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Casinos may harm, not help Philadelphia economically
By Frederic Murphy
Wednesday, 01/23/08
(1201108477422)
The two casinos licensed for Philadelphia--Foxwoods and
SugarHouse--say that they will benefit our local economy. Should we
believe these claims before the casinos are built?
I have looked at the casinos’ claims. They are long on promise but will be short on delivery.
Over the past 30 years I have done economic policy analyses and I have examined economic impact statements written in support of projects. I have yet to read one that does not overstate the benefits. After all, these documents are written to sell projects.
First, SugarHouse claims its average wage will be $40,000. Yet, Foxwoods says its average wage will be half that of SugarHouse. Since a casino is a casino and they both use the same technologies, I suspect Foxwoods is right.
Now let’s examine the claims that casinos will add jobs to the city. Managing a regional economy is like filling a bathtub with the drain open. To grow, you have to pour water (dollars) in faster than the water (dollars) drains out. That is, economic growth comes from getting new dollars from elsewhere to be spent in the region to pay for what the region buys from elsewhere, which the now-closed factories did admirably.
Do casinos open to faucet and fill the tub or do they open the drain and empty the tub? This depends on where the casino revenues come from and how much of that revenue is spent locally. Casinos spend $.27 of every revenue dollar locally, according to Foxwoods. For the city to gain jobs, at least 73% of the casino revenues have to be new dollars coming from outsiders, not dollars diverted from other recreational activity. Anything less than 73% means the bath tub empties and the city loses jobs.
These casinos are designed to serve convenience gamblers. Since convenience gamblers go to the closest casinos and the city is bracketed on the north and south by slots parlors, the main customers of the city slots are city residents. The tourists they draw will be tourists who are coming to Philadelphia anyway, which means more losses for local businesses. If you look at the decline in slots revenue in Atlantic City in comparison to the revenues generated by the operating slots parlors in PA, at best a third of the revenue in the PA slots is diverted from Atlantic City.
Starting with Foxwoods’ own economic impact statement, my analysis shows that casinos will take out more money than they will bring into the local economy. This will cost the city 3900 jobs. The casinos add 1500 jobs and the neighborhoods lose 5400 jobs. Those selling casinos tout the jobs added but never mention the jobs that disappear.
The recent Penn Praxis study shows the potential of the waterfront to create a better city that draws in new residents and economic activity. Since the gamblers in Chester are undeterred by playing the slots next to a prison, why waste the valuable waterfront on slots parlors that would do just as well on the Automall? The lost opportunities for quality waterfront development from siting the casinos on the river make them an even bigger negative beyond what my analysis shows.
Governments that share their revenues with other governments have a long history of turning off the tap when their revenues fall short. We can expect the state legislature to cut expenditures from general revenues for schools as soon as state tax revenues slow down. The legislators will point to gambling revenues to justify their cuts. This has happened in other states with casinos.
Revenues in casinos are high for the first couple of years and then fall as the gambling addicts, who can represent up to half of casino revenues, tap out and go bankrupt. Consequently, expectations of the long run revenue are almost assuredly optimistic.
Little by little, the gambling revenues will be diverted for pet projects. Already, a slice is going to “economic development.” The overvalued convention center, about which the Inquirer has expressed so much angst, gets a large chunk of these funds. Taxes will have to be raised, just like the DRPA bridge tolls will be raised to cover DRPA’s “economic development” expenditures.
Furthermore, the city will have to cover the social costs of pathological gambling. PICA says, “Even on the low end of the estimated cost per pathological gambler, […] the costs would be close to $200 million.” Add to that the extra costs of policing and the city budget breaks.
If city officials and the Inquirer continue to leave unchallenged the economic impact statements of interested parties, then Abraham Lincoln was right when he said, “you can fool some of the people all of the time.”
Fred Murphy is a Professor at Temple University's Fox School of Business and Management. Contact Murphy at fmurphy @ temple.edu.