The following is a letter to the Virginian Pilot editor by James V. Koch dated February 2, 2020:
Anyone tuned into the political scene is aware that state and local officials are eyeing the additional tax revenues they believe casino gambling might bring to their cities and the commonwealth.
No matter that the respected Joint Legislative Audit and Review Commission, which conducts program reviews and policy analyses for the General Assembly, reports that the economic impact of casino gambling might be very small. Indeed, my conversations with JLARC personnel reveal that JLARC personnel agree that slightly different (and probably more realistic) assumptions might cause the economic impact on Virginia to be zero.
Let’s look at some of the issues. First, JLARC’s conclusion is based heavily on a consulting report that assumed zero expenditure displacement. This means that a dollar spent by an individual patronizing a Norfolk or Portsmouth casino is assumed to not reduce his/her spending in the rest of the community by so much as a single penny.
Alas, not even Harry Houdini can spend the same dollar two places. When community spending is reoriented toward the casinos, already struggling regional businesses such as those in MacArthur Center and restaurants along High Street in Portsmouth are likely to suffer. Some will go belly up. The consulting report does not reduce its estimates of jobs created by the number of jobs that will be lost in existing local businesses.
Second, the consulting report does not appear to take full account of the impact that multiple casinos will have on the gaming revenues received by any individual casino. It is logical that the gaming revenues enjoyed by Portsmouth will suffer if Norfolk also opens a casino (and even more so if Hampton and Richmond join the parade). The commonwealth may not care about this because state tax collections would not suffer. But it would definitely reduce the tax revenues each city can earn.
The consulting firm also did not take full account of the reality that revenues at the largest casinos in surrounding states typically tail off several years after their newness wears off. For example, total gaming revenue in Maryland Live! peaked in 2016 at $653.2 million and fell to $576.6 million in 2018. Meanwhile, at Horseshoe Baltimore, gaming revenue also peaked in 2016 at $324.3 million, but was only $259.9 million in 2018.
In West Virginia, the older Charles Town facility’s gaming revenue peaked at $541.9 million in 2011 and by 2018 had fallen to only $303.7 million.
The moral to this revenue story is that even casino gambling becomes old hat after a period of time. The expansion of mobile betting via the Internet is accelerating this. We should expect each city’s casino-related tax receipts to decline significantly after several years.
The report also pays no attention to the regressive redistributive effects of casino gambling — proportionately, it extracts more income from the pockets of lower income households than from more wealthy ones. Political progressives ordinarily oppose such things.
Nor is any attention given to the incremental fiscal burdens (policing, social costs) the casinos will generate. Perhaps the consulting firm was not asked to assess these costs, but even a casual glance at gambling sites such as Las Vegas suggests these local costs are substantial.
We should recognize casino gambling for what it is — a tax increase. It represents a relatively painless way for the commonwealth and the cities to extract more revenue from the citizenry. This is that rare tax that a segment of the population will enjoy paying.
Let me end on a positive note. The recent announcement by the city of Norfolk that its proposed casino will be “commercial” implies that the Pamunkey Tribe and its financial supporters will pay all the costs of developing and operating the casino as well as related infrastructure costs. Norfolk apparently will invest zero. If so, then this represents a major improvement over previously advertised proposals.
James V. Koch is Board of Visitors Professor of Economics Emeritus and president emeritus at Old Dominion University. Contact him at firstname.lastname@example.org.