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September 12th, 2012 NIGEL JAQUISS | News Stories
 

Crapping Out

A state analysis finds a private casino would cost Oregon millions every year.

casino_3845WW Photo Illustration
Between now and the Nov. 6 election, promoters of a vast new 3,500-slot-machine casino in Wood Village hope to keep voters’ attention off gambling and on other shiny features of their proposed development—a water slide, concert venue and farmers market.

And they will repeat the sunny claims (echoed by the news media) that the casino would create 2,000 new jobs while generating $100 million annually for Oregon schools and other public services.

“Fun for you,” the casino backers say. “Good for Oregon.”

But supporters of Measures 82 and 83, which would authorize the casino, probably won’t be talking about one financial analysis that sinks their arguments.

The analysis, obtained by WW, was written by the nonpartisan Legislative Revenue Office and takes into account all the impacts—positive and negative—from a huge casino in east Multnomah County.

The bottom line: The casino would probably cost state and local governments money and, on a broader basis, actually shrink the Oregon economy.

“In most of these scenarios, they are claiming a negative result for both the private sector and the public sector,” says University of Oregon economics professor Tim Duy, who reviewed the analysis at WW’s request.

Two Lake Oswego businessmen, Bruce Studer and Matt Rossman, have been promoting the casino idea for years and first brought it to the ballot in 2010. That time, Oregon voters trounced the measure to authorize a Wood Village casino, 68 percent to 32 percent.

Now the businessmen and the casino’s chief financial backer—Canadian gaming giant Clairvest—are hoping Oregonians will eventually change their minds if they have to answer the same question on the ballot often enough.

This year, Measure 82 would amend the state constitution to allow private casinos in Oregon. Only Native American tribes, empowered by federal law, are allowed to run casinos in the state. Measure 83 would amend state law to set up the approval process for the casino, which backers would locate at the defunct Multnomah Kennel Club. 

Tribes that fought the 2010 measure have lined up in opposition again this year, saying the state’s nine tribal casinos (especially the Confederated Tribes of Grand Ronde’s Spirit Mountain Casino, 62 miles southwest of downtown Portland) would suffer.

But the broader rub is the Oregon Lottery, the state’s second-largest source of revenue after the income tax. Lottery officials believe people who might otherwise spend their money on video poker would gamble instead at the proposed casino, which backers have dubbed “The Grange.” They say the state would end up a loser.

The Grange’s backers have argued that while the lottery may be hurt, the state would more than make up its losses when the casino (as spelled out in the proposal) paid the state 25 percent of its gross revenues.

Who’s right? This summer, a state economist who has studied the casino came up with an answer.

In July, Mazen Malik, a senior economist in the Legislative Revenue Office, prepared an analysis for the Financial Estimate Committee, which includes State Treasurer Ted Wheeler and Secretary of State Kate Brown, assigned to evaluate the fiscal impact of the casino.

Malik evaluated three scenarios in which the casino would operate 2,200 slot machines, and three more scenarios in which it had 3,500 slots. 

Only two of the six scenarios Malik ran showed a net gain for the state, ranging from $32 million to $53 million, if a smaller casino is built. Those are the numbers the committee accepted.

In doing so, however, the committee dismissed the scenarios involving 3,500 slots—the size of casino Clairvest and other backers seek in their ballot measures.

Under those scenarios, far more money is diverted from the lottery than comes back to the state. Oregon government coffers would lose as much as $63 million a year—even after the casino’s seemingly generous payment is factored in.

Stacey Dycus, a spokeswoman for the casino’s proponents, says the fiscal impact committee was right to reject the four scenarios in which the casino is a losing proposition for Oregon’s public finances. But the analysis’ figures overstate lottery losses, Dycus says, citing surveys that show most lottery players gamble within three miles of their homes and would continue to do so. 

“We think they are overestimating Lottery losses and underestimating economic benefits,” Dycus says. A study paid for by the casino’s proponents shows significant economic benefits from the project.

Meanwhile, Steven Ungar, a former chairman of the lottery commission, says Oregon’s independent analysis is proof the state will be hurt by the casino.

“A private casino is ill-conceived and not in the public’s best interests,” says Ungar, a Portland lawyer now advising the opponents’ campaign. “I’m confident that the measure would result in a net financial loss to the people of Oregon.”

The state economic analysis does more to refute backers’ claims the casino would create jobs. 

Think of the Oregon economy as a bucket half filled with water. To increase the number of jobs in the state, you have to add to the bucket so the water level rises.

Instead, the state’s economic analysis shows, the casino punches a hole in the bottom of the bucket.

To a large extent, money gambled away at the casino would come from within Oregon-—and that doesn’t add to the economy; it just circulates money that’s already here. 

The analysis does take into account the estimated $83 million to $126 million added to the economy—mostly from out-of-state gamblers or Oregonians spending their gambling money here rather than in Nevada.

But that money is no match for the cash flowing out of state to the casino’s owners and lenders. According to the analysis: The Oregon economy could shrink by as much as $74 million a year.

That’s what economists call “leakage,” the net amount of cash that would leave the state to cover the casino’s financing costs and the owners’ profits. (One scenario in the analysis showed the Oregon economy would grow, but only by $9 million a year.)

One implication of the outflow of cash is jobs lost here and created elsewhere.

“By shifting revenue away from Oregon,” says Duy, the UO economics professor, “that implies a loss of jobs somewhere in the state.”

Dycus disagrees, saying Malik’s analysis does not account for construction and permanent employment.  

“We believe it’s a net positive, even without those impacts,” she says.

Many Oregonians, including Gov. John Kitzhaber, have long decried the state’s dependence on gambling since it became legal here in 1984. 

But the lottery, which generates more than $500 million annually for the state, is not only lucrative but a far more stable source of funding than income taxes. Most of that money comes from video poker, which Kitzhaber, as Senate president, helped approve in 1991.

Kitzhaber, who until now has not taken a public position on this year’s casino measures, in a statement says he opposes private casinos in Oregon generally. 

He says a plan such as those in Measures 82 and 83 would hurt the state budget, increase the number of addicted gamblers, and unfairly punish tribal casinos, which operate under agreements with state government.

What’s more, Kitzhaber wrote in an Aug. 28 letter to the Portland City Club, a private casino would “primarily benefit a few wealthy executives and foreign investors while creating increased opportunities for corporate corruption and organized crime.”

Dycus notes that in 2006, when the Grand Ronde tribe wanted to open a casino in Portland, it argued against the points Kitzhaber now advances.

“This is a highly regulated industry coming into a state that needs more investment,” Dycus says. “It’s a good deal.” 

 
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