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Economic impacts measure the importance of an economic activity primarily in terms of the output, employment, and personal (labor) income generated by that activity in terms of output, employment, and income:

Output is the value of goods and services produced at the identified business establishment or construction project.

Employment is the number of people employed at the identified business establishment or construction project, including wage and salary employees and self-employed persons.

Personal income is the wages, benefits, and other income derived from employment that is linked geographically to the identified workplace site.

Economic impacts consist of direct impacts, indirect impacts, induced impacts, and total impacts.  Direct impacts are the economic activities carried out at a business establishment or construction project and are therefore an immediate consequence of the economic activity that would not have occurred in the absence of the business establishment or construction project.

Indirect impacts derive primarily from off-site economic activities that are attributable to the identified business establishment.  These economic activities occur mainly as a result of non-payroll expenditures by the business within a defined local area (i.e., town, city, county, metropolitan statistical area).  Local expenditures include a range of operating expenses such as construction materials, office supplies, motor transport, horticultural services, furniture, utilities, maintenance and repairs, business machines, business services, management consulting, and so forth.  Indirect impacts differ from direct impacts insofar as they originate entirely off-site, although the indirect impacts would not have occurred in the absence of the identified business establishment.  Induced impacts are the multiplier effects of the direct and indirect impacts created by successive rounds of spending by employees and proprietors.  Total impacts are the sum of the direct, indirect, and induced impacts.

The United States commercial casino industry consists of 445 casinos that generated nearly $29 billion in gross gaming revenues (output) in 2004.  Commercial casinos directly employed 349,210 persons nationwide in 2004 and paid $12.2 billion in direct compensation (including benefits and tips) to casino employees.  On average, commercial casinos generate an average of 13 jobs for every $1 million in Gross Gaming Revenue and, excluding Nevada, from 6 to 12 jobs per $1 million in Gross Gaming Revenue depending on the venue, wage levels, the ratio of full-time to part-time jobs, and the mix of gaming to non-gaming operations.

The casino gaming industry also spends more than $4 billion annually on construction, real estate, furniture, and equipment.  It is no longer uncommon for individual companies to invest $100 million to $1 billion for the construction of a new facility or to spend several hundred million dollars to expand an existing facility.  The casino industry’s capital expenditures directly create an additional 40,000 jobs annually in the construction and manufacturing sectors.

In addition, there are currently 561 federally recognized Indian tribes and of this number 224 operate Class II or Class III gaming establishments as defined by the Indian Gaming Regulatory Act (IGRA).  There are 249 Tribal-State gaming compacts governing these operations.  In 2002, Indian casinos generated an additional $14.5 billion in Gross Gaming Revenues (output) and employed approximately 400,000 people nationwide.  About 25% of the employees working at Indian casinos are tribal members, while 75% are non-Indian.

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The most frequently cited negative impact of casino gaming is pathological gambling or gambling addiction.  Some critics of casino gaming claim that gambling addiction results in increased crime (e.g., credit card and check fraud, theft, embezzlement), personal bankruptcy, and increased health care costs necessary to treat gambling addiction.  A comprehensive economic impact analysis – or benefits-cost analysis – will, in principle, incorporate a measure of the economic costs generated by any new business establishment.  However, it is particularly difficult, both conceptually and technically, to estimate the economic ‘costs’ of gambling for purposes of incorporating them into a benefits-cost equation.

First, there is an unresolved philosophical question about the extent to which gambling addiction should be viewed as an ‘individual’ loss or behavioral problem, rather than a ‘social’ cost that should be compensated by society.  There is also a great deal of controversy in the medical and psychological communities as to whether gambling is a physical addiction rooted in brain chemistry or a behavioral problem.  It is also not clear whether problem gambling is ‘caused’ by the mere proximity of casinos or whether problem gambling is the effect of other underlying causes such as depression.

Second, even if a comprehensive analysis attempts to estimate the economic costs of problem gambling in terms of revenues lost to businesses due to bankruptcy and embezzlement, the cost of gambling addiction treatment, and loses to other individuals due to fraud (e.g., credit card theft), there are still numerous technical difficulties that have not been solved by economists, survey researchers, and public health analysts.  For example, there is no current agreement on how many individuals who gamble will eventually become lifetime pathological gamblers or gambling addicts, although such estimates can range from 0.8% to 5% of the adult population exposed to gambling, depending on how one defines the problem and depending on what methodology is used to arrive at an estimate.  In addition, there are widely differing estimates as to the average cost to society per problem gambler.  Thus, any effort to incorporate these costs into a benefits-cost analysis is likely to encounter criticism from both anti-gaming and pro-gaming constituencies regardless of the number that is actually used in the analysis. 

Third, some public policy analysts question whether problem gambling should even be viewed in economic terms.  Indeed, it is widely agreed among public policy analysts that a significant limitation of benefits-cost analysis is its inability to surmount the incommensurability of values.  Can one actually assign a price or dollar cost to social values, environmental values, or perceptions about the quality of life?  Is a benefits-cost analysis the appropriate way to incorporate such values into public policy discussions and the decision-making process?  It may be more appropriate to view economic and fiscal impacts as simply one set of considerations to be taken into account by policymakers in assessing the overall impact of any major economic development project, including casinos.  For this reason, some government agencies now require separate economic, social, traffic, and environmental impact analyses for major economic development projects regardless of the industry.

Substitution effects are also frequently identified as a negative economic impact of the gaming industry.  The substitution argument asserts that any dollar spent at a casino must come at the expense of other local businesses.  In discussions of casino gaming throughout the country critics often claim that casinos merely divert hundreds of millions of dollars in consumer spending from existing local businesses.  The alleged substitution effect of casino spending is often the basis for assertions that casinos “cannibalize” other local businesses, particularly small establishments in the retail, entertainment, and restaurant business.

The substitution argument starts with the assumption that local, state, or regional economies are a zero sum game in which no business can expand or grow except at the expense of other businesses.  If this was inherently true, it would be hard to explain how a McDonald’s can continue to increase sales when a Wendy’s opens across the street.  In fact, amusement, recreation, leisure, and entertainment businesses are among the fastest growing sectors of the United States economy today.  The growth of this industry, including casino entertainment, is made possible by increases in population and disposable personal income and, consequently, these sectors can continue to grow – as can others -- without displacing existing spending so long as disposable personal income continues to increase from year to year or if it attracts new income from outside the region.

However, the argument that casinos cannibalize (or substitute for) existing local businesses is ultimately an empirical question that can only be answered by objective empirical research.  While empirical research should be informed by sound economic theory, and the results should be explainable by theory, speculative conjecture cannot substitute for rigorous empirical research.  The New England Gaming Research Project plans to conduct such studies and thereby inform the gaming debates in New England with facts, rather than anecdotes, assertions, or speculation.

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A fiscal impact analysis compares the revenues and expenses resulting from new development for the purpose of determining how state and municipal finances are affected by that development.  A fiscal impact analysis is essentially a specialized form of benefit-cost analysis designed to examine whether new commercial or industrial development generates a net fiscal benefit or a net fiscal cost to a unit of government.
There are many different models for predicting fiscal impacts, but the two most common approaches are average costing and marginal costing.  Average costs are simply per-unit costs, whether the unit is a person (resident or employee), a household, or some other measure (e.g., square footage of facility).  In fiscal impact analysis, the number of units (often people) is multiplied by the average cost per unit for a particular service and added to the existing public budget.  This is probably the most common method for estimating fiscal impacts.  Marginal cost analysis uses an analysis of the current capacity and infrastructure of a community to discover whether certain types of new development will rely on existing capacities or will push certain services over a threshold that will require new and expensive capital investments, such as water and sewer lines, expanded water and sewer treatment capacity, new streets, sidewalks, and traffic signals, or additional school buildings, fire protection, or police protection.

The positive fiscal impacts of casinos are the revenues they generate for government by paying special taxes on gaming revenues, the payment of licensing fees by the casino and casino employees, property taxes, personal income tax payments by casino employees, and indirect tax payments stimulated by non-gaming casino operations, such as room occupancy, meals, and retail sales taxes, as well as the potential social savings from lower welfare and unemployment insurance rolls. 

Every jurisdiction that allows casino gaming levies a special gaming tax, although different jurisdictions have chosen to levy this tax, or to negotiate compacts with Native American tribes, in many different ways.  Gaming taxes can be flat or graduated, levied on gross gaming revenues, adjusted gross gaming revenues, or net gaming revenues and they can be levied on gross gaming revenues or just on slot machine revenues.  Commercial casinos also pay local property taxes, although Native American casinos are generally exempt from property and excise taxes, which has raised the issue of compensation for the local communities that bear the fiscal costs of hosting these facilities.  It is also raises the question of how gaming tax revenues are divided between state government and local governments.

In 2004, commercial casinos paid more than $4.7 billion in state gaming taxes and this figure does not include the additional revenues generated by casino boats, card rooms, slot machine parlors, video lottery terminals, and through state compacts with Native American casinos.  It also does not include state income taxes paid by casino employees or excise taxes generated by the casinos’ non-gaming operations.

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There are certainly fiscal costs to a large gaming establishment, but these are generally the same types of costs that would be incurred with any large scale economic development such as a regional mall, an amusement park, a large factory, a sports stadium, or a major tourist attraction.  There are few fiscal costs that are peculiar to casinos and racinos.  Whether these costs constitute a negative fiscal impact depends entirely on the magnitude of these costs compared to the amount of revenue generated by the gaming facility for a particular unit of government.  If these costs are less than the revenue generated, then even after incurring these costs, there is still a positive fiscal impact.  If these costs are more than the revenue generated, only then can one say there is a negative fiscal impact.

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Crime is often identified as a fiscal cost of the gaming industry.  When analyzing this issue, however, it is important to distinguish between the volume of crime (total number of crimes) and the crime rate (crimes per 100,000 people).  Any large scale development that attracts hundreds of thousands to millions of visitors per year to a local jurisdiction will probably generate an increase in the volume of crimes in that jurisdiction, which would not have occurred in the absence of that facility.  The crowds attracted to a large facility of any type will become targets of crime and some will be perpetrators of crimes.  This pattern is observed at regional malls, amusement parks, tourist attractions, sports stadiums, and any site that attracts large numbers of visitors.  Thus, the volume of crime will likely increase in any community that hosts a large scale economic development project that attracts new visitors.  However, on a per capita basis (crimes per 100,000 visitors), this does not mean that the crime rate will increase or that casinos necessarily produce crime rates higher than other types of large facilities.  Nevertheless, even if the crime rate does not increase, an increase in the volume of crime will generate additional demand for law enforcement, particularly for small local police departments that must now process an increased number of cases.  This is one factor that should be considered in assessing or evaluating the local fiscal impacts of the gaming industry.

There are other crime-related factors to be considered beyond the mere number of crimes when assessing the potential or actual fiscal impacts of the gambling industry:

• Does the crime generated by a casino require increased law enforcement off-site, such as traffic enforcement, burglary, and robbery (which will increase the demand on a local police department) or does the majority of casino-related crime occur on-site, such as check and credit card fraud or pick pocketing?  On site crime can be mitigated by in-house security, which means the major costs of such crimes are borne by the gaming facility, rather than local government - both in terms of potential lost revenue and security enforcement.
• Is casino-related crime violent in nature, such as murder, rape, armed robbery, and assault and battery or is it non-violent crime, such as larceny, speeding, and DUI?  The latter crimes are typical of any major attraction that draws large numbers of visitors to a location, particularly in the amusement, entertainment, and recreation industry. 

There are other potential fiscal costs of casinos related to the increased demand on local public services that are generated by large crowds:

• Any major attraction that draws large numbers of visitors will generate an increased traffic flow from employees and visitors.  Depending on the traffic volume and the capacity of existing infrastructure, the fiscal costs of a new gaming facility may include road widening, more frequent road maintenance, new street lights, exit ramps, landscaping, and sidewalks. 
• Gaming facilities, as with any large development, may also place increased demands on other public infrastructure, such as water and sewer treatment capacity, water and sewer lines, public health enforcement, etc.
• Such facilities will also generate increased demand for emergency medical response and fire protection.

Another identified fiscal cost of gaming enterprises is gaming regulation and enforcement.  Once again, this is not a cost peculiar to the gaming industry, since virtually all industries and business establishments in the United States are subject to some type of federal, state, and local regulation.  However, gaming is one of the most tightly regulated industries in the United States.  These regulations include licensing the establishment and its employees, financial reporting oversight, and the enforcement of gaming laws, etc.  The adoption, monitoring, and enforcement of these regulations, as well as the promulgation of licensing requirements generate costs that are borne primarily by state governments (e.g., gaming or lottery commissions and state police), although some costs are borne by local governments (e.g., liquor licensing, victuals licenses, public health regulations, etc.). 

Gambling addiction treatment is also identified as a fiscal cost peculiar to the gaming industry, although addictive behavior is associated with other legal industries (e.g., tobacco, alcohol, internet, video games, shopping).  Some states earmark a portion of gaming taxes to support responsible gambling education and to fund gambling addiction treatment, which means these costs are not borne by the general treasury, but covered by the gaming industry.  To minimize these costs, many casinos are directly implementing in-house policies and employee training to identify problem gamblers.

In evaluating the size of fiscal costs compared to fiscal benefits, it is important to note that local and state economic development officials have many tools besides taxes for adjusting the benefits-cost ratio.  Economic developers long ago identified mechanisms for compensating communities that host major economic development projects.  Local governments can shift some costs to the state (e.g., infrastructure improvements), which receives the largest share of gaming revenues.  Some costs can be shifted to the business establishment itself in the form of impact fees that pay for capital improvements (e.g., water and sewer lines, expanded sewage treatment capacity, road and highway improvements).  Capital donations by the business establishment (e.g., a new fire truck, police cruisers, etc.) may eliminate certain costs to local governments particularly.

Thus, it is important to recognize that whether the fiscal costs of any business development become a negative fiscal impact depends entirely on whether the revenues collected are sufficient to fully compensate a state and its local communities for the additional capital and operating costs of that facility.

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