about the lack of regulation. Certainly, I can endorse that con- 
cern. But I am wondering. Congressman, have you gone to the 
MGM Grand Casino? It cost a billion dollars to build that casino. 

Casinos now, the big, land-based casinos, use theme parks. That 
means that in the hotel rooms there are pictures of the Wizard of 
Oz, Toto, and the Tin Man. But what you also see in those casinos 
at 2 o'clock in the morning is 5- and 6-year-old children running 
in and out of the slot machines areas while mommy pulls the han- 
dle on the slot machine or puts the credit card in the poker ma- 
chine. Is that what we want for our children or our families? 

What is the crime rate, what is the homicide rate, what is the 
altoholism rate in Las Vegas, and what is it becoming across the 



13 

country? Certainly gambling has a part in that because we know 
that there is such a thing as cross-addiction, crossing from alcohol- 
ism into other addictions such as gambling and co-addiction. 

There are many treatment programs for alcoholism and drug ad- 
diction, but I ask you, how many publicly funded treatment pro- 
grams are there in the State of Nevada, which has had gambling 
for 40 or 50 years? The answer is none. 

Ours, the Compulsive Gambling Center in Baltimore, is the only 
residential treatment center for compulsive gamblers in the entire 
country, and we are a nonprofit agency. By that I mean not only 
by charter but in reality, because we get no State funds, or funds 
from private foundations, and we certainly do not get any Federal 
funds — not for treatment or research or community education, not 
to train mental health professionals across the country, not for 
gambling hotlines to do that early intervention and crisis interven- 
tion. 

Let me tell you just about some of the past residential patients 
that we have had in our center in the past 2 months. One was a 
nun who was also a principal of a high school, and her religious 
community was in uproar and despair because they didn't know 
what to do with the bad checks that she had written because of her 
gambling at the Tunica riverboats. 

What about the judge who, while he was in treatment at our cen- 
ter, had his name emblazoned across the front page of his home- 
town newspaper: Judge owes money to the court because of gam- 
bling debts. That is in the State of Louisiana because of riverboats. 

Another is a m^or businessman. One of the buildings he con- 
structed is in the Guinness Book of World Records. This man now 
may be facing embezzlement charges if he can't make some efforts 
to avoid them. At best, he will be facing bankruptcy, which mean 
that the hundreds of thousands of dollars that he owes to his small 
businesses, will be written off. He will lose his house and be unem- 
ployed. His employees will be out of jobs. He was able to be in 
treatment only because he had a family member who was willing 
to pay the money because he had no insurance. That is a typical 
scenario. 

We have a young Jewish boy who has turned 27 

Chairman LaFalce. Dr. Lorenz 

Ms. Lorenz. It goes on and on. Thank you. 

Please look at the problem of compulsive gambling. Establish na- 
tional policy. Look at your States. This is a problem that is grow- 
ing. It is just like AIDS. We ignored AIDS, and now we have an 
epidemic. The same thing is what is happening with compulsive 
gambling. It has become a national health problem. 

Thank you very much, Mr. Chairman. 

Chairman LaFalce. Thank you, Dr. Lorenz, for that extremely 
eloquent testimony. It is precisely because of our concerns about 
the proliferation of gambling and the proliferation of the problems 
associated with gambling that we are having this hearing. 

It is precisely because it appears clear to me that not only is 
there no national policy but there is a crying need for a national 
policy that we are having this hearing. I intend for this hearing to 
be the first round in a series of hearings on this issue leading, 
eventually, I would hope, toward a national policy. 



14 

Ms. LoRENZ. Thank you, Mr. Chairman. 
[Ms. Lorenz' statement may be found in the appendix.] 
Chairman LaFalce. We will next hear from the Honorable Jef- 
frey Bloomberg, the State's attorney for Lawrence Coimty, South 
Dakota. 

TESTIMONY OF JEFFREY BLOOMBERG, STATE'S ATTORNEY, 
LAWRENCE COUNTY, SOUTH DAKOTA 

Mr. Bloomberg. Thank you, Mr. Chairman. 
I have been a prosecutor since 1982 in Lawrence County, South 
Dakota, a small rural area of approximately 21,000 people. Until 

1988, I had no interest whatsoever in gambling or the issues that 
are related to casino gambling. 

However in that year, the citizens of South Dakota, including 
myself, voted to approve limited casino gambling within the bound- 
aries of Deadwood, South Dakota, a very small community of 1,800 
within South Dakota. Almost immediately, dramatic changes began 
within our community, and since that time I have had the oppor- 
tunity to talk to journalists and government officials and private 
citizens throughout the United States regarding some of the very 
issues that we have rim across in our community and some of the 
same issues that they are now running into in their community as 
they either adopt gambling or consider it. 

In every community or State that I have gone to or people who 
I have talked to the same sales pitch is used in regard to gambling. 
That is, economic development, new jobs and lower taxes. Every 
State, the pitch is the same. 

Those are lofty goals, obviously, and they are hard to argue 
against. However, I think any government official, whether on a 
State, local or national level, has to scrutinize those claims before 
they take the lead because we have found in South Dakota and 
particularly in my community that once you take that leap there 
is no turning back. Gambling becomes part of your economic, social 
and government climate. It is an irrevocable decision. 

When we actually started gambling in operation on November 1, 

1989, no one, again, predicted the dramatic changes. For instance, 
the main street of our community, which was a typical small town, 
small shops and businesses, was converted almost overnight into a 
four-block strip of casinos now totaling 82 small separate casinos. 

Gone were the clothing and the shoe and the hardware and the 
grocery stores as well as three separate car dealerships converted 
to gambling establishments. Many of the necessities of life such as 
clothing are no longer available in our town, and the only remain- 
ing grocery store has a gaimtlet of slot machines which the cus- 
tomers walk through with their purchases after going to the gro- 
cery store. 

Real estate prices skyrocketed. There are many businesses on 
Main Street that were valued between $100,000 to $200,000 prior 
to gaming, and overnight those properties were sold for a half a 
million. I know of one property that then, the very next day, sold 
for a million dollars. That type of speculation really ran rampant 
originally, and, as I will point out in a moment, had a dramatic ef- 
'fect on real estate taxes as a result. 



15 

That was a windfall, of course, for the property owners that had 
those properties before gambling, but what did that do to the shoe 
salesman or the mechanic or the salesperson who works in those 
businesses? It forces them to lose their jobs and decide to move, 
which a number of them did, or to find a job in the gaming indus- 
try. 

Jobs were plentiful and are plentiful as a result of gaming. There 
is no question about that. There has been one study that in a town 
of 1,800 there are now 1,500 gaming-related jobs and approxi- 
mately 600 spin-off jobs in that community. The geographic loca- 
tion of Deadwood dictates that most of those people live outside the 
area and have to commute to these jobs. 

The infrastructure of our community was totally inadequate for 
the number of visitors that came and the number of new employ- 
ees. The water lines, sewer lines, parking and other governmental 
infrastructure was inadequate and had to be replaced. But the city 
government had no funds with which to make those kinds of 
changes. 

So, they made what I believe to be a critical decision and one 
which in hindsight it is easy for me to criticize, but they decided 
to bond, sell revenue bonds to develop that infrastructure and 
pledged the proceeds from gaming taxes, future gaming taxes to 
pay off those bonds. 

As a result, if the citizens of Deadwood today wanted to get rid 
of casino gambling they could not do so without going into total 
bankruptcy. They are inextricably linked to gambling for a consid- 
erable period of time. 

The jobs that were created need to be scrutinized. Yes, there are 
some management people who make handsome salaries, but for the 
most part the jobs are service positions of waiters and waitresses 
and house cleaners and those types of positions, and in South Da- 
kota those jobs are either minimum wage or slightly higher with 
no benefits. 

Many of the positions are seasonal in nature, and once Labor 
Day comes around they are laid off at that point in time. Even the 
so-called licensed support people, the pit bosses and the blackjack 
dealers and poker dealers, et cetera, find they need to survive on 
the tips to make a living. 

The economic effect on the gaming entrepreneurs has also been 
mixed. Recently, the gaming industry indicated in Deadwood that 
approximately half of their business operations are losing money, 
although in the last 5 years since gaming was adopted only a hand- 
ful have actually gone out of business. 

There do appear to be a handful of larger operations that have 
linked a number of casinos together that appear to be making 
handsome profits. 

As to the claim that tax relief will be brought about by gambling, 
that has simply proven to be not true in Deadwood or Lawrence 
County in the school district. Taxes, in fact, in terms of real estate 
taxes have gone up each and every year since gambling came to 
our community. 

I think that is because of two reasons. First of all, the profits 
that have come in terms of gaming taxes have been eaten up by 
the additional costs that have come to our community. 



16 

Second, real estate assessments jumped dramatically when the 
property values jumped. So the individual that had a business that 
was nongaming before and didn't want to get into gaming was cer- 
tainly looking at a much larger tax bill because the assessment of 
his property had jumped. 

The city of Deadwood went from a pregambling 1988 budget of 
$1.4 million to a 1994 budget of $9.1 million. For instance, the po- 
lice force doubled in that timeframe. 

My office has also seen an increase in our caseload as a result 
of gambling, and I have provided some of those statistics for the 
committee. 

Those numbers I think are attributable and that increase is at- 
tributable to really two things. One, we have a large number of ad- 
ditional people who are coming into our community, and some 
would say that is a good thing. The more people you have in any 
community, the more crime you are going to have. But I note, just 
my personal observation, that it is a different type of visitor that 
comes to Deadwood. 

Before gambling, we had basically families who came who were 
interested in the Old West history and the flavor that that gen- 
erated. Today, we see single people and couples who are coming, 
and it is an adult atmosphere, and it seems to generate additional 
crime in terms of our caseload in my prosecution office. 

In addition to the increase that is attributable to the sheer num- 
bers of people who are coming, there is certainly a percentage of 
our crime increase which is related directly to gambling and its, I 
think, negative effects. The so-called addicted gambler. Frankly, 
from my perspective that has been one of the most disturbing 
things about gambling. 

I have seen people who I know personally and other people who 
I have observed who, before being exposed to casino gambling, had 
absolutely spotless records who became addicted to slot machines 
and, as a result, ultimately were forced, after they had gone 
through their entire personal resources, to commit some type of fel- 
ony or other crime in an effort to get more cash to gamble. 

I think of the pizza restaurant operator who embezzled $45,000 
from his employers to fund his slot machine habit. Or a worker 
that I am aware of personally who committed suicide after getting 
thousands of dollars in debt. 

Or perhaps most tragically, a technical sergeant in the U.S. Air 
Force who had clearance to work on nuclear missiles who for 10 
years, again, had a spotless Air Force career who" became addicted 
to slot machines. Came to Deadwood one night and, over $400 in 
bad checks, ultimately killed a casino cashier. That individual is 
now serving a life sentence at the potential cost to the taxpayers 
of a million dollars, not to mention the dollars wasted because of 
the loss of his training and the loss of a human life. 

The common thought is by many that these people are all drug 
addicts or junkies of some type. Yes, there are dual addictions we 
have seen, but many of these have had no problems in those re- 
gards before, and many of them had very good jobs before they be- 
came addicted to gambling. 

We have also seen an increase in our child abuse and neglect 
cases from the children that have been left in cars while their par- 



17 

ents gambled to the children that are left alone because a single 
mother cannot get cost-effective day care and goes to work in the 
casino at night down to children that are not fed or clothed prop- 
erly because their parents have wasted their paychecks. 

In general, the crimes that have increased are theft and embez- 
zlement, bad checks and other forms of larceny. One of the things 
that has not happened, we have not had an increase in our DUI 
caseload, which I had expected, frankly. We have not seen any evi- 
dence of prostitution in our community since gambling came into 
existence, and we have seen no evidence of organized crime in any 
form in our State. 

I think as it relates to organized crime the key factor there is the 
State of South Dakota has done a good job of regulating the gaming 
industry in terms of doing the background checks, and also we 
have a very small bet limit of $5 which I think prohibits the incli- 
nation of money laundering. 

The regulation is something that we picked up from the State of 
Nevada. We had the opportunity go out and work with Nevada offi- 
cials ahead of time and to see how they did things there, and we 
learned from that experience. 

Unfortunately, from some of the States that I have gone to and 
talked to, there seems to be some parts of the country that are con- 
sidering gaming without that type of regulation, and in my opinion 
that opens the door to the unsavory types getting a foothold there, 
and I am, frankly, very concerned about that. 

Finally, let me just briefly address the issue related to the effect 
on government in general. I have been most disturbed by the effect 
that the legalization of gaming has had on our State and local gov- 
ernment. 1988 and before that, we had no gaming industry. Now 
in the State of South Dakota the gaming industry in various forms 
is one of the most powerful lobbying entities in that State. They 
employ a number of the best lobbyists. They literally have people 
in the legislature that are elected to the legislature that worked for 
the gaming industry. They are very powerful in terms of their abil- 
ity to sway the legislature. 

We have a statewide election going on in November regarding 
the continuation of our video lottery. It is projected that the gam- 
ing industry will spend approximately $1 million on that election 
in a State of only 700,000 people. Very powerful and a lot of money. 

That also carries over into our local city council, which are peo- 
ple, generally, who were in Deadwood before gaming but who are 
influenced, frankly, by the overwhelming numbers that have come 
into the community in terms of gaming. Virtually every decision on 
a local level is dictated by what is best for the gaming industry. 
That disturbed me, very frankly. 

The bottom line is that we, as government officials, myself in- 
cluded, have not been willing to make the tough decisions regard- 
ing gaming — excuse me, regarding our public trust. We haven't 
been willing to say we are going to cut service. We haven't been 
willing to say we will raise taxes. So we, as government officials, 
have taken the easy way out, which is to say let's go with this 
painless form of revenue, which is gambling. 



18 

I think we are finding on a local level that it is not painless, and 
unless we change our attitude toward gambling I think the pain is 
going to become greater in the future. 

Thank you. 

Chairman LaFalce. Thank you very much, Mr. Bloomberg, for 
that excellent testimony. 

[Mr. Bloomberg's statement may be found in the appendix.] 

Chairman LaFalce. We now go to the executive director for 
Tunica County, Mississippi, Mr. Franklin. 

TESTIMONY OF WEBSTER FRANKLIN, EXECUTIVE DIRECTOR, 
CHAMBER OF COMMERCE, TUNICA COUNTY, MISSISSIPPI 

Mr. Franklin. Mr. Chairman and members of the committee, it 
is an honor for me to appear before you on behalf of Tunica County 
to express my views on the effects of the gaming industry on our 
local community. I have a feeling that my view will be a little dif- 
ferent from what you have heard here today. 

Historically, Tunica County has been known as "the poorest 
county in the Nation." We are located in the northwestern corner 
of the State banked by the Mississippi river, which is commonly 
known as the fertile Mississippi delta. 

Our community's jobs have all been based on agriculture prior to 
the legislation permitting dockside gaming. Large farms which 
grow cotton, soybeans, and rice farms provided jobs for our citizens. 
But due to the mechanization and new technology that has come 
into the farming industry, himdreds of our workers have been dis- 
placed. 

Unemployment as recently as January of 1992 was as high as 
26.2 percent, one of the highest in the State of Mississippi. Per cap- 
ita income was 11,865, one of the lowest in the State. Fifty-three 
percent of all Tunica County residents received food stamps. We 
were known for our substandard housing, poor health care delivery 
and sanitation problems caused by inadequate or antiquated sew- 
age systems. 

Over the years Tunica country received national attention due to 
several studies, one of them being the Harvard Medical School 
Committee on Poverty, your own Committee on Hunger, and the 
congressionally mandated study of the lower Mississippi Delta De- 
velopment Commission. 

These studies all recommended basically the same thing: Govern- 
ment assistance. Due to this national attention, we received much 
needed government money and assistance. But that did not solve 
our problem — which was jobs for our citizens. It was not until the 
gaming industry came into our county that those jobs surfaced. 

The Mississippi legislature in 1990 passed what is known as our 
"dockside gaming law," that authorized dockside gaming on a local 
country option basis for those counties on the Mississippi Gulf 
coast and along the Mississippi River. Tunica County followed in 
passing its local referendum in 1991, which led to the economic ex- 
plosion that we are now seeing. 

Our first casino. Splash Casino, opened its doors at Moon Land- 
ing in October of 1992. For 11 months it enjoyed a monopoly on the 
gaming area and quickly became the envy of the national gaming 
' industry in that its revenues were imprecedented. 



19 

The gaming industry realized that Tunica County had the poten- 
tial, because of its location, to become the Nation's third regional 
gaming destination resort. Investors flocked into our county and 
bought control or rights to all available casino sites from Moon 
Landing north to our neighboring county of DeSoto County, Land 
prices that in 1990 were valued at $250 an acre, now sell for some 
$25,000 an acre. 

Since the arrival of gaming, our once defunct planning commis- 
sion, now very active, has issued over $1 billion worth of building 
permits. 

In 1993, we had 12 major casino construction — in the construc- 
tion phase. This allowed, for the first time, our citizens to go to 
work in the construction industry at salaries of $10 and upwards 
an hour. Every able-bodied person in the country was afforded, for 
the first time, the opportunity to acquire as many overtime hours 
as they could withstand, therefore, they had a skill that they could 
take to other jobs once these facilities had been constructed. 

Also, each casino sets up employment schools for their casinos to 
teach the local people the necessary skills to provide blackjack 
dealers, craps dealers, slot machine technicians, and security 
guards. The service industry employment in Tunica County for our 
residents has gone up 435 percent since 1990. 

Nine casinos currently operate in our county, employing approxi- 
mately 9,000 people. There have been more jobs in our county in 
20 months than there were people, according to the 1990 census. 
Our unemployment rate, as I mentioned, was 26.2 percent in Janu- 
ary 1992. It has gone as low as 4.9 percent in October of 1993. 
Child support collections in the county have increased from $38,000 
per month to $65,000 a month in 1994. The number of welfare re- 
cipients has decreased 42 percent. Food stamp recipients have de- 
creased 13 percent from 1992 to 1993, and that trend continues in 
1994. 

Business in Tunica County is, in fact, booming. We are in the 
secondary development stage. We have new housing, RV parks, res- 
taurants and motels. However, there are many service sector jobs 
that are needed. For instance, I am the first paid director of the 
Tunica County Chamber of Commerce. We now have a push for a 
new Department of Tourism that is being currently organized. 

To illustrate to you the totality that this money and influx of 
people have brought into our area, the tax collector responsible for 
giving out the car tags in our county ran out last year and had to 
reorder. In fiscal year 1994, our county recorded the highest per- 
cent increase of retail sales of all of Mississippi's 82 counties, a 299 
percent increase representing sales of $256.5 million compared to 
$64.2 in fiscal year 1993 

Chairman LaFalce, If I might interrupt you just for a minute, 
Mr. Franklin, I am going to have to go to the floor right now. Un- 
fortunately, the small business authorization bill will be up in 
about 5 minutes, and I have to manage it. We did not know that 
when we scheduled this hearing. So the balance of the hearing will 
be chaired by Representative Skelton or one of the other members 
of the committee. Thank you. 

Mr. Skelton [presiding]. Please proceed. 

Mr. Franklin. Thank you, Mr. Chairman. 



20 

The Mississippi law provides that part of the gaming revenue 
that is established in the State of Mississippi be returned to its 
counties. In fiscal year 1995 it is anticipated that $2.5 million will 
be put into the county budget with additional impact fees of $12 
million. This new revenue source has allowed the county to con- 
tinue the much-needed infrastructure improvements. 

For example, just yesterday our county has embarked on a five- 
lane major highway that will link five of our casinos together and 
link them to U.S. Highway 61, our State artery that leads into 
Tunica Coimty. Another local highway connecting all of our casinos 
throughout the county has been approved and is now in the plan- 
ning stages. 

We have had two new utility districts created. Funding has been 
gained for long-range land use development planning, and our 
county public school system is being completely overhauled. 

Revenue from gaming has allowed our county to provide an addi- 
tional $1.4 million of funding for this school year. This funding will 
go to new classes, much-needed equipment and increase in teacher 
salaries. Everyone in Tunica County is committed to updating our 
public school system. 

Our board of supervisors also recently voted to reduce its tax on 
property in the county by 32 percent. 

Mr. Chairman, gaming has had an extremely positive impact on 
our local economy. However, we are experiencing several growing 
pains which ought to be expected. All of us in Tunica Coimty are 
committed to developing our area into a major destination resort. 

We envision a major airport, a first-class, family oriented theme 
park and championship golf courses. Mr. Chsiirman and members 
of the committee, I would like to invite all of you to come and enjoy 
some of Mississippi's hospitality in Tunica County and see first- 
hand the economic development that has been created in our coun- 
ty since gambling arrived in 1992. 

Thank you very much. 

Mr. Skelton. Thank you, Mr. Franklin. 

[Mr. Franklin's statement may be found in the appendix.] 

Mr. Skelton. I will call on the other Members as they appear 
from left to right, but let me make an observation. It seems to me 
that, historically, wherever there is gaming or gambling, there is 
a magnet mechanism for criminal-type activity. There must be a 
shield or guard against it, because of the nature of the animal of 
gambling or gaming. 

There is the other end of this. Mr. Franklin speaks glowingly 
about the money coming into a county. Where is that from Vicks- 
burg? 

Mr. Franklin. We are in the northern part of the State. Vicks- 
burg is further south. 

Mr. Skelton. Are you across from Louisiana? 

Mr. Franklin. No, sir. We are bordered by Arkansas and Ten- 
nessee — 30 miles from Memphis, Tennessee. 

Mr. Skelton. It appears that the money is coming from some- 
where. Obviously, a number of people can afford that. Also, I am 
'sure that there are a number of people who cannot afford that. 



21 

Is there anyone here who has done statistics on the number of 
families that have been decimated as a result of gambling? Any of 
you? 

Dr LORENZ. If I may respond to that, Congressman Skelton, 
those research funds simply are not given to us who try to do that 
research. However, we do have anecdotal evidence. 

I certainly know, for instance, that buses, dozens of buses, go 
into college campuses to drive these students to Splash Casino and 
the Tunica casinos and other casinos there. I would ask you, what 
impact does that have on the students' education? How many of 
those students will become compulsive gamblers? 

We are repeatedly getting calls from mental health service orga- 
nizations, from lawyers and from doctors: We have compulsive 
gamblers. We don't know how to treat them. We are getting an in- 
crease in crime. But in terms of hard statistics, those numbers are 
not there. 

Mr. Skelton. Thank you. 

Mr. Bilbray. 

Mr. Bilbray. Thank you, Mr. Chairman. 

I would like to point out a couple of statements that were made. 
One, that young children are running around at 2 or 3 o'clock in 
the morning throughout the casino at the MGM. 

Nevada gaming regulations prohibit that from being done. They 
prohibit young children from loitering in casino areas, and it is en- 
forced thoroughly. But if Ms. Lorenz saw this, let me tell you, it 
is not the common habit. It is against the regulation as well as it 
is forbidden for people under 21 to gamble in the casinos. That is 
also rigorously enforced. 

Second, it was made — the point that Nevada has a serious prob- 
lem with gamblers who have become addicted to the habit. There 
is no question that in any particular type of entertainment, some 
people, you get involved to the point that they can go over and over 
again and become addicted to it. 

Nevada does have programs. Grants are given by the various ca- 
sinos to help fund a lot of these programs in the State, mostly 
through Gamblers Anonymous. They have 45 meetings a year, and 
there are grants that are given at different times to help with these 
different programs. 

I know about personally some of these programs are paid for — 
when you have a dealer in a particular casino that becomes ad- 
dicted, that hotels are very supportive in trying to help him 
through these problems through their insurance programs. 

In the case of Nevada almost every single casino that I know of 
provides health insurance for their employees, contrary to what it 
may be in Deadwood. We think that we recognize that we have 
problems, but you have problems with drugs, you have problems 
with liquor and other types of abuse that takes place. Gambling, 
I guess, is no different than others, that some people can do it in 
excess. We hope that that is not the rule. 

One of the things that made Nevada, I think, unique in gambling 
from the 1930's on is that you have to travel to Las Vegas to gam- 
ble and when you finished, you leave. What is happening in the 
local communities, like in Mississippi, is it is drawing a more local 



22 

group. You can drive from L.A. to Las Vegas in 5 hours, but in the 
old days it took 7 to 8 hours. 

We also recognize that we have had gambling in every one of 
your States over the last 50 over 60 years. It just hasn't been on 
the surface. Illegal gambling functions in every State in the Union. 
It is estimated by the Justice Department that there is certainly 
more revenue being derived by illegal gambling than there is in 
legal gambling. 

In most States, you have racetracks and lotteries, other things 
that are involved in gambling, too. The fact is that, whether or not 
we like it or not, gambling has been here. 

Nevada casinos are mostly large corporate ownership now — the 
Hilton's, Ramada's, and the Sheraton's. These corporations are 
large, publicly traded and monitored and very, very closely watched 
by the Nevada Gaming Control Board so that organized crime does 
not get in. 

But if you allow unregulated gambling where you don't check the 
people involved, you can have a serious problem with organized 
crime entering the field. 

But we think that in the case — we recognize that some people 
cannot gamble and shouldn't gamble and have a real problem, as 
Ms. Lorenz has said. But we hope that Nevada recognizes this. 

Casinos are encouraged to watch out for those people who exceed 
their ability to pay and who are obviously beyond the pale in deal- 
ing with the casinos. Some casinos enforce this very rigorously, and 
others do not. But it is a fact that I will bring up with my Gaming 
Control Board when I return to make sure that these particular 
type of activities are enforced. 

Mr. Grinols. You asked how many families are affected. The in- 
dividual numbers that I have seen are 1.5 to 5, maybe 6 percent 
of the population as a percent of adults. But if you want to do it 
by families I would imagine that figures would not be too much dif- 
ferent than that. 

I want to respond to one thing that Mr. Bilbray said. It is true 
that there has been gambling for a long time, but it has increased 
a lot with the result of cheaper gambling or more readily available 
gambling. 

I will give you a couple of figures here. In 1990 for Chicago there 
were 902,000 household gambhng visits, and 760,000 of those went 
to Atlantic City or Las Vegas. Three years later — and this is after 
the casinos were introduced into Illinois — there were still 760,000 
household visits to Atlantic City and Las Vegas. But in those 3 
years the number of household gambling visits rose from 902,000 
to 2,539,000. It does increase the amount of gambling when you in- 
troduce it. There is no question. 

Mr. Bilbray. Is there any record — of course, when illegal gam- 
bling goes on — we know in Chicago there was illegal gambling. 
We know in other States. Is there any record of how many of those 
people were frequenting illegal gambling facilities within the State? 

Mr. Grinols. As you can guess, no, I don't have numbers on 

that. But my guess would be that instead of people turning from 

illegal gambling and converting to legal gambling that the outcome 

of increasing all kinds of gambling, including increasing legal gam- 

' bling is more likely. 



23 

Even for Las Vegas where people take their gambhng problems 
back home with them, I think if you check you will find that the 
suiCide rate in Nevada is double the national average. I have read 
other statistics that show that Nevada is probably suffering from 
the same kinds of things that gambling causes generally, even 
though it is the best kind of situation that you can set up: Having 
people come from someplace else do their gambling and go back 
home. 

Mr. Bloomberg. One of the things that we have noticed is that, 
prior to the legalization, illegal gaming is entirely dominated by 
males. It is sports betting and back room poker games. When you 
legalize games and you legitimatize it, you open up the female pop- 
ulation and expose them to gaming, and that is where we see an 
increase in terms of the local level. 

Mr. Goodman. I wonder if I could just add to what was said. The 
realities in terms of problem gambling — those are the figures that 
are used, 1.5 to approximately 6 percent of the adult population in 
a particular State. It seems — and I think Dr. Lorenz will probably 
support what I am saying here — it seems to be a function of how 
long a particular area has had gambling and how many different 
kinds of ventures. 

So, that if you look at States, for example, like Iowa where there 
hasn't been much gambling, only recently introduced, but 1.5 per- 
cent of the adult population. You look at other States, like Con- 
necticut, that is about the highest I have seen: 6 percent of the 
adult population. As new gambling ventures are added, those fig- 
ures will go up. That has been the situation in the past, and it is 
likely to increase in the future. 

So, in terms of problems and dealing with problem gambling and 
the costs of problem gambling, you are likely to see in those areas 
that get more and more saturated with gambling that the preva- 
lence of problem gambling is likely to increase. 

The second point, if I could — but I would be happy to wait. 

Mr. BiLBRAY. I was saying that if you are advocating that we 
should limit gambling to Nevada, I go along with that. 

Mr. Goodman. I am not advocating that at all. My research and 
my view is not to take a view for or against the legalization of gam- 
bling. What we have been critical of is that communities and States 
all over the United States are legalizing gambling without any idea 
of what the economic impacts are. 

We have seen when you get to what the industry calls conven- 
ience gambling, that is not what exists in Nevada. It is a very dif- 
ferent situation. That economy doesn't exist anymore. What exists 
now is the spread of convenience gambling. 

When that happens what you are doing is having major impacts 
on your local economy. You are affecting existing businesses be- 
cause you are diverting dollars out of those discretionary spending, 
entertainment, apparel, the things that you have heard before, plus 
you are having to pay the costs of increased problem gambling. 

You are already paying the cost of problem gambling in all of 
these places, but the more ventures you put in, the more you in- 
crease those costs. Those are serious costs. Not just the cost of 
counseling people. I mean, that is a part of the costs. 



24 

But the cost — as you have heard before, people who don't pay 
oflf their debts or lose their jobs or get involved in the criminal jus- 
tice system, those are substantial costs. You have got these two 
major costs: The diversion of money out of local businesses and the 
increased costs of problem gamblers. 

The one other thing, if I could say, I am glad to hear the head 
of the Chamber of Commerce from Tunica, Mississippi, and to hear 
the statistics, but in a sense, and with all due respect to Nevada 
and to Tunica, Mississippi, those are the two extremes. 

In a sense, the major expansion that is occurring is in places that 
don't have these extreme versions. In the one case, a State whose 
economy is literally dependent on gambling, that is, the State econ- 
omy, and in another case, a city which had literally no economic 
base or very little economic base to begin with. A city like that, vir- 
tually any economic development enterprise you would create or 
bring there would have a positive effect. It could be a nuclear waste 
disposal site. Anything that 

Mr. BiLBRAY. Don't bring that up to a Nevadan. 

Mr. Goodman. I know that is a sore point. But, statistically, if 
you start with one and then you have two, you have a 100 percent 
increase. So, to parade those figures and to see that as a basis for 
national policy in terms of the expansion 

The truth is, gambhng does create jobs and brings in revenue; 
but the reaHty is, it has costs. Without looking at the costs or with- 
out looking at the effect on the other businesses in the economy, 
then you have a very misleading representation of what the real 
impacts of this industry are. Any taxpayer in this country knows 
that at the end of the year, looks at the income and looks at what 
it costs to get there. This is not sophisticated economics. 

This is what States are doing without looking at the costs. They 
are looking at affecting their local economies without looking at 
what the real costs are. You are looking at highly developed, so- 
phisticated economic bases, major cities, Philadelphia, Pittsburgh, 
Chicago, et cetera, medium-sized cities, that have economic bases. 
They may be in decline, and they may be have some problems, but 
they are going to impact those bases. These are not Tunica, Mis- 
sissippi. 

Mr. Skelton. Let me add one comment. I thank Mr. Bilbray for 
his comments. Because of your unique position — where you reside 
back in your home — and your understanding, I think your state- 
ments added a great deal to the record, and we' do want to thank 
you, Mr. Bilbray, for that. 

Mr. Sarpalius. 

Mr. Sarpalius. Thank you, Mr. Chairman. 

In analyzing how this affects small businesses there are two m- 
teresting pieces of testimony between Mr. Franklin and Mr. 
Bloomberg. Mr. Bloomberg talked about a town in South Dakota, 
Deadwood, where he started gambling November 1, 1989. It has 
now been going on for about 5 years. I would assume that that par- 
ticular town was not a blossoming economy before it was put in. 

Then, we hear from Mr. Franklin who also represents a very low 
.income community. His area has had gambling in existence for 2V2 
years. Yet, we are hearing two totally different stories here. 



25 

Mr. Franklin, I want to ask you first. What have you done or 
what has your community done to prepare yourself for any increase 
in crime or dealing with compulsive gamblers? 

Mr. Franklin. Congressman, right now, to deal with the in- 
crease in crime, I believe our police force in the county has more 
than tripled, and the budget for them has gone the same way. 

As I mentioned in my testimony, we are experiencing several dif- 
ferent growing pains. When you take a county like Tunica that was 
the poorest in the Nation with no infrastructure, there was really 
no need for the law enforcement that it takes now. An increase in 
crime has been generated just by the numbers of people, which I 
believe the economist mentioned earlier. For that reason has in- 
creased. But we are moving in the right steps in that area to han- 
dle the increase. 

As far as addictive gambling within the county is concerned, I 
have not personallv heard of anyone losing their homes or not 
being able to send their children to schools. 

However, there are several different locations that help compul- 
sive gamblers. I believe that Memphis, Tennessee, has started a 
Gamblers Anonymous program and other areas of our State have 
done the same. 

Mr. Sarpalius. Mr. Bloomberg, what advice would you give to 
Mr. Franklin to prevent their community from winding up in such 
an economic problem that you say you have? 

Mr. Bloomberg. There are a number of issues they should ad- 
dress. Number one, I think the local governments should be care- 
ful, I think, to not tie gambling revenues to their general fund. 
When you do that, then you have made a commitment there that 
you can't back out of the next year without cutting some type of 
social program, et cetera. I think it is important for any govern- 
ment that is looking at it, including State governments, to tie those 
revenues to some type of dedicated funding for the future. 

So, if you cut gambling out in the future, then maybe you are 
getting rid of additional parks or capital expansion. But don't tie 
it to your general fund where you can't back out of it in the future. 
It gives you the option. 

Number two, I think it is very important that some of the funds 
from gaming be dedicated to the costs of gaming. As we have heard 
— and we made the same mistake in South Dakota. Initially, we 
started out with no type of addiction program, no type of counsel- 
ing. Only in recent years has some money been put toward that. 

Some of the money should be put toward addiction programs at 
the outset so that the costs that we know is a given with gaming 
will be dealt with by the gaming industry and the gaming player 
versus the other taxpayer. I, as a nongaming person, should not 
have to pay for those costs that are going to be incurred. 

Second, I think some of the money should be put toward law en- 
forcement because you are going to have some additional increases 
in that regard. 

Finally, and we have touched on this before, I think it is impera- 
tive that there is strong regulation of gaming in any community. 
The States or communities that are considering gaming without 
very extensive background checks and without extensive regulation 
are just opening the door to trouble. 



26 

It has been discussed, the problem with underage persons in the 
various casinos. We had that problem initially, too. My office con- 
ducted a sting operation about a few months after gaming started, 
and over half of the gaming establishments were caught allowing 
underage gamblers in their establishments, either drinking or gam- 
bling. 

Once we conducted that type of sting operation and the Gaming 
Commission came down on some of those individuals rather hard, 
we haven't had a problem with that. But you have to have those 
kinds of enforcement mechanisms and regulations or people are 
going to push it to the limits. 

I think those are very critical areas. 

Mr. Franklin. If I could respond to that, as far as the way Mis- 
sissippi in particular. Tunica County has handled underage gam- 
ing. I would like to say that our industry in Mississippi nas fol- 
lowed Congressman Bilbrays model of Nevada. In Mississippi gam- 
ing is a highly regulated industry. Since we are a dockside gaming 
State, there is a vast difference between our barges where you are 
allowed to gamble and the land-based developments that surround 
the barges. 

Underage children are not allowed to go onto those barges at any 
time. So we are, in that phase, trying to keep out as many 
underaged gamblers as we can. 

As far as tying funds from gaming into our general revenue, as 
I mentioned, we nave put an additional $1.4 million into our school 
systems which was direly needed. Most of our money that we are 
receiving at the present time is going into our road funds to im- 
prove the infrastructure and the water and the sewage systems. I 
think that our county has completed the necessary studies to use 
these new monies in the correct way. 

Mr. Grinols. Could I add something? I think it is relevant. 

Your question suggests that the way to deal with this is to make 
the proper preparations and allow the money to be set aside. If you 
take Las Vegas and Atlantic City as the examples, we know people 
living, say 35, maybe as far as 50 miles away per adult will lose 
somewhere between $110 to maybe $200 a year at the casinos, de- 
pending on which of those two cities you want to use. 

The social costs that have been estimated work out, as I said, to 
somewhere between $100 and $300 per adult throughout the whole 
population where there is a lot of gambling and all of these prob- 
lems have reached their full level. That means, if you take the best 
numbers on one extreme, you would have to devote half — and if 
you take the other numbers on the other extreme, more than all 
of the gambling revenues — to pay for the social costs that are cre- 
ated by gambling. So, it is somewhere between 50 percent and 
more than all of the money that would have to be set aside. 

Now, of those gambling costs per adult, I should point out that 
a large fraction of those are lost productivity costs. When someone 
who is earning 40,000 a year or 50,000 a year loses control of their 
life over gambling, they stop showing up for work or they get put 
in prison or in some way stop working. You are talking about some- 
body who is not producing $50,000 worth of whatever they were 
producing before. 



27 

If you take the social costs, you might say one third to one half 
of those social costs are lost productivity. That shows up for the 
Nation as a whole in lower taxes collected, but those costs are 
borne primarily by the compulsive gambler himself and his family. 
So if you want to factor that in you might adjust the numbers that 
I just gave you. 

Mr. Sarpalius. One more thing to Mr. Bloomberg. My time is 
about up, and I find this very interesting. I see two communities 
that have an awful lot in common, but your community winds up 
with some serious problems while Mr. Franklin's community is 
prospering. 

Mr. Bloomberg, in your statement you said you had seen 1,500 
gambling-related new jobs created and 600 spin-off jobs. What are 
the spin-off jobs? 

Mr. Bloomberg. Jobs in banks, service industry, small business 
jobs. 

Mr. Sarpalius. You also stated how many people were losing 
their jobs such as shoe salesmen and people like that. 

Mr. Bloomberg. The people who were there before gambling 
whose business sold their real estate for a gaming operation. Now 
they are out of that job as a car mechanic at the car dealership. 
A number of those people moved out of town. 

Mr. Sarpalius. Has unemployment increased or decreased? 

Mr. Bloomberg. No. As a matter of fact, we had a fairly low — 
in the range of 2 percent — unemployment before gambling. We 
had a prettv healthy mining industry, timber industry and tourism 
before gambling. So, we were not really out looking for a lot new 
jobs, at least as a whole. 

But what it has done is brought new people in and new jobs, and 
we are still around the 2 percent level in terms of unemployment. 

Mr. Sarpalius. One last point, you just suggested to Mr. Frank- 
lin about utilizing some of the funds to increase police officers. Also 
in your statement you talked about — or through the revenue with 
taxes had jumped from $1.4 million to $9.1 million, and I stated 
that some of that money was used to increase the police force. Are 
you saying that that might have been a mistake that you have 
made? That you didn't put enough money in there or 

Mr. Bloomberg. No, I think what the mistake was that that ef- 
fect was not anticipated ahead of time. I think governments need 
to go into this with open eyes, and if they expect a million new visi- 
tors to come as a result of gaming, they should anticipate addi- 
tional social costs such as law enforcement. 

What we have done in South Dakota — and I have been a part 
of it, frankly — is make the mistake of being reactive rather than 
proactive. I think some of the areas around the country have 
learned from our mistakes. 

Some of the negative people, they were in our area as a result 
of gambling that were driven off through one mechanism or an- 
other. I had phone calls literally from people in Mississippi check- 
ing up on those individuals because they went from our State right 
down to the next one to try to get their foothold. So, people have 
to be proactive I think. 

Mr. Sarpalius. Thank you, Mr. Chairman. 



28 

Mr. Skelton. Let me ask a clarifying question, Mr. Franklin. I 
didn't hear the first part of your testimony. Under what change in 
the Mississippi law enables your county to be the gambling center 
of your State? 

Mr. Franklin. In 1990, the State passed what is called a dock- 
side gaming law that allows 

Mr. Skelton. Riverboat gambling. 

Mr. Franklin. Yes, sir, or along the Gulf Coast. We are strategi- 
cally located in that Tunica County did pass gaming. Gaming, is 
allowed by a county-by-county referendum basis that, I might add, 
is regulated by the State. 

It was mentioned in other testimony that these referendums in 
Missouri keep coming up every 6 months for a new vote. In Mis- 
sissippi, if a coimty votes and denies gaming and it is a legal coun- 
ty, they cannot have another vote until the next Presidential elec- 
tion. I think the Mississippi legislature has made great steps in 
that as well. 

Mr. Skelton. Mr. Klink. 

Mr. Klink. Thank you. I appreciate your testimony. 

This is of particular interest to me because I represent a district 
in western Pennsylvania near Pittsburgh, and we are giving con- 
sideration to riverboat gambling. Our gubernatorial election may in 
large part be decided on whether people are in favor and which 
candidate they view most favorably in light of riverboat gambling. 

One of the towns that I represent, Aliquippa, at one time had 
LTV Steel which covered 7 miles along the river. That mill is no 
longer there, and, in fact, about a 5.5 mile site has been purchased 
by a developer that wants to set up riverboat gambling. So, this 
hearing could not come at a more opportune time. 

I appreciate the comments about what happens to some of the 
small businesses in light of riverboat gambling because we know 
that many times these gambling casinos bring with them their own 
bars and restaurants and boutiques and that, in fact, a lot of small 
businesses close up. We know that there will be businesses that 
will take advantage of the increased property values, a chance for 
new people to come in and make investments. 

I was just interested^ Mr. Bloomberg, do you have — you talked 
about the real estate values jumping in Deadwood at the time that 
this development — do you have a real estate transfer tax where 
the school district and the community get — at least have a share- 
the-wealth card when these properties are sold and bought? 

Mr. Bloomberg. We have a transfer tax. It is very low and, basi- 
cally, is — has been of no benefit to any of the local governments. 

I might add that none of the gaming money — and it is just a 
law particular to South Dakota — has gone to education. One of 
the real problems is that you have more kids coming into the 
school district and no additional dollars, at least directly from gam- 
ing taxes, to help with that situation. That may have been a mis- 
take or is a mistake in our law. 

Mr. Klink. I can understand in Mississippi why you were giving 
some consideration with 26 percent unemployment. If your unem- 
ployment was good and the mining industry was going well, what 
was the impetus there? If it ain't broke, why fix it? 



29 

Mr. Bloomberg. What it was, a small number of bar owners 
that saw this as an opportunity for very small-scale gambling to 
pick up some additional cash flow in the slower part of the year. 
A group of those small bar owners formed a group called the UBEC 
Committee, and they went out Statewide and worked very hard on 
the Statewide initiative. 

After it passed, got out of the hands of those local individuals, 
and we were inundated with people from outside of the area and 
outside of the State who have come in and taken advantage of that 
situation. 

Frankly, one of the interesting aspects of this has been the strug- 
gle between that local group, core group that started gambling and 
this out-of-State group that has come in. There has been political 
battles on the local level and also on the State level between those 
groups over the control of the industry and the various aspects of 
It. 

So, it was just a group of small businesspeople who thought, 
well, we can pick up some additional trade in our bars. They saw 
it as a poker game in the back room and a handful of slot ma- 
chines. That was the original vision, and it quickly exploded. 

Mr. Klink. That is, again, part of my concern. The genie is out 
of the bottle, and Pandora's box is open. Whatever description you 
want to use of it. That is my concern. But I also have another bal- 
ance concern. 

We have a couple of fair sports teams in the Pittsburgh area, and 
it happens to cultivate a lot of interest. As a result of that people 
who I have known and have associated with for many years tend 
to wager a bob or two on a ball game now and then. In fact, there 
is a lot of money that is spent wagering on sports bets, and we 
have got the problems that that creates, but we don't share any of 
the wealth when that occurs because it is illegal. 

Now, the State of Pennsylvania has a lottery. You can play the 
daily number or any one of vast numbers of games. But, yet, the 
illegal numbers activity is also thriving. 

In fact, recently deceased reputed numbers boss, Tony Grosso, 
was estimated bv the Pennsylvania Crime Commission back in the 
early to mid-80 s to be making $80,000 a week from his illegal 
numbers activity. 

I can remember in my previous life as a news reporter going out 
with the Pennsylvania State Police when they were going on tnese 
gambling raids. We hit one house in Braddock, Pennsylvania. In 
fact, it was owned by a lady at the time who was running for Con- 
gress, and they were running sports gambling out of there. At the 
time — it was before the Penguins were very good — there was not 
a lot of interest in hockey. They were doing at least $150,000 to 
$250,000 a week in hockey bets, millions of dollars in this one 
house in Braddock in football and in baseball bets and other sports 
bets. 

We have oflflrack betting. We have a lot of our senior citizens 
going back and forth to Atlantic City. Gambling exists, both illegal 
and legal, and people are doing it, and we are getting no benefit 
from it. 

So, the question is: What do we do about it? How can we beg^n 
to at least cultivate it to the point where we are sharing — we, the 



oo m-7 



30 

Grovemment who has to take care of the problems, has to cultivate 
the infrastructure and provide the services — is at least sharing 
some of the benefit? Right now, it is all going their way. 

The only people who are making £iny money right now — the 
State of Pennsylvania makes some money, and it goes to the senior 
citizens. USAir and the bus companies are making money because 
they are shipping our citizens to Atlantic City and Las Vegas, I 
share your concerns about the bad part, but we also have the bad 
part right now. 

Mr. Goodman. I would like to address that, if I could. 

I think the critical word you said was cultivate. It seems to me 
that this is a decision that policymakers have to make, whether 
they are going to cultivate this activity. 

You know what existed in Atlantic City existed over 17 years 
ago. For 17 years there was not, as I understand it, and perhaps 
you will correct me, there was not a wave of enthusiasm in Penn- 
sylvania for legalizing gambling among policymakers. 

Mr. Klink. That is correct. 

Mr. Goodman. So the critical thing, it seems to me, just in terms 
of seeing what the argument is and seeing where we ought to be 
going with this, is that there is something happening now that is 
different than what existed during this long period of time. 

I mean, Atlantic City has pulled in over that period of time over 
$16 billion. We are talking about a lot of money and a lot of money 
coming from Pennsylvania and New York and Connecticut and 
other places in this area. The critical thing now is that the econ- 
omy is much tighter. I don't have to elaborate on that. Global com- 
petition, downsizing, et cetera. 

So, the idea of gambling now, it seems to me, is not the issue of 
how we get organized crime out of it. I am not saying that as a 
policy position. I am sa)dng it seems to me that policymakers are 
not turning to it for that reason. That afler all this time organized 
crime, people betting on sports, et cetera, was going on. What has 
happened now is that gambling is being used as a jobs policy, a 
way of creating jobs. 

I think you have to look at it — at least in terms of making pol- 
icy, you have to look at it pure and simple. Is this a good way to 
create jobs? Is it a good way to bring in additional revenue to hard- 
pressed cities and States? 

Now, just for a moment to talk about the issue of organized 
crime. I don't want this to be taken as an endorsement for orga- 
nized crime, but the States now spend altogether over $300 million 
every year to advertise their gambling ventures. That is now. That 
is not talking about what they will be doing in the future if they 
expand these ventures. 

Organized crime does not do this. They don't run full-page ads 
and TV spots encouraging people to gamble more. They don't get 
free ads and free promotion on television and newspaper stories 
about unemployed janitors who suddenly can take vacation trips 
around the world and send their kids to college. 

So, we are talking about government having become the leading 
promoter of gambling in this country, having shifted from a regu- 
latory role and over time becoming more and more dependent on 



31 

it for revenues. Now we are talking about government becoming de- 
pendent on it for a jobs program. 

The State of New Jersey in 1950 had one gambling venture. It 
was horse racing. During the 1950's, horse racing provided about 
10 percent of the State budget in New Jersey. 

Since that time, as a way of trying to keep down taxes, as a way 
of trying to provide services, they have instituted a whole plethora 
of gambling ventures: The lottery, all the casinos. They had a mo- 
nopoly, remember, on the East Coast of gambling for this long pe- 
riod of time. 

Two years ago, you had the largest tax increase in the State's 
history, $2.6 billion. At that time, with all of these gambling ven- 
tures, they were only providing 6 percent of the State budget, and 
the percentage was going down. 

So, the point being, to take something like gambling and think 
that it is going to be a magic bullet for communities and States all 
over the United States, in the face of what we already know — 
given, say, New Jersey, for example, and I can cite you other 
cases 

Mr. Klink. If I could just reclaim my time. 

Again, my point was — and I will tell you briefly that in Penn- 
sylvania 17 years ago the steel mills were going well, the glass 
plants were going well. There was no need. 

Now there was an ongoing effort at various times to legalize 
poker machines so that the small bars and businesses would be 
able to have that influx of cash money and the government might 
be able to get some benefit. They are there now. Law enforcement 
cannot afford to stop making drug busts and stop doing other 
things to bust everybody that has an illegal poker machine. 

But, like it or not, wnether we have it in Pennsylvania or west- 
ern Pennsylvania or not, those stories that you are talking about 
are still getting out. People know what is going on. Again, Pan- 
dora's box has opened. I don't think — if there was an answer to 
my question in what you just said, I didn't hear it. 

We do have the problems of it. I mean, if you are going to — peo- 
ple are desperate now because we don't see those jobs coming back. 
We know that those steel mills are not going to come back. So, the 
question is, what do we do with gambling going on anyway? With 
us having the problems of gambling? That is the question. Then 
does Government get into that? 

I might ask Mr. Franklin, because your area — it sounds to me 
that the unemployment rate that you were talking about is very 
similar to what I have in Aliquippa. What did you do so that you 
didn't have the problems that we are hearing from Mr. Goodman, 
Ms. Lorenz, and the others? 

Mr. Franklin. Well, I think that one major issue is that in Mis- 
sissippi, gaming is highly regulated. The majority of casinos are 
major corporations that have come into our area and set up gaming 
establishments much like Las Vegas and Atlantic City. Our casinos 
are not like the ones that the city attorney from South Dakota de- 
scribes in his area. 

But he talked about being reactive instead of proactive. Any time 
a billion dollars worth of industry in a little over 2V2 years comes 
into a community, you are going to have to react. We did a land 



32 

use development study in Tunica County before gaming arrived, 
and I would say 3 months later it was totally outdated. 

There are several ways that you can prepare for things like that, 
but, right now, due to the vast amount of money and people who 
have come in, we are reacting and trying to do the best job that 
we can. 

Mr. Kle^k. Mr. Chairman, I apologize for taking a little bit more 
than my normal share of time, and I vield back. 

Mr. Skelton. That is fine. I think it is important that all the 
questions be asked and that the subject matter be thoroughly dis- 
cussed and reviewed. 

On behalf of the Chairman and the rest of the committee, we 
want to thank each of you for coming. It is a very important sub- 
ject, and I know each of you came a long way and contributed. This 
is an example of democracy in action. We appreciate your participa- 
tion. Thank you. 

The hearing is adjourned. 

[Whereupon, at 11 a.m., the committee was adjourned, subject to 
the call of the Chair.] 



33 
APPENDIX 



OPENING STATEMENT by 

CONGRESSMAN RICHARD H. BAKER 

House Committee on Small Business 

September 21, 1994 Hearing on 

"The National Impact of Casino Gambling Proliferations" 

Mr. Chairman, I thank you for calling this hearing on an issue of 
importance to our nation and our Committee. I am genuinely pleased to take 
part in this hearing designed to afford greater protection to Americans, small 
businesses, and communities nationwide. 

The subject matter of today's hearing is the national impact of casino 
gambling proliferation. I have reviewed the written testimony offered by all of 
the witnesses, and it is abundantly clear that casino gambling has a tremendous 
impact on the surrounding communities. I have also had the opportunity to 
witness firsthand, the impact that gaming has on the state and local economies 
of Louisiana and Mississippi. I look forward to hearing the expanded debate 
this afternoon as we continue to educate and to enlighten Members of Congress 
on the finer points of this troubling issue. 

Generally, states and local communities view casino gambling as an 
economic development tool. Rural towns in Mississippi have become booming 
metropolises because of the impact of gaming. In July of this year, five 



34 



gaming riverboats in Louisiana took in $52.5 million from its patrons. The 
gambling interests then paid $9.7 million in state taxes and $3.5 million in 
local taxes. I am particularly sensitive to the gaming igs6e because in my 
district, the Sixth Congressional District of Louisiana, a land-based casino has 
recently opened on the Tunica-Biloxi Native American Reservation near 
Marksville. Many constituents have expressed their concern over the unseen, 
or social costs, associated with the gaming industry coming to your 
neighborhood. Local businesses and local and state elected officials have 
contacted me and raised concerns over how the local community will bear the 
costs of casino gambling. Their concern is confirmed by many of the 
witnesses here today. 

This hearing is an excellent forum to explore the impact of casino 
gambling. I have many questions that I hope will be answered during the 
course of today's hearing: What kind of jobs are created by gambling? Which 
businesses are cannibalized? How is the community's transportation and utility 
infrastructure burdened? How should the judicial system and local law 
enforcement officials best handle the increased rates of serious and personal 
property crimes and bankruptcies? How should gambling addicts be treated? 
How much income is shifted to the gaming industry? As casino gambling 
proliferates, what will the net benefit, if any, be to the state, local, and Native 
American communities? And, how can communities be protected from the real 
and social costs associated with the gaming industry? 



35 



For these reasons, the testimony and comments this morning will serve 
to instruct the Committee on this issue, and myself parficularly as it concerns 
ongoing situations in my own congressional district. Economic development is 
import to every conraiunity, but I believe the impact of casino gambling as an 
economic development tool is not yet fully understood. I thank all of the 
panelists for their participation, and thank the distinguished Chairman for 
exploring this issue at this time. 



36 



OPENING STATEMENT OF 

U.S. REPRESENTATIVE 

RON KLINK 

COMMITTEE ON SMALL BUSINESS 
HEARING ON NATIONAL IMPACT OF CASINO GAMBLING 

SEPTEMBER 21, 1994 

Thank you Mr. Chairman. I am pleased the Small Business 
Committee has chosen this subject to study. 

This issue is especially important to me as the Commonwealth 
of Pennsylvania has been reviewing the option of legalizing 
riverboat gambling. With the Ohio River running through part of 
the Fourth Congressional District, riverboat gambling has been 
regarded as a solution to the area's high unemployment rates. 

Most people in southwestern Pennsylvania remember when jobs 
were not as scarce and wages were decent enough for families to 
enjoy life. Like many people of this area, I want very much to 
bring back industries that will be able to provide these jobs. 
If riverboat gambling is a viable solution, then I agree that we 
should pursue it. However, I have concerns that gambling is 
thought of as a cure-all solution. 

While it is true that cities such as Aliquippa, which border 
the Ohio River, would gain immediate benefits due to increased 
construction of facilities, what would the long term consequences 
be? Would gambling operations also build their own bars, 
restaurants, and hotels and thereby force existing small 
businesses to close? What kind of employment opportunities will 
exist for local workers at gambling facilities? The lure of new 
jobs makes it seem easier to say "yes" to gambling, but what if 
these jobs are low-wage, part-time jobs without benefits? 

Obviously, a thorough analysis of the impact gambling 
operations would have on local businesses should be done. Small 
businesses have helped bring back some of the jobs lost when the 
steel mills shut down. If our local economy should lose the 
diversity of it's small businesses we could end up relying on 
gambling alone and taking the chance that riverboat casinos will 
be the remedy for our economic problems . 

I look forward to having some of my questions answered by 
the witnesses before us today. Thank you again, Mr. Chairman. 



37 



Statement of 

HONORABLE JOHN J. LaFALCE, CHAIRMAN 

Committee on Small Business 
U.S. House of Representatives 

Hearing on 

The National Impact of Casino Gambling Proliferation 

September 21, 1994 



The Small Business Committee meets this morning to examine the impact of casino 
gambling on the nation. We are drawn to this topic due, in large part, to the fantastic growth of 
the casino industry in recent years. If you pick up a newspaper from just about any city, in any 
state in the country, you can read about a local referendum on casinos or the construction of a 
new gambling complex. A recent New York Times Magazine cover story offers a striking 
portrayal of casino proliferation: 

"Gambling is now bigger than baseball, more powerful than a platoon of 
Schwarzeneggers, Spielbergs, Madonnas, and Oprahs. More Americans went 
to casinos than to major league ballparks in 1993. Ninety-two million visits! 
Legal gambling revenues reached S30 billion, which is more than the 
combined take for movies, books, recorded music and park and arcade 
attractions." 

The article goes on to state that within a decade, virtually all Americans will live within a four- 



38 



hour drive of a casino. 

What is the cause of this growth? I suspect there are three primary reasons, all centering 
on a competitive atmosphere to attract the gambling dollar. First, states are competing with 
Indian tribes, both in a race to build casinos ahead of the other. Second, states are competing 
with other states to lure potential gamblers across state lines. Finally, with the recent success of 
a casino development in Windsor, Ontario, where 80% of the patronage consists of Detroit 
residents, there is a competition developing between border states and Canadian communities to 
our north. 

I hope to explore the causes of casino proliferation in the future. Today, however, we 
focus on the impact of this proliferation, examining the benefits and costs to individual 
commimities and to the nation as a whole. 

In terms of benefits, there is no question that casinos generate revenue, not only for casino 
owners but for local and state governments. Recent windfalls in casino revenues have provided 
relief to many resource-strained state and local governments, allowing, in some cases, for levels 
of spending on education, building-preservation, and other public services that have not been seen 
in years. This is new money flowing into what have been some of the poorest regions in our 
country. The casinos themselves have provided jobs in places where the opportunity to work has 
long been absent. These are clearly social and economic benefits accruing directly from the 
recent emergence of casinos in places like Tunica, Mississippi and Deadwood, South Dakota. 

And if this were the end of the story, if casinos were typical businesses in the recreation 
industry, there would be little reason for us to focus on the impact of their explosive growth, 
except to applaud the success of casino owners. But casinos do not appear to be typical 



39 



businesses. In social and economic terms, casinos may have significant externalities that we do 
not see in other businesses or industries. 

Specifically, I am concerned about the consequences of casino proliferation in three areas: 
the impact on other small businesses, and more broadly on the economic well-being of 
communities nationwide; the impact of casino growth on gambling addiction; and the impact on 
levels of crime. In each of these areas, there is an emerging body of evidence to suggest that the 
pace of future casino development should be more measured and further growth should receive 
more careful scrutiny at the local, state, and national levels. 

This is exactly what the Commission on the Review of the National Policy Toward 
Gambling recommended back in 1976 when the issue was last taken up at the national level. At 
the time of the Commission's report, casino gambling was legal in just one state, Nevada, where 
casino revenues were a little over $1 billion a year. Today, casinos are legal in 23 states, and 
are generating annual revenues in excess of $30 billion. 

At the national level, the impact of casino proliferation on existing small businesses 
appears to be mixed. Some businesses will likely benefit from the increased traffic in a 
community that casinos create. On the other hand, we know that Americans have a fixed amount 
of entertainment income; if they spend more of it on gambling, then it would seem that they will 
spend less of it on movies, restaurants, and sporting events. This is one important question we 
will consider today: do those who gain from casinos do so at the expense of other businesses, 
other communities, and other states? 

Turning to the issues of gambling addiction and crime, evidence suggests the two are 
inextricably linked. The American Insurance Institute estimates that as much as 40 percent of 



40 



all white collar crime is committed by individuals who have serious gambling problems. Another 
question for us to consider today is: to what extent does casino proliferation lead to a 
proliferation of compulsive gamblers? 

In some cases, the potential problems created by casino gambling are not necessarily 
inherent to the nature of the business, but arise as a result of particular casino practices. For 
example, I was disturbed to hear that many casinos offer incentives to patrons to cash their 
paychecks at the casino. It is also common practice among casinos to offer food, beverages, and 
lodging to patrons below cost. Both of these practices have likely victims; in terms of check- 
cashing, it is the compulsive gambler, who has lost control of his or her spending at casinos; in 
the latter case, it is other small businesses who are unable to compete with the prices that the 
casinos offer. 

This morning, we want to hear the full story on casino proliferation. We hope to gain 
considerable insight into the benefits and the costs associated with casino proliferation, both for 
individual communities and for the nation as a whole. To help us identify the costs and benefits 
of casino gambling to our nation, we have an expert panel of witnesses. 

First, we are pleased to welcome Robert Goodman, director of The United States 
Gambling Study and Lemelson Professor at Hampshire College. Professor Goodman's study, 
funded by the Aspen Institute and the Ford Foundation, stands alone in its superb synthesis of 
collective knowledge nationwide on the topic at hand. 

Next, we welcome Earl Grinds, professor of economics at the University of Illinois. Dr. 
Grinols has devoted considerable effort to analyzing the economics of casino gambling, both at 
the state and national levels. We look forward to his insights today. 



41 



We next welcome Valerie Lorenz, director of the Compulsive Gambling Center in 
Baltimore, Maryland. Dr. Lorenz is a nationally-recognized expert on compulsive gambling and 
has devoted much of her career to bringing more national attention to the issue. 

We will then turn to two local perspectives on the casinos issue, welcoming Jeffry 
Bloomberg, State's Attorney for Lawrence County, South Dakota, and Webster Franklin, 
executive director of the Tunica Coimty Chamber of Commerce, in Tunica, Mississippi. Both 
have seen their communities change dramatically due to casino developments. We look forward 
to their valuable insights today. 

Finally, I will submit two statements for the record. First, Representative Frank Wolf has 
requested that we submit his statement along with attachments. Mr. Wolf has followed the issue 
of casino gambling with concern in recent years. We welcome his statement. I would also like 
to submit for the record, the statement of the Honorable A.J. Holloway, mayor of Biloxi, 
Mississippi. Mayor Holloway was unable to attend the hearing today but his insight, offered in 
the letter, is valuable. I suspect that the Mayor's perspective is a common one in communities 
across the country: casinos have generated revenues for Biloxi that no one there could have 
dreamed of just five years ago. And yet. Mayor Holloway expresses concern for the continued 
rapid pace of casino development in the region. 



42 
TESTIMO^fY 

OF 

HONORABLE JEFFRY L. BLOOMBERG 

STATE'S ATTORNEY, LAWRENCE COUNTY, SOUTH DAKOTA 

BEFORE A HEARING OF THE 
HOUSE COMMITTEE ON SMALL BUSINESS 

CONCERNING 

THE NATIONAL IMPACT 

OF CASINO GAMBLING 

PROLIFERATION IN THE 

UNITED STATES 



43 



My name Is Jeffry Bloomberg. Since 1982 I have been a 
prosecutor, first as a deputy States Attorney and since 1986 as the 
elected States Attorney of Lawrence County, a county of 21,000 in 
the Black Eills of western South Dakota. 

Until November of 1988, I had no background or interest in the 
Issues related to casino gambling. However, in that year the 
citizens of South Dakota passed a constitutional amendment which 
allowed so called "limited," casino gambling in Deadwood, a town of 
1,800 people and the county seat of Lawrence County. Perhaps 
because Deadwood was the first place outside Atlantic City and 
Nevada to legalize casino gambling, my office has been contacted 
by dozens of journalists, government officials, and private 
citizens seeking information on the effects of casino gambling or. 
a small comntunlty. 

Since that time, as I have traveled to various states which 
have been considering casino gambling, the promoters of gambling 
have unifonnily made the same pitch, "economic development, new 
jobs and lower taxes." While these goals appear lofty, I believe 
that it is imperative that goverrment leaders arid citizens 
scrutinize these claims very closely before opening the Pandora's 
Box of gambling because as we have learned in Deacwccd, once 
gambling is legalized it is virtually an irrevocable decision. 

No one predicted the dramatic changes which took place in 
Deadwood once gambling actually commenced on November 1st, 1989. 
Within two or three nonths, a mainstreet that was typical of any 
small town was converted to a four block strip of small casinos. 



44 



now totaling 82 separately licensed gaming hallo. Gone were the 
clothing, shoe, hardware, and grocery stores as well as three 
separate car dealerships, all conveirted to gambling establishments. 
Many of the necessities of life such as clothing are no longer 
available within Deadwood and customers of the town's only 
remaining grocery store walk a gauntlet of slot-machines as they 
exit with their purchases . 

Real estate values sky-rocketed. Commercial properties, which 
before gambling were valued at $150,000 sold for $500,000 one day 
and more than $1,000,000 the next. Of course this windfall was 
relished by the former property owners, but it did nothing for the 
auto mechanics , store clerks or other employees who were suddenly 
without jobs. They were faced with the decision of either moving 
away or finding new jobs in the gaming industry. 

The town's economy, which was previously based on cold mining, 
timber and family orientated tourism, quickly became dominated by 
the gambling industry. According to one study, approximately 1,500 
gaming as well as nearly 600 spin off jobs were created by the 
legalization of gambling. Because of the geographic location of 
Deadwood within a mountain canyon, very little room exists for 
housing expansion, thus, most of the new employees live in 
surrounding communitties and commute as much as 50 miles to get tc 
their jobs. 

This overnight transformation created enormous problems for 
the infra structure of Deadwood and its city government. Parking, 
streets, water and sewer lines all proved to be inadequate. The 
City was faced with a dilema. The needs were immediate, but cash 



45 



flow from gcunlng taxes would not be sufficient for years. Thus, 
the city counsel decided to sell revenue bonds pledging revenues 
from predicted gaming and sales taxes to finance the Improvements . 
The result was a municpal building boom which has updated the 
city's infra structure, but which has financially tied the city's 
economic viability to gambling. If the citizens of Deadwood wanted 
to get rid of gambling today they could not without total 
banJcruptcy . 

For the most part, the jobs which were created earn minimum 
wage or slightly better and are without benefits. Many are 
seasonal and face layoffs after Labor day when the summer season 
has ended. Even many of the "licensed," support workers such as 
black-jack and poker dealers, pit bosses and other gaming personnel 
depend on tips to neike a living. 

The economic effect for the gaming entrepreneurs has also been 
a mixed bag. While only a handful of casinos have closed in the 
nearly five years since the biirth of Deadwood 's gaming industry, 
today they claim that over half of their businesses are operating 
at a loss. On the other hand, other gaming operations, those which 
combine ownership of multiple casinos in particular, appear to be 
making handsome profits. 

As for the claim that gambling brings tax relief this simply 
has not proven true. In fact, real property taxes for both 
residential and commercial properties have risen each and every 
year since gambling was legalized. This has ocurred for several 
reasons. First, because of the dramatic increase in property 
values the assessments for virtually all property also increased 



46 



whether they ba gaming, non-gaming, commercial, residential, or 
agricultural in nature. Secondly, while gaming has generated 
nearly six million dollars annually in gaming taxes to the city and 
county those amounts have been eaten up by increased 
administrative, law enforcement, and infra-structure costs. The 
city of Daadwood went from a pre-gambling 1988 budget of $1,430,919 
to a 1994 budget of $9,113,796. As an example, the police force of 
five officers more than doubled to eleven full time officers. 

In my office we have also seen our case load more than double 
as set out on the chart which is attached to my written testimony. 
This increase in criminal case load is attributable to two areas. 
First, the largest increase is attributable to the simple fact that 
there are more people working and visiting Deadwood than before 
gambling. While it is true that any increase in visitors will 
statistically result in higher crime rates than before, I believe 
that the type of visitors we are attracting results in numbers 
higher than in a more family oriented tourist community. Compare 
crime rates in Atlantic City versus Orlando, Florida, for a 
demonstration of this principal on a larger scale. 

But even if you attribute the bulk of the increase in crime to 
simply more people, there is a second category of increase that is 
due to the nature of gambling itself. It is this group that I find 
particularily disturbing for we have seen individuals who, prior to 
their exposure to gambling had no criminal history, who were not 
junkies or alcoholics, many of whom had good jobs, who became 
hooked on slot-machines and after losing all their assets and 
running all credit resources to their maximums began ccranittinc 



47 



some type of crime to support their addiction. 

In general these crimes are theft, embezzlement, bad checks 
and other forme of larceny. 

Often times the individuals in this category have stolen 
thousands of dollars and become desperate. I think of the pizza 
restaurant manager who had a spotless record and embezzled §45,000 
from his employers, or the gaming business, book-keeper who, having 
run up thousands in debt, committed suicide or most tragically the 
technical sargent in the United States Air Force who, prior to 
gaming, had an exemplary ten-year military career, who became 
hooked on slot machines and eventually murdered a casino operator 
in a desperate attempt to retrieve four hundred dollars in bad 
checks he had written to the casino. Sgt. Cobb is now serving a 
life sentence without parole at the potential cost of over a 
million dollars to South Dakota taxpayers not to mention the loss 
of training dollars invested by the federal govem:nen~ or most 
tragically the loss of human life. 

Oux office has also seen an increase in the niuzber of child 
abuse and neglect cases as a result of gambling. These run the 
spectrum from the children left in their cars all nighr while their 
parents gamble, to the children left at home alone while their 
single mothers work the casino late shift to the household without 
utilities or groceries because one or both parents have blown their 
pay check gambling. 

Interestingly, we have not seen an increase in DUI cases and 
there has been no evidence of prostitution. In additicn, I believe 
because of the extensive background investigations and regulation 



48 



conducted by the South Dakota Commission on Gambling, there is no 
evidence of any involvment by organized crime. This fact might 
also be attributed to the low, five dollar bet limits authorized in 
South Dakota, which helps to minimize any efforts to launder 
illegal funds . 

As to the claim that gambling promotes economic developement, 
that was certainly true for Deadwood at the out set, but ae 
con^etition from tribal casinos and other states has escalated the 
growth in Deadwood gambling has stalled. It has been estimated 
that by the year 2000 everyone within the continental United States 
will be within a 4 hour drive of casino gambling. When that 
saturation level has been reached, who then will want to fly or 
drive to Deadwood, or Elgin, Illinois, or Biloxi, Mississippi, 
simply to pull a slot machine lever that they can jus- as easily 
pull in their hometown or state? Then gambling will survive almost 
entirely off of the local economy. One can only speculate as to 
what other businesses will suffer as a result. This pricipal has 
already been visible in Deadwood and the surrounding area where a 
number of non-gaming restaurants have closed due to their inability 
to compete with gaming subsidized restaurants. 

Probably most disturbing has been the growing dependence of 
local and state government on gambling dollars. Because 
government officials have been unwilling to make the politically 
difficult decision to either raise taxes or cut services, they have 
turned to gambling as a supposedly, "painless," rever.--:e source. 
The gaming industry in South Dakota, armed with lares £.-ounts of 
cash, has gone from being non-existant seven years ago to being one 



49 



of 'the iBost powacful lobbying forces In our state capital and 
virtually every decision at city hall is made based upon what is 
best for the gaming industry. Government is hooked on the money 
generated by gambling and I believe in the long term the 
ramifications of this goveriunental addiction will be just as dire 
as for the individual who becomes addicted to gambling. 

Does legalization of gambling bring about short term benefits? 
The answer at least for Deadwood has been yes, but it remains to be 
seen whether, in the long term the benefits will outweigh the 
negatives and any commiinity consideroing legalization should take 
that step only after careful consideration of both sides of this 
issue. 



LAWRENCE COUNTY CASE FILINGS (SOURCE: SOUTH DAKOTA SUPR£>!2 COURT'S ANNUAL REPORTS 
•BKNCHMARK".) 





1986 


1987 


1988 


1989 


1990 


1991 


19?2 . 


1993 


1994 


Class 2 


3997 


3878 


3683 


3758 


4325 


4279 


5309 


5262 


4303 


Class 1 


629 


591 


483 


507 


569 


685 


900 


1008 


S57 


Felony 


127 


129 


131 


132 


197 


178 


170 


225 


226 




4753 


4596 


4297 


4387 


5091 


5142 


6379 


6495 


5486 



50 



TESTIMOHT OP 

WEBSTER C. FRANKLIN, EXECUTIVE DIRECTOR 

TUNICA COUNTY, MISSISSIPPI 

CHAMBER OF COMMERCE 

BEFORE THE SMALL BUSINESS COMMITTEE. U.S. HOUSE OF REPRESENTATIVES; 

Mr. Chairman and members of the committee, it is an honor and 
privilege for me to express my views on behalf of Tunica County, 
Mississippi, regarding the effects of gaming on our local 
community . 

Historically, Tunica County was known as "the poorest county 
in the United States." The county is located in the northwestern 
corner of the state and is bordered on the west by the Mississippi 
River. Located 30 miles south of Memphis, Tennessee, in what is 
commonly called the fertile Delta, our county's economy was almost 
totally dependent on agriculture prior to the legalization of 
"dockside gaming" in Mississippi. The production of cotton, rice 
and soybeans on large farms provided the majority of jobs in the 
county, and the related agri-service industry was the second 
largest employer. Mechanization and new technology in agriculture 
displaced hundreds of farm workers, and until geuning caune to 
Tunica, many citizens were unemployed and welfare dependent. In 
January of 1992 the unemployment rate was 26.2%, one of the highest 
in the state; per capita income was $11,865.00, one of the lowest 



51 



in the state. In that same time period, 53.18% of the county's 
total population received food steunps. Public revenue was almost 
entirely based on ad valorem taxes, and public infrastructure 
improvements were mainly funded through grants from the state and 
federal governments. Our county was known for its substandard 
housing, poor healthcare delivery systems, and sanitation problems 
caused by inadequate or antiquated sewage systems . 

Over the years. Tunica County has been the subject of study by 
the Harvard Medical School Committee on Poverty, the United States 
House of Representatives Committee on Hunger, and the 
Congressionally mandated study of the Lower Mississippi Delta 
Development Commission. All of these studies have recommended more 
government assistance to our community, and because of this 
national attention, we have received over time necessary help from 
the government. However, the permanent solution to our problems - 
jobs for our citizens - did not materialize until the introduction 
of gaming. 

The Mississippi Legislature legalized gaming in 1990. The new 
law authorized dockside geuning on a local county option basis for 
those counties on the Mississippi Gulf Coast and along the 
Mississippi River. Tunica County legalized g2uning in 1991, paving 
the way for the economic explosion which quickly followed. 

Splash Casino opened its doors for gaming at Mhoon Landing on 
Ortober 19, 1992. A seven mile, narrow, winding, two lane road led 



52 



thousands of new visitors through the City of Tunica to our first 
casino. Splash enjoyed a monopoly on gaming in Tunica for eleven 
months before Lady Luck joined them at Mhoon Landing. For the 
initial eleven month period, when Splash was our only casino, its 
gaming revenue and profits were unprecedented. Splash, which on 
September 5, 1994, celebrated welcoming its 3 millionth visitor, 
became the envy of the national industry. 

The industry realized that Tunica County, because of its 
location, had the potential of becoming a billion dollar geuning 
market and the nation's third regional gaming destination resort. 
Investors flocked into our community and quickly acquired rights 
and control of all available casino sites from Mhoon Landing north 
to the DeSoto County line. Land values skyrocketed as national 
gaming companies acquired prime locations and planned massive 
casinos, entertainment complexes, hotels, golf courses, and 
restaurants. The per acre price of land suited for casino 
development has increased from an average of $250.00 per acre in 
1991 to $25,000.00 per acre in 1994. Since the inception of 
gaming, over 1 billion dollars in building permits have been 
granted by our once inactive and now very busy county planning 
commission. 

In 1993, twelve major casino projects were under construction 
in Tunica County. New investors eager to open their doors ahead of 
the competition directed their construction crews to work around- 
the-clock. Every able bodied person in the county was afforded. 



53 



for the first time, the opportunity to work in the construction 
industry for excellent wages (averaging in excess of $10.00 per 
hour) and for as much overtime that those workers could withstand. 
Many Tunica County citizens who had never worked before, except as 
part time farm labor, started as general construction laborers and 
learned new skills to become craftsmen, foremen and supervisors in 
the construction field. 

Prior to opening, each casino conducts a training school to 
teach prospective employees the technical skills necessary to work 
in gaming. Many formerly unemployed citizens have taken advantage 
of this educational and vocational opportunity and are now employed 
as black-jack and craps dealers, slot machine mechanics and 
security guards . The average annual salary for a casino employee 
is $25,000.00. Service industry employment for Tunica County 
residents increased 435% from 1990 to 1993. 

Nine casinos currently operate in our community and each 
facility averages 1,000 employees. The County's unemployment rate 
has been reduced from a high of 26.2% in 1992 to a low of 4.9% in 
October of 1993, one of the state's lowest. The unemployment 
improvement has also impacted some of the social ills historically 
experienced in Tunica County. The welfare department's collection 
of child support has increased from a monthly average of $38,500.00 
in 1993 to a monthly average of $65,000.00 in 1994. From July 1992 
to July 1994, the number of Tunica County residents receiving 
welfare benefits has decreased 41.4%. Food stamp recipients in the 



54 



county decreased by 13% from 1992 to 1993, and that downward trend 
continues in 1994. More jobs exist in Tunica's casinos (9,000) 
than there were residents of the county in 1990 (8,200). 

Ancillary developments are currently underway. New housing, 
service sector businesses, recreational vehicle parks, restaurants 
and motels are currently under construction. Business in Tunica 
County is booming. Many new service sector jobs are needed. I, 
for instance, am the first paid director of the Tunica County 
Cheonber of Commerce, and a new Department of Tourism is currently 
being organized. To illustrate the totality of the effects of this 
new influx of money and people, the tax collector responsible for 
selling automobile license plates exhausted his supply and had to 
re-order because of the demand. In fiscal year 1994 Tunica County 
recorded the highest percentage increase in retail sales of all 82 
counties in Mississippi. The 299.05% increase represented retail 
sales of $256.5 million compared to $64.2 million for fiscal year 
1993. 

The Mississippi Geuning Law requires that a percentage of the 
state tax on casino revenue must be returned to the counties. The 
anticipated return for Tunica County in FY 1995 is $2.5 million. 
The county also anticipates receiving additional casino impact fees 
of $12 million. This new public revenue source will allow the 
county to continue making much needed infrastructure improvements. 



55 



Monday of this week the county started construction of a major 
five lane highway connecting 5 of our casinos in the Robinsonville 
area to U.S. Highway 61. Another local highway connecting all of 
the casinos is approved and in the planning stage. Budgets of 
local law enforcement agencies and fire departments have been 
substantially increased. Two new utility districts have been 
created, and funding has been approved for long range land use 
development planning. Our public school system is being completely 
overhauled. The entire community is committed to improving our 
school system. Revenue from geuning has allowed our county to 
provide $1.4 million of additional funding for this school year. 
New class rooms, much needed equipment, and an increase in teacher 
pay will be provided with this extra funding. Our Board of 
Supervisors has recently voted to reduce its tax on property in the 
county by 32%. 

Gaming has had an extremely positive economic impact on our 
local community. We are experiencing tremendous growing pains, 
which should be expected. All of us in Tunica County are committed 
to developing our area into a major destination resort. We 
envision a major airport, a first class fautiily oriented theme park, 
shopping malls and championship golf courses. 

I extend to all of you an invitation to visit us in Tunica 
County and experience our Mississippi Hospitality. 



56 



Written testimony by Robert Goodman, 
Lcmelson Professor of Environmental Design, 
Hampshire College, Amherst, Massachusetts 

Before the House Committee on Small Business, 
Congress of the United States, September 21, 1994 



Summary of 

I ffiAl I7ED GAMRI TNG AS A STRATFGY FOR FrnNOMTC DFVgLQPHENT 
Final report of the United States Gambling Study 
Robert Goodman, Director 

Funds provided by the Ford Foundation and the Aspen Institute 



A. Primary Purposes 

1. To examine the public and private economic 
consequences of gambling, such as the effects on state budgets 
and local business. 

2. To improve the decision-mzUting process for 
legislators, business leaders, media representatives and citizens 
by providing objective information. 



B. Study Methods 

1. Analysis of the existing research materials and 
political processes concerning the spread of legalized gambling. 

2. Interviews with researchers, government and 
business leaders involved in this process. 



57 



C. Major Conclualonw of the Study 

1 . There is no popularly-based movement for expancion 
of legalized geunbling — it hae beon the rocult of lobbying by 
the gambling industry and initiatives by government officials. 

2. The research being relied upon by public officials 
and the media is often done by the gambling industry itself. In 
the fourteen economic impact studies analyzed, claims of economic 
benefits were usually exaggerated, while costs were understated. 

3. Expansion has produced increases in employment and 
tax revenues, but the shift of consumer spending to gambling 
significantly cannibalizes existing local businesses. There are 
also increased public and private expenditvires for criminal 
justice, regulation, problem gambling behavior and public 
infrastructure . 

4. As governments expand and promote more gambling, 
the number of people who gamble is increasing. Personal income 
spent on gambling is also rising. Gambling revenues come 
disproportionately from lower income residents. 

5. As state budgets become more gambling dependent, 
legislators are legalizing more addictive games like video 
lottery terminals (slot machines). In the future, governments 
are likely to look towards expansion through home-accessed 
gambling, like telephone and interactive TV betting. 

6. States have shifted from the role of gambling 
regulator to that of gambling promoter. Regulations designed to 
protect the public are being undercut and spending on advertising 
and promotion of gambling is increasing. 

7. As growing niimbers of people work in the gambling 
industry, new pro-gambling constituencies are developing to 
protect these jobs. This will make it increasingly difficult for 
governments to curtail or terminate these ventures. 

8. Tribal relations with the states over gambling have 
often been adversarial. As tribal revenues expand, state 
governments are attempting to tap into or curtail them. There 
are currently significant legal challenges pending to the 
regulatory framework for Indian gambling. 



58 



C. Recoramendat ions 

1. ComiQunltles need more objective information about 
economic and social impacts. They should avoid reliance on 
information by researchers who work for pro-gambling 
constituencies . 

2. There is need for state and national organizations, 
independent of the public and private gambling industries, to 
conduct ongoing analysis of the impacts of existing and proposed 
gambling ventures. 

3. Governments should avoid promoting gambling and 
legalizing more addictive games, such as electronic machines, 
interactive television and other home-accessed gambling. 

4. Governments engaged in gambling ventures should 
prepare comprehensive gambling plans, which clearly describe 
their goals and methods of achieving them, as a guide for their 
future gambling development. 

5. Governments should avoid financial dependence on 
gambling ventures. Public monies and expertise would be better 
used developing and supporting more economically and socially 
productive ventures. 

6. Tribes, while having the right to make their own 
decisions about whether or how to engage in gambling operations, 
should be attentive to using the capital generated by their 
successful ventures to engage in diversified, long-term economic 
development activities . 



The full text of legalized aAMBLIMG A .S A STRATEGY FOR ECONOMIC 
pEVELOPMENT (222 pages) can be obtained from Broadside Books, 
Northampton, Massachusetts, Tel. (413) 586-4235. 



59 



Th^ Future of Gambling^ the Future of the Economy 

Testimony by Robert Goodman, 

Lemelson Professor of Environmental Design, 

Hampshire College, Amherst, Massachusetts 

Before the House Committee on Small Business, 
Congress of the United States, September 21, 1994 



Thank you congressman LaFalce and members of this committee 
for the opportvmity to discuss my recent research findings and 
recommendations with you. Hy name is Robert Goodman and X am a 
Lemelson Professor of Environmental Design at Hampshire College 
in Amherst Massachusetts. Two and a half years ago, I became the 
director of the United States Gambling Study, a research project 
designed to study the economic consequences of legalized gambling 
in America. This project was conducted at the University of 
Massachusetts at Amherst, with funds from the Ford Foundation and 
the Aspen Institute. 

Working with a number of economic and legal consultants and 
graduate students, we interviewed politicians, business leaders. 
Attorneys General, state lottery directors, gambling industry 
executives, newspaper reporters, and researchers. We also 
reviewed a large body of research information about the gambling 
industry.^ I have submitted a written summary of this study to 
the committee as a seperate dociiment. 

The results of our research we hoped, would provide 



60 



communities with better ways to analyze this issue, to debate it, 
and then to be able to make more informed choices. While I Icnew 
the issue of legalizing gambling was controversial, I never 
expected that our relatively modest study would cause such a 
stir. 

Since the study was released, early this year, I've been 
invited to testify before government legislative committees, to 
speak at Chambers of Commerce meetings, at national conferences 
of state legislators and Attorneys General and to appear on 
American and Canadian radio and TV programs. We have received 
reguests for our study from as far away as Mexico, Canada, South 
Africa and Australia. We have received a great deal of very 
positive response from business, community and political leaders. 
Debate in public forums has also involved heated exchanges with 
politicians and gambling industry executives. 

The intensity of some of the attacks against the study by 
politicians and the gambling industry, at first, surprised ne. 
Complaining letters were written to the University of 
Massachusetts' president, which questioned my right to do this 
research at a state university. Unnamed sources called newspaper 
reporters to describe the Ford Foundation and the Aspen Institute 
as "moral crusaders" against gambling. In spite of the fact that 
I openly acknowledged that I occasionally enjoy gambling myself, 
I have been attacked as an anti-gambling moralist. 



61 



But In the process of studying and debating the economic 
consequences of gambling expansion in America, I've come to 
understand why gambling industry executives and some politicians 
are so disturbed by criticism of this industry. For people in 
the private gambling industry, the answer is staightforward. 
Government -regulated casino and slot machine operations, with 
limited licenses for operators, can be immensely profitable. 
Criticism about their economic and social impacts is seen as 
threatening to those profits. For some political leaders, 
criticism can also be threatening, but for more complex reasons. 
These stem from the limited opportunities available for economic 
development in many parts of America. 

The reason why state and local governments have found 
themselves in the position of expanding gambling as a form of 
industrial policy is understandable. Having had to deal with 
downsizing by major private firms, having had to bear the brunt 
of reduced federal aid for their budgets, and having seen major 
increases in social problems like drugs, homelessness, crime, and 
unemployment - any new enterprise which promises large numbers of 
jobs and revenues can give the appearance of salvation and 
economic revival. With constituents hurting and with more 
productive solutions hard to come by, even desperate solutions 
can seem better than no solutions. 

Just how desperate the plight of workers in many of our 



83-277 - 95 - 3 



62 



cities has become, and the degree to which their desperation is 
being exploited by the gambling industry, can be seen in one 
incident that occurred in Detroit last year. This city, once the 
world's leading producer of automobiles, is similar to many other 
older American cities which are hungry for jobs and revenues. 
During the Fall, a local casino developer announced that he was 
accepting applications for jobs - even though no casino had 
actually been legalized. These applications were being sought, 
according to the developer, in order to have time to train 
workers in the event that the company's proposed casino project 
might be legalized. Then mayor-elect Dennis Archer, who was 
opposed to the casino project, said the job application process 
was a cruel tactic, one which raised people's hopes in a ploy to 
create political pressure for legalized casino gambling in 
Detroit . 

On a cold November morning, three hours before the doors 
opened for applications, hundreds of people began lining up. As 
the day progressed and more people arrived, nearby streets were 
closed off to accommodate the huge crowds. By the day's end, it 
was reported that over ten thousand people, most of them black, 
had filled out applications for these non-existent jobs.* 

But using gambling as government policy to create jobs and 
to supplement public treasuries is a dangerous form of economic 
development. When legal gambling existed in only a few places in 



63 



this country - in Nevada and in Atlantic City, New Jersey, it was 
possible for those states to have something of an export monopoly 
economy. Leaving aside some of the local social problems created 
in this process, from an simple economic perspective, dollars 
came into the local community, had multiplier effect in creating 
other local jobs besides those in the casinos, and for the most 
part the economic costs of the tourists with problem behaviors 
were exported back to their home communities. 

But as gambling proliferates, and local markets become 
saturated with ever more convenient gambling opportunities, what 
little discretionary consumer dollars still exist in these 
markets are being drained from other, already troubled local 
businesses. Not only are local economies fiirther undermined by 
this process, but increased numbers of problem gamblers are 
adding new costs to government and the operation of existing non- 
gambling businesses. Expanded gambling ventures are creating an 
onerous financial burden on future generations, while 
simultaneously undermining what remains of America's productive 
economy . 

It is a strange paradox that while the federal government is 
trying to develop new partnerships with the country's most 
productive, job-enhancing and economy-expanding industries - by 
providing research assistance for high technology firms in 
semiconductors, in the information superhighway, and in 



64 



developing a clean car, for example - state and local governments 
are moving in just the opposite direction. These governments are 
developing new partnerships with businesses in some of the most 
unproductive and destructive sectors of the economy, helping to 
expamd an industry whose success increasingly depends on 
cannibalizing dollars from other businesses and whose expansion 
will create serious future problems for other businesses and 
governments to deal with. 

State and local governments have in effect created a 
regressive industrial policy with the gambling industry. To 
continue in this direction would contradict the extensive efforts 
by the federal government at targeting government help for those 
businesses which can take the lead in enhancing the nation's 
competitiveness in the face of Increasing global competition. 

At the federal level, enormous time and resources have gone 
into debating and developing such policies as international trade 
agreements and patent protection to help expand American 
business, and to protect against predatory foreign trade 
policies. Yet the federal government has done little to protect 
American businesses against a predatory Industry at home - those 
state and local government partnerships with the gambling 
industry, whose monopolistic powers will have a devastating 
effect on large portions of the existing economy. 



65 



In the process of turning to this Kind of quick relief, 
state and local governments are in the process of creating an 
economic legacy which will make current federal efforts at long 
term solutions for the growth of the American economy even harder 
to realize. As expanded gambling continues to drain money from 
the productive sectors of the American economy, private savings, 
and, consequently, potential investment capital, is being 
reduced; existing businesses which lose consumer revenues are 
being pushed closer to decline and failure; workers from these 
declining businesses will be laid off and people with addictive 
gambling problems will increase - as will the enormous public 
and private cost of dealing with these addictive behavioral 
problems . 

Using our research findings, we have conservatively 
estimated that each problem gambler costs government and the 
private economy $13,200 a year. As an example, simply increasing 
the incidence of problem gambling in a small state like Iowa by 
only one-half of 1% of the adult population would cost private 
business and government at least $73 million per year. This same 
slight increase in problem gambling in a much more populated 
state like California would result in yearly costs of about $780 
million do.llars. 

These involve such costs for the private economy as money 
which problem gamblers borrow but don't pay back, work time lost 



66 



to private industry by problem gamblers who are ineffective on 
the job, salaries lost by problem gamblers who are laid off as a 
result of their problem; private insurance losses as a result of 
fraud by problem gamblers, and losses as a result of embezzlement 
and check fraud by problem gamblers. In addition, there are the 
public costs of processing problem gamblers who engage in 
criminal behavior through the criminal justice system - including 
the costs of keeping those people who engage in more severe 
crimes in prison. 

With aggressive marketing and promotions, government- 
gambling partnerships clearly still has some distance to go 
before saturating the American gambling market. While there have 
already been many casino declines and bankruptcies and large- 
scale lay-offs of casino workers in states like Colorado, South 
Dakota, and Mississippi, the gambling industry has shown a 
willingness to spend enormous sums to promote and expand existing 
and new forms of gambling throughout the country. In recent 
years, lobbying campaigns by the gambling industry in states like 
Connecticut and Missouri have resulted in the largest amounts 
ever spent on a single campaign in the state's history. Very few 
of the small local businesses which will be negatively impacted 
by the new ventures have anywhere near the financial resources of 
the gambling industry for their lobbying efforts. 

In what is a bizzare form of economic development policy. 



67 



snail business orgsmizations sometimes find themselvee forced 
into taking positions in favor of expanded gambling even when 
their members are against this policy. Certain businesses, like 
restaurants, fear that government proposals for casino-style 
gambling will siphon consumer dollars and time away from their 
establishments. Rather than stand idly by and watch this happen, 
they lobby for the right to operate slot machines on their 
premises in order to defend themselves. 

The head of a state restaurant trade association explained 
to me that his membership was initially against the expansion of 
casino-style gambling in the state, having observed that few 
independent restaurants in existing casino dominated areas have 
survived against the competition of slot machines and restaurants 
inside the casinos. The organization's membership would prefer 
that people spend their time eating at their restaurants rather 
than playing at slot machines. But if the state was going to 
legalize casino-style gambling anyway, they would rather see the 
slot machines in their restaurants. 

Most states have shown little restraint in spending money to 
recruit more people to gamble. States with lotteries are 
spending over $300 million a year to advertise their products. By 
comparison, states with industrial extension programs spend only 
$50 million throughout the United States to provide technical 
advice to mostly small and medium-sized firms. A 1991 report by 



68 



congress' Office of Technology Assessnent criticized the lack of 
national and state government support for commercializing new 
technologies for America's 350,000 small and medium-sized 
manufacturing firms, contrasting the American experience with the 
extensive help being given business by national and local 
governments in Japan.* 

While state governments in America expand promotion of their 
gambling ventures in order to entice more players, the operators 
of some state industrial extension programs are are actually 
reluctant to promote their services, since they lack the 
necessary funds to handle additional clients. Georgia Tech, for 
example, which operates one of the most successful of these 
government~sponsored industrial extension services, does not 
advertise, fearing it will be overwhelmed by requests for help if 
it did.* 

The solution to the economic and social problems being 
created by expanding gambling in the United States cannot be 
solved with solutions within this industry alone. While some 
reforms can be addressed here, long-term solutions must deal with 
the reasons why state and local governments have turned to 
gambling as industrial policy solutions in the first place- What 
is needed, I believe, are the following approaches: 



69 



1) A more extenBlve and objective assessment of the impact 
of expanded gambling on the American economy. This should 
include an ongoing, objective assessment of the economic and 
social cost impacts of problem gambling on private and public 
economies in the United states. What are the real costs and 
benefits? We found that roost research that government leaders 
rely on was done by the gambling industry itself or researchers 
who worked for the gambling industry. 

2) an assessment of the impacts and implications of state 
and local gambling economic development policies on federal 
government and private sector efforts to improve the national 
economy. How, for example, are national efforts at improving 
America's global competitiveness being impacted by state and 
local government gambling industrial policies? 

3) the creation of a plan for coordinated and cooperative 
efforts among federal, state, local, and tribal governments in 
expanding the economy. This would include a coordinated effort 
at national gambling policy and an end to state gambling 
expansion being used simply to protect local discretionary 
dollars from crossing borders. 

4) the development of what I call winner-winner gambling 
opportunities for the public as opposed to cuinrently existing 
state-sponsored gambling based on winner-loser models. These 



70 



would be opportunities which recognize people's desire to risk 
their money in the hope of gaining more money, but would move in 
the direction of combining an investment approach with gambling, 
rather them an all or nothing wagering approach. 

One such alternative, which I am currently researching and 
developing, I call "the investment lottery." This Is based on an 
over 300 year-old idea for lotteries developed in England. In 
these games players bought tickets, but those who didn't win 
prizes were paid back their original purchase price plus interest 
over a period of time. 

X hope our work has been helpful to the committee, and 
again, I thank you for the opportunity to testify. I will be 
happy to cmswer any questions you may have. 



Enanptes 

l.See Goodman, Robert, Legalized Gambl ing as a Strategy fgr 

Economic Development . (March, 1994), United States Gambling Study, 
Northeunpton , MA. 

2. Bennet, James, "Mere hint of jobs draws crowd in Detroit," HfiS 
York Times (Nov. 12, 1993), p. 1. 

3. Office of Technology Assessment, Competing Economi es! America. 
Europe and the Pacific Rim . Congress of the United States, Office 
of Technology Assessment, Washington, D.C., (October 1991), p. 16. 

4. office of Technology Assessment, op. cit.. p. 16. 



71 



TIME FOR A NATIONAL POLICY 

The United States faces a problem, the size of which is only now beginning to be understood. The 
cause for alarm derives from the enormous costs and consequential social changes that are foreseen to 
accompany the spread of casino gambling to all parts of the country. Gambling is now expanding so fast 
that it is outrunning any coordinated or prudent national policy. 

Tremendous excess profits are available to the early promoters of gambling in new regions. The 
gambling industry's demonstrated willingness to use big money to influence state and local legislators 
and apply pressures pitting region against region, cause different jurisdictions to vie with one another in 
destructive contests to advance their local economies. Gambling promoters have argued both that 
gambling will attract revenues from neighboring areas, while at the same time claiming that new forms of 
gambling are needed to keep revenues at home as a defensive countermeasure against other areas' 
gambling ventures. Such "Beggar-Thy-Neighbor" competition produces a classic race to the bottom. The 
bottom is reached when every market is saturated with gambling. Since every region cannot gain at the 
others' expense, the promised benefits will not materialize. However, each region will be left paying the 
costs of gambling addiction and experience lower regional income. They will also have to contend with 
the effects of wealth concentrated in the gambling industry. 

Because of its interregional aspects, gambling regulation is no longer a purely local question. The 
magnitude of the problem suggests that foresightful national policy should be developed to counteract the 
false short term incentives for states to individually introduce gambling to their common long term harm. 

An Additional Recession Every Decade 

The gambling industry describes itself as another form of entertainment among the many that are 
available. The industry's preference for the word "gaming" instead of "gambling" reflects this view. 
However, economists have historically opposed gambling because it differs from other entertainment in at 
least two respects: It reduces national income and it creates social costs that must be paid by those who 
do not gamble. Paul Samuelson, Nobel Prizewinning economist, summarized the first of these points as 
follows. 

There is, however, a substantial economic case to be made against gambling. First, 
it involves simply sterile transfers of money or goods between individuals, creating no 
new money or goods. Although it creates no output, gambling does nevertheless absorb 
time and resources. When pursued beyond the limits of recreation, where the main 



72 



purpose after all is to "kill" time, gambling subtracts from the national income.^ 

The second way in which gambling differs from other entertainment is that it imposes costs on the private 
sector, including those who do not gamble.^ The direct costs of gambling derive primarily from the 
small percentage of pathological gamblers present in the adult population. A similar situation exists, for 
example, with respect to a short list of activities such as alcohol, drugs, prostitution, or crime: It is a tiny 
percentage of the population that creates the social costs that must be borne by the many, even those who 
do not engage in the abused activity. 

How big are the costs? Conservative estimates place the percentage of pathological gamblers at 1 .5 
percent of the adult population. ^ The rate may be as high as 6 or 7 percent. The reported figure for 
studies of teenagers is double that of adults. Surveys show that more than 3 out of 5 compulsive gamblers 
engage in criminal activity to support their gambling. One-fourth are charged with criminal offenses. 
Ten percent are convicted and incarcerated or given a combination of incarceration and probation. 
Another ten percent are given probation. Compulsive gamblers also often lose control of their lives. 
Associated job problems lead to lost production, nonpayment of taxes, and so on. Adding together the 
direct crime costs (average annual law enforcement, adjudication, and detention costs for the typical type 
of 'white collar' crime committed by pathological gamblers)*, incarceration costs (average confinement 
costs for a typical crime committed by pathological gamblers)^, and direct regulatory costs (cost of 
operating state regulatory agencies to oversee gambling) leads to current-dollar costs per compulsive 
gambler that range between $14,(X)0 and $30,000 annually. This translates into costs over the entire 

' Paul A. Samuelson, Economics, New York: McGraw-Hill, 1970, p.402. 

2 My estimates suggest that were the entire nation to introduce gambling the costs equal would 
equal 1/2 percent of GDP annually. 

3 See Final Report: Task Force on Gambling Addiction in Maryland, The Maryland 
Department of Health and Mental Hygiene, Alcohol and Drug Abuse Administration, Baltimore, 
MD, 1990, p. 55. Also Politzer, R. M., Morrow, J.S., and Leavy, S., "Report on the Societal Cost 
of Pathological Gambling and the Cost-Benefit Effectiveness of Treatment," The Gambling 
Papers: Proceedings of the 1981 Conference on Gambling, University of Reno, Nevada, 1981, p. 
9, 10. Subsequent studies confirm earlier figures. Some find even higher rates. 

'^ Politzer, R. M., Morrow, J.S., and Leavy, S., "Report on the Societal Cost of Pathological 
Gambling and the Cost-Benefit Effectiveness of Treatment," The Gambling Papers: Proceedings 
of the 1981 Conference on Gambling, University of Reno, Nevada, 1981, p. 8. Politzer et. al. 's 
source: Kole, B. Personal Communication, Baltimore city State's Attorney's Office. 
5 Politzer, Op, cit., p. 9. Politzeretal. 's source: Governor's Commission on Law 
Enforcement and Administration of Justice, Description of Maryland Criminal Justice System 
costs and Resources-FY 1977, State of Maryland, April 1977, 12-749, Staff Report, Statistical 
Series III. 



73 



population of $1 15 to $300 per adult annually, or $21-$37 billion at the national level. For comparison, in 
the recession of 1990-91, lost GDP was $306 billion. Gambling therefore is equivalent to suffering an 
additional recession in the country every 8 to 15 years. Hurricane Andrew was the most costly natural 
disaster in the history of the United States. It cost slightly more than $30 billion in damages. Gambling 
would be like suffering an additional Hurricane Andrew every year-foieYfii- Other forms of 
entertainment—the symphony, major league sports, restaurants—do not cause such massive social costs. 

Social Restructuring 

Gambling can also imply a major restructuring of the business sector, particularly the entertainment 
and leisure components. Most businesses earn profit between 5 and 8 percent of revenues. The gambling 
industry, in contrast, frequently earns gross profits of 30 to 50 percent or more. In Illinois, one prominent 
casino nearly tripled the original multimillion dollar investment of its owners in the first six months. This 
money comes at the expense of other sectors, primarily those that compete most directly with the 
gambling industry such as restaurants and local recreation. Income that is currently earned by many small 
businesses would be centralized in a few hands in the gambling industry. In state after state large 
amounts of gambling money have been used to influence government and its plans. In Missouri the 
gambling industry waged a $2.8 million campaign-just for the right to have slot machines. Though 
voters rejected the gambling initiative, promoters have placed the same issue on the ballot in less than six 
months. In Illinois more than $650,000 in campaign contributions came from riverboat casinos over a 12- 
month period. The largest contribution from casinos, not surprisingly, went to Illinois House Speaker 
Michael Madigan (D), who has become a backer of gambling expansion in the state. In the following 
year the largest contributions are reported to have gone to Senator Pate Phillips (R) who heads the Senate. 
The same story is now being played out in other states including Louisiana, Alabama, Mississippi, 
Virginia, Florida and others. In Illinois, the proposal to introduce casino gambling in Chicago has been 
defeated three times, but is coming back for yet another try. Why? Those who follow the issue closely 
suspect that gambling money is behind the constant pressure to alter previous decisions. 

How much money could be absorbed by the gambling industry? Gambling has just begun its 
expansion in earnest, but already its sales equals roughly 2.5 percent of GDP.° How much of an 
increase to expect or how much money from the "lesser" forms of gambling would flow to harder forms 
of gambling if casino gambling is franchised throughout the nation is hard to predict. The potential is 
enormous, however. Seeing 1/2 percent or more of GDP— this is more than the total sales of books, 
movies, recorded music, and attractions such as amusement and theme parks combined— accrue as gross 

^ Computed from LaFleur's 1993 Gambling Abstract, cited in Wagering in Ilinois: A Report 
Updating the Economic Impact of Gambling Activities, Illinois Economic and Fiscal Commission, 
January 1994, p. 5. 



74 



profits to a single industry with as much potential for social costs as gambling has would have significant 
consequences. 

Jobs and Economic Growth 

Concerned with its trade balance, just before the Great Depression the United States passed the 
Smoot-Hawley Tariff raising tariffs to historic levels of 58-60 percent on average, in a misguided effort to 
increase the inflow of trade dollars from other countries relative to the outflow. States' introduction of 
casino gambling today to draw revenues from citizens of other states bears many similarities. In the case 
of Smoot-Hawley, the attempt backfired as over 60 foreign nations responded with major tariff increases 
of their own within two years. This misanthropic competition shriveled trade for everyone. Today it is 
generally agreed that such self-centered Beggar-Thy-Neighbor politics contributed to the Great 
Depression. 

The gambling industry admits that there are social costs (described above as equivalent to suffering an 
additional recession every decade) but argues that gambling brings economic development and tax 
revenues by drawing money from other regions. This is a Beggar-Thy-Neighbor activity. Whether 
gambling causes jobs to be gained or lost in an area depends on whether gambling attracts more dollars to 
the region than it takes out. Las Vegas gains from gambling because it draws dollars from California . 
Atlantic City gains because it draws dollars from Philadelphia. If there were no gambling, economic 
activity in California would be greater, and economic activity in Las Vegas would be less. If Philadelphia 
introduced large-scale gambling to defend against Atlantic City, as the gambling industry has been urging 
It to do, Atlantic City will lose part of what it is now taking from Philadelphia. 

Apart from government control, gambling is a free entry activity. It requires little knowledge or high 
technology to offer gambling. This means that it is physically and economically possible to introduce 
gambling anywhere. Gambling could be franchised on every street comer in the nation like McDonald's 
Hamburger stands. When each locality has gambling of its own, few areas will gain at the expense of 
others, but every region will have to pay the economic costs. 

In Illinois, riverboat gambling has had virtually no effect on reducing the pool of unemployed or 
increasing the number of jobs in the communities where it has been introduced. In a few cases where a 
measurably significant effect can be found, the increase in jobs in the region appears to be less than 50 
percent of the number of people employed on the riverboats. In other words, riverboat employment was 
due almost entirely to a shift into gambling of jobs that were lost elsewhere. In some cases a partial 
employment increase occurred but with no reduction in the number of unemployed in the area. This is 



75 



consistent with the explanation that people from outside the area came in to take some of the gambling 
jobs but that insufficient numbers of outsiders gambled at the boats relative to locals to affect overall 
employment. 

The progression of gambling to greater number of forms offered is a predictable process. Starting 
from a no-gambling position, the typical pattern is to introduce a state lottery. This may be accompanied 
by allowing additional limited forms of gambling such off-track betting parlors or racetracks. The next 
stage often involves proposals for psychologically acceptable types of gambling such as riverboat casinos. 
This is followed by land-based casinos. Next, the cities that did not get licensed seek casinos to compete 
with the first licensees. Next restaurants and bars note that casinos can offer food and liquor, but they are 
prohibited from offering gambling. They then ask to be allowed to compete on equal terms by offering 
gambling on their premises. This point, for example, has already been reached in Minnesota where bars 
and small businesses with a liquor license have already asked the legislature to allow them to install video 
gambling machines. After bars, restaurants and the like turn to slot machines and video gambling 
machines, even grocery stores and retail stores may eventually feel the need to offer gambling. At this 
point, the gambling culture is fully sanctioned and government nurtured. Citizens-even those who did 
not gamble before-find the travel and time costs for gambling so reduced that they respond to the 
pressure to gamble. Gambling expands manyfold. No region gains at the expense of others, but the 
permanent social costs described above begin to weigh in. These costs are shared by gamblers and non- 
gamblers. 

History 

In 1920 all forms of gambling were illegal in the United States. Today, governments sell lottery 
tickets and encourage casinos, video poker machines, and other electronic forms of gambling. The 
change from one extreme to the other has been incremental. Perhaps this is an example of the boiled frog 
syndrome-taken in small enough doses anything is tolerated, even if the end result is fatal. 

Unfortunately, we appear not to be learning from our history, "Twice before in American history 
players could make legal bets in almost every state, but these waves of legal gambling came crashing 
down in scandal and ruin,"^ according to gambling historians. The first American wave of gambling 
had its roots in the colonial period, which used lotteries to fund public projects. New York set up the first 
race track as early as 1666. By the 1820s the same movement that sought to clean up frontier lawlessness, 

"^ Nelson Rose, "The Rise and Fall of the Third Wave: Gambling Will be Outlawed in Forty 
Years," Gambling and Public Policy: International Perspectives, William Eadington andJuday 
Cornelius, eds., Institute for the Study of Gambling and Commercial Gaming, Reno, Nevada, 
1991. 



76 



alcohol, and slavery also attacked gambling. Starting in states like Massachusetts and New York, 
rcfomers eventually outlawed lotteries in all but two states by 1862. The second wave of gambling 
began after the Civil War with the expansion of the western frontier. Casinos were licensed in San 
Francisco; South Dakota had gambling in Deadwood; and lotteries re-appeared in many states. Scandals 
and increased public experience with the harmful effects again caused the public to sweep out gambling. 
By 1894 no state permitted the operation of lotteries. In fact. 35 states had constitutional prohibitions 
against them. From 1894 to 1965 no legal lotteries operated anywhere in the United States. As stated 
above, in 1920 all forms of gambling were illegal. The Depression of the 1930s led Nevada to re- 
introduce casino gambling and a number of states such as Kentucky and New York introduced racetracks. 
The third wave of gambling began in earnest as in earlier periods with the spread of lotteries in the 1970s 
and 80s, followed by other forms of gambling. If the past is a guide, gambling and its harmful effects will 
continue to grow unless the cycle is cut short by foresightful policy choices at the national level. 

Summary 

If the nation faced a problem equivalent in costs to an additional recession every decade, it would be 
large enough to warrant federal action. Gambling is that problem. A commission or task force is needed 
to recommend a coherent national policy to restrict or prohibit gambling based on objective numbers and 
research. The recommended actions should then be taken up by Congress and the President. 



77 



Stateaent of John War ran Kindt 

From a bueineBB-economic perspectlva, the main issue involved in 
legalizing various forma of gambling is whether gambling activitiea 
conotitute a valid strategy for economic development. While the dollars 
invested in various legalized gambling projects and the initial jobs 
created are evident, the industry has been criticized Cor inflating the 
positive economic impacts and trivializing or ignoring the negative 
impacts.' The industry's tendency to focus on specialized factors 
provides a distorted view of the localized economic positives, while 
ignoring the strategic business-economic costs to different regions of 
the United States. ^ 

Since some issue areas have not received widespread public 
attention, this analysis highlights some of the neglected issue areaa as 
they relate to tax revenues, social-welfare costs, education, and job 
creation. From the perspective of U.S. economic history, the United 
States has had previous economic cycles with widespread legalized 
gambling activities. The most relevant cycle occurred after the 
American Civil War and paralleled the post-bellum migration to the "Wild 
West." Although gambling proliferated during this time-frame, within a 
few years the trend toward prohibiting gambling activities had begun, 
and by 1910 there was virtually no legal gambling in the United States. 
Gambling activitiea were not just prohibited via state statutes and 
local ordinances, but a fortiori , these prohibitions ware incorporated 
into most state constitutions. The fact that state constitutional 
provisions were utilized to make it as difficult as possible for future 
generations to legalize gambling activitiea (and thereby experiment once 
again with a classic "boom and bust" economic cycle) lends substantial 
credence to arguments that both historically and currently, the 
legalization of gambling activities eventually causes: (1) increased 
taxes, (2) a loss of jobs from the overall region, (3) economic 
disruption of other businesses, and (4) large social-welfare costs for 
society in general and government agencies in particular. 

In recent economic history, legalized gambling activitiea have 
been directly and indirectly subsidized by the taxpayers. The field 
research throughout the nation indicates that for every dollar the 
legalized gambling interests indicate is being contributed in taxes, it 
usually costs the taxpayers at least 3 dollars — and higher numbers have 



*Professor, Univ. III. at Orbana-Champaign. B.A. 1972, William & 
Mary; J.D. 1976, MBA 1977, 0. Ga.; LL.M. 1978, SJD 1981, U. Va". 

This statement should be interpreted as representing only the 
individual views of the author. 

' ^ee generally . R. GOOOMAM, LEGALIZED GAMBLING AS A STRATEGY FOR 
Economic Development (Ctr. Econ. Development, u. Mass. -Amherst 1994). 

2§ee, e.g. . CAL. GOVERNOR'S OFF. PLAN. S RESEARCH, CALIFORNIA AND 
NEVADA: SUBSIDY, MONOPOLY, AND COMPETITIVE EFFECTS OF LEGALIZED 

Gambling es-i <Dee. i992). 



78 



been calculated.' These coats to taxpayera are reflected ins 
(1) infrastructure coeta, (2) relatively high regulatory coata, 
(3) expenses to the criminal JMStice By»tem# and (4) large eocial- 
welfare coete.* Accordingly, several state legislators (e.g.. South 
Dakota) have called for at least partially tnternallelng these external 
costs by taxing all legalized gambling activities at a straight 
50 percent tax rate. Furthermore, as a matter of good public policy, 
state officials and legislators in Illinois have proposed legislation to 
prohibit contributions by legalized gambling interests to politicians 
and political campaigns. 

In the context of social-welfare issues, it is well-established 
that legalized gambling activities act as a regressive tax on the 
poor.' Specifically, the legalization of various forms of gambling 
activities makes "poor people poorer" and can dramatically intensify 
many pre-existing social-welfare problems. Demographic analyses reveal 
that certain disadvantaged socio-economic groups tend to gamble 
proportionately greater amounts of their overall income* and marketing 
efforts, particularly by state lotteries, have allegedly been directed 
at these target groups. 

From the businesa perspective, businesses are not naive.' With 
the exception of the cluster services associated with gambling, new 
businesses tend not to locate in areas allowing legalized gambling 
because of one or more of the aforementioned costs. In areas saturated 
with legalized gambling activities, pre-existing businesses face added 
pressures that push them toward illiquidity and even bankruptcy. 
Although South Dakota does not constitute a saturated gambling state, 
this trend has already been reported. South Dakota had virtually no 
gambling in 1988 and then instituted casino gambling and video lottery 
terminals by the end of 1989. within two years legalized gambling 
activities constituted one of the leading causes of business and 



'For example, just the social-welfare costs mentioned at footnotes 
10, 12 infra usually dwarf the projected new tax revenues from the 
legali^zed gambling activities. 

*see, e.g. . Press Release, Off. 111. Gov. James Edgar, "Governor 
warns Land-Based Casinos Could Bring crime Surge As Well As Overall Loss 
Of Jobs And State Revenues," Sept. 29, 1992 (summar.izing several 
Illinois State reports). ' . 

'ses, e.g. . C. CLOTFELTER & P. COOK, SELLING HOPE 215, 222-27 
(Nat'l Bur. Bcon. Research, Harv. u. Press 1989). 

*Id. at 99. 

^For example, "[ijn a rare public stand on a controversial 
political issue, the Greater Washington Board of Trade's 85-member board 
voted unanimoualv against " Mayor Sharon Pratt Kelly's initiative to 
bring caalno-style gambling to Washington, D.C. Spayd S Woodlee, Trade 
Board Rejects P.O. Casino Plan . Washington Post, Sept. 25, 1993, SA, 
at 1, 8 (emphasis added). 



79 



peroonal bankruptcies among South Dakota reaidenta (whareae thia cause 
was non-exiatent in 1989).* More subtly, traditional businesses in 
communities which initiate legalized gambling activities can anticipate 
increased personnel coata due to increased job absentaetsm and declining 
productivity. The best blue-collar and white-collar workers, the Type-A 
personalities, are the moat likely to become pathological gamblers. A 
business with 1,000 workers can anticipate increased personnel costs of 
$500,000 or more per year — simply by having various forms of legalized 
gambling activities accessible to its workers.' 

To some extent businesses must already internalize the societal 
costs associated with assisting personnel with drug or alcohol-related 
problems. Legalizing various gambling activities increases the number 
of problems related to pathological gambling in the context of the 
workforce, and these costs are reflected in increased personnel costs — 
such as "rehabilitation costs," which can easily range from §3,000 to 
$20,000 (or more) per pathological gambler.^" In the context of the 
current healthcare debate, the spectre of these unanticipated costs can 
raise further concerns to businesses already being asked to bear certain 
healthcare costs. 

Gambling activities and the gambling philosophy are directly 
opposed to sound business principles and economic development. 
Legalized gambling activities also negatively affect education — both 
philosophically and fiscally. ^^ In states with legalized gambling 
activities which were initiated allegedly to bolster tax revenues to 
"education," the funding in "real dollars" has almost uniformly 
decreased. 



®see, e.g. . Nelson, S.D. bankruptcies down S percent i Judaa; 
Gambling caused most cases . Argus Leader (Sioux Falls, S.D.), Jan. 15, 
1993, at 1. 

'The large social-welfare costs caused by legalizing gambling 
activities are necessarily reflected to some extent in the workforce. 
See footnotes 10, 12 infra and accompanying text. For example, lost 
work productivity alone has been calculated at $23,000 per year per 
pathological gambler. See, e.g. , BETTER GOVT ASSOC., STAFF WHITE 
PAPER: CASINO GAMBLING IN CHICAGO 14-15 (1992) (a comprehensive 
report). The costs of a "bottomed-out" pathological gambler are 
significantly higher. 14. at 14 ($27,000 per pathological gambler). 
See also ALCOHOL S DRUG ABUSE ADMIN., MD. DEP'T HEALTH & MENTAL 

HyciENE, Task Force on gambling Addiction in Maryland 2, 59-6I 
(approximately $15,000 per year per compulsive gambler in lost 
productivity) . 

lO gee , e.g. . GAMBLING ADDICTION IN MARYLAND, supra note 9, at 
29-30, 36-63 (1990); CASINO GAMBLING IN CHICAGO, supra note 9, at 12. 

^^ See . e.g. , CLOTFELTER & COOK, Supra note 5, at 151-53; CASINO 

Gambling in Chicago, supra note 9, app. q. 



80 



Thoae etateo which embrace legalized gambling activitiee can 
•xpect enormous socio-economic coata and declines in the quality of 
life. Unlike traditional bueineBo activities, legalised gambling 
activities cater to a market consisting of addicted and potentially- 
addicted consumers, and most pre-existing traditional businesses will 
find it quite difficult to compete for "consumer dollars" which are 
being transformed Into "gambling dollars." 

ror example, the field research strongly suggests that the 
introduction of widespread legalized gambling in South Dakota, including 
casinos and video lottery terminals (VLTs), over a two-year time span 
caused a one percent Increase in the number of problem and probable 
pathological gamblers— a recognized addiction pursuant to the American 
Psychiatric Association. Each newly-created pathological gambler has 
been calculated to cost society between $13,200 to $62,000 per year. 
These coats are not just reflected in society as a whole, but impact on 
all businesses. In particular, small businesses could easily experience 
disproportionate negative impacts, and unlike large corporations, small 
businesses would be leas likely to have the asset base necessary to 
cushion against those negative Impacts. 

Sociologists almost uniformly report that Increased gambling 
activities which are promoted as sociologically "acceptable" (the 
acceptability factor) and which are made '■accessible- (the accessibility 
factor) to larger numbers of people will increase the numbers of 
pathological gamblers. The baseline of pathological gamblers as part of 
the population begins at .77 percent as reported by the 1976 U.S. 
Commission on Gambling.'" Since gambling has been legalised and made 
accessible in several states, the range has Increased to 1.5 to 
5 percent^* In those states. This translates into increases In eoclo- 



^_ ^ _.^. . Strategy for Economic Development, aupra note i, at 

61-63,- *^litzer,' Morrow, 6 Leavey, Report on the Societal Cost of 
Paf-holooical Gamblina and th e roflt-Benefi^t /Effect iveneaa of Treatment 
8-10, 18-20, 23-25, 29-30 (5th Nat'l Conf. on Gambling and Risk Taking 
1981); CASINO Gambling in Chicago, supra note 9, at 14. gee al?o 
Gambling .iDDicTioN in Maryland, supra note 9, at 2, 59-61. 

The more recent estimates are tending to cluster In the range of 
$13,200 to $35,000 (without adjusting for inflation). Even the lowest 
estimates reflect large social-welfare costs, which should be compared 
with any projected new tax revenues from legalizing various forms of 
gambling activities. In most Instances an increase of one cent or less 
in the sales tax would raise more tax revenues than the total of a 
state's projected revenues from legalized gambling activities.- 

i^u.s. Commission on the rev. of the Nat'L pol'y Toward Gambling, 

Gambling in America 73 (Govt Printing off. 1976) (another 2.33 percent 
equal "potential" pathological gamblers). 

Ugee. e.g. . ALTA. LOTTERIES & GAMING, GAMBLING AND PROBLEM 
GAMBLING IN ALBERTA 18 (Jan. 1994) (summarizing 20 Studies showing the 
range of problem and probable pathological gamblers at 1.7 to 6.9 for 
adults and 3.6 to 12.4 for adolescents). 



81 



economic coats which must; be addresaed and absorbed primarily by- 
taxpayers, but also by businesses, charities, eocial-welfare 
organizations and governmental units. 

On a regional level, the combined ranges of these various socio- 
economic costs are so large^' that they tend to dwarf the localized 
economic positives. These drains on society could easily translate into 
a net loss of jobs on a statewide or regional level. ^* Furthermore, it 
can be argued that the combined economic positives and negatives result 
in a net negative economic multiplier. ^^ Prom the perspective of 
business-economics and strategic development, major businesses are and 
should be concerned with the trend toward expanding various forme of 
legalized gambling activities. Among other reasons, nongambling-related 
businesses will not be competing for consumer dollars or recreational 
dollars on a "level playing field, " because legalized gambling 
activities can cater to an addicted and potentially-addicted market 
segment • 

Since the U.S. economy and most state economies are extensive in 
scope, the socio-economic negatives associated with legalised gambling 
activities can remain hidden for long periods of time. However, just 
because a particular activity is "legalized' by a state government does 
not mean that the negative business or societal impacts have been 
eliminated — or even reduced. 

Increasingly, taxpayers and businesses are beginning to realize 
that, as Professor Jack Van Oer Slik has summarized for much of the 
academic community, state-sponsored geunbling "produces no product, no 
new wealth/ and so it makes no genuine contribution to economic 
development."^^ BuBiness-economio history supports this proposition. 
To paraphrase Georg Hegel's common quote, "those who forget the lessons 
of economic history are condemned to relive them."^' 



''see, e.g. . SUBSIDY, MONOPOLY, AND COMPETITIVE EFFECTS OF 
LEGALIZED Gambling, aupra note 2, at SS-1. 

16ld. 

''see, e. g . . STRATEGY FOR ECONOMIC DEVELOPMENT, supra note I, 
at 50. 

^*Van Der Slik, Legalized oamblino; predatory policy . ILL. ISSUES, 
Mar. 1990, at 30. 

^'J. BARTLETT, FAMILIAR QUOTATIONS 507 (14th ed. 1968). 



82 



Compulsive Gambung Center, Inc. 

924 East Baltimore Street • Baltimore, Maryland 21202 

Phone (410)3321111 

Fax (410)685-2307 



Valerie C. Lonnz, Ph.D., CPC 

ExecutjTC Director 



Stephen W. S<uinden, M.D. 
Qlnlcal Director 



William L. Holmes, M.F.Sc. 
Treasurer 



Robert L. Wagner 
Chairman, Ad\'l9ory Board 



Statement of 

VALERIE C. LORENZ, PH.D. 
before the 

U. S. HOUSE OF REPRESENTATIVES 
Committee on Small Business 

September 21, 1994 



Mr. Chairman and Distinguished Members of the Committee: 

My name is Valerie Lorenz. I have specialized in the 
field of compulsive gambling for over twenty years. I am 
Executive Director of the Compulsive Gambling Center, Inc. 
(formerly National Center for Pathological Gambling, Inc.), 
a not-for-profit organization providing treatment, educa- 
tion, training, research, and program implementation in the 
field of compulsive gambling. The Center also operated the 
oldest national 24-hour Compulsive Gambling Hotline for 
seven years (discontinued in July 1994 for lack of funding) . 
I served as Co-Chair of the 2-year Taslt Force on Gambling 
Addiction in Maryland, and have been Director of the 
Forensic Center for Compulsive Gambling, specializing in 
expert witness in testimony and forensic reports for over 
ten years. I have been a member of the editorial board of 
The Journal of Gambling Studies since 1985, and I have 
published extensively on the problems of compulsive gamb- 
ling. I have testified numerous times in this area before 
state and federal legislative bodies, including the White 
House Conference on Families. 

I am pleased to appear before this Committee today to 
answer your questions about the impact of casino prolifera- 
tion. I applaud your as)(ing such questions, and encourage 
this committee to expand this exploration into all types of 
legalized gambling. And I encourage this Committee to be 
the leader in establishing national policy on gambling. 



Compulsive Gambung Hotline - 1-800-332-0402 

The S4-Hour Compulsive Gambling Hotline l> funded (n part 6ii tht MaryUuul Department of Health and Mental Hygiene. 
The Compulsive Gambling Onter, Inc. i» a not-for-profit 50} (c)S tax exempt arganlxatlon- Contr^uttoni are tax deductible. 



83 



Let me make something very clear: ALL types of gambling 
can become addictive, regardless whether one gambles on or 
with machines, races, tickets or games. Fortunately, only 
certain people will become gambling addicts. However, the 
number of compulsive gamblers has been increasing at an 
alarming rate in the past twenty years - ever since the 
spread of casinos and state lotteries, which has turned this 
country into a nation of gamblers. These gamblers spent 
$394 billion last year on gambling - money that was not 
spent in local shopping centers, pizza parlors or corner 
gorceries, monies that in seven years could pay off our 
national debt. 

Until the mid-1970s, the typical compulsive gambler was 
a white, middle-aged, middle-class male. A dozen years ago, 
a female compulsive gambler was a rarity. Lottery addicts 
were just beginning to surface. Teenage compulsive gamblers 
and senior citizens addicted to gambling were nonexistent. 

The profile of today's compulsive gambler is truly 
democratic, all ages, races, religious persuasions, socio- 
economic levels and education. Sixteen or sixty, the 
desperation and devastation is the same. 

The New Jersey Casino Control Commission regularly 
reports 25,000 or more teenagers being stopped at the door 
or ejected from the floors of Atlantic City casinos. One 
can only guess at how many teenagers do get in, gamble, and 
are served drinks. Today, research indicates that as many 
as 7% of teenagers may be addicted to gambling. 

Adult gambling addiction has increased from .77% of the 
acult population (U.S. Commission on the Review of the 
National Policy Toward Gambling, 1975) to as much as 11% in 
some states in 1993. Why? Because our governments are say- 
ing, "Gambling is OK" and because gambling is now so readily 
available, with so very little regulation. 

The formula is quite simple: Availability leads to more 
gamblers which leads to more compulsive gamblers. Casino 
gambling, now in 21 states, is particularly onerous because 
of the allure of escaping into fantasy, the fast action, and 
emphasis on quick money, all of which are basic factors in 
gambling addiction. 

Gambling addiction increases socio-economic costs far 
greater than any amount of revenue generated for the govern- 
ment by ♦•he gambling industry. For instance, in 1990, the 
Maryland Task Force on Gambling Addiction found that 
liaryland's 50,000 compulsive gamblers cost the state SI. 5 
billion per year in lost work productivity and monies that 
are abused (stolen, embezzled, state taxes not paid, etc.). 



The total cumulative indebtedness of Maryland's compulsive 
gamblers is $4 billion. That means a lot of small and large 
businesses are not getting paid, which means they will have 
to reduce their work force or close up shop. 

Other costs resulting from compulsive gambling are 
broken homes, physical and mental health problems, increase 
in social and welfare services, indebtedness, bankrutcies, 
and crime. Each and every one of these are far-reaching, 
affecting neighbors, employers, entire communities, and 
generations to come. These direct and indirect costs are 
staggering. 

Taking just the issue of crime alone, virtually all 
compulsive gamblers, sooner or later, resort to illegal 
activities to support their gambling addiction. After all, 
money is the substance of their addiction, and when legal 
access to money is no longer available, these addicts will 
commit crimes. The crimes are typically of a non-violent, 
financial nature, such as fraud or embezzlement or failure 
to pay taxes. About 25% of them are charged with criminal 
violations, and about 15% face incarceration. It costs 
about $20,000 per year for the U.S. Bureau of Prisons to 
keep one young, healthy compulsive gambler in jail. This 
cost can escalate to $50,000 for the ailing senior citizen. 
Then there are the costs for half-way houses, electronic 
monitoring, and supervised parole and probation. 

While in jail, the gambling addict is neither gainfully 
employed nor paying federal or state taxes. The family may 
be surviving on drastically reduced income or be on welfare. 
Well-paying jobs for felons are hard to come by, which means 
the gambling addict will most likely be earning less in 
future years, after he or she is released from prison. 

Further, compulsive gamblers tend to have a very high 
rate of civil violations, such as motor vehicle infractions. 
Probably as much as 90% of casino addicts resort to reckless 
driving, speeding, and falling asleep at the wheel, result- 
ing in accidents, either to or from the casino. They are a 
menace on the highway, worse than drunk drivers. Yet what 
is being done about that, other than to raise the costs of 
law enforcement and medical care? 

About two thirds of compulsive gamblers come from homes 
with an alcoholic parent. Some compulsive gamblers are 
alcoholics first, maintain sobriety but turn to another 
addiction, gambling. Other compulsive gamblers may be co- 
addicted to either alcohol, drugs, or both.' Ironically, 



85 



while there are many education, prevention and treatment 
programs for the substance abuser, supported by state and 
federal monies, what is there for the individual who becomes 
addicted to a government licensed or sponsored activity, 
gambling? Pathetically little in a few states, nothing in 
most . 

In 1988, Congress passed the Indian Reservation Gamb- 
ling Act. Some 80% of incarcerated Native Americans have an 
alcohol problem. Yet what is being done to prevent gambling 
cross-addiction or co-addiction among them? And by whom? 
The casinos historically have failed to take any measure of 
responsibility for compulsive gambling, and only recently 
have a few Indian Reservations addressed this potential 
problem among their own people or among their customers. In 
short, the greed of the gambling industry is matched only by 
its lack of concern for its customers or the community in 
which it operates. That is not good business. 

Maryland first recognized compulsive gambling to be a 
serious socioeconomic problem in its state in 1978, and 
funded the first public treatment program. (The first in 
the nation was established in 1971 at the Brecksville, Ohio 
VA Medical Center.) Today, the state does not allocate a 
single dollar to combat compulsive gambling. Why not? 
Because every legislative bill introduced to aid compulsive 
gamblers was fought by the gambling industry - the state 
lottery, the charitable casinos, the race track, tavern 
associations, fraternal clubs with video poker machines, and 
bingo parlors. 

What is the end result of widespread casino gambling? 
Just look at the housing and poverty in Atlantic City, the 
lack of quality of life in Deadwood, South Dakota, or the 
alcoholism and crime rate in Las Vegas. 

What must this government do to contain this national 
health problem, one that has been labelled The Addiction of 
the Nineties? 

First of all, it must face the fact that the problem 
exists, instead of continuing to ignore it or minimize it. 
Secondly, it must stop believing the deceptions perpetrated 
by the gambling industry, that legalization of casinos or 
race tracks or lotteries are the answer to governments' 
fiscal woes, the anwer to unemployment, or the way to stop 
tax increases. 



k 



86 



This government needs to establish an office to look at 
the negative consequences of widespread gambling, and it 
needs to establish comprehensive policy: how much gambling, 
where, what hours, who will run the game, why, how much 
money is needed for law enforcement and crime prevention, 
what is the uniform minimum age, what research is needed, 
who will educate the public, business and industry, or train 
health providers, who will fund prevention and treatment 
programs? 

State legislatures across the country are seeking to 
implement new forms of gambling. One riverboat quickly 
becomes thirty riverboats in one area. Yet there are less 
than a dozen professional inpatient treatment programs for 
compulsive gamblers. The maximum bed capacity is approxi- 
matly one hundred. 

The number of compulsive gamblers in this country today 
runs into the millions. Who will provide the treatment, and 
who will pay for it? Not the gambling addicts - they have 
neither the money nor the health insurance - that was spent 
at the casinos or on other gambling. 

This country can ill afford to ignore the problems 
caused by the proliferation of gambling and the resultant 
increase in compulsive gambling. We do not need the 
economic ruin, broken homes and crime brought on by this 
industry, which encourages instant gratification, somehting 
for nothing, while making a mockery of family, work and 
community. This country needs your concern and your action. 

Thank you for your attention. 



87 



FRANK R, WOLF COMMITTEE ON APPROPRIATIONS 

TRANSPORTATION 

..roroc%'oi«,o ton^vcii of tljc ®nitcli ^tatcsf 

(2021225-5136 ** ■" 

o»3Tnu,„si«„c„omcss ^ouat of JRcpredcntatibcg 

'^"'s"."i'^i'3o"''°" SBasljinaton, ©C 20515-4610 



}"'" The Honorable Frank R. Wolf 

September 21, 1994 
Statement Before the House Small Business Committee 



Chairman LaFalce, distinguished members of the House Committee on Small 
Business, I appreciate having the opportunity to submit the following statement for 
the record on the issue of casino and riverboat gambling. I commend you, Mr. 
Chairman, for holding this informational hearing because there are many details 
about gambling which remain mysterious, and, as a rapidly expanding industry, it is 
appropriate for Congress to investigate the eH'ects, detrimental or otherwise, of these 
growing gaming concerns. 

In a recent study, Professor Robert Goodman, who will testify before this 
Committee, found that costs associated with casino and riverboat gambling were 
always underestimated by gambling proponents. Few of the localities studied 
prepared useful economic impact studies. Professor Goodman concluded that 
"[w]here such studies were done they tended to be self serving, examining gambling 
from a gambling industry, rather than an objective community economic 
development perspective." 

If policy makers are using research prepared by the casino industry itself, 
what information then are they not considering? Those in the restaurant business, 
entertainment business, tourism industry, as well as other businesses are concerned 
about the cannibalization of existing businesses by gambling enterprises. Gambling 
does not necessarily stimulate demand for entertainment, it merely shifts disposable 
income from one expenditure to casinos. This cost shifting does not stimulate other 
sectors of the economy and may even be a net loss. One who spends his money on 
gambling forgoes some other form of entertainment like a trip to the beach or 
movies, a night out to eat, or a day trip to one of Virginia's many historic places. 
^J<'urthermore, as gambling increases, expenditures for clothing, recreation services, 
business services, new cars and service stations will decline. 

Professor Goodman found that casinos have negative economic impacts on 
nearby restaurants. "As a way of enticing players to stay on the premises, casino 
owners generally include a variety of low priced food services and restaurants within 
their casino complexes. Food prices are often subsidized ... As a result, independent 
restaurants close or have difTiculty competing with those in the casinos." As an 
example of the deleterious impact gambling has on the restaurant industry, Professor 
Goodman points out that the number of restaurants in Atlantic City declined from 
243 in 1977, the year after casinos were legalized, to 146 in 1987. 



Crime is another cost that defenders of gambling try to ignore. Since 1978, 
Atlantic City's crime index exceeded that of the state as a whole. By 1981, there was 
a near tripling of total crimes. That brought Atlantic City from 50th in the nation 
in per capita crime to first. Increased expenditures on police and other crime 
prevention measures will be needed to combat loansharking, prostitution, drug 
trafficking and other crimes that increase because of the introduction of gambling. 

Research also shows that the social and economic costs of behavioral gambling 
are considerable and it is indisputable that compulsive and pathological gambling 
increases in communities that permit gambling. Various studies indicate that the 
mean gambling related debt (excluding car loans, mortgages and other 'legitimate' 
debt) of people in compulsive gambling therapy ranged from about $53,000 to 
$92,000. Compulsive gamblers in New Jersey were accumulating an estimated $514 
million in yearly debt. Who pays that debt? The answer is everyone pays in the 
form of increased prices on goods and services and increased taxes. 

Also, the work habits of problem gamblers are costly to employers which 
drives the costs of goods and services up for the rest of us. Pathological gamblers 
engage in forgery, theft, embezzlement, drug dealing and property crimes to pay off 
gambling debts. They are responsible for an estimated $1.3 billion worth of 
insurance-related fraud per year which is borne by the rest of us in the form of 
increased premiums, deductibles, or copayments. 

Other costs cited by Professor Goodman include impaired judgment and 
efficiency on the job, unrecovered loans, divorces, added administrative costs in 
programs like unemployment compensation, lower property values, the costs of 
depression and physical illnesses related to stress, lower quality of family life and 
increased suicide attempts by gamblers and spouses of pathological gamblers. 

Proponents of riverboat gambling will argue that these are costs associated 
with land based casinos, not riverboats. Riverboat gambling brings most of the same 
costs as land based gambling. Moreover, once riverboat gambling is established, 
land based casinos soon follow. In the Rust Belt, where riverboat gambling began, 
casinos now line the Mississippi River moored to the dock never to leave the 
riverfront. Also, once the riverboat gambling business becomes established in a 
community, they demand concessions on drink limits, hours of operation, 
infrastructure improvements like roads, police, water and sewer, which attracts even 
more gambling related problems. Before long, the unsuspecting community is 
-^saddled with permanent, land-based casinos. 

Mr. Chairman, today you will hear from experts who will expand on these 
serious concerns. I want you to know that this member is concerned about the 
economic effects a proliferating gambling industry has on other industries, 
communities, and families, and I look forward to working with you and the 
Committee as you continue to study this important issue. 

I request unanimous consent that the following statement by Professor John 
Kindt from the University of Illinois at Urbana-Champaign be included in the 
record. 




89 



Mayor 

A. i. HoUoway 

Councfl Members 
Tom FeniU. Ward 1 
5ric E. Dickey. Ward 2 
Jim Compton, Wjrf 3 

Russell I. Bisile, Ward 4 _, , _ 

Dianne G. HaiensJd. Ward 5 Q* y»^*™te^^SD f 

Tom Wall. Ward 6 l-U I ( IV I 

Mickey J. Bellandc. Sr., Wwd 7 J^a^J^l^u. a-i. 

P.O. Box 429 

BHon, Mississippi 39S33 

(601)435-6300 

Saptenber 19, 1994 



Hoaorai>le John J. LaFed.ce 

Honse of Representatives 

2361 Rayburn House Office Building 

Washington, DC 20515-6315 

Dear Congressman LaFalce: 

In response to your recent invitation to testify before the 
House Committee on Small Business, I regret that I will be unable 
to personally attend, but I would like to submit written testimony. 

As you may know, since the advent of Mississippi Gulf Coast 
docks ide gaming in the summer of 1992, the City of Biloxi has 
become the statewide leader in terms of casino development. 
Currently, there are ten (10) casinos operating within our city 
limits and four (4) more in the planning and development stage. 
These casinos range in size from 30,000 square feet to 1U0,006 
square feet of gaming space and employ approximately 1,000 people 
each. 

Obviously, the intact these casinos have made on both the 
citizens and physical geography of Biloxi is unparalled in our 
City's long history. As the accompanying factsheet should 
illustrate, dockside gaming has forever changed the character of 
our once small, southern city. At this point, the two (2) years of 
casino development in our City has been in a positive light. 
However, I do feel that if the industry continues to grow at such 
a rapid pace, a negative side will emerge. 

We are beginning to see evidence of the negative repercussions 
of the casino industry as they continue to proliferate throughout 
our city, the State of Mississippi and the Nation as a whole. 
Recently, Biloxi had its first casino bankruptcy and it appears two 
others are in financial trouble. Needless to say, such failures 
will leave the employment secpxity of thousands of individuals in 
a precarious position and the financial stability of many local 
vendors in em equally questionable position. 



90 



with the boom of dockside gaming in Biloxi has ccane the need 
for additional affordable housing. Property values have risen 
dramatically as have rent prices for multiple-family housing. This 
tremendous increase in rent has unfortunately created quite a 
burden for fixed- income individuals such as the_ elderly. 
Additionally, Keesler Air Force Base, located in Biloxi, has had 
trouble securing adequate housing for all of their personnel. 
Their expansion plans and ultimate mission could certainly be 
adversely affected as a result of this competitive housing 
situation . 

As casino tax revenues have placed add i tional monies in the 
City's coffers, increased service demands have dictated that these 
funds be spent at an elevated pace. Between 1991/1992 and our 
recently adopted 1994/1995 budget, total governmental spending has 
gone from $25,420,736 to $57,089,634. Public Safety spending has 
more than doubled during this time span in an attempt to curtail 
the upward trend of criminal activity which I feel is a result of 
the large influx of people to our City. 

Approximately thirty-seven percent (37%) of our fiscal year 
1994/1995 budget is dedicated to capital projects. In the year 
prior to the advent of dockside gaming, 1991/1992, this figure was 
approximately two percent (2%). This expenditure was necessitated 
due to the increased burden placed upon our city's infrastructure 
by such a large number of citizens. Our wastewater system is 
operating at 100+ percent and a large majority of our streets need 
overlaying as traffic has increased four-fold. 

I personally feel that as other jurisdictions introduce casino 
gaming, the rapid growth which the City of Biloxi is experiencing 
will naturally subside. Once the industry stabilizes and our City 
government has an opportunity to "catch its breath", Biloxi will 
remain a national contender in the casino marketplace, but to a 
lesser extent. With the preceding commentary, I do not wish to 
place casino gaining in a negative light. However, I do wish to 
illustrate that with the good fortune of increased tax dollars, 
tourists and general business development, there is a price one 
must pay. 

In conclusion, I hope my commentary has been helpful in 
assisting you in determining the impact of casino geuaing in 
American communities. If you have any further questions^ or 
inquiries, please feel free to contact me or my staff at any time. 




AJB/kc 
End. 



91 



DOCaCSIDE GamiBG IMPACT FACTSHEET 



CASIHOS « EKPLOXMEHT — 

♦Currently, Biloxi hae tan (10) casinos open with four (4) 
in the planning and/or construction stage. 

♦Each casino employs approximately one thousand (1,000) 
individuals with a breeikdown as follows: 

33% are local Bilozians 

33% relocated to Biloxi to work & live 

33% work in Bilosi & live else«rtiere 

♦Current unemployment figures for Biloxi illustrate the 
impact dockside geuaing has had on the labor force 

1991 8.1% 

1992 5.7% 

1993 4.1% 

1994 5.8% 



C0H8XRUCTIOM & B00SIH6 — 

♦The total dollar valuation for building permits issued within 
the City of Biloxi reached an all-time high of $134,430,677 
(conmercial & residential). The yearly breakdown was: 



1991 $ 11,040,454 

1992 $ 17,540,310 

1993 $134,430,677 



♦Prior to 1991 new housing starts averaged approximately 75 
per year. In 1993 there were 135 new homes constructed emd 
125 residential lots were platted for future construction. 

♦The average sales price for a residential hems has increased 
41%, going frcmi $59,860 to $84,379 in the second quarter of 
1994. 

♦Based on a May 1994 survey conducted by the Federal Home 
Loan Bank System, the vacancy rate for multi-family 
(apartment) housing in Biloxi is 1.3% 

♦The average rental rate among one-bedroom units is $331.71 
and has increased 12.8% over the average in 1991. Among 
two-bedrocffli apartment the average rental rate is $390.11 *nrf 
has increased 8.1% 

♦Based on a report by the Biloxi Housing Authority, Biloxi has 
936 public housing units. They are at 100% capacity and 
there is a waiting list of 466 individuals /families. 



92 



♦Ryder Truck Rentals conducted a study in Jcinuary 1994, which 
showed that the Biloxi -Gulf port area ranked 11th among the 
top 20 small cities (under 100,000 population) where people 
relocated in 1993. 



ECQHOiar & GOVERHMEHT — 

♦Tourism sales represent approximately 47% of retail sales in 
the Biloxi economy. 

♦According to the Harrison County Tourism Commission, 
visitation has doubled from 1.5 million tourists in 1992 
to over 3 million tourists during 1993. 

♦Total number of people attending conventions at the Coast 
Coliseum increased from 71,146 delegates to 85,490 between 
1991 and 1993. The economic impact at these conventions 
rose from $44,320,685 in 1991 to $53,256,337 in 1993. 

♦Between August 1992 and August 1994 the gaming revenue 
tax for the City of Biloxi generated $17.7 million. This 
money was disbursed between the City's General Fund, Public 
Schools and Public Safety. 

♦The Capital outlay budget for the City of Biloxi grew 
dramatically in an attempt to facilitate dockside gaming and 
general population growth. These expenditures include 
all infrastructure improvements and are as follows: 

FY 1991/1992 $ 483,150 

FY 1992/1993 $ 2,255,203 

FY 1993/1994 $ 5,743,629 

FY 1994/1995 $21,084,651 

♦The Public Safety budget for the City of Biloxi has also 
increased dramatically as a result of the increased burdens 
brought about by dockside gaming. These expenditures include 
both police and fire departments and are as follows: 

FY 1991/1992 $ 5,501,294 

FY 1992/1993 $ 6,549,190 

FY 1993/1994 $ 8,111,144 

FY 1994/1995 $11,384,240 



93 



Congress of the ilnited States 

IFioust of UeprtstntatitiES 

io)d CongrtBi 

eomminEe on ^mall jSosintss 

2161 KaBtmni 1^mat GfTict f oilding 
TOasliingtoii, BC 20J15-631J 

November 28, 1994 



JAN MEYERS Kansas 



BY FACSIMILE AND PERSONAL MAIL 



The Honorable Ada Deer 

Assistant Secretary for Indian Affairs 

Department of Interior 

1849 C Street, NW 

Washington, DC 20240 

Dear Ms. Deer: 



As you know by now, the hearing of the Small Business Committee scheduled for 
Monday, November 28, has been canceled. As 1 continue to explore the issue of Indian gaming 
outside of the hearing forum, 1 am writing to request that you submit a statement to the Small 
Business Committee, along with relevant documents, outlining your perspective and concerns 
related to this important issue. 

As in our September 28 hearing on casino gambling, I am interested in exploring both the 
impact of casinos--on small businesses, communities, and the nation as a whole--and the 
regulatory structure that seeks to control the more harmful aspects of gambling. 1 would be most 
interested in hearing from you on the following aspects of Indian gaming: the social and 
economic impact on the tribes themselves; the impact on communities and businesses surrounding 
the gaming establishments; and the regulatory issues that have arisen since enactment of the 
Indian Gaming Regulatory Act. 

As you well know, gambling is a unique recreational activity that brings with it costs and 
benefits not associated with other forms of entertainment. My overriding concern is that all 
parties responsible for the regulation of gambling are sensitive and responsive to the costs of 
gambling, in social and economic terms. To this end, 1 would like to collect and disseminate as 
much quality information, research, and advice on this issue as possible. I hope you will be able 
to help me in this effort. 



94 



Please send your statement addressed to me at the Committee by Friday, December 2. 
If you have questions or will not be able to submit a statement, please contact Mr. Scott Morris 
at the Committee. Thank you. 



Sincerely, 



V--ffjHN J. LaFALCE 



Chairman 



JJL:sm 



95 



STATEMENT FOR THE RECORD OF MS. ADA E. DEER, ASSISTANT SECRETARY - 
INDIAN AFFAIRS, U. S. DEPARTMENT OF THE INTERIOR, ON THE SOCIAL AND 
ECONOMIC IMPACTS OF INDIAN GAMING. 

This Statement is provided for the record on the social and 
economic impacts of Tribe-owned gaming on small businesses, the 
social emd economic impact on the Tribes themselves, the impact on 
the communities amd bxisinesses surrounding the geooing 
esteiblishments, and on the regulatory issues that have arisen since 
enactment of the Indian Gaming Regulatory Act (IGRA). 

The principal goal of Federal Indian policy is to promote tribal 
economic development, tribal self-sufficiency, euid strong tribal 
governments. On meiny reservations, geuning has been the most 
successful enterprise conducted by Tribes. The purpose of IGRA is 
to provide a Federal statutory basis for the regulation of gaming 
adequate enough to shield Tribe-owned gaming from orgeinized crime 
emd other corrupting influences, to ensure that Tribes are the 
primary beneficiaries of the geiming operation, to assure that 
geuning is conducted fairly emd honestly by operators cind players, 
and to protect such geuning as a mecins of generating revenue for 
Tribes . 

The Act authorizes Indian tribes to engage in three classes of 
geuning on Indiem lands. 

Class I: Traditional social geunes with prizes of minimal 
value . 

Class II: All forms of bingo «ind similar games such as 
pull teQjs, lotto eind punchboeurds provided 
such gcunes are played in the seune location as 
bingo geunes. 

Class III: All other geunes of chemce. This geuning is 
allowed only if the State permits such geuning 
for emy purpose and a Tribal-State compact has 
been entered into between the Tribe emd State. 



96 



The IGRA memdates five uses for a 'tribe's net geuning revenues: 

(1) to fund tribal government operations or progreuns; 

(2) to provide for general welfare of the tribe; 

(3) to promote tribal economic development; 

(4) to donate to chariteible orgeinizations; and 

(5) to help fxind local governmental agencies. 

The IGRA also allows distribution of net gauning revenues as per 
capita payments to tribal members provided the Tribe has prepared 
a Revenue Allocation Plem (RAP) that allocates revenues to the 
above mentioned uses authorized by IGRA. The Secretary must 
approve the RAP amd find it adequate. 

Exact figures on the amount of geuning revenues to Tribes is not 
readily attainable because there is no legal requirement for Tribes 
to report its gaming revenues to the Bureau of Indism Affairs 
(BIA). However, Tribes readily share information about the 
benefits that have been derived from gaming revenues. Gaming 
revenues are used to supplement Federally funded support programs. 

Unlike profits from commercial casinos in Nevada and New Jersey, 
revenue from Tribe-owned geuning accrxies to the Tribe as a 
government. Tribes are mgmdated by law to spend gaming revenues on 
the reservation for governmental purposes and for the welfare of 
their members. 

Information obtained from Tribes through BIA's Area Offices provide 
the following exeimples of how these revenues are used: 

education: scholarships, stipends for college students, 
new school facilities, day care subsidies, school buses, 
youth programs, cultural enrichment; 

housing: construction of new homes, repairs, senior 
citizen housing; 

infrastructure: new roads, water and sewer systems, 
commvinity centers; 



97 



health care: funding health insureuice programs, new 
medical facilities, elderly progreuns emd substemce eibuse 
progreuns ; 

economic development: land acquisitions, new business 
development, long-term investments; 

- community gremts: payments to local governments for 
roads, schools, police protection and social service 
progreims ; 

direct payments: emergency assistcince, burial programs, 
small business purchases, and per capita payments to 
tribal members, including the establishment of trust 
funds for minors; 

- jobs: employment of tribal members, non-members and non- 
Indicins within the gaming facility as well as other 
tribal enterprises. 

Studies conducted on the economic impact of Tribe-owned gaming 
enterprises in Minnesota, Michigcin, Wisconsin emd New Mexico 
indicate that the rapid growth of employment attributed to these 
facilities has reduced the burden on government assistemce 
progreuns. The studies are provided with this statement. 

Tribe-owned gaming brings economic enhancement to Indian and non- 
Indicin communities emd results in increased State emd local income 
tcuces from the salaries, increased sales teuces paid for goods and 
services, emd entrepreneurial profits resulting from the increased 
sales by businesses located in eind aroxrnd the geuning facilities. 
Additionally, the per capita payments made to individual tribal 
members are subject to Federal income tcuces. This income also 
filters back into the community through the purchase of goods emd 
services from the local businesses. 

Memy Tribes see geuning as an effective means of generating revenue 
for tribal governments. As a matter of Federal Policy, the 
Department of the Interior supports Tribe-owned gaming as a viable 
economic development opportunity. This concludes my statement. 



98 



Congress of the Bnited States 

ftousc of KEprescntatiOES 

mi CongrtBS 
Committee on 3mall jBosiness 

2361 llaDlrani fumt OfTux jEnilding 
WaJhingtDn, ©£ lojij-Hii 

November 28, 1994 



JAN MEYERS. Kaniu 



BY FACSIMILE AND PERSONAL MAIL 



Mr. Amold Hewes 

Minnesota Restaurant, Hotel & Resort Assoc. 

871 Jefferson AVE 

St. Paul, MN 55102-2894 

Dear Mr. Hewes: 

As you know by now, the hearing of the Small Business Committee scheduled for 
Monday, November 28, has been canceled. As I continue to explore the issue of Indian gaming 
outside of the hearing forum, I am writing to request that you submit a statement to the Small 
Business Committee, along with relevant documents, outlining your organization's perspective 
and concerns related to this important issue. 

As in our September 21 hearing on casino gambling, I am interested in exploring both the 
impact of casinos--on small businesses, communities, and the nation as a whole-and the 
regulatory structure that seeks to control the more harmful aspects of gambling. I would be most 
interested in hearing your perspective on Minnesota's experience with Indian gaming, and 
particularly its impact on small businesses and communities surrounding the tribal casinos. 

As you well know, gambling is a unique recreational activity that brings with it costs and 
benefits not associated with other forms of entertainment. My overriding concern is that all 
parties responsible for the regulation of gambling are sensitive and responsive to the costs of 
gambling, in social and economic terms. To this end, I would like to collect and disseminate as 
much quality information, research, and advice on this issue as possible. I hope you will be able 
to help me in this effort. 



99 



Please send your statement addressed to me at the Committee by Friday, December 2. 
If you have questions or will not be able to submit a statement, please contact Mr. Scott Morris 
at the Committee. Thank you. 



Sincerely, 




J. LaFALCE 
Chairman 



JJL:sm 




100 



UPPER MIDWEST HOSPITALITY, INC. 



871 Jefferson Avei, St. Paul MN 55102 Phone (61 2) 222-7401 

December 6, 1994 



Chairman John LaFalce 
U.S. Bouae Coamlttee on Small Businaaa 
2361 Rayburn Bouae Office Building 
Waahington, DC 20515-631S 

Dear Congreaaman LaFalce i 

I %«ould lilce to atart by thanking you for the invitation to teatify 
before your committee regarding the iaaue of tribal caaino gaming. It was 
unfortunate that the hearing had to be cancelled. Aa President of the 
nearly 3,000 members that make up the Minnesota Restaurant, Botel and 
Reaort Asaociationa, I felt it was a golden opportunity to share with you 
the reaults of a gambling aurvey we conducted. 

As you may know, the growth of gambling in Minnesota has grown at an 
extraordinary rate. Thia *new' industry to the state represents more than 
$6 billion in wagering. Since the Indian Gaming Act of 1988 was signed 
into law 17 tribal casinos have opened in our atate. Theae casinos 
combined represent over $4 billion in annual wagering. 

This means the gambling industry has surpaaaed our $6 billion 
hospitality and tourism industry, and is dramatically hurting the 
businesses we represent. The loss of significant diacrationary leisure 
dollars that used to be spent on family vacationa, reataurant meals and 
retail shopping are now being directed toward slot machines and blackjack 
tables. 

The casinos, in most cases, are also in direct competition with food 
and lodging establishments by offering low cost buffets and inexpenaive 
hotel/motel rooms. They are able to subsidise these costs with gambling 
profits and much more favorable tax laws and regulations which put them at 
a significant economic advantage over the private sector. 

Our survey results support these statements. The following are the 
■Mjor conclusions t 

* Minnesota's hospitality businesses are being negatively impacted by 
gaaibling. 

• Jobs are being lost- seven times faster than they are being created 
in the private sector of the hospitality industry. 



101 



* Our monbers are overwhelmingly opposed to tribal casinos opening 
restaurant, hotel and resort businesses. 

* Gambling is having a negative impact on local communities. 

* The industry is divided over the question of either expanding or 
eliminating all forms of gambling. 

The bottom line is that our hospitality industry is being severely 
impacted by the rapid growth of tribal gambling and its effects are 
becoming more apparent. Some method of creating a level playing field 
needs to be created. This must be addressed by Congress because state 
governotents are virtually powerless when it comes to Indian gaming. 

I would like to thank you very much for your time. We are currently 
in the process of updating our survey results, and will be pleased to share 
them with you and your committee as soon as we have the results back. 

Sincerely, 



^]jZxA, lU-uoi^-^ 



Arnold J. Hewes 
President 



AJH/dtd 

Enclosures: Executive Summary 
Press Release 



102 




News Release 



MINNESOTA RESTAURANT, HOTEL AND RESORT ASSOCIATIONS 

871 JeflFerson Avenue, St Paul, Minnesota 55102 Telephone: (612) 222-7401 



FOR IMMEDIATE RELEASE FOR MORE INFORMATION CONTACT: 

Wednesday, January 1 3, 1 993 Arnold ]. Hewes, Executive Vice President 

(612)222-7401 



MINNESOTA'S RESTAURANTS, HOTELS & RESORTS ARE 'LOSERS' 
IN GAMBLING EXPLOSION, SURVEY RESULTS REVEAL 

Minnesota's restaurants, hotels and resorts are being hurt by the current gambling explosion, according to 
the results of a comprehensive survey conducted by the Minnesota Restaurant, Hotel & Resort Associations — 
Minnesota's Hospitality Organization. 

Customer counts are down, sales volumes are declining, jobs are being eliminated and future business 
will be harmed, members of the three associations said in their record-breaking response. 

A total of 908 members (45%) of the Associations' more than 2,000 member businesses returned the 
survey, an unprecedented indication of interest in a single subject. 

Because of multiple ownership, the three associations represent more than 2,300 hospitality business units 
in Minnesota. The vast majority of these are small, family-owned and operated businesses. Of those respond- 
ing to the survey, 76% have fewer than 50 employees and 50% have fewer than 1 5 employees. 

Seven major conclusions can be drawn from the survey and they are as follows: 

1 . Minnesota's restaurants, hotels and resorts are being negatively impacted by gambling. 
Business has been lost and future business will be hurt. 

Nearly four of every 10 members (38%) say business has been lost due to gambling, while only one of 
every 10 members (10%) say business is up because of gambling. Casinos are cited by 70% as the primary 
reason for these changes. 

Looking to the future, 53% say business will decline due to gambling, 32% say they expect no change 
and only 10% say business will be up because of gambling. 



103 



when asked about the negative aspects of gambling most affeaing their business, 62% cited the loss of 
discretionary recreation dollars and 47% said there is an unlevel playing field. 

2. Jobs are being lost seven times faster than they are being created in the private sector of the 
hospitality industry. 

A total of 1 80 members say they have eliminated nearly 1 ,1 00 jobs due to gambling, while 1 6 members 
say they have created nearly 1 50 jobs. Projecting these survey results to the entire membership, a strong case 
can be made that more than 2,200 jobs have been lost because of the rapid growth of gambling, while only 
300 have been created. 

As for the state's entire hospitality industry. It would seem likely that several thousand more jobs have 
been lost, primarily in the restaurant industry, where more than half of the job loss has occurred. 

3. Restaurant, hotel and resort owners are overwhelmingly opposed to casinos entering the 
restaurant, hotel and resort business. 

A total of 84% said they are opposed to the casinos entering the restaurant, hotel, motel, resort and 
conference center industries, with 53% being strongly opposed. Thirteen percent did support these ventures, 
however. 

Members' feelings were quite strong in this area, often citing the inability to compete with casino buffets 
and lodging rates. The unequal taxation policies of the private sector compared to the casinos also were 
mentioned frequently. 

4. Gambling is having a negative impact on local communities. 

Slightly over half the respondents (51%) say gambling is having a negative affect on their community, 
while only 1 1 % say it is positive. Fourteen percent say gambling is having no impact and 24% say they don't 
know. 

5. There is enthusiastic support for charitable gambling, but little support for riverboat 
gambling. 

Charitable gambling was supported by 56% of the respondents, opposed by 26%, while 18% had no 
opinion. Riverboat gambling was opposed by 58%, supported by 23%, while 19% had no opinion. 

6. On the controversial subject of video lottery, the hospitality industry and the three associa- 
tions have mixed views. Hotel Association members support the concept. Restaurant Association 



104 



members are evenly divided and Resort Association members oppose it. 

When asked if they would support legislation to legalize video lottery machines in Minnesota, the three 
associations responded as follows: 



Association 


F9vor 


Oppose 


No 


Opinion 


Hotel Association: 


49% 


35% 




16% 


Restaurant Association: 


43% 


42% 




15% 


Resort Association: 


28% 


58% 




14% 



Because current legislative proposals would authorize video lottery machines only in establishments 
with on-sale liquor licenses, this subject was evaluated in regard to the views of those with such licenses. 

It was determined that 36% of the respondents in the three associations have liquor licenses and that 57% 
favor video lottery and that 53% would actually install the machines, if legalized. 

Over half of the total resjx>ndents (56%) said video lottery should be opened up to businesses without on- 
sale liquor licenses. Twenty six percent said it should be licensees only, while 1 8% had no opinion. 

7. Minnesota's hospitality industry is literally split right down the middle over the question of 
allowing gambling for all businesses or eliminating all forms of gambling in the state. 

When given the choice of opening gambling to all businesses in the state or eliminating all forms of 
gambling in Minnesota, the result was as follows: 37.5% of the respondents wanted to open it up, 37.4% 
wanted to eliminate it and 25.1% had no opinion. 

The results of this survey will be used by the Associations' loint Legislative Committee as it formulates 
policy in all areas of gambling for the 1993-94 session of the state legislature. 

The membership breakdown of Minnesota's Hospitality Organization is as follows: 

Minnesota Restaurant Association— 1 ,100 members with 1 ,400 units 

Minnesota Hotel & Lodging Association — 1 60 major properties with nearly 25,000 guest rooms 

Minnesota Resort Association — 725 resorts 

Collectively, the three associations are the largest, private sector hospitality organization in Minnesota, 
accounting for the vast majority of the industry's economic impaa. The Associations are managed by a profes- 
sional staff of 1 6 and are headquartered at 871 Jefferson Avenue, St. Paul. 



105 



Minnesota Restaurant, Hotel & Resort Associations 

Minnesota's Hospitality Organization 

Gambling Survey Executive Summary 



The following are the results of the Minnesota Restaurant, Hotel and Resort Associa- 
tions' gambling survey conducted late last year. The Associations received an 
unprecedented respor«e. From the more than 2,000 surveys sent out, 908 were 
returned, giving us a 45% rettirn rate. 

The majority of responses came from small businesses (consistent with our Associa- 
tions' membership) — 76% of survey respondents have fewer than 50 employees 
(50% have fewer than 15 employees). 



CONCLUSIONS 

#3) Minnesota's hospitality businesses are being negatively impacted by gambling. Business 
has been lost and future business will be hurt. 

• 4 out of 10 respondents said that their business has been hurt, or more precisely, 
38% say they have lost business and 10% say business is up. The form of gambling 
most attributed to these changes are the tribal casinos at 70%. 

• Our members predict that the chance of losing business in the future is five times 
greater than that of gaining business. 53% say future business will decrease, 32% 
say there v^dll be no change and 10% say it will increase. 

• 62% of the respondents say that the negative aspect of gambling most affecting 
their business is the loss of discretionary dollars and 47% say there is an unlevel 
playing field. 

#2) Jobs are being lost seven times faster than they are being created in the private sector of 
the hospitality industry. 

• 180 of our hospitality industry members have elinunated 1,061 jobs, while 16 have 
created 142 jobs. This produces a net loss of 919 jobs from 45% of our member- 
ship. 

#3) The respondents are overwhelmingly opposed to casinos entering the restaurant, hotel 
and resort business. 

• 84% are opposed to casinos entering the restaurant and lodging business (53% are 
strongly opposed), while 13% support these ventures. 



106 



#4) Gambling is having a negative impact on local communities. 

• 51% say that gambling is having a negative affect on their community, while only 
11% say that it is positive. 

#5) There is enthusiastic support for charitable gambling, but little support for riverboat 
gambling. 

• 56% support charitable gambling, 26% oppose it and 18% have no opinion. 

• 58% oppose the introduction of riverboat gambling, 23% support it and 19% have 
no opinion. 

#6> The hospitality industry has mixed views regarding video lottery. 

\/ Hotel Association members support video lottery (49% favor/35% oppose). 

• Restaurant Association members are split (43% favor/42% oppose). 

• Resort Association members oppose video lottery (28% favor/58% oppose). 

^ Over half of the total respondents (56%) said video lottery should be opened up to 
businesses without on-sale liquor licenses. 26% said it should be licensees only, 
while 18% had no opinion. 

• 36% of our members responding to the survey have liquor licenses. 57% of these 
businesses favor video lottery and 53% would install the video lottery terminals if 
they are legalized. 

#7) The hospitality industry is evenly divided over the question of allowing gambling for all 
businesses or eliminating all forms of gambling. 

• When given the choice of opening gambling to all businesses in Minnesota or 
eliminating all forms of gambling; 37.5% (335 members) wanted to open it up, 
37.4% (334 members) wanted to eliminate it and 25.1% (224 members) had no 
opinion. 



For Additional Information Contact: 

Arnold J. Hewes D. Thomas Day David Siegel 

Executive Vice President Government Affairs Specialist Communications Director 



Minnesota Restaurant, Hotel and Resort Associations 
Minnesota's Hospitality Organization 

871 Jefferson Ave. 

St. Paul, MN 55102-2894 

Phone: (612) 222-7401 



107 

SELECTED COMMENTS FROM SURVEY RESPONDENTS 
Business and Jobs 

"The most frequently heard comments from our customers are, 'We were going to order full dinners but we 
stopped at the casino on our way up north.' If the conversation continues they explain the quality of food they get 
for a few dollars which we can't possibly compete rvith or they've already 'dropped' their money at the casino and 
have less to spend at our business and community." 
"I may be out of business before any changes can be made by our state legislaturelgovemor." 

"In one area of less than 4 sq. blocks, 6 restaurants have closed. There is a problem and unless we do something 
now, we'll all be working at the casinos." 

"Why legalize gambling for a special interest group?" 

"It is about impossible for regular businesses to survive next to a gaming resort. Most small operators vnll not be 
here in five years. Check Las Vegas and Reno. Once they move into the metro area, we will all eat lunch in a 
casino as the price will be cheap." 

Unfair Competition 

"Haw can I compete toith casinos who offer a bus trip to Morton for $5 and $30 of sUver to play with, plus a 
coupon worth $5 to eat on! Thanks for nothing from our slate govemmenVZ — 

"Casinos are dramatically hurting most restaurants around us. As they start building motels this mil hurt the ■ 
resorts as the casinos don't need to make a profit on food or rooms AND are not taxed. We are looking at building 
a restaurant as a customer service knounng we can't compete with the Iruiians, but we need it to compete." 

"We simply cannot compete with tribes who can afford to pay double the wages to staff, charge half of what we do 
for meals, etc." 

Video Lottery 

"Video lottery would further erode the image of MN as a wholesome vacation area. Secondly, it wouldn 't create a 
'level playing field.' Establishments without on-sale liquor would be at a disadvantage. The Associations' efforts 
should be directed toward legislation allowing the state to tax the casirws." 

"I firmly believe that all Minnesota businesses and taxpayers should be allowed to have legalized gambling. It 

would create more jobs, bettering the economy for everyone and give everyone the right to choose their own right 

to utilize all the benefits that would come from within!" 

"I just moved herefrom South Dakota. Go there and see what video lottery machines have done to the restaurant 

business. Too bad, too!" 

'The positive effect that Utilized gambling would have on my establishment would be equal to or greater than the 

negative effect that dumging the drinking age had on my property." 

'I feel strongly that video gambling should be available to all businesses, not just on-sale tiquor." 



108 



Congress of the lanitcd States 

tlouse or KeprtsentatititB 

io)d eongrtu 

Committee on ^mall jBostness 

iw Haglrom Htmt 0fT)ce Vmlding 

V)astiingtoti, BC 205i5-n)5 

November 28, 1994 



JAN MCYERS. Kansu 



BY FACSIMILE AND PERSONAL MAIL 



Ms. Christine Milliken 
National Association of Attorneys General 
444 North Capitol Street, Suite 339 
Washington, DC 20001 

Dear Ms. Milliken: 

As you know by now, the hearing of the Small Business Committee scheduled for 
Monday, November 28, has been canceled. As I continue to explore the issue of Indian gaming 
outside of the hearing forum, 1 am writing to request that you submit a statement to the Small 
Business Committee, along with relevant documents, outlining your organization's perspective 
and concerns related to this important issue. 

As in our September 21 hearing on casino gambling, I am interested in exploring both the 
impact of casinos-on small businesses, communities, and the nation as a whole— and the 
regulatory structure that seeks to control the more harmful aspects of gambling. I would be most 
interested in hearing the National Association of Attorneys General perspective on the regulatory 
issues that have arisen since enactment of the Indian Gaming Regulatory Act, as well as your 
members' viewpoint on the impact of the casinos on communities in the vicinity of the 
reservations. 

As you well know, gambling is a unique recreational activity that brings with it costs and 
benefits not associated with other forms of entertainment My overriding concern is that all 
parties responsible for the regulation of gambling are sensitive and responsive to the costs of 
gambling, in social and economic terms. To this end, I would like to collect and disseminate as 
much quality information, research, and advice on this issue as possible. I hope you will be able 
to help me in this effort 



109 



Please send your statement addressed to me at the Committee by Friday, December 2. 
If you have questions or will not be able to submit a statement, please contact Mr. Scott Morris 
at the Committee. Thank you. 



Sincerely, 




J. lWlce 



JJL:sm 



no 



Christine T. Millken 

Euculivc Director 
General Comuel 



National association of attorneys General 

444 North Capitol Street SuriE 339 

Washington. DC 20001 

(202) 434^053 
(202) 434-8056 FAX 



November 29, 1994 



Honorable John J. LaFalce 
House of Representatives 
Committee on Small Business 
2361 Raybum House Office Building 
Washington, D.C. 20515-6315 




President 
Charles w. burson 

Aaomey General of Tennessee 

president-elect 
Tom Udall 

Ttaomry General of New Mexico 

'ICE President 
'. corr Harshbarger 

/ oomey General of fdassachuseas 

.imediate Pact President 
] [UBERT H. Humphrey m 

/ ttomey General of Minnesota 



Dear Mr. LaFalce: 

In response to your letter of November 28, 1994, I am enclosing the most recent 
statement by NAAG on Indian Gaining. Attorney General James Doyle, Chair of the 
Association's, IGRA Task Force, presented the Task Force's views in July to Senator Inouye's 
Committee. The testimony endorses a strong regulatory r^me as being essential to protect 
consumers and employers alike. Since that time the Association has not met and has not had 
the opportunity to further comment on this area. 

I have previously sent the Committee a number of other materials on gaming in general 
including a resolution passed by the Association in support of a national study of gaming. 

Since July a recent court decision, Runuey Indian Rancheria v. Wlson (Calif.) F.3d 

has clarified many of the key issues related to the scope of gaming. The 9th Circuit has ruled 
that "IGRA does not require a state to n^otiale over one form of a gaming activity simply 
because it has legalized another, albeit similar form of gaming*. The Court reversed the portion 
of the District Court decision (No. S-92-812-GEB-JFM (H.D. Cal.), which had required 
California lo negotiate over slot machines cvoi though slot machines and other gambling devices 
are qjecifkally prohibited under California law. The 9th Circuit agreed with the 8th Circuit 
decision in Cheyeime River Sioux Tribe v. South Dakota, 3 F.3d 273 (8th Cir. 1993), that the 



( 



Ill 



"plain meaning" of IGRA was that "a state need only allow Indian tribes to operate games that 
others can operate, but need not give tribes what others cannot have." The Court specifically 
rejected application of Cabazon's "prohibitory/regulatory" test to determination of what is 
negotiable under IGRA. 

I hope this material is of assistance to the Committee. 

Sincerely, 



CTMrvdj 
Enclosure 
cc: Attorney General James Doyle 




112 



TESTIMONY OF 



THE HONORABLE JAMES E. DOYLE 

Attorney General of the State of Wisconsin 

Chair, National Association of 
Attorneys General IGRA Task Force 

BEFORE THE SENATE COMMITTEE ON INDIAN AFFAIRS 

Good afternoon, Chairman Inouye, Vice Chairman McCain and members of the 
Committee. I appreciate the opportunity to appear before this committee today on behalf 
of the National Association of Attorneys General and as Chair of the IGRA Task Force 
to discuss the states' perspective on the Indian Gaming Regulatory Amendments Act of 
i994, recently introduced by Senators Inouye and McCain. 

As you know, as chairman for the National Association of Attorneys General 
Gaming Working Group, on July 2, 1993, I attended a meeting of states and tribes at the 
invitation of Senator Inouye and Senator McCain. As I indicated then, the attorneys 
general support the concept of tribal economic development, self-sufficiency and 
sovereignty. We are grateful to Senators Inouye and McCain for their efforts in 
attempting to reach a consensus bill between the tribes and the states. I am aware that 
Governor Sullivan addressed the Committee last week and expressed his view that the 
governors came to the tabl& believing that clarification of the law would reduce the costly 
and divisive litigation over several ambiguities and accomplish a speedier process for 



113 

obtaining compacts for the tribes. NAAG participated along with the governors in an 
attempt to draft a bill which met those objectives. Our talks, while not resulting in full 
consensus, were successftil in developing a better understanding of the myriad and 
difficult issues posed by legalized gaming. The NAAG task force believes this bill 
carries us all forward and accomplishes many of the goals of the process initiated by the 
senators. We do believe there are still some areas of this bill which can be improved or 
need clarification, however we believe that those problems can be overcome. 

THE INOUYE-McCAIN AMENDMENTS 

The essence of the compromise proposed and explored at length by the negotiation 
process sponsored by Senators Inouye and McCain was a concession by the states of their 
Tenth and Eleventh Amendment defenses, defenses which Governor Sullivan 
characterized as a significant sacrifice of the states' own sovereignty, in return for an 
expedited process through which tribal governments could achieve Class in gaming 
compacts within a reasonable time. The compromise also envisioned an alternative form 
of relief for tribes which were unable to achieve a compact through negotiation with the 
states or where states wished to stand on their Tenth and Eleventh Amendment defenses. 
On the states' side, the clarification of the scope of gaming, which would more clearly 
define the gaming activities which would be subject to negotiation, would establish a 



114 

threshold based on state law beyond which the governors would not be forced to 
negotiate. This legislation places that goal within reach. There is much in this bill that 
both tribes and states find of real value. However, given the nature of congressional 
hearings and the time constraints we are under, I have focused my remarks on those key 
provisions where we have suggestions for change. I will address several areas of specific 
concern and suggest specific changes which we believe will aid this bill in accomplishing 
its goals. In addition, I have appended to my written testimony a further description of 
these suggested amendments as well as a broader itemization of technical changes to the 
bill which are desirable. These technical changes are not as closely tied to policy 
concerns as those I will now address, and therefore I will not mention them specifically 
today. 

RArKaROIIND CH ErKS AND LICENSING 

One of the states' primary concerns regarding the bill as proposed is the exclusivity 
of licensing powers provided to the commission. The states are pleased that the 
Commission will play some role in licensing but we disagree with the proposal that the 
Commission have exclusive authority. States cannot have any effective regulatory role 
in Class III gaming without the ability to license gaming-related contractors. 



115 

As recognized by the original act, and put into practice by many states, states have 
a high level of interest in regulating gambling within their own borders. The gambling 
activity which occurs on Indian lands within a state cannot be viewed as separate from 
the state itself. 

The states support the establishment of minimum federal standards for background 
checks and licensing of gaming-related contractors. However, we would propose that in 
cases where states and tribes through the appropriate compacting process agree to 
standards that meet or even exceed the federal standards, the states and tribes be allowed 
to perform these functions themselves. As part of our proposed modification, we would 
require the state to certify their licensing information to the Commission. The 
Commission would then provide that information to other states where an applicant may 
wish to be licensed. 

This would eliminate the duplication of efforts which is so common under the 
current system, often burdening both the states and the licensees, while also facilitating 
greater communication and information sharing between the states who are in contact with 
individual licensees. Similar cooperative licensing schemes have been successful in other 
regulatory areas such as railroad safety and environment. 

Many states, including my own, have already created the regulatory structure to 
license gaming-related contractors after thorough background checks. States can perform 
this task more efficiently and at less cost than a federal agency. States, having closer 



116 

physical proximity to the tribes, can more effectively monitor and review the activities 
associated with gaming- related contractors on a day-to-day basis. 

GAMING SERVICE INDUSTRIES 

The states support the commission's establishment of minimum licensing standards 
for major gaming service industries. This can be an effective tool for keeping organized 
crime and other illegal influences out of the casinos. Again, the exclusivity of 
commission licensing authority in this area is an issue of concern for the states, just as 
in gaming-related contractor licensing. These industries can have a major influence on 
the operation of casinos, and without effective regulation, they could become major 
conduits for money laundering and tax evasion within the casinos. If used wisely, the 
Commission could effectively close another potential trouble spot within the tribal 



REVIEW OF EXISTING COMPACTS 

The process by which existing compacts are brought into compliance with the 
amendments appears to allow tribes to unilaterally create their own new regulations 
without state involvement. This violates one of the core concepts upon which the current 



I 



117 

compacts were based, that being that the state and tribe together agree as to the roles of 
their respective governments in the regulation of Class III gaming. 

The provision should allow renegotiation of those specific portions of the compacts 
which the Commission finds do not meet the requirements of the act, unless the tribe and 
the state together agree to broader negotiations. 

SCOPE OF GAMING AND THE COMPACT PROCESS 

GAMING CATEGORIES 

As I indicated earlier, from the states' perspective the essence of the compromise 
was the avoidance of Tenth and Eleventh Amendment defenses in return for a more 
definitive scope of gaming. We believe the bill accomplishes the goal of avoiding the 
states' Tenth and Eleventh Amendment defenses. The states are not required to negotiate 
against their wishes. Where the states choose not to waive their Eleventh Amendment 
immunity and join the compact process, the bill provides the tribes with the speedy 
alternative of negotiating a compact with the Secretary of the Interior, based on state law. 

We do perceive some problems with the scope of gaming portions of the bill. 
First, the states' proposed language required that, in order for a gaming activity to be 
subject to negotiation, a gaming activity be in the same category as a legal gaming 
activity. That language was moved firom where we recommended it be placed. The 



118 

placement in the current bill is such that it may not now accomplish the purpose which 
was intended. Our proposed language sought to require a state to negotiate only on a 
game which, even though prohibited as a matter of that state's criminal law, is not 
distinguishable from a gaming activity that is not so prohibited, and there is no rational 
basis for differentiating between the games. The bill then categorizes various gaming 
activities which "are distinguishable from each other." These include gaming devices, 
lottery games, banking games, pari-mutuel wagering and other games of chance. 

The current structure seems to lend itself to the argument that any games within 
a particular category are, as a matter of law, indistinguishable ft-om one another. This 
"any equals all" argument was the genesis of much of the litigation under the current 
IGRA. Let me illustrate this problem. If a scratch-off lottery game is permitted in a 
state, the argument can be made that other lottery-type games, such as Keno, are 
indistinguishable in its principal characteristics from the scratch-off game because they 
both come from within the lottery category of gaming. Thus, if any gaming activity 
within the lottery game category is allowed, the state must negotiate on all gaming 
activity within the lottery game category. 

While this is an improvement on the current state of affairs because it narrows the 
number of games which will be disputed, it does not entirely avoid the dispute, which the 
working group views as a desirable goal and one which will further the overall goal of 
avoiding costly and divisive litigation. The intent of the states' language was to use the 



I 



119 

definitions of "principal characteristics," contained in tiie bill to distinguish games within 
each gaming category. As an example, if a state prohibited seven card stud poker as a 
matter of criminal law but did not prohibit five card stud poker, the state would be 
required to negotiate both forms of stud poker unless a rational basis existed for 
differentiating the two games. It was not intended that, if a state did not criminally 
prohibit gambling on bridge, the state would be obliged to negotiate stud poker because 
both are within the category of "other games of chance." 

SLOT MACHINES 

There is also a drafting issue associated with the definition of slot machines and 
gambling devices. The definition of slot machines is not included in the definition of 
gambling devices. We believe that the definition of gambling devices should include the 
bill's definition of slot machines. 

The definition of slot machines may not cover the traditional slot machines because 
of their uses of reels and drums rather than random number generators. 

The definition of gambling device relies solely on the Johnson Act definitions, 15 
U.S.C. § 1 171(a)(2) or (3), and includes "any electronic or electro-mechanical facsimile." 
As currently drafted, the terms "electronic or electro-mechanical facsimile" will most 
likely be read to include electronic and electro-mechanical facsimiles of the gambling 
devices defined in § 1 171(a)(2) and (3). If this is the case, certain games such as video 



120 

poker, video Keno and video pull-tabs, which may not come within the § 1171 
definitions, may escape coverage. The attorneys general suggest that the phrase "of any 
game of chance" be added after "electronic and electro-mechanical facsimile." This 
terminology appears in the current act and would seem to avoid the problem. 

We also note that the exclusion in the definition of Class II games contained in 
Section 4 (5)(B)(ii) excludes gaming devices as "defined in Section (l)(a)2. or Section 
(l)(a)3. of [the Johnson Act] or slot machines of any kind." The working group believes 
it would avoid further litigation to use "gaming devices as defined in this act or slot 
machines as defined in this act" rather than reliance on the Johnson Act language or "slot 
machines of any kind" as currently formulated. 

CONSTITUTIONAL GAMBLING PROHIBITIONS 
The provision in the amendments which makes "games not prohibited as a matter 
of state criminal law" subject to negotiation neglects to recognize that some states have 
prohibited specific games through the use of self-executing constitutional provisions. 
These types of prohibitions are a stronger statement of the state's public policy than state 
criminal law, but the ambiguity of that provision may make such games subject to 
negotiation under the amendments as currently drafted. 



121 

SOCIAL GAMING 

The attorneys general have a concern over the definition of social gaming which 
I know was of concern to the governors also. The bill's definition of social gaming is 
narrower than current state social gaming laws. We see two solutions to this problem. 
The first is to provide a period of time for the states to conform their statutory definitions 
of social gaming with that definition in the bill. The second solution is to broaden the 
definition in the bill so that it is consistent with most state social gaming laws. 

The attorneys general are also concerned with the inclusion of "nominal" amounts 
as a requirement for social gaming. "Nominal amount" is undefined and consequendy 
will be quite difficult to enforce. The attorneys general believe that such an undefined 
term will foster an additional wave of litigation to determine what amounts are "nominal. " 

ASSESSMENTS FOR LOCAL GOVERNMENT INFRA-STRUCTURE COSTS 

When I spoke to the chairman and vice chairman in May regarding the need for 
amendments to the current act, I stressed the increased burdens which have fallen on local 
governments in dealing with the advent of Indian gaming. I am happy to see that the bill 
makes clear that the negotiation process is an appropriate forum for negotiating tribal 
contributions to the costs of Indian gaming's impact on local government infra-structure. 



122 

The attorneys general strongly support the inclusion of this language. We thank the 
senators for responding to our plea for assistance in this regard. 

INDIAN LANDS DEFINITION 

The bill currently lacks a definition of Indian lands. Since the current definition 
section will be repealed, this will leave the act without any definition of Indian lands. 
We strongly recommend that a definition of Indian lands be inserted in the new definition 
section. 

I would like to take this opportunity to point out a concern of some of the states 
regarding the current definition of Indian lands. The current definition divides Indian 
lands into two distinct categories: (1) Indian reservations and (2) other lands to which 
the tribes or individuals of the tribes own the fee or which is held in trust for their 
benefit. This latter group requires the Indian tribe "exercise governmental power" over 
the land. Many of the western states contain Indian reservations with substantial portions 
of land owned in fee by non-Indians. These states are concerned that, by including all 
lands within Indian reservations without regard to whether the tribe exercises 
governmental power over that land, some of the non-Indian land within the reservation 
boundaries will be used for gaming. We therefore recommend that the requirement that 
the Indian tribe exercise governmental power be made to apply to both categories in the 



123 

bill. This can easily be accomplished by inserting, after the word "means" in the current 
definition, the phrase "lands over which an Indian tribe exercises governmental powers 
and;" deleting the term "all lands" in the first category (§ 2703(4)(A)); deleting the term 
"any lands" in the second category (§ 2703(4)(B)); and inserting a period after the word 
"alienation" at the end of the second category. 

AFTER ACQUIRED LAND 

The attorneys general join the governors in expressing a concern over the current 
after-acquired land section. Under the current act, the governor of the state in which the 
gaming is to be conducted must concur in the Secretary's decision to allow gambling on 
after-acquired lands, /. e. , those lands acquired after the enactment of the Indian Gaming 
Regulatory Act of 1988. The bill requires the Secretary, in deciding whether to allow 
the land to be used for gambling purposes, only to review the recommendation of the 
governor of the state in which the gaming is to be conducted. The deletion of the 
governor's authority to concur was apparently occasioned by the opinion of the district 
court in Confederated Tribes of Siletz Indians v. United States, 841 F. Supp. 1479 (D. 
Or. 1994). In that case the district court held the current language unconstitutional as 
violating the Appointments Clause and separation of powers principles. 



124 

In my state this issue seems to be the issue of most concern for non-Indian citizens. 
It is the issue over which my office receives the most citizen inquiries dealing with Indian 
gaming. Many of these inquiries come from citizens who support Indian gaming on the 
reservations and other Indian owned land. However, these individuals view the ability 
of a tribe to acquire land in a wholly new location far from its reservation as an intrusion 
into the state's public policy. The lack of a consent by the state through its governor 
opens a door to wholesale gaming in a state which has made a conscious choice to limit 
the expansion of gaming such as Wisconsin. 

I point out that this problem is not limited to states with Indian tribes. At a point 
several years ago, developers and entrepreneurs in the Chicago area proposed that a 
Wisconsin tribe acquire land in downtown Chicago for the purpose of establishing a 
gaming facility. The state of Illinois is a state without any Indian tribes and which 
consequently had no established policy concerning Indian gaming. While the state of 
Illinois eventually decided to modify its own public policy to allow casinos, the situation 
there was instructive. The after-acquired section in its current form could have allowed 
a trust decision on after-acquired land in a state without any Indian tribes and without the 
consent of the state through its governor. Thus, Illinois would have been required to 
negotiate an Indian gaming compact with a Wisconsin tribe without regard to Illinois' 
consent. We believe this is not good public policy and is certainly, as the governors have 
expressed, unacceptable to the states. While we disagree with Siletz, we have included 



125 

a specific proposal in the appendix to address the concerns raised in Siletz and allow state 
consent through the governor. The proposed language is based on the seventeenth clause 
of Art I., Section 8 of the Constitution and the fact that the Secretary must make an 
affirmative finding that the state has consented before he may exercise his discretion. 

"GRANDFATHER CLAUSE" 

The section defining that Class III gaming activities lawful at the time of enactment 
of this act are lawful for the purpose of determining the scopw of gaming, is ambiguous, 
and invites the continuation of litigation where tribes are currently contesting states' 
interpretations of what state law presently provides. Rather than applying the new scope 
of gaming standards, this provision appears to propagate the previous problems associated 
with scope of gaming issues. 

CHANGE TN STATE LAW 

The bill does not address the effect of state law changes on existing compacts. The 
attorneys general believe the bill should make some provision for this possibility. 



126 

CONCLUSION 

With the inclusion of the changes I have outlined, the National Association of 
Attorneys General will be able to endorse this bill. In closing let me again express my 
thanks and those of my colleagues for the Chairman's persistent leadership on this vital 
issue. We have come a long way in a year's time. 



127 



State Recommendations 
Indian Gaming Regulatory Act Amendments Act of 1994 

(References are to pages, lines and sections of S.2230 dated June 23, 1994) 

Substantive Comments: 

Scope of Gaming 

Slot machines and gaming devices 6:13-16 (Section 4(5)(B)(ii)) 

7:20-24 (Section 4(11)) 
11:14-12:4 (Section 4(26)) 

Subsection (B)(ii) excludes from the definition of Class II gaming all "gambling devices 
as defined in [15 U.S.C. 1171(a)(2) or (a)(3), the Johnson Act]" and "slot machines of any 
kind". By breaking up the provisions of section 1171(a), and providing an independent 
definition of slot machines from that used in the Johnson Act, the Amendments Act creates the 
possibility of inconsistent court decisions and extended litigation over the intent of the 
amendments. The states recommend that this section simply read: "gambling devices as defined 
in section 1(a) of the Act of January 2, 1951 (15U.S.C. 1171(a)". That language would include 
all slot machines, as defined by the extensive litigation history of the Johnson Act. 

The practical concern is with video analogues of slot machines. While they are usually 
considered as falling within the definition of section 1 171(a)(2) of the Johnson Act, there is room 
for other arguments, and litigation over such issues could spill over into IGRA negotiations and 
litigation. If machines such as video poker, video keno or video pull-tabs could be asserted to 
be traditional section 1171(a)(1) slot machines in Johnson Act terms, then advocates of their 
expanded use could also assert that such devices fall outside the Amendments Act's limited 
definition of slot machines and thus are either unregulated or only covered as "other games of 
chance". 

However, if the Amendments Act continues to separate gambling devices from slot 
machines, and subsection 1171(a)(1) from the other provisions of the Johnson Act, changes 
should be made to the definition of "slot machine" to avoid problems. As drafted, to be a slot 
machine, a device must have a system of generating "infinite random numbers" and must reward 
the operation of the device "solely on the basis of chance". "Infinite" and "solely" should be 
deleted. The problem with "infinite" is that any system with any limitation on its method of 
random number generation could be argued to be outside the Act's coverage. Thus, even a 
traditional slot machine with a reel or drum has a finite number of possible outcomes, since 
there is a finite number of symbols on the reel or drum. The problem with "solely" is that the 
addition of any element of choice in the playing of a gambling device, such as selecting which 
cards to retain in video poker, would likely result in a ruling that the machine did not rely solely 
upon chance. As noted, such changes would be unnecessary if the preferred recommendation 
concerning the original Johnson Act reference is adopted. 



128 



Definition of Slot Machine 88:8-16 (Section 10(a)(7)(D)) 

While the states recommend that slot machines be included within the definition of 
gambling devices, as ouUined above, if the definition of "slot machine" remains separated from 
other Johnson Act gambling devices, it should be included in Section 10(a)(7)(D) as a major 
category of gaming. Otherwise, traditional slot machines would simply be lumped in with 
"other games of chance". Since slot machines are universally regarded as a major gambling 
device, they need to be specifically recognized as a distinguishable category for purposes of 
segregation from other categories. 

Social Gaming Activity 12:5-21 (Section 4(27)) 

In the Amendments Act, social gaming is excluded from those activities which could 
trigger the possibility of Class III gaming by a tiibe. The policy decision is sound: private 
gaming activity between individuals does not implicate society as a whole, or visibly affect a 
community's standards. The exclusion of social gaming from consideration in the act simply 
leaves individual activities outside of it, as not reflecting public policy toward gaming. 

However, the definition of social gaming is limited to gaming which "is only played for 
nominal value". The size of the stakes in a private game is irrelevant to the issue of wheUier 
the gaming is public or private, and the reference to stake size should be deleted from the 
Amendments Act. Most states agree that "social" gaming which has a high degree of public 
involvement can be seen as reflecting public policy, and so have agreed to a definition which 
excludes gaming that is commercial, governmental, charitable or systematic, as well as gaming 
from which persons other than players make money, and also gaming conducted in clubs or 
other facilities primarily used for gaming. These definitions are adequate to cover the "public" 
aspects of such gaming; the addition of an irrelevant (and probably unenforceable) condition that 
the gaming also be of nominal value is inappropriate. The section should read "where such 
gaming activity is not conducted in places ordinarily and regularly used for gaming". 

Categories of Gaming 87:5-8 (Section 10(a)(7)(C)(ii)) 

In their May submission, the states offered for committee consideration a process for 
state/tiibal negotiations which postulated the following: (1) A tiibe could request a compact from 
the Secretary; (2) the state could choose to enter negotiations over the gaming wiUi the tiibe; (3) 
if the state determined the requested gaming was prohibited by state law, it could notify the tribe 
that the activity was not subject to negotiations; (4) the tribe could challenge that determination 
in federal court; (5) the court would determine that the gaming activity was subject to negotiation 
even if it was prohibited by state law if (A) it was in the same category of gaming as an activity 
not prohibited by state law afld (B) it met one of the following requirements ~ its principal 
characteristics were not reasoiiably distinguishable from a legal gaming activity, or state law 
permitted the activity subject to regulations, or the gaming activity was permitted to some people 
in the state. (This summary of the process does not include all its nuances, but is simplified for 
easier understanding.) , 



129 



The purpose of requiring that the gaming activity be in the same general category as an 
activity which is legal was to simplify the determination of which activities called for 
negotiations and to reduce unneeded litigation. All participants in the process benefit when the 
rules are clear, and everybody benefits when litigation is reduced. 

The Amendments Act, however, dropped the requirement that a requested gaming activity 
be in the same category as one which was legal. It retained the state's recommended 
specification of gaming categories in Section 10(a)(7)(D), on page 88 at lines 8-16, but left the 
categories as orphans, without a clearly defined role to play in the process. 

The states recommend restoration of the language requiring the minimal initial test that 
the requested activity be in the same general category as a legal activity, to clarify the rules of 
the compacting process and to reduce court battles over whether the "principal characteristics" 
of two entirely dissimilar activities are indistinguishable. Section 10(a)(7)(C)(ii)) would read: 
"(ii) even if the disputed gaming activity is prohibited by state criminal law or constitutional 
provision, the gaming activity is in the same category, as defined in section 10(a)(7)(D), as a 
gaming activity not prohibited by the state and meets one or more of the following criteria:". 

"State Criminal Law" 11:8-11 (Section 4(24)) 

86: 1-6 Section 10(a)(7)(B)(i)) 

87:3-4 (Section 10(a)(7)(C)(i)) 

87:9-15 (Section 10(a)(7)(C)(u)(I)) 

The process jointly discussed by the tribal and state negotiators proposed that in case of 
disputes about what gaming was to be permitted to tribes, state law would first be examined to 
determine which activities were legal and which were not. In their May submission, the states 
proposed that a general reference to state law be used in that determination, and offered as a 
definition that: "The term 'prohibited by state law' means that an activity is barred by a state 
constitution, state criminal law or other provision of state law." 

The Amendments Act instead uses a formulation discussed earlier by the negotiators, that 
reference be to "state criminal law" to determine legality. The states are concerned that this 
provision eliminates from consideration one of the most important sources of state law, the 
constitutions of the states. Several states have explicit constitutional formulations barring certain 
types of gaming; when they are self-executing, they have no need for criminal sanctions as a 
mode of enforcement, and so may not have been carried explicitly into the criminal law of those 
states. 

The states recognize the importance of certainty, and can agree that resort to any body 
of state law, including regulatory provisions, need not be required by the Act; however, the 
states propose that in each case where "state criminal law" is used to determine the nature of a 
state's public policy, the phrase be amended to include "or constitutional provision". Such a 
minor change would ensure that the fundamental building blocks of state law, their constitutions, 
not be relegated to unimportance in the Amendments Act. 



130 



Jurisdiction over Indian lands 



The Amendments Act inadvertently omitted the definitions of "Indian lands" and "Indian 
tribes". In their May submission, the states proposed that the definition of Indian lands be 
slightly modified to specify that it included: "Any lands within the limits of any Indian 
reservation title to which is held by the governing Tribe, by a member of that Tribe, or by the 
United States in trust for that Tribe or the member and over which that Tribe was exercising 
substantial governmental authority on the effective date of this Act" . 

The states continue to believe that such a provision is appropriate. Unless a tribe is 
presently exercising governmental authority over territory, there is no reason for IGRA or the 
Amendments Act to extend its authority to such land solely to govern gaming. Additionally, 
extension of such authority where it does not now exist would require a state to compact if it 
was to permit otherwise legal Class III gaming, such as a lottery, on such lands, even though 
a tribe has no governmental presence in those areas. 

The concept of requiring that a tribe be exercising governmental authority over land 
would not be new to IGRA. The Amendments Act provides in section 10(a)(l)(A)(i), on page 
79, that Class III gaming is lawful on Indian lands only if such activities are authorized by a 
compact that "is adopted by the governing body of the Indian tribe having jurisdiction over such 
lands". Effective jurisdiction, meaning the exercise of governmental authority, is a reasonable 
precondition which should exist before the compacting process and the regulatory machinery of 
the Department of the Interior and the National Indian Gaming Commission are brought into 
play. 

Changes in state law 

The IGRA contains no provisions concerning what happens when a state changes its laws 
expressly to outlaw a gaming activity, either to clarify an ambiguous situation or to ban an 
activity which had formerly been legal. In their May submission, the states proposed that 
explicit statutory recognition be provided for such situations, so that a state was capable of 
changing its fundamental public policy concerning gaming in general or with respect to particular 
gaming activities, and at the same time recognizing that tribes with compacts had investment 
expectations that should receive a degree of protection from sudden alteration. 

The states continue to advocate inclusion of a change-of-law provision. Once a state has 
outlawed an activity, it should not be allowed to continue unaffected indefinitely on Indian lands 
without state consent. Senator Inouye has noted on several occasions that if a state does not 
want to have to let tribes engage in a gaming activity, the state need only prohibit the activity. 
The states proposed in May that gaming which had become illegal due to a change in state law, 
in situations where there was rio specific compact provision concerning such a change, would 
terminate two years after notification by the state to the tribe of the change. The exact time 
frame within which the gaming would cease to be permitted is not so important as the principle 
that a change be recognized and that gaming which had become ill^al come to an end. 



131 



In return, the states also offered language which would give a tribe the right to reopen 
negotiations in cases where a change in state law liberalized its gaming restrictions. At present, 
unless a compact has a clause concerning the subject, a tribe with a compact has no legal 
mechanism to force a state to reopen discussions. The states believe that the situation should 
be reciprocal and balanced; a significant change in a state's public policy should be taken into 
account in determining the scope of legal tribal gaming within a reasonable time, whether it is 
to permit or restrict gaming. 

Retroactivity of the Amendments Act 93:9-14 (Section 10(b)) 

This section provides "Class HI gaming activities that are as a matter of Federal law, 
lawful in any jurisdiction on the date of enactment of the Indian Gaming Regulatory Act 
Amendments Act of 1994, shall notwithstanding any provisions of this Act, remain lawful for 
purposes of section 10". The states have no argument with the proposition that compacts in 
place when these amendments are adopted should remain in effect. However, this provision 
relating to non-retroactivity seems to have a broader meaning. By reference to "as a matter of 
Federal law" rather than to compacts, it appears to preserve all on-going claims that the states 
had hoped would be settled by these amendments. 

The reference to "Federal law" as the source for determining what is left untouched by 
this Amendments Act is ripe with ambiguity. Lawsuits are pending in more than a dozen states 
asserting differing views of what is, and what is not, an authorized gaming activity under the 
IGRA. This language would arguably permit continuation of those suits to make a final 
determination as to what Federal law was under IGRA before these amendments, and would 
arguably then freeze such determinations into place. 

But if the alternative interpretation were intended, so that existing decisions became fixed 
in time, pending appeals from lower court adjudications would be mooted, leaving a variety of 
disparate decisions untouchable now and into the indefinite future. Even differing district court 
decisions within the same circuit would become fixed, so that "Federal law" would vary 
according to geography. 

The states suggest that this provision be limited to compacts in place. If that is not 
feasible, for reasons not apparent to the states, this section should be extensively reworked to 
specify its scope and meaning. The alternative is to undermine one of the basic motivating 
premises behind these amendments -- the reduction of endless, expensive and divisive litigation 
between tribes and states. Instead of achieving that goal, this provision threatens to make the 
situation worse rather than better. 

"Grandfathering" 

A very similar concern for states is that uncompacted Class III gaming, presently being 
conducted on several reservations under various claims of legitimacy, not be swept into legal 
status by any provisions of the Amendments Act. At present, except for the state concerns about 



132 



the "Effect of Amendments" section just discussed, there do not appear to be any provisions of 
the act which would have that potential. However, a significant element of the state support for 
the process which has brought us to this stage is that illegal, uncompacted gaming not be given 
Congressional blessing. 

Regulatory Issues 

In general, the states are supportive of the Committee's efforts to ensure the integrity of 
gaming on Indian lands. The experience of gaming states has taught the unmistakable lesson that 
constant vigilance is necessary. The attraction of large flows of cash to criminal elements is 
impossible to overstate. It casts no aspersion on Indian gaming to note that it can be as 
susceptible to predators as any other type of gaming. 

However, there is one significant policy issue in this area in which the states are in full 
agreement with the tribes: where the states and the tribes are capable of providing adequate 
levels of regulation and licensing, meeting all requirements set by the Commission, they should 
be allowed to do so. The federal government should not take over any function which can be 
performed as well by Indian tribes and by states. 

Licensing 25:7-27:7 (Section 7(b)(7)) 

Section 7(b)(7)(A) gives the Commission exclusive authority to license Class HI gaming 
operations, key employees, persons having material involvement, gaming-related contractors, 
gaming service industries and any other person designated by the Commission. Section 
7(b)(7)(B) gives the Commission exclusive authority to conduct background investigations on key 
employees, principal investors, principal gaming-related contractors and any other designated 
person or company. 

The states believe that the structure of this section should be amended to match that of 
subsequent section 7(b)(8). Its provisions require that a tribe and a state agree on the monitoring 
and regulation of background investigations for the next level of employees, with the 
Commission assuming exclusive jurisdiction to do the task if the tribal/state agreement fails to 
meet the Commission's minimum standards. 

The model is a good one, to be endorsed for the full regulatory scheme. If a state has 
a regulatory system in place, and the tribe and the state agree that it can do the job, the role of 
the Commission should be to ensure that the system works rather than to take onto itself the 
burden of doing the work. Many states would be reluctant to carry out regulatory functions 
where they have had no role in the licensing process; the two should be linked within the overall 
framework of the N.I.G.C's minimum standards. 

The states also recommend that the Commission create a data bank, so that the results 
of all investigations, whether done by a tribe, a state or the Commission's staff, be available to 
others who need the information as part of their own background checks. Individuals and 



133 



companies move from place to place; the Commission should serve as a central repository of 
information to which everybody in the business can resort. It would also be possible for the 
Commission to create a system by which an entity licensed in one jurisdiction could be 
presumptively cleared for others, to reduce administrative burdens and expenses on entities 
seeking to do business in more than one jurisdiction. 

Information Sharing 40:5-11 (Section 7(f)(2)) 

This provision states: "The Commission may secure from any law enforcement agency 
of any State or Indian tribal government information necessary to enable it to carry out this Act. 
Upon request of the Chairman, the head of any State or tribal law enforcement agency shall 
furnish such information to the Commission, unless otherwise prohibited by law." The states 
have a concern that although the motivation it a good one, this measure appears to commandeer 
state law enforcement into the service of the federal government, willing or not. There is no 
need to create Tenth Amendment issues in this portion of the Amendments Act the other portions 
of this Act have been so successful in reducing them. The states recommend language 
authorizing release of information, but not commanding it. 

A similar provision should be added to the bill authorizing the Commission to release 
information to state and tribal governments to further the purposes of the Act, so that where a 
state or a tribe is conducting a background investigation or otherwise performing regulatory and 
enforcement functions it may have access to relevant information in the Commission's 
possession. 

Existing Compacts 99:12-23 (Section 12(a)(2)) 

With respect to compacts in place when these amendments are adopted, the Amendments 
Act provides for Commission review for conformance with its regulatory and licensing 
requirements. The states support that concept; as was suggested by the states in their May 
submission to the committee, adherence to minimum standards set by the Commission will 
enhance the integrity of all Indian gaming, and will reassure the public that such gaming is well 
managed and free of corrupt influences. 

This section commands the Commission to notify the tribe and State if the compact fails 
to meet those minimum requirements, and to take over responsibility for regulation and licensing 
"until such time as the Indian tribe or the Indian tribe and the State have developed regulations 
and licenses to govern the gaming activity which meet or exceed the requirements". The 
language leaves a troublesome gap as to where authority to fix the problem may lie. By giving 
that responsibility to either the tribe, or the tribe and the State, the Amendments Act seems to 
allow the tribe to choose unilaterally to develop regulations without state involvement. Since 
the section concerns state/tribal compacts, it should allow the Commission to return regulatory 
authority to" the parties at such time as the tribe and the state mutually agree to and implement 
the necessary improvements. Otherwise, even though the parties might have agreed to, for 
example, a total allocation of licensing responsibilities to the state in their compact, the tribe 



134 



could override that agreement without state consent by enacting regulations giving it exclusive 
licensing jurisdiction. 

The section should say: "until such time as the Indian tribe and the State have developed and 
incorporated into such compact regulations and licenses to govern the gaming activity which 
meet or exceed the requirements imposed by this Act and any regulations promulgated by the 
Commission." The suggested change calls for inclusion of the upgraded regulatory regime into 
the compjact since they would necessarily amend an existing compact, and to ensure 
enforceability by the tribe and state under section 10(a)(7)(A)(ii) or by the Secretary under 
section 10(a)(7)(A)(iii). 

Federal Cooperation 

Finally, the states urge that the Commission be authorized to assist states and tribes in 
developing and improving their regulatory mechanisms and capacities. One technique would be 
the creation of a federal gaming academy in which state and tribal regulators could receive 
essential tndning to enable them to perform their functions with skill and knowledge. A single 
training agency, capable of drawing on both federal and state expertise in gaming regulation, 
would serve to keep both states and tribes abreast of the criminal elements seeking to infiltrate 
or otherwise subvert the integrity of Indian gaming. Another option would be authority for the 
Commission to give grants to tribes and states for the development of their regulatory systems, 
and for Commission-approved experiments at the local level with various approaches to 
controlling the risk associated with gaming. 

Role of the States 

During committee hearings on July 20, Chairman Inouye asked Governor Sullivan to 
comment upon the role he saw for the states to have when the state does not enter negotiations 
after a tribe requests the Secretary to negotiate a gaming compact. As the states read the 
Amendments Act, Section 10(a)(3)(C) provides a list of provisions which may be included in a 
compact negotiated between a tribe and the Secretary. Several of the provisions explicitly apply 
to the possibility of state involvement. For example, subsection (i) concerns "the application 
of the criminal and civil laws and regulations of the Indian tribe or the State that are directly 
related to, and necessary for, the licensing and regulation of such activity". Subsection (ii) 
concerns "the allocation of criminal and civil jurisdiction between the State and the Indian tribe 
necessary for the enforcement of such laws and regulations". Subsection (iii) concerns paying 
for such regulative activity. Subsection (vii) concerns: "any other subjects that are reasonably 
related to the operation of gaming activities, and the impact on tribal. State and local 
governments". 

The states support the concept that the interrelationship between the tribe and the state, 
and any impact caused by gaming activities, be considered by the Secretary in the formulation 
of a compact. The Secretary could contact the State to ascertain whether it had any issues it 
wished to recommend for inclusion in the compact. While it would probably be unlikely that 



135 



a state which was uninterested in entering into compact negotiations would seek to involve its 
regulatory mechanisms with respect to proposed gaming, a state might urge the Secretary to 
provide for exchange of information or a cooperative law enforcement arrangement between the 
tribe and the state. With respect to impact, a state might ask the Secretary to consider whether 
a tribal gaming establishment would increase local expenditures for law enforcement, traffic 
control, highway improvements, water service, emergency medical response or other similar 
topics, and could seek cost recovery for such consequences. 

In addition. Section 10(a)(3)(A)(ii) requires that the Secretary determine if gaming 
activities requested by a tribe should be included in the compact, and that the determination be 
made based upon an analysis of state law. The Governors and Attorneys General of the states 
would be appropriate parties for the Secretary to consult in making the determination of what 
gaming is appropriate for negotiation. Such consultation would reduce the likelihood of 
litigation under Section 10(a)(7)(A)(i) to review a decision by the Secretary with regard to the 
gaming activities subject to inclusion in a compact. 

The fact that a state might choose not to be a contracting party in a gaming compact does 
not imply a lack of interest in the effects which could occur from a compact. The Amendments 
Act allows, and appears to encourage, the Secretary to consider what may happen, and the states 
are supportive of that approach. 

Eleventh Amendment 82:21-83:2 (Section 10(a)(3)(B)(iv)) 

The Amendments Act provides that a request by a state to negotiate "shall be deemed to 
constitute a voluntary waiver of the sovereign immunity of the State for the purposes of this 
Act". The states suggest instead that an assertion of sovereign immunity by a state at any point 
during litigation terminate state involvement in the negotiation of a compact and return the 
process to the Secretary to complete negotiations with the tribe. 

There are two reasons for this recommendation. First, several states have legal or 
constitutional provisions which prevent them from voluntarily waiving their sovereign immunity. 
There is no benefit in having the Amendments Act set up a legal confrontation between a federal 
enactment and such state provisions. Second, several states adhere to the position that Congress 
has no power to enforce a mandatory waiver of a state's sovereign immunity under the Eleventh 
Amendment. A provision such as in the Amendments Act is certain to be the subject of 
litigation at some point. Rather than creating such a confrontation, the committee should look 
for alternatives. 

The superior alternative is one which simply terminates state participation in the 
negotiation process and ends pending litigation. Moving the negotiations to the Secretary if a 
state feels compelled to assert the Eleventh Amendment avoids constitutional litigation, speeds 
up the process and should fully meet the desires of an affected tribe to complete the compacting 
process. 



136 



Possible language to achieve this purpose would be: "(iv) If a State asserts sovereign 
immunity in any litigation pending under subsection (7)(A) of this section, the right of the State 
to enter into negotiations under this paragraph shall be deemed to have been voluntarily waived." 

Settlement Acts 

The concerns of the Settlement Act states about the impact of the Indian Gaming 
Regulatory Act upon their jurisdictions remain, as was demonstrated by the testimony given the 
Committee last week. The affected states are continuing their discussions in the hope of being 
able to present the Committee with a mutually satisfactory solution within the time frame the 
Committee has requested. 

After-acquired Lands 107:16-24 (Section 17(b)(1) 

The Amendments Act proposal is a radical departure from the existing structure of the 
Indian Gaming Regulatory Act, and as drafted is a serious concern for the states. The 
compromise which led to passage of the Act in 1988 included as a key element the commitment 
from Congress that lands acquired after passage of the Act could not be used for gaming without 
the express agreement of the Governor of the affected state. The states were firm in the position 
that permitting a tribe to acquire land in areas distant from its reservation, even in the major 
urban areas of its state, without state concurrence and approval, would change the dynamics of 
gaming and the social fabric of a state to an entirely unacceptable degree. 

The states firmly believe that the Act as it presently exists needs no change. Many states 
are joining with the Department of Justice in the pending Ninth Circuit Court of Appeals case 
in making that argument. The states expect success in that case, and do not feel the need to 
change the Act- unless the ultimate outcome of that litigation should be to alter the expectation 
of those who agreed to the provision in 1988. 

But if the Committee feels it necessary to change to Act because of the lower court 
decision in an Oregon District Court, the states continue to suggest that the preferred alternative 
is that submitted to the Committee in May. After careful review and analysis, the states 
continue to believe that it satisfies all constitutional issues raised concerning the process by 
which the final Secretary's decision would be made. By having the Governor make a final 
determination before the Secretary has any issue to consider, the concept that the Governor is 
exercising a veto over the Secretary's discretion is entirely avoided. The text of that proposal 
was as follows: 

(1) the Governor of the State in which the gaming activity is to be conducted 
determines that a gaming establishment on newly acquired lands would be in the 
best interest of the Indian Tribe and its members, and would not be detrimental 
to the surrounding community, and the Secretary, after consultation with the 
Indian Tribe and appropriate State and local officials, including officials of other 
nearby Indian Tribes, concurs in the Governor's determination; or . . . 



137 



The states also suggest that there are other alternatives which are fully constitutional. 
One, suggested by the Governor of Oregon, limits gaming on jifter-acquired lands to compact 
entered into voluntarily by the state, without help from a mediator or arbitrator, or by the 
Secretary after the state declines to participate. If this alternative were adopted, it would also 
follow that the tribal notification section (Section 10(a)(3)(A)(ii) should be amended to include 
a requirement that the site of proposed gaming be specified, and to limit any compact resulting 
from that notification to the place named in the notification The text is as follows: 

(1) the Secretary, after consultation with the Indian tribe and a review of the 
recommendations, if any, of the Governor of the State in which such lands are 
located, and any other State and local officials, including officials of other Indian 
tribes or adjacent States, determines that a gaming establishment would be in the 
best interest of the Indian tribe and its members, and would not be detrimental 
to the surrounding community, and the Secretary has approved a compact 
authorizing Class III gaming on such lands under subparagraphs 10((a)(3)(A)(iv) 
or 10(a)(8)(D) of this Act; or . . . 



(4) For purposes of paragraph (1) of this subsection, the provisions of subparagraphs 
10(a)(7)(F) through (J) of this Act do not apply to the negotiation of a compact 
for Class III gaming on lands acquired by the Secretary in trust for the benefit of 
an Indian tribe after the date of enactment of this Act. 

Finally, an alternative suggested by Wisconsin would treat the consent of the Governor 
as one of several preconditions which the Secretary must find to exist prior to the exercise of 
discretion. The text of that proposal is as follows: 

(a) Prohibitions on lands acquired after October 17, 1988 

Except as provided in subsection (b) of this section . . . conducted on lands 
acquired by the Secretary in trust for the benefit of an Indian tribe after October 
17, 1988, shall be subject to State enforcement of all State laws pertaining to the 
licensing, regulation, or prohibition of gambling, including but not limited to 
criminal sanctions applicable thereto, unless 



(b) Exceptions 

(1) The Secretary may grant an exception to subsection (a) of this section only 
if 

(A) The Secretary finds all of the following -- 



138 



(i) after consultation with the Indian tribe and appropriate 
State and local officials, including officials of other nearby 
Indian tribes, that the proposed gaming establishment on 
the newly acquired lands would be in the best interest of 
the Indian tribe; 

(ii) after consultation with the Indian tribe and appropriate 
State and local officials, including officials of other nearby 
Indian tribes, that the gaming establishment would not be 
detrimental to the surrounding community; and 

(iii) the Governor in the State in which the gaming activity is to 
be conducted consents to the application of this chapter on 
the newly acquired land; or . . . 



Technical cominents: 



Banking Game 



4:17-21 (Section 4(2)) 



The use of "participant" in defining a banking game creates a degree of confusion 
because the same term is used in a different sense in the definition of "social gaming", in 
Section 4(27). Additionally, making a game a banking game only when the house takes on all 
players, collects from aJi losers, and pays ali winners would allow evasion of the definition by 
minor changes in the rules. The states recommend that the definition be changed as follows: 
"The term 'banking game' means any game of chance that is played with the house collecting 
from losers and paying winners and where the house is not otherwise a player in the gaming". 



Class II Gaming 



5:5-21 (Section 4(5)(A)(i)) 



The definition of "bingo or lotto" in the present IGRA specifies a game "which is played 
for prizes . . . with cards bearing numbers or other definitions". The omission of that language 
from the Amendments Act is reasonable, but was not done consistenUy through the definition. 
As a result, subsection (i)(II) says "in which the holder of the card covers such numbers" and 
subsection (i)(III) says "won by the first person covering . . . numbers ... on such cards". The 
simplest remedy is to reinsert the original language into the amendments. 



Gambling Devices 



6:13-16 (Section 4(5)(B)(iii)) 
7:20-24 (Section 4(11)) 



The definition of Class II gaming excludes "gambling devices as defined in section 
1(a)(2) or section 1(a)(3) of the Act of January 2. 1951 (15 U.S.C. 1171(a) (2) or (3))". The 
text following "gambling devices" is not needed, as Section 4(11) defines "gambling devices" 
using the same reference. 



139 

The definition of devices excluded from Class II gaming also specifies "slot machines of 
any kind". The modifier "of any kind" is ambiguous, and is not consistent with the explicit 
definition of "slot machine" contained in Section 4(26). 

Compact 6:23-7:5 (Section 4(8)) 

The definition of "compact" includes the requirement that it have been "published 
pursuant to section 10 of this Act". That would exclude compacts entered into by states and 
tribes prior to the effective date of the enactment of these amendments. The section should be 
expanded to include compacts published prior to that effective date. 

In addition, the definition should be expanded slightly to include "and are in effect" to 
avoid coverage of compacts which have expired under their own terms. While not a current 
problem, compacts with built-in time limits will expire over the years, and should not be 
referenced by the definition. In addition, such a change will eliminate the need for use of the 
phrase "is in effect" in areas such as page 84, line 20 (Section 10((a)(5)). Language of the sort 
the states recommend can be found in Section 10(a)(6), on page 85, lines 5-8. 

Facsimile 7: 16-19 (Section 4(10)) 

The definition of "electronic or electromechanical facsimile" now appears meaningless, 
since its definition as a Johnson Act 1171(a)(2) or (a)(3) device lacks any context. The states 
had recommended that the definition refer to those subsections and add "which replicates the 
theme of a Class II game" to provide greater information. The only place it is referenced in 
these amendments is in the definition of gambling device (Section 4(1 1)), where it is listed as 
included among gambling devices. That definition alone should suffice. 

Slot Machine 1 1 : 14-12:4 (Section 4(26)) 

The definition of "slot machine" uses the phrase "gaming device" in two places, rather 
than "gambling device" as is used in Section 4(11) to define other devices made illegal by the 
Johnson Act. The states are uncertain whether this is intentional or inadvertent. More consistent 
would be use of the definition: "any gambling device as defined in section 1(a)(1) of the Act of 
January 2, 1951 (15 U.S.C. 1171(a)(1)". 

Social Gaming 12:5-21 (Section 4(27)) 

The definition of social gaming begins: "the term 'social gaming activity' means a 
gaming activity which is not" several specified activities. The phrase "which is not" should be 
moved out of the headnote and into subsection (27)(A), which would then read: "(A) which is 
not a commercial, governmental, charitable or systematic gaming enterprise". Leaving the 
phrase "which is not" in the introductory portion would result in several double negatives and 
make interpretation of its intended meaning very difficult. 



140 



In subsection (B), social gaming is defined as a gaming activity "where no person, 
organization or entity other than the participants obtains or receives money or something of more 
than minimal value from the gaming activity, whether by taking a percentage of wagers or 
winnings or by banking the game". The states recognize that this definition was taken from the 
state submission in May. Nevertheless, subsequent review of it has convinced us that the phrase 
"whether by taking a percentage of wagers or winnings or by banking the game" should be 
removed. While it was intended as illustrative, it could be construed to modify or constrict the 
meaning of the preceding phrases. 

Hearings 20:6-8 (Section 7(a)(16)) 

This provision would authorize the Commission to "conduct all hearings pertaining to 
civil violations of this Act or regulations promulgated thereunder". This presumably was 
intended to apply only to administrative hearings, and not to be a limitation on federal court 
jurisdiction otherwise specified in the Act. A clarification would be to cross-reference page 36, 
line 19 (Section 7(d)), "Hearings". 

Commission Role 24:6-18 (Section 7(b)(5)(D)) 

24:24-25:9 (Section 7(b)(6)(B)) 

27:24-28:10 (Section 7(b)(8)(B)) 

29:3-13 (Section 7(b)(9)(B)) 

29:19-30:2 (Section 7(b)(10)(B)) 

These provisions, giving the Commission jurisdiction over background investigations for 
Class II gaming, internal control systems for Class II gaming, high-level background 
investigations for Class III gaming, lower-level background investigations for Class III gaming 
and internal control systems for Class III gaming are each structured similarly. The measures 
state that except where the procedures fail to meet the minimum standards set by the 
Commission, the Commission's authority to conduct those activities is exclusive until such time 
as the Commission determines that the locally established systems meet the Commission's 
minimum regulatory requirements. Grammatically, there is no need in any of these provisions 
for the introductory statement using the phrase "except where". In each case, the remainder of 
the sentence, standing alone, gives the Commission exclusive jurisdiction until it certifies that 
an adequate local structure exists. 

In Section 7(b)(6)(B), from, page 24:24 to 25:9, this provision should reference "a tribal 
Class II gaming operation" for consistency with other parallel sections (see the listing above). 

Gaming Service Industries 26:3-14 (Section 7(b)(7)(A)(v)) 

The definition of "gaming service industries" used in this subsection differs in minor 
respects from that in Section 4(15) (page 8, line 18 to page 9, line 2). It would be more 
consistent and create less potential problems to cross-reference the definition than to specify the 
types of activities to be covered by this subsection. 



141 



Principal Investors 27:8-10 (Section 7(b)(7)(C)) 

The text of this subsection appears to be incomplete; its meaning cannot be determined 
from the present language. 

Key Employees 30:3-20 (Section 7(c)) 

Sections 7(b)(5) and 7(b)(7) authorize the Commission to monitor and regulate licensing 
of several categories of people in gaming activities, including key employees for Class IT and 
Class III gaming. Section 7(c) lists the people for whom a license is mandatory, but in the list 
key employees are not mentioned. Since all other critical categories of people in gaming 
activities are listed, it appears the omission may be inadvertent. 

Licensees 43:20-25 (Section 8(a)(1)(B)) 

This section says that the terms applicant and licensee "shall include any person, any 
entity, and corporation, any company or any other organization for whom the Commission 
requires an approved license". The definition of "person" in Section 4(22) is quite extensive, 
and overiaps the definition in this provision. The section should be sufficient by saying "any 
person for whom the Commission requires an approved license" . 

Employee Obligation 45 : 1 3- 17 (Section 8(a)(7)(A)) 

This provision requires all "applicants and licensees and all persons employed by a 
gaming service industry licensed pursuant to this Act" to inform the Commission of acts 
constituting a violation of IGRA. The states suggest that all persons employed by a gaming 
related contractor licensed pursuant to this Act be included as well. 

Registration 67: 10- 1 1 (Section 8(f)) 

The headnote of this provision reads "Licensing and Registration of Gaming-Related 
Contractors and Service Industries". However, there is no further discussion of registration. 
The title could be simplified to "Licensing of Gaming-Related Contractors", etc. 

Class m Gaming 79:7-8 (SecUon 10(a)(l)(A)(ii)) 

This provision reads "meets the requirements of subsection (b) of this section, and". 
While taken from the existing Act, the new structure has outmoded it. Subsection (b) is now 
a grandfather clause with no requirements. The subsection can be omitted. 

Person 87:18-88:7 (Section 10(a)(7)(C)(i)an)) 

The use of "person, organization or entity" is inconsistent with the broad definition of 
"person" in Section 4(22) on page 10. line 22-25. In order to ensure that tribes have the right 



142 



to negotiate gaming which is permitted to others in the state, the broader definition as used in 
the definitional section should be used; in other words, "person" will suffice. 

Tolling 88:17-22 (Section 10(a)(7)(E)) 

This subsection, regarding the time frame for negotiations, should be made consistent 
with the next paragraph, Section 10(a)(7)(F), and read: "Where the State elects to negotiate a 
compact under this Act, the negotiation shall be completed within 120 days after the expiration 
of the 60-day period in paragraph (3)(B)(iii) of this subsection or a final declaratory judgment 
not subject to further review , unless the State and Indian tribe by mutual agreement extend the 
time period". 

Consistent with this Act 90:9-21 (Section 10(a)(7)(G)) 

91:17-92:2 (Section 10(a)(7)(I)) 

The first of these provision requires that a compact recommended by a mediator or 
arbitrator "be consistent with this Act and the regulations promulgated by the Commission, 
including, without limitation, provisions relating to cash flow transactions, recordkeeping and 
reporting, accounting, security, licensing and training of employees, and related matters". The 
second of these provisions provides that in case of a Secretary's inaction, the compact is 
considered approved "but only to the extent that the compact is consistent with the provisions 
of this Act and any regulations promulgated by the Commission". The two sections should be 
consistent; the second is the simpler and easier to follow, since the specifications of the first are 
only illustrative. 

Secretary 91:17-92:2 (Section 10(a)(7)(r)) 

This measure concerns Secretarial failure to act in a timely manner when negotiations are 
being conducted between a tribe and the Secretary after a State declines to enter into the process. 
If the Secretary has not acted "after the expiration of the 180-day period with respect to the last 
compact proposal", the contract is considered approved. This provision does not appear 
workable. The tribal-Secretary process is not specified in the Amendments Act, and there is no 
structuring of proposals and counter-proposals; for that reason, there is no definition of what 
"the last compact proposal" refers to. The structure outlined in this paragraph would permit 
submission by a tribe of a proposal just before midnight on the 180th day to be "the last compact 
proposal" and require its adoption by the Secretary except to the extent it deviated from the law 
or the Commission's regulations, even if in scope, location and other provisions it differed 
totally from any earlier proposal. That portion of the sentence should be deleted; other 
mechanisms can be invented to prod the Secretary to act. 

Secretarial Approval 92:7-93:8 (Section 10(a)(8)) 

This section concerns Secretarial approval of compacts entered into between states and 
tribes. However, it does not appear to be required. Section 10(a)(7)(G) specifies the process 



143 



for compacts recommended to the Secretary by "the parties or the mediator or arbitrator" . Since 
it appears that section (a)(7) covers party-recommended compacts, a specific section devoted to 
them looks to be unnecessary. 

Lands in Trust 106:16-20 (Section 17(a)) 

The paragraph provides that "gaming regulated by this Act shall not be conducted on 
lands acquired by the Secretary in trust for the benefit of an Indian tribe after the date of 
enactment of this Act unless" .... The reference should be to the date of enactment of IGRA, 
rather than to this, the Amendments Act of 1994. Otherwise, all lands acquired by the Secretary 
in trust since October, 1988, would be exempt from the requirements of the section. 



144 



Congress of the lilnitd States 

tlouse of UqirEsentatftits 

1031I eongrus 

Committee on 3mall jSnsiness 

2361 Ragbom Htmt Office Suilding 
TOashington, B£ 2051J-631J 

November 28, 1994 



JAN MEYERS. Kansas 



BY FACSIMILE AND PERSONAL MAIL 



Mr. Ray Scheppach 
National Governors' Association 
444 North Capitol Street, Suite 267 
Washington, DC 20001-1572 

Dear Mr. Scheppach: 

As you know by now, the hearing of the Small Business Committee scheduled for 
Monday, November 28, has been canceled. As I continue to explore the issue of Indian gaming 
outside of the hearing forum, I am writing to request that you submit a statement to the Small 
Business Committee, along with relevant documents, outlining your organization's perspective 
and concerns related to this important issue. 

As in our September 21 hearing on casino gambling, I am interested in exploring both the 
impact of casinos— on small businesses, communities, and the nation as a whole-and the 
regulatory structure that seeks to control the more harmful aspects of gambling. I would be most 
interested in hearing the National Governors' Association's perspective on the regulatory issues 
that have arisen since enactment of the Indian Gaming Regulatory Act, as well as your members' 
viewpoint on the impact of the casinos on communities and businesses in their states. 

As you well know, gambling is a unique recreational activity that brings with it costs and 
benefits not associated with other forms of entertainment. My overriding concern is that all 
parties responsible for the regulation of gambling are sensitive and responsive to the costs of 
gambling, in social and economic terms. To this end, I would like to collect and disseminate as 
much quality information, research, and advice on this issue as possible. I hope you will be able 
to help me in this effort 



145 



Please send your statement addressed to me at the Committee by Friday, December 2. 
If you have questions or will not be able to submit a statement, please contact Mr. Scott Morris 
at the Committee. Thank you. 



Sincerely, 

C-^HN J. LaFALCE 
Chairman 



JJL:sm 



146 



NAnONAL 

GOVERNORS 

ASSCEIAnON 






Tommy G. Thompson 
GovcrnofofWiiconsin 
Vice Chair 



December 2, 1994 



HilloftheSuies 
444 Nonh Capitol Streer 
Washinpon, D.C 2CKXII-1S12 
Telephone (202) 524-5300 



The Honorable John J. LaFalce 

Chairman 

Committee on Small Business 

U.S. House of Representati\es 

2361 Raybum House Office Building 

Washington. DC 20515-6315 

Dear Mr. Chairman: 

I write in response to your November 28 letter requesting the National Governors' Association's 
perspective on the regulatory issues that have arisen since the enactment of the Indian Gaming 
Regulatory Act (IGR.\ ) and on the impact of tribal casinos on communities and businesses in the 
states. Working closel> with Attorneys General, Governors participated in a series of negotiations 
with Indian tribal governments in an effort to clarify IGRA. These negotiations were conducted under 
the sponsorship of Senator Daniel K. Inouye (D-Hawaii) and Senator John McCain (R- Arizona), chair 
and vice chair respectively of the Senate Committee on Indian Affairs. 

The Governors' major objective m this process was to promote uniform implementation of IGRA 
across the nation. As you may know, these negotiations did not resolve the conflicts involved. 

The Governors remain commined to resolving the conflicts arising out of IGRA implementation. I 
have attached Wyoming Governor Mike Sullivan's testimony from a hearing on Senator Inouye and 
Senator McCain's original bill, S. 2230, for your information. This testimony highlights the 
Governors' concerns with the current act and with the first Inouye-McCain bill. Also, I enclose a 
letter from Governor Sullivan in response to the revised version of S. 2230, released by the committee 
after the hearings this past July. 

I hope that you will find this infoimation helpful. If I can be of fiirther assistance, please do not 
hesitate to contact me. 



Sincerely, 



Raym<^ C. Scheppach 



Enclosures 



147 

TESTIMONY 

Statement of The Honorable Mike Sullivan 
Governor of Wyoming 

before the 

Committee on Indian Affairs 

United States Senate 

on 

State Perspectives on the Indian Gaming Regulatory Act 
Amendments Act of 1994 

July 19, 1994 



NATIONAL GOVERNORS' ASSOCIATION 

Hall of the States '444 North Capitol Street •Washington, DC 20001-1572«(202)624-5300 



148 

GOOD AFTERNOON MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE. I 
APPRECIATE THE OPPORTUNITY TO APPEAR BEFORE YOU TODAY ON 
BEHALF OF THE NATION'S GOVERNORS TO DISCUSS STATE PERSPECTIVES 
ON THE INDIAN GAMING REGULATORY ACT AMENDMENTS ACT OF 1994, 
RECENTLY INTRODUCED BY SENATOR DANIEL K. INOUYE AND SENATOR 
JOHN MCCAIN. 

IN THIS STATEMENT. I WOULD LIKE TO COMMENT ON THE INOUYE- 
MCCAIN BILL AND FOCUS ON FOUR ISSUES OF CRITICAL IMPORTANCE TO 
THE GOVERNORS: 

♦ THE SCOPE OF GAMING; 

♦ AFTER-ACQUIRED LANDS; 

♦ SETTLEMENT ACT JURISDICTION; AND 

♦ REGULATION OF INDL\N GAMING. 

I SIT HERE TODAY AS THE NATIONAL GOVERNORS' ASSOQATION'S 
DESIGNATED LEAD ON CLARIFYING THE INDIAN GAMING REGULATORY 
ACT OF 1988, ALSO KNOWN AS IGRA. I MUST BEGIN MY REMARKS BY 
REAFFIRMING THE GOVERNORS' SUPPORT OF INDIAN TRIBAL ECONOMIC 
DEVELOPMENT, SELF-SUFFICIENCY. AND SOVEREIGNTY. WE CANNOT 
ALLOW THE DIFFERENCES BETWEEN STATES AND TRIBES OVER THE 
INTERPRETATION OF IGRA TO OVERSHADOW THIS FACT. IMPROVING 



149 

GOVERNMENT-TO-GOVERNMENT RELATIONSHIPS WITH INDIAN TRIBES IS 
A PRIORITY FOR GOVERNORS. OUR ULTIMATE OBJECTIVE IN SEEKING 
CLARIFYING AMENDMENTS TO IGRA IS TO REDUCE THE AMOUNT OF 
LITIGATION THAT PLAGUES THE IMPLEMENTATION OF THIS ACT AND 
CONTINUES TO DRIVE A WEDGE BETWEEN STATE AND TRIBAL 
GOVERNMENTS. 

CHAIRMAN INOUYE, SENATOR MCCAIN, I WANT TO COMPLIMENT YOU 
AGAIN FOR THE TREMENDOUS EFFORT YOU HAVE INVESTED IN 
RESOLVING THE CONFUCTS ARISING OUT OF THE IMPLEMENTATION OF 
IGRA, AS WELL AS COMPLIMENT YOU ON CRAFTING A BILL THAT I HOPE 
WILL EVENTUALLY LEAD US TO THIS OBJECTIVE. YOUR BILL RECOGNIZES 
AND ADDRESSES MANY OF THE CONCERNS OF BOTH STATE AND TRIBAL 
GOVERNMENTS. I BELIEVE WE HAVE POSITIVE MOMENTUM AND BY 
CONTINUING TO WORK TOGETHER WE CAN AGREE ON AN OVERALL BILL. 
BUT I NEED TO SAY, I DO NOT THINK WE ARE THERE YET. 

BEFORE I COMMENT ON THE SPECmC PROVISIONS OF THE INOUYE- 
MCCAIN BILL. LET ME AGAIN REMIND THE COMMITTEE THAT THE 
GOVERNORS ORIGINALLY CAME TO THE TABLE WITH A NUMBER OF 
CONCERNS ARISING OUT OF THE IMPLEMENTATION OF IGRA. THE 
GOVERNORS BELIEVE THAT CLARIHCATION OF THE LAW WILL REDUCE 
THE COSTLY AND DIVISIVE LITIGATION OVER THE AMBIGUITIES 



150 

CONTAINED IN IGRA; IN ADDITION. WHEN THERE IS LITIGATION. THIS 
CLARinCATION WILL GUIDE THE COURTS' UNIFORM APPLICATION OF THE 
LAW ACROSS THE STATES. TO ACHIEVE THIS GOAL, WE HAVE SOUGHT 
CLARinCATION OF A NUMBER OF IGRA PROVISIONS. THE MOST 
IMPORTANT OF WHICH DEALS WITH THE SCOPE OF GAMING. MOREOVER, 
THE STATES HAVE ASKED CONGRESS TO KEEP THE COMMITMENTS IT 
MADE IN THE CURRENT ACT -- TO RECOGNIZE THE VL\BILITY OF 
EXISTING SETTLEMENT ACTS AND TO CONFIRM THE GOVERNOR'S ROLE 
IN THE SECRETARY OF INTERIOR'S DEOSIONS TO ACQUIRE LAND IN 
TRUST FOR A TRIBE FOR THE PURPOSES OF GAMING. 

THE GOVERNORS AGREED TO WORK WITH TRIBAL GOVERNMENTS 
THROUGH A NEGOTIATION PROCESS SPONSORED BY SENATOR INOUYE 
AND SENATOR MCCAIN AND HAVE WORKED CLOSELY WITH THE 
ATTORNEYS GENERAL THROUGHOUT THIS PROCESS. BOTH STATES AND 
TRIBES HAVE A GREAT DEAL INVESTED IN THIS PROCESS, BUT AS YOU 
KNOW. FELL SHORT OF ACHIEVING A JOINT RESOLUTION. ALTHOUGH THE 
STATE-TRIBAL WORKING GROUP NEVER REACHED AGREEMENT ON A 
PACKAGE OF AMENDMENTS. A FRAMEWORK FOR A POTENTIAL 
COMPROMISE BEGAN TO EMERGE OUT OF THEIR DISCUSSIONS. I THINK 
SENATOR INOUYE AND SENATOR MCCAIN CAPTURED THE ESSENCE OF 
THIS POTENTIAL FOR COMPROMISE IN THEIR BILL. 



151 

THE INOUYE-MCCAIN AMENDMENTS 

REASONABLE SOLUTIONS TO COMPLEX AND DIVISIVE ISSUES, BY THEIR 
VERY NATURE, ASSUME THAT THE PARTICIPANTS WILL MAKE 
CONCESSIONS IN ORDER TO ARRIVE AT AGREEMENTS. IN THIS SPmiT, 
STATES HAVE EXPRESSED A WILLINGNESS TO MOVE SIGNIHCANTLY FOR 
THE SAKE OF CONSENSUS, POTENTIALLY GIVING UP A GREAT DEAL IN 
THE PROCESS. THE INOUYE-MCCAIN AMENDMENTS WOULD ASK THE 
STATES TO CONCEDE THEIR TENTH AND ELEVENTH AMENDMENT 
DEFENSES, A REQUEST THAT STATES WOULD CONSIDER TO BE A 
SIGNIFICANT COMPROMISE OF THEIR OWN SOVEREIGNTY. 

THE INOUYE-MCCAIN AMENDMENTS APPEAR DESIGNED TO GIVE THE 
STATES AND TRIBES WHAT THEY EACH WANT MOST. FOR THE TRIBES, 
THE BENEFIT WOULD BE AN EXPEDITED COMPACTING PROCESS THROUGH 
WHICH TRIBAL GOVERNMENTS COULD ACHIEVE A CLASS ffl GAMING 
COMPACT WITHIN A REASONABLE TIME FRAME, WITH AN ALTERNATIVE 
FORM OF RELIEF FOR TRIBES THAT ARE UNABLE TO ACHIEVE A COMPACT 
THROUGH NEGOTIATIONS WITH A STATE. FOR THE STATES, THE BENEFIT 
WOULD BE THE DEFINITION OF WHICH GAMING ACMVIllES WOULD BE 
SUBJECT TO NEGOTIATION - EFFECTIVELY ESTABLISHINO A THRESHOLD, 
BASED IN STATE LAW, BEYOND WHICH FEDERAL LAW WOULD NOT FORCE 



152 

A GOVERNOR TO NEGOTIATE. IN ORDER FOR THE GOVERNORS TO AGREE 
TO SUCH A COMPROMISE. THEY MUST BE CERTAIN THAT THEIR END OF 
THE BARGAIN HAS BEEN FULFILLED; IN EFFECT, THAT THE SCOPE OF 
GAMING UNDER THE AMENDMENTS IS CLEAR. 

THE FOUR CRITICAL ISSUES IN THE CURRENT DRAFT OF THE BILL THAT 
MUST BE ADDRESSED BEFORE THE GOVERNORS WOULD BE WILLING TO 
CONSIDER SUPPORT FOR THIS PROPOSED COMPROMISE. 

♦ THE SCOPE OF GAMING; 

♦ AFTER-ACQUIRED LANDS; 

♦ SETTLEMENT ACT JURISDICTION; AND 

♦ REGULATION OF INDL\N GAMING. 

SCOPE OF GAMING 

FIRST OF ALL. WE OBJECT TO THE "NOMINAL" VALUE LIMITATION 
CONTAINED IN THE SOCL\L GAMING DEFINITION. WE CANNOT POSSIBLY 
ENFORCE THIS. AND IT DEFEATS THE PURPOSE OF THE EXCEPTION. IN 
ADDITION, TECHNICAL DEHCIENCIES APPEAR WITH RESPECT TO THE 
DEFINITION OF VIDEO GAMING DEVICES, CREATING UNCERTAINTY AS TO 
WHETHER VIDEO PULL-TABS AND VIDEO POKER DEVICES WOULD REMAIN 
CLASS in. THESE WERE CLEARLY DEFINED AS CLASS IE DEVICES UNDER 
THE JODMT NATIONAL GOVERNORS' ASSOCIATION/NATIONAL 
ASSOCIATION OF ATTORNEYS GENERAL (NGA/NAAG) PROPOSED 



153 

AMENfDMENTS. ATTACHED TO MY MAY 17 TESTIMONY. FURTHERMORE, 
UNDER THE INOUYE-MCCAIN AMENDMENTS, THE LINES BETWEEN 
DIFFERENT CATEGORIES OF GAMING ACTIVITIES AND DEVICES HAVE 
BEEN BLURRED. UNDER THE JOINT NGA/NAAG PROPOSED AMENDMENTS, 
CLEAR DISTINCTIONS BETWEEN CERTAIN CATEGORIES OF GAMING 
ACnvrilES WERE CLEAR. 

AFTER -ACQUIRED LANDS 

BASED ON MY RECOLLECTION, MR. CHAIRMAN, THE MAJOR REASON THIS 
ISSUE WAS NEVER PART OF OUR DISCUSSION WAS THAT YOU SAID THERE 
WAS NO AMBIGUITY IN THIS SECTION OF THE ACT AND, THEREFORE, NO 
NEED TO AMEND IT. AS YOU MAY KNOW, THE FEDERAL DISTRICT COURT 
DECISION IN OREGON CONFIRMED THE STATES' FEAR THAT THIS SECTION 
WOULD BE FOUND UNCONSTITUTIONAL. THE PROPOSED AMENDMENTS 
REDUCE THE GOVERNORS' ROLE TO MERELY THAT OF CONSULTANT AND 
WOULD BE AN UNACCEPTABLE FEDERAL INTRUSION INTO A 
FUNDAMENTAL STATE PUBUC POLICY DEQSION. 

I HAVE CONFERRED WITH GOVERNOR BARBARA ROBERTS OF OREGON, 
WHO ALSO HAS SUBMITTED A LETTER TO SENATOR INOUYE EXPRESSING 
HER THOUGHTS ON THIS ISSUE. SHE HAS SUGGESTED AMENDING THIS 
SECTION SO THAT LAND COULD BE ACQUIRED IN TRUST FOR THE 
PURPOSES OF GAMING ONLY IN A CASE WHERE THE STATE AND TRIBE 



154 

HAVE VOLUNTARILY NEGOTIATED A COMPACT. WE ARE REFINING OUR 
PROPOSAL AND WILL SUBMIT IT TO YOU SHORTLY. BE AWARE THAT THE 
GOVERNORS SUPPORT GOVERNOR ROBERTS' DEMAND THAT YOU 
RESTORE A MEANINGFUL ROLE FOR GOVERNORS EM THIS 
DECISIONMAKING PROCESS. 

SETTLEMENT ACT JURISDICTION 

ONCE AGAIN, I WILL DEFER TO MY COLLEAGUE, GOVERNOR BRUCE 
SUNDLUN OF RHODE ISLAND, TO ADDRESS THE ISSUE OF EXISTING 
SETTLEMENT ACTS. I DO HOWEVER WANT TO NOTE THAT THE 
GOVERNORS SUPPORT THE EFFORTS OF GOVERNOR SUNDLUN AND 
OTHERS TO ENSURE THAT AMENDMENTS TO IGRA RECOGNIZE THESE 
AGREEMENTS. 

REGULATION OF INDUN GAMING 

ALTHOUGH THE GOVERNORS DO NOT HAVE POUCY ON THE EXPANSION 
OF THE NATIONAL INDIAN GAMING COMMISSION'S (NIGC) REGULATORY 
AUTHORITY, I DO KNOW THAT SOME STATES ALREADY PERFORM THE 
REGULATORY FUNCTIONS THAT, UNDER THE AMENDMENTS, WILL COME 
UNDER THE EXCLUSIVE JURISDICTION OF NIGC. IT IS LIKELY THAT THESE 
STATES WOULD AT LEAST WANT THE OPTION OF CONTINUING TO 
EXERCISE THIS REGULATORY AUTHORITY. I WOULD URGE YOU TO 
CONSIDER CHANGES TO THE BE.L THAT WOULD GIVE STATES THE OPTION 



155 

TO PERFORM ALL REGULATORY FUNCTIONS AS LONG AS THEY DO SO 
WITHIN MINIMUM STANDARDS LAID OUT BY NIGC. IF A STATE WERE 
UNABLE OR UNWILLING TO FULFILL THESE REGULATORY 
RESPONSroiLITIES, IT MAY BE APPROPIUATE FOR NIGC TO STEP INTO 
SUCH A VOID. 

THE GOVERNORS ARE COORDINATING WITH THE ATTORNEYS GENERAL 
AND WILL SUBMIT JOINT AMENDMENTS TO THE ENOUYE-MCCAIN BILL 
SHORTLY. NGA AND NAAG ARE PREPARING SOME MINOR TECHNICAL 
SUGGESTIONS. WHICH ALSO WILL BE SUBMITTED TO YOU SOON. 

CONCLUSION 

I WANT TO REITERATE WHAT I SAID TO YOU IN MY TESTIMONY LAST 
MAY, WHICH IS THAT I PERCEIVE THE GOVERNORS' SUPPORT FOR THIS 
BILL TO BE QUITE DEUCATE. ALTHOUGH THE MAJORITY OF GOVERNORS 
WOULD SUPPORT THIS BILL WITH THE CHANGES I HAVE MENTIONED 
TODAY, THERE ARE A HANDFUL OF GOVERNORS WHO DO NOT THINK 
THESE AMENDMENTS GO FAR ENOUGH. I ALSO WOULD LIKE TO CAUTION 
YOU AGAINST THE GRANDFATHERING OF CURRENTLY OPERATING 
ILLEGAL GAMING ACTIVITIES. STATES WOULD NOT ONLY CONSIDER THIS 
PATENTLY UNFAIR TO LAW-ABIDING TRIBES, BUT ALSO AN 
UNACCEPTABLE USURPATION OF STATE SOVEREIGNTY. 



156 

IN SUMMARY, I AM CONfFIDENT A MAJORITY OF GOVERNORS WOULD BE 
WILLING TO SUPPORT THIS BILL WITH THE CLARIFICATIONS AND 
CHANGES I HAVE DESCRIBED TODAY. FIRST AND FOREMOST ON OUR UST 
IS THE REFINEMENT OF THE SCOPE OF GAMING FRAMEWORK TO RESOLVE 
THE UNCERTAINTY THAT STILL EXISTS WITH RESPECT TO THE 
DEFINITION OF VIDEO PULL-TAB DEVICES AND THE DISTINCTION 
BETWEEN GAMING CATEGORIES, AND THE REMOVAL THE "NOMINAL" 
VALUE LIMITATION FROM THE SOCIAL GAMING DEFINITION. ENSURE 
THAT THE GOVERNORS HAVE A MEANINGFUL ROLE IN THE INTERIOR 
SECRETARY'S DEQSION TO ACQUIRE LAND IN TRUST FOR A TRIBE FOR 
THE PURPOSE OF GAMING. RECOGNIZE, IN YOUR AMENDMENTS, THE 
CONTINUED VL\BILITY OF EXISTING SETTLEMENT ACTS. AND FINALLY, 
STRUCTURE THE INDIAN GAMING REGULATORY FRAMEWORK TO GTS^ 
STATES THE "OPTION" TO FULLY REGULATE THESE ACnvmES. 

I AM OPTIMISTIC THAT WE WILL SOON BRING THIS LONG PROCESS TO A 
CLOSE. THANK YOU. 



157 



NAnONAL 

GOVEWMORS 

ASSOCIAnON 



***** 



HowiH D«M. M.D 


Ravmorvi C SdKppadi 


Govwnof of \'eitnoni 


Executive Direaor 


Chair 






Hall ol the Staie< 


Tomniv G. Thompion 


•♦•♦■I North Caniiol .Street 


GovYmor of Wuconsin 


Vtalhinpon.DC.iOOOll^l, 


Vice Chair 


Telephone (;o:i6;-.-'WO 



August 31. 1994 



The HoDonble Daniel K. Inouye 
Chainnan, Committee oo 
Indiim Afibirs 
United States Senate 
Washington. DC 20510 

Dear Senator Inouye and Senator McCain: 



The HoQorable John McCain 
Vice Chaiiman, Committee on 

Indian Afi&il3 

United States Senate 
Washington. DC 20S10 



The nation's Governors are disappointed that you have radically altered the scope of gaming and 
process portions of your bill to amend the Indian Gaming Regulatory Act of 1988 (IGRA). As 
you know, clarification of the scope of gaming has been and remains the Governors' primary 
objective with respect to amending IGRA. 

By this action you appear to have departed fiiom your own process, oi^ which, though arduous, 
had moved the discussion in a positive manner. State and tribal governments spent several 
months in good &ith n^otiatioos over the clarification of IGRA, and now, in your revised bill, 
you completely discard die product of those discussions. Your bill almost entirely reverts back to 
the scope of gaming language contained m the original IGRA, and clearly provides the tribes with 
a "fiut-track" compacting process I will recommend that the Governors vigorously oppose this 
legislation 

Your letter exaggerates the level of the states' dissatisfaction with the scope of gaming language 
contained in your original S. 2230. As 1 thought I made quite clear in my testimony July 19, I 
believed the Inouye-McCain amendments captured the essence of the compromise evolving out of 
hours of negotiation over clarification of IGRA Further, I indicated that relatively minor 
changes were needed to make your scope of gaming proposal acceptable to the Governors. Never 
did the states request that you withdraw the entire scope of gaming or process language contained 
in your original bill. To the contrar>', we applauded your efforts to construct a compromise and 
expressed a willingness to work with you within the context of your fiamework. 

Your current draft grants the states do relief with respect to the scope of gaming and provides 
tribes with a &st-paced compacting process that is riddled with Tenth Amendment concerns for 
states. This scenario contains no hint of compromise. It certainly was not our intention to have 
spent these many months at the n^otiation table to produce a law that is worse than the original. 

Although Governors remam committed to resolving this complex issue, they would not support 
returning to the negotiating table using your revised scope of gaming language as a starting point. 



158 



The I^norabte Danid K. Inouye and The Hooorabk John McGun 
August 31, 1994 
Page two 



As I have said many times, the firamew(»k fi>r a co mpr omise exists. The states have moved a 
great deal in the direction of consensus, expressing a willingness to coucede Tenth and Eleventh 
Amendment defenses and provide tribal governments widi an expedited compacting process. 
However, support for such concessi«is always was inextricabl y linlne^ to the development of a 
scope of gaming framework based on state law and containing bright-line di s t in ctions between 
different gaming activities and devices. 

We all have woiiced hard to make this process work, and, needless to say, my view is that the 
sudden departure from the original S. 2230 signals a &ilure in that process. 

Sincerely 

Governor Mike SuUivan 




JOHN J. LaFALCE. Nfw You 



159 



CongTESs of the lilnitd States 

fimst of Kqntfitntatioes 

10^ Congrtss 

Conmitnce on $mali ]5mms 

2)61 Kagtmn) tmst OfTict Pniiding 
Washington, 9C un5-6)il 

November 28. 1994 



JAN MEYERS. KAMAt 



BY FACSIMILE AND PERSONAL MAIL 



Mr. Tim Wapato 

National Indian Gaining Association 
904 Pennsylvania AVE. SE 
Washington. DC 20003 

Dear Mr. Wapato: 

As you know by now. the hearing of the Small Business Committee scheduled for 
Monday. November 28. has been canceled. As 1 continue to explore the issue of Indian gaming 
outside of the hearing forum, I am writing to request that you submit a statement to the Small 
Business Committee, along with relevant documents, outlining your organization's perspective 
and concerns related to this important issue. 

As in our September 21 hearing on casino gambling, I am interested in exploring both the 
impact of casinos--on small businesses, communities, and the nation as a whole--and the 
regulatory structure that seeks to control the more harmful aspects of gambling. I would be most 
interested in hearing from you on the following aspects of Indian gaming: the social and 
economic impact on the tribes themselves; the impact on communities and businesses surrounding 
the gaming establishmenu; and the relationship between the gaming tribes and the communities 
and businesses surrounding their reservations. 

As you well know, gambling is a unique recreational activity that brings with it costs and 
benefits not associated with other forms of entertainment My overriding concern is that all 
parties responsible for the regulation of gambling are sensitive and responsive to the costs of 
gambling, in social and economic terms. To this end, I would like to collect and disseminate as 
much quality information, research, and advice on this issue as possible. I hope you will be able 
to help me in this effort 



160 



Please send your statement addressed to me at the Committee by Friday, December 2. 
If you have questions or will not be able to submit a statement, please contact Mr. Scott Morris 
at the Committee. Thank you. 



Sincerely, 




IN J. LaFALCE 
Chairman 



JJL:sm 



161 



dia„^ 




November 28, 1994 

The Honorable John J. LaFalce 

Chairman 

Small Business Committee 

U.S. House of Representatives 

Room 2361 Raybum House Office Building 

Washington, D.C. 20515 

Re: Small Business Committee November 28, 1994 Hearing on Indian Gaming 

Honorable Members of the Small Business Comnuttee, 

My name is S. Timothy Wapato and 1 am the Executive Director of the National 
Indian Gaming Association. The NIGA is an association of 133 Indian Tribes. The 
mission of NIGA is to protect and preserve the general welfare of tribes striving for 
self-sufficiency through gaming enterprises in Indian Country. It is an honor to be 
offered the opportunity to present testimony to this Committee. 

The Indian Gaming industry has an intensely close connection with small business 
interests. First, most are unaware that the Indian Gaming industry traces its 
beginning from a small business past. Most of the individual Indian Gaming 
facilities, no matter their current size, grew from a begiiming as a small business. 
Only the larger Tribal Gaming Enterprises gain media attention and public scrutiny. 
In actuality, a sigruficant portion of current Indian Gaming Enterprises still qualify as 
small businesses and are effected, positively and negatively, by the same federal 
requirements as non-Indian owned small businesses. 

Second, Indian Gaming enterprises have, by necessity, relied on and become partners 
with local small businesses in order to survive. Tribal Gaming enterprises are large 
purchasers of local business services. It has been determined that for survival, Indian 
Gaming, by and large, requires partnerships with local construction and building 
supply firms, local restaurants, local hotels, local lounges, local cleaning firms, local 
clothing /uniform manufacturers, loccd law er\forcement/security, local limousine, 
taxi, bus, and air transportation, local grocers and food distributors, local public 
utility compcmies, positive relationships with local Chambers of Commerce, and 
positive relationships with the local population. There is no "Walmart Syndrome" 



904 Pennsylvania Avenue SE Washington, D.C. 20003 (202) 546-771 1 FAX (202) 546-1 755 



162 



(big conglomerate business taking the place of and pushing out small business) in 
effect in Indian Gaming because of the reliance on the local business community to 
operate most Indian Gaming enterprises and because Indian Gaming creates a new 
type of business in a community where no business of this type existed before. 

Finally, when a Tribal Gaming enterprise opens, many new small businesses are also 
created in order to provide necessary service to the new business. These can include, 
restaurants, hotels, convenience stores, gas stations, banks, other entertainment 
ventures such as boating or skiing, childcare ventures, gaming employment training 
and management programs, etc. Indian Gaming enterprises are the genesis for an 
entire support network of business ventures. Literally hundreds of new businesses 
nationwide have been created as a result of Indian Gaming. 

GROWTH OF INDUSTRY 

As mentioned above, the Indian Gaming Industry has steadily grown through the last 
decade. However, the industry is not so large as some would present it to be. Of 
the approximately 500 Indian Tribes in the U.S., only about 100 have some form of 
gaming. Indian Gaming, collectively, represents orUy 7% of 1993 U. S. Gaming 
revenue. Only 19 states have Indian Gaming, as opposed to 40 states which have 
lotteries. Lotteries represent 37% of U. S. Gaming revenue. Privately ovmed casinos 
represent 36% of the 1993 U. S. Gaming revenue. Parimutuels, which accounted for 
11% of 1993 U. S. Gaming revenue, is also larger than Indian Gaming. 

It is important to remember that Indian Gaming is not a conglomerate business. All 
the proceeds do not go to a single entity. Each Indian Gaming enterprise is a 
separate business, subject to and dependant on local economies and population. 
Indian Gaming is tribal government organized, similar to state lotteries. Indian 
Gaming profits, by designation of law, are used to support the infrastructure of the 
government or the people of the tribe. 

TRENDS 

Certain trends have developed in local economies with the proliferation of Indian 
Gaming enterprises. These trends are as follows: 

Indian Gaming enterprises stimulate and create new businesses, both Indian 
and non-Indian. 

Indian Gaming enterprises increase local econonuc activity, particularly 



163 



increasing spending and employment. (An estimated 82% of Indian Gaming 
jobs are held by non-Indians.) 

Indian Gaming enterprises reduce local public assistance rates and 
expenditures. (In Wisconsin, 52% of Indian Gaming enterprise employees 
came off unemployment rolls, 27% came off welfare rolls.) 

Indian Gaming Enterprises increase tourism and stimulate v isitor spending. 

Indian Gaming enterprises increase federal, state and local tax revenues. 

Indian Gaming enterprises result in decreased crime rates and increased local 
law enforcement and security expenditures. 

Indian Gaming enterprises result in lowered unemployment rates on the 
reservation and in local non-Indian communities. 

Indian Gaming enterprises increase Indian goverrunental services, economic 
development, and self-sufficiency. 

Indian Gaming enterprises, nationwide, have created in excess of 100,000 direct 
jobs and an additional 110,000 indirect jobs, a total in excess of 210,000 jobs 
created as a result of the industry. These are generally jobs and work created 
in depressed areas where no previous employment opportunity was available. 

Indian Gaming enterprises do not exist in a vacuum, separate from the local 
community. Communities in which Indian Gaming enterprises have developed have 
found numerous benefits from these businesses. The Report of the Arizona Town Hall, 
October 30-November 2, 1994, considering American Indian Relationships in a 
Modem Arizona Economy, found that "American Indians already have invested, and 
envision continuing to invest, gaming revenues into economic activities, including 
commercial and industrial development activities, that will benefit both reservations 
and Arizona communities beyond reservations." And, "Dramatic and fundamental 
improvement is underway." 

If Indian Gaming seems an economic and social panacea, it is because the industry 
has been designed to be so. The Indian Gaming Regulatory Act (IGRA) provides 
limitations on spending of net revenue derived from gaming. These limitations 
include funding of tribal operations or programs, to provide for the general welfare 
of the Tribe or its members, to promote tribal economic development, to donate to 



164 



charitable organizations, or to help hind operations of local government agencies. 
While such revenue limitations may seem heavy handed, they have largely been 
embraced by Tribes as consistent with a tribal philosophy of government. 

REGULATION 

Indian Gaming is the most regulated form of gaming practiced in the United States. 
Indian Gaming is subject to the jurisdiction of federal law, regulation and numerous 
federal entities, including, the Bureau of Indian Affairs, the National Indian Gaming 
Commission, the Federal Bureau of Investigation, the Office of Inspector General, and 
the Internal Revenue Service. Indian Gaming is subject to the jurisdiction of the state 
in which the Tribe resides, including compact negotiation, the state gaming 
commission, and, depending on the content of the compact, civil and criminal court 
jurisdiction. Finally, Indian Gaming is subject to tribal jurisdiction, including tribal 
gaming laws and ordinances, tribal gaming commissions, tribal civil and, where 
applicable, criminal court jurisdiction. 

Too much regulation can deter the successful development of business, and Indian 
Gaming is no exception. Regulations requiring strict federal and, in particular, state 
oversight, have a duplicitous effect and result in increased administrative 
requirements without substantive benefits. The Indian Gaming industry has taken 
the position that the six year old Indian Gaming Regulatory Act and the resulting 
National Indian Gaming Commission (NIGC) should be permitted to complete its 
regulatory tasks and fully develop the compact /contract approval process without 
further federal intervention. It is important to note that the States lobbied furiously 
for the passage of IGRA in 1987 and 1988, and supported the Act at the time of 
passage. The Act represents a compromise between the States, Tribes, and Federal 
Government which was the result of almost two years in negotiation and 
development. 

The system must be allowed to get up and rurming prior to reinventing additional 
regulatory schemes. The National Indian Gaming Commission was extremely slow 
in becoming functional. The NIGC only issued operational regulations on January' 2, 
1993, effective date, February 22, 1993. 

NIGA believes that in the short time Indian Gaming has been in existence, the 
experience demonstrates that Indian Gaming has provided positive benefits to Indian 
Tribes and to the local, regional and state areas in which the gaming is situated. This 
is particularly evident in counties which the U. S. Census has identified as the 
poorest in the U. S. All are Indian reservatior«. Unemployment is as high as 80%, a 



165 



rate similar to Third World Countries. For these areas, Indian Gaming is the only 
economic development tool which has worked in 200 years. 

Finally, it must be remembered that Gaming is an entertainment industry. People do 
this to have fun. The average loss at an Indian Gaming enterprise is less than $20. 
Tribes fully support, and have even created, programs to assist those who have a 
problem with gambling. But, the ultimate message is that people are having a good 
time. Their good time shouldn't be legislated out of existence. 

The NIGA thanks the House Small Business Committee for this opportunity to 
provide testimony. The NIGA exists not just as an advocate for Tribes, but was 
created as an organization which can assist to dispel many of the myths surrounding 
Indian Gaming. Should the Committee have any further questions, the NIGA can be 
contacted at any time. Thank you. 

O 

83-277 - 95 (172) 



BOSTON PUBLIC LIBRARY 



3 9999 05983 141 



ISBN 0-16-046866-3 



9 7801 60" 468667 



90000