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Gambling Taxes, Narragansetts, and the Politics of Casinos in Rhode Island by Jonathan Storch

n Tuesday, March 6, the Rhode Island House of Representatives voted 69 to 3 in favor of Newport Grand Slots’ request for a statewide referendum to permit it to begin hosting table games, an expansion of the so-called “slot parlor” into a full-fledged casino. The vote is the latest in a series of regional developments following last fall’s enactment of a law authorizing the construction of three new casinos in Massachusetts, casinos that Rhode Island legislators fear will draw significant numbers of gamers away from the state’s own gambling destinations, the Newport Grand and Lincoln’s Twin River. In New York, Governor Andrew Cuomo has proposed amending his state’s constitution to legalize table games; here, a referendum to expand the Twin River, which just emerged from bankruptcy last fall, is already on the ballot for this November. Among the states affected by the Massachusetts law, Rhode Island lawmakers have particular cause to be worried: with Rhode Island currently bringing in the most tax dollars per capita from gambling of any state in the country— in 2011, $293.5 million or almost 10 percent of total revenue from slots alone—the cashstrapped state is not in a position to have its gamblers take their money elsewhere. Recent years have seen several attempts to bring casino gambling to Rhode Island, but without the economic pressure of neighboring competition, none have succeeded. In 2009 and 2010, then-Governor Donald Carcieri opposed legislation that would have put the expansion of the Newport Grand and Twin River to voters, vetoing a 2010 bill after it passed both houses of the legislature. But most significant was voters’ 2006 rejection of a referendum that would have amended the State Constitution to allow the Narragansett Indians to contract with Las Vegas–based Harrah’s for the opening of a casino in West Warwick. Elsewhere in the country, local sovereignty permits Indian tribes the discretion to host casinos on their own land. But the peculiar legal status of the Narragansett’s so-called settlement lands—1,800 acres in Charlestown that federal law transferred back to the Narragansett in 1978—has given legislators a means to prevent the tribe from doing so. According to the 1996 Chafee Amendment, passed by the U.S. Congress, “settlement lands” don’t have the prerogatives of “Indian lands” for the purposes of gaming regulation. As a 2007 report from the Center for Policy Analysis at UMass-Dartmouth notes, the only tribe that the Chafee Amendment affects is the Narragansett. In 2004, the Rhode Island legislature granted statewide referendum for the

Narragansett’s proposal to open a Harrah’s casino outside the provision of federal Indian gaming law. But the State Supreme Court took the measure up before it even made it to the ballot. The State Constitution maintains that gambling in Rhode Island must be operated by the state, and although the 2004 referendum would have given the state extensive regulatory authority over the casino, the act’s specific language proposed that the casino be “operated by an Affiliate of Harrah’s Entertainment.” The court ruled the distinction between regulation and operation to be constitutionally significant, and threw the referendum out. The 2006 referendum was explicitly designed to get around the court’s ruling. If passed, it would have added a section to the State Constitution declaring the legality of a second referendum for the Narragansetts’ bid to open a “privately owned and privately operated” casino. After initial approval by both houses of the state legislature, the amendment was the subject of heated public debate and huge advertising expenditures in the months leading up to the vote. Harrah’s-funded Rhode Islanders for Jobs and Tax Relief campaigned in its support, while a group named Save Our State (SOS), supported by numerous organizations— including the Providence Foundation and the Rhode Island Council of Churches— formed to lead the charge against it. The contest was acrimonious from the start. In June, SOS leader Richard Oster accused Harrah’s of attempting “to use the tears in the eyes for the Indians as a pawn;” Narragansett Chie f Sachem Matthew Thomas accused Oster of racism in a reply. For many voters trying to get a handle on the proposal, the major issue was the money, but studies on the casino’s projected economic effects yielded wildly different results: the SOS-supporting Rhode Island Public Expenditure Council predicted a $1.1 billion decrease in state revenue over ten years, while Rhode Islanders for Jobs and Tax Relief called the RIPEC study a “sham” and, in its own study, forecasted millions in revenue gains and the creation of 3,800 new jobs. As for advertising, by the time the amendment flopped by a nearly two-thirds margin in November, the Providence Journal reported that Harrah’s had spent almost $18 million, while SOS had spent $4 million— with more than three-quarters of the SOS money coming from the Twin River (then called Lincoln Park) and the Newport Grand. Since 2006, Narragansett leaders have continued to lobby for their own casino without success—so they’re perplexed at the recent support for table games in

Lincoln and Newport. The tribe is already challenging the constitutionality of the Twin River proposal in court. “Our language back in 2004 and 2006 was virtually identical to the legislation that the General Assembly just passed, and the Rhode Island Supreme Court ruled it unconstitutional,” Chief Sachem Thomas said in an email. “We don’t understand how the language proposed this year is any different.” But the language is, in fact, different: the Twin River proposal specifies that “the state . . . shall have full operational control to operate the foregoing facility” [emphasis added]. The distinction between operation and regulation was the major issue in the 2004 ruling, so although a Twin River casino might be unfair, the proposal itself appears to be constitutionally acceptable. But there might be a bigger problem elsewhere. Last week, Attorney General Peter Kilmartin brought forward regulatory legislation to accompany the Twin River expansion, legislation that would give the state Division of Lottery the authority to “grant licenses” to outside entities allowing them to “engage in . . . casino gaming operations regulated by this chapter”—a description that sounds a whole lot like the “delegation of operational control . . . to a private company” that the 2006 court ruled unconstitutional. “It does look to me like state officials are trying to do an end run around the Rhode Island Constitution,” said Clyde Barrow of the Center for Policy Analysis, who predicted that the issue would end up in court. For his part, Governor Lincoln Chafee hasn’t yet said whether he supports expansion of the slot parlors. A study commissioned by his office reported in January that even with the addition of table games, the state’s yearly gambling revenue is likely to decrease by $59 million after the Massachusetts casinos open in a few years; without table games, it’s projected to fall $75 million. Last week, Kilmartin filed a motion to quash the Narragansett’s Twin River suit, and if both referendums do end up on the ballot, then the prospect of a $16 million revenue loss to Massachusetts is likely to be persuasive to voters come November. Whatever the result, at least one thing looks certain: Rhode Island’s budget is in for another hit. JONATHAN STORCH B’14 is a crapshoot.

Illustrations by Robert Sandler

et to know the name Sheldon Adelson if casinos have you worried. Recently, he’s been nothing short of Viagra for Newt Gingrich’s struggling presidential campaign, contributing $15 million to Winning Our Future, the pro-Gingrich Super PAC. He ranks eighth on Forbes’ list of richest Americans thanks to his $21.5 billion fortune in the casino industry. But all you need to know about him is that his archenemy—Mickey Mouse—warring with him over casino expansion in South Florida. For years, Adelson has lobbied unsuccessfully to bring his Las Vegas Sands empire to South Beach and dethrone Disney World as the top commercial attraction in the state. On February 2, a bill narrowly failed the Florida State Legislature that would have legalized casino gambling beyond Indian reservations, and paved the way for Adelson to break ground. He says he wants to spend $4 billion on two casino resorts, produce thousands of jobs for Miami-Dade county, and provide a tax revenue stream—estimated to be $400 million over the first four years—that could help ease the state’s $3.75 billion debt crisis. The incentive to support casinos seems obvious for some politicians. “I believe that any legislator that is opposed to building resort casinos which will create thousands of jobs in South Florida should be given the title of Job Killing Czar,” Everett Wilkinson, Chairman of the South Florida Tea Party, wrote once the bill failed. Florida is in dire need of jobs and a boon for its balance sheets. The same can be said of Rhode Island and other states—Illinois, New York, Massachusetts included—considering casino expansion.

The Shallow Economics of the Casino Industry by Malcolm Burnley The numbers seem seductive: a billionaire flaunting ten-figure sums in start-up money and promising 40,000 jobs. Are lawmakers playing with House money? In Florida, it seems that if Adelson wins, the state wins; if his casinos bottom out, he loses. Governor Rick Scott and Miami Mayor Tomas Regalado—both of whom originally opposed legalizing casinos on non-reservation property—now endorse expansion. They see “destination” casinos as a no-brainer addition to Florida’s downtrodden economy, which has a 10 percent unemployment rate. But the stalwarts of Florida’s economy disagree, saying gambling is parasitic to other sectors. “It is inconsistent with Florida’s brand as a family-friendly destination and with the efforts we’ve long supported to diversify Florida’s economy through research, innovation and entrepreneurship,” Mike Griffin, a spokesman for Walt Disney, argued. Joining Mickey are The Florida Chamber of Commerce, the Florida Retail Federation, and the Florida Restaurant and Lodging Association—the state’s current high-rollers. “The expansion of gambling will do nothing but harm existing businesses, especially in the hospitality industry,’’ Richard Turner of the Florida Restaurant and Lodging Association has said. “There are only so many discretionary dollars to be spent.” So are casinos real economic engines, or are they just poachers on established tourism? Disney World provides 60,000 jobs and $600 million in taxes to the state already, better than the best projections for casinos. Would a wholesome brand of family

tourism be sacrificed in pursuit of casino profits? Casinos pay $7.6 billion in taxes to local and state governments, but there’s reason to worry that the industry is eroding nationwide. The two largest conglomerates in Las Vegas, MGM and Las Vegas Sands, barely survived the recession, and the third largest—Station Casinos—filed for Chapter 11 bankruptcy in 2009. Donald Trump’s three Atlantic City establishments—the Taj Mahal, Trump Plaza Hotel and Casino, and Trump Marina Hotel Casino—filed for Chapter 11 and have been sold. And New England’s two once-shining bastions of gambling, Mohegan Sun and Foxwoods have seen revenues drop by 10 percent yearto-year since 2007. Even Adelson’s empire teetered on bankruptcy during the recession, as gambling profits were devastated by shrinking discretionary income. The downturn dispelled the myth that casinos are recession-proof: people don’t risk more when they have less. Shares of Adelson’s Las Vegas Sands dropped 99 percent between 2007 and 2009, from $145 to $1.50 per share. The Las Vegas Sun blamed the downfall on “a combination of factors: bad luck, bad corporate blood and hubris.” It’d be betting on hubris for politicians to seek fiscal solvency through gambling. Just look at Nevada as a worst-case scenario of why government shouldn’t buddy-up with casinos. The state went from boom to bust because of an over-reliance on gambling tax revenue. In the early-2000s, thriving casinos helped raise property values throughout the state, growing the tax rolls indirectly in addition to their direct cash payments.

But since the recession, casinos have struggled and left surrounding propertyowners with an inflated real estate bubble in which nobody is buying. Fifty percent of homeowners are under water and 12.7% of Nevadans are unemployed. The Brookings Institute recently named Las Vegas its “most miserable” city in the country. Las Vegas is a cautionary tale for other states. Massachusetts approved a bill last fall to create three separate resort casinos at undecided locations—Foxborough and East Boston are two possibilities—where the state will collect 25 percent of the revenue at each. Not to be outdone, New Hampshire has pushed for a bill legalizing four resort casinos. And Rhode Island is voting in November on whether or not to expand its slot parlors to allow table games as well. In a Miami Herald poll taken in January, Florida voters were split 44-42 percent in opposition to legalizing casino gambling. But they voted overwhelmingly—81 percent—to put the question to a referendum vote, suggesting that the population, not politicians or lobbyists, should decide how much appetite exists for expanded gambling. However, the supposed beneficiaries of expanding casinos—average taxpayers—are often the same people exploited by casinos to raise revenue. The moral argument against casinos is less convincing than their shallow economics. Signs point to stagnant profits and a saturated industry. If Mickey Mouse is worried about casinos in his back yard, maybe you should be, too. MALCOLM BURNLEY B ‘12 steers clear of parasites.

A FRIDAY NIGHT AT by David Adler

T

he Twin River New England Gambling Casino in Lincoln, RI is not a casino. There are no tables for poker or blackjack. There are no cards, no high stakes, no high rollers. Instead, gambling is solitary; rows and rows of screens stretch on endlessly through the windowless complex, with over 4,700 individual gambling machines. “Aztec Temple;” “Five Times Way;” “Triple Diamond”—tens of different variations on the traditional slot machine. “This one is my favorite,” I hear a blonde in sweatpants tell her friend, putting down her Bud Light and ashtray in front of a slot machine. “It’s a winner every time.” She is making her way off of the dancefloor, where an eight-piece band covers Shaggy’s “It Wasn’t Me” and Michael Jackson’s “Beat It.” In front of them, a motley crowd bumps and grinds to the music. This is one half of Twin River’s demographic, clubgoers for whom the gambling is a mere bonus. A short, muscular man with a ponytail sizes up a young brunette drinking a cocktail glowing rainbow neon across the bar. Three bachelors, heavily gelled and cologned, discuss their prospects, index fingers pointed toward the dance floor like team captains picking the dodgeball squad. A number of old men are dancing alone, brought here under varied circumstances: a conference with corporate, a weekend away from the wife, or maybe just a pit stop between work and home. This is

not “destination gambling,” a phrase used by the casino industry to describe places like Vegas whose draw is a weekend away from home. Conveniently located just outside Providence and without a hotel attached, this is “convenience gambling.” Lee, 73, is standing with a group of older women, trying to wrangle them into one last dance. They say they have to be getting home, and he swings his arms out with a “come on!” He looks a lot like the old man from those Six Flags commercials— jowly and slightly shrunken, but impressively mobile and excited to be here. Lee’s a Twin Rivers regular. “They love me here,” he says with a laugh. “I’m always getting invited to get up on stage, and you know, with the Michael Jackson songs”—he points to his black fedora on the table next to him—“I’m just a big hit.” He does his moonwalk and grabs his pelvis. Even on a Friday night, Twin River is only about half full. Much of the activity is concentrated in that club arena of the smoking-section, which features a variety of New England decor—a statue of a lighthouse, wooden seagulls hanging down from the ceiling, lots of rope. Some people order food at the KFC, Taco Bell, and Johnny Rockets stations built in to the ground floor; others stand excitedly in front of a “Cinnabon (Coming Soon!)” sign. The rest of the casino, one endless landscape of carpet and slot machines, is

much less populated. Here, gamblers sit on top of black leather stools and stare solemnly at the screen. Most hardly speak, moving between slot machine and cash machine every few minutes. Twin River is a 24/7 operation, and it is clear from the glaze of their eyes that most gamblers are deep into their third, fourth, or fifth hour. Cheerful jingles and the sounds of digital coins echo through the hall. One married couple holds hands while they gamble. He is slouched back, his baseball cap resting on his protruding belly; she sits upright, her foot tapping the floor, her cigarette burning quickly. Both have their other hand resting on the button, placing a new bet whenever the last is over. They are playing a game called “Xtra REWARD,” where, the machine says, “the 3rd reel becomes 2 symbols in 1 reel.” Vague game descriptions like this contribute to an overall feeling of confusion for non-gamblers. The rules are different for every game, and they are not posted in plain sight. You can choose to play 1, 5, 10, 15, or 20 lines; you can choose to have X1 bet, X2 bet, X5 or X10 bet. Meanwhile, your money is translated into a unit of “credits,” a number that seems to fluctuate at random but never fails to arrive at zero. All the sounds that come from the machine are happy ones, so you never really know if you’ve won. But for the regulars, the slots seem to

have their own logic. “There you go!” yells a man in a beanie standing behind the married couple. They, like everyone else in their row, are fixed forward, and refuse to offer advice as I sit down at the machine next to them. Within two minutes, my $10 has disappeared. Getting up to leave, the woman turns to give her advice. “You just gotta keep trying.” DAVID ADLER B’14 is a winner every time.


Cash Rules Everything