WPRI Report
Volume 25, No. 5
September, 2012

 

Executive Summary

New casinos are proposed in four Wisconsin cities: Beloit, Kenosha, Sheboygan and Shullsburg. Casino gambling usually brings jobs and money to local communities, but it also brings problems. The question is whether any of the casinos should be built. Are the benefits from one or more of the additional casinos likely to outweigh any adverse consequences for the tribes, the state’s economy, local governments and the state government?

After years of rapid growth, both the amount wagered at casinos and the net winnings for casinos in Wisconsin and in most parts of the United States have declined in recent years. The recession accounts for a substantial part of the decline, with the number of gamblers remaining stable but their wagers getting smaller. Just as casino revenue has slowed, so has the growth of state-sponsored lotteries.

Even though the recession most likely accounts for the actual decline in wagers in Wisconsin (and across the nation), there appears to be an overall flattening of the demand for casino gambling that is perhaps best explained by a maturation of the Wisconsin market for casino gambling. Market maturation essentially means that the casino gambling market in Wisconsin is saturated or near saturation. Demand for new products typically starts slowly, grows rapidly, and then flattens out. As markets mature, the rate of increase in demand slows and eventually becomes flat and may even decline, particularly when substitutes for the good or service appear. The concept applies to gambling the same way it applies to minivans, diet books or almost any other good or service.

Adding new casinos to an already saturated market has consequences. The new casinos proposed for Wisconsin would be on “newly acquired land,” that is, land acquired by tribes for the sole purpose of opening a casino in a prime market location. They would compete for gamblers and gambling dollars with other casinos in Wisconsin and near Wisconsin’s borders, with business going to the most accessible and the casinos with the most amenities.

In a saturated market, any new revenue to the sponsoring tribe is likely to come from another Wisconsin tribe and from another Wisconsin community. In that case, there would be no net gain to the people of the state. There will simply be a transfer of jobs and money from one community to another and from one tribe to another. The community with a new casino built in a favorable location will compete effectively until another casino is built in a better location with more amenities. Casinos in less favorable locations will suffer and so will the communities in which they are located.

The adverse consequences of adding to supply when demand is saturated are real. Casino owners in Reno, Nev., for example, say they have suffered badly because of competition from casinos recently developed across the state line in northern California. Reno authorities have to ask themselves whether the tribal casinos are offering a better product to customers and whether the higher-end Las Vegas casinos are equally to blame. But if the market were not close to saturation, the impact of casinos in California would most likely not have been as severe.

Closer to home, the Lac Courte Oreilles Band of Lake Superior Chippewa Indians has experienced a drop of more than two-thirds in its casino earnings over the past few years, compared with losses of only about 5 percent over the same period for aggregate tribal casino earnings in Wisconsin. There are several plausible reasons for that. Competition from other casinos in locations favored by gamblers and with better amenities and ambience is part of business. But it also provides evidence of market maturity. There may, however, be greater adverse impacts of the recession near Hayward, where the Lac Courte Oreilles casino is located, or other factors peculiar to the operation of that specific casino that account for the decline there.

Competition from internet gaming could do to tribal gaming what tribal gaming did to dog tracks in Wisconsin. The possibility of internet gambling becoming widely available is enough of a problem that tribes “are calling on the federal government to step in (and) ensure tribes get a piece of the action without having their revenue taxed and their sovereignty compromised” (Gamboa, 2012). Internet gambling does not require brick and mortar casinos; it requires only a computer with an internet link. It has no state or national boundaries and will be extremely difficult for government at any level to regulate or tax. Both commercial and tribal gaming interests are attempting to position themselves should internet gaming become a reality.

More casinos in Wisconsin are not inevitable. The Indian Gaming Regulatory Act, the federal law governing the creation of casinos on “newly acquired lands,” first requires an in-depth review by the Bureau of Indian Affairs. As of this writing, the Bureau of Indian Affairs has not made a determination concerning any of the four proposed casinos.

But under the Indian Gaming Regulatory Act, the governor has the final word on new casinos in his or her state. Whether any of the casinos should be permitted depends on whether they contribute a net positive effect to the economy and the people of the entire state or whether the benefits would accrue just to those communities where they are built. All that is required to stop a proposed casino is for the governor to say no.

Issues, Questions and Criteria

Casino Gambling: Big Business in Wisconsin

$15.31 billion is a lot of money. That is the amount that was wagered in Native American gambling facilities in Wisconsin in 2011 (Wisconsin Division of Gaming, 2012). Not all of those wagers constitute losses by gamblers.¹ Compacts between the state and each of the Indian tribes stipulate that between 80 and 101 percent of the amount wagered on games of chance (a minimum of 83 percent of the amount wagered in games in which the gambler’s skill may make a difference in the outcome) must be paid back to the gamblers in the form of winnings. Nor does the $15.31 billion represent profit to the Indian tribes. In addition to the amount paid back to gamblers, the total “handle” must pay for facility development and maintenance, wages and salaries, and other costs of operating the facilities, including whatever amounts are paid to the state and to local governments. In 2011, Wisconsin Indian tribes realized $1.19 billion in net winnings. That represents a net profit of about $210 for every man, woman and child in the state.

Eleven tribes in Wisconsin are recognized by the federal government. Together, they have a complete monopoly on Class III casinos in Wisconsin.² There is no doubt that casino gambling has had a significant, positive impact on the lives of many tribal members living in Wisconsin.³ This is particularly true for members of tribes, such as the Oneidas, that have successfully used earnings from their gambling enterprises to make economic and social investments that will better the lives of tribal members for generations.

Gambling, from bingo to baccarat, has been very good to some tribes. For those few reservations in or near larger urban areas, with access to heavily traveled highways, or in popular recreation areas, casinos have generally proven profitable. Most tribal reservations in Wisconsin, however, are in remote locations, and casino gambling on some of those reservations has not generated the hoped-for level of profits. Some casinos in remote locations do very well because they are destinations or near destinations where people travel to golf, fish, hike and relax. Others do not do as well.

It didn’t take long for tribes in Wisconsin whose reservations were either in remote locations or virtually nonexistent to come up with a strategy to further their quest for a larger piece of the gambling pie. The strategy is simple: Find a community that is in a prime market area, that wants economic development, and that has historical tribal ties. Most local governments in Wisconsin hope for economic development to build a stronger economy and to increase local government revenue. Historically, this often resulted in little more than a largely vacant industrial park on the edge of town. But these days, it could mean a Class III gambling casino on or near Main Street.

The Issue at Hand: More Mini-Reservation Casinos in Wisconsin?

The profitability of the monopoly in casino gambling for Native American tribes in Wisconsin led to a significant expansion of casinos in locations across the state. Initially, the expansion was on existing reservation lands. Now, however, tribes have built and are operating casinos in Wisconsin in locations that are far from their reservations. Nothing, of course, is as simple as it first seems. The Potawatomi casino in Milwaukee, for example, is on land grandfathered in when the first compacts were developed in Wisconsin. The Ho-Chunk reservation consists of many noncontiguous land parcels held in trust by the federal government with “reservation status.” The land parcels that the Ho-Chunk purchased when they returned to Wisconsin after their forced departure early in the 19th century are spread out over the western and southwestern parts of the state. The Ho-Chunk have trust lands in Adams, Clark, Crawford, Dane, Eau Claire, Jackson, Juneau, La Crosse, Marathon, Monroe, Sauk, Shawano, Vernon and Wood Counties as well as in Illinois (Ho-Chunk Nation, 2010). Thus, the Ho-Chunk casinos over the same area are presumably near one or another parcel that constitutes part of the reservation lands.

One question is whether, given declines in recent years in both gross handle and net profit at casinos in Wisconsin and across the country, the casino gambling market in Wisconsin is saturated and demand is satiated. If so, adding more casinos would simply move wagering from one place to another with little or no increase in gamblers, wagers or profits. If the market is saturated, casinos in preferred locations are very likely to cannibalize the profits of those with poor locations in the competition for a bigger piece of a profitable pie — a pie that would remain roughly the same size. That is already happening on a larger scale nationally. If there is no addition to wagers or profits, then, presumably, employment in casinos and related facilities (such as hotels, restaurants and gift shops) would increase in places with better locations and decline in places with less favorable locations. One might say, “Well, that’s free enterprise.” Unfortunately, there are adverse side effects when an individual casino finds itself in financial difficulty. Local governments that made major infrastructure improvements to support the casino find themselves without the revenue they expected to pay for those improvements. Financiers find they are holding paper for a bad loan. Tribal members suffer financial losses, and the Indian Gaming Regulatory Act’s goal of financial independence for tribes is thwarted. We all pay for a failed casino investment, just as we all pay when a major employer, public or private, closes and leaves a community in dire circumstances.

A second concern is with adverse social spillover from gambling. If you don’t know someone whose child’s college fund has disappeared into a slot machine or who has embezzled money from his or her employer to support a gambling problem, then you have heard or read about such a situation. Problem gamblers generate huge personal, family and social problems. The relevant question here is the extent to which the ubiquitous presence of casinos exacerbates the problem and whether more casinos would exacerbate it further.

Finally, there is a third set of questions. Do the payments made by the tribes to the state and to local governments under the terms of the compacts governing casinos actually cover the costs of lost tax revenue, expenditures on infrastructure that supports the casinos, and the costs of regulating the aspects of casino operations that the state is able to regulate under federal law? Income to tribes and tribal members living on tribal land from activities on reservations or mini-reservations is not taxable. However, when casinos employ people who are not enrolled members of the tribe that owns the casino and who do not live on the reservation, the state government does benefit from taxes on their income. With some exceptions, sales to people who are not enrolled tribal members living on the reservation are also subject to sales tax and state-imposed excise taxes. And, if the money paid to all casino employees, whether tribal members or not, is spent in the local area on goods and services not provided by tribal members on tribal lands, then there is a multiplier effect that provides positive economic benefits to the entire community.

Today, Wisconsin’s elected officials are faced with making choices about whether to enter into compacts with Indian tribes to permit additional off-reservation Class III casinos and, if so, under what conditions. The decisions they make now will have significant long-term consequences. Those who want their elected officials to make appropriate public policy decisions deserve to have the issues illuminated and, to the extent possible, have these questions answered. This monograph is an attempt to do that.

Appropriate Decision Criteria

Gambling, whether in Indian casinos or elsewhere, truly is big business. Almost inevitably, big business that is subject to governmental regulation or affected directly by governmental policy results in big-time lobbying pressure on elected officials. It seems inescapable that decisions about whether to permit additional venues for Class III casino gambling in Wisconsin will be affected by lobbying, campaign contributions, and other means employed by both advocates and opponents to induce elected decision-makers to “see the light.” The challenge is to get decision-makers to focus on the most appropriate decision criteria.

The fundamental criterion for whether off-site casino gambling should be expanded in Wisconsin should be whether the benefits of additional off-reservation casinos to all the people of Wisconsin outweigh the costs. Three sets of benefits and costs are particularly relevant. The first set is composed of economic considerations: How and to what extent would additional off-reservation casino gambling affect the economy of the community in which it is located and the state economy as a whole? Will benefits accrue to a small number of people where casinos are located while the rest of the state’s population bears the costs? Is the market “saturated”? If the market is saturated, who would gain and who would lose?

Social benefits and costs constitute a second set of criteria. Social benefits and costs are difficult to define and harder to measure. Metrics for some social costs and benefits do not even exist. Here, this report relies on the relatively small body of literature that attempts to answer the extent to which additional Class III casinos are likely to contribute to adverse social effects associated with problem gambling and crime that may accompany gambling operations. Moreover, one must also ask about the extent to which another off-reservation casino is likely to contribute to helping tribes and tribal members become independent and fund their own programs, as the Indian Gaming Regulatory Act says is its goal.

A final set of benefits and costs consists of financial considerations. This set of criteria has to do not with benefits to the state’s general economy, but to whether the revenues that would accrue to the state and local governments because of an additional casino owned by a Native American tribe and operated on “off-reservation” land are sufficient. Sufficiency, in this case, means whether the revenues generated by the new casino would cover the costs incurred by state and local governments because of the additional casino.

Adequacy of revenue also means whether the revenue paid to the state by the tribe owning the additional casino is sufficient to warrant the state continuing to ensure the tribes a monopoly on Class III casino gambling within the state. One might well argue that before the state enters into a compact with a tribe, an analysis of costs and benefits and economic effects should be conducted. Such a study could provide the basis for bargaining over the portions of the compact that address the costs to government.

Approach to the Analysis

Casino gambling in Wisconsin generates strong emotions among committed advocates both for and against it. Some who oppose casinos believe gambling is sinful, immoral or contributes to depravity. Others believe that money spent on gambling would be better spent on activities that contribute to the general well-being of the people. Some think that even a few instances in which players steal from their employers, ravage their family finances, or spend disproportionate amounts of time gambling are enough to warrant outlawing casino gambling altogether. On the other hand, casino advocates argue that there are benefits to the local economy and that casino gambling has given Indians long-overdue access to jobs and income that is perhaps not enough to recompense them for centuries of oppression. Consequently, decisions involving the extension of Indian casino gambling to off-reservation sites, compacts with tribes concerning casinos, and the consequences of casino gambling can be highly emotional and intensely political. The politics and the emotions affect the quality and reliability of published materials, both pro and con. Many papers and publications are little more than value-based polemics. Even those intended as impartial analyses may contain unplanned biases. This analysis relies heavily on research conducted previously by others. Because the casino gambling phenomenon is national and controversial, it has been the subject of a considerable amount of analysis by qualified analysts who have published their research in highly respected peer-reviewed journals. Every attempt has been made to avoid reliance on material published by parties with obvious biases or that fails to meet academic standards of reliability.

How We Got Here: A Brief History of Indian Casino Gambling in Wisconsin

In the Beginning . . .

Wisconsin has a long history of opposition to gambling. The state’s 1848 constitution banned lotteries and other games of chance, and the legislature repeatedly outlawed betting on other events, including “numbers,” horse races, and even agricultural futures. Moreover, the Wisconsin courts enforced an extremely strict definition of gambling(Wisconsin Historical Society, 2008).

The courts held that any activity that involved chance, a prize or something of value, no matter how remotely, was unconstitutional.

Some Wisconsinites can still remember the illegal slot machines that were found in taverns across the state in the 1930s and early 1940s, along with newspaper photos and accounts of law enforcement officers confiscating and smashing the offending machines with axes and sledgehammers. Many of us remember, too, when, if one wanted to gamble in a casino, it was necessary to travel to Nevada (or, more recently, New Jersey), a ship outside the 3-mile limit, or a foreign country. Times change. Today, legalized casino gambling in Wisconsin and across the country is widespread. Commercial gambling is legal in about 22 states, and Indian-owned casinos are legal in about 30 states. Today, about 20 states permit Indian-owned casinos, but do not permit commercial gambling.

Wisconsin is one of those. Indian tribes have an exclusive monopoly on Class III gambling games and casinos in the state.

The path traveled from no legal gambling in Wisconsin to the current widespread array of Class III casinos is well-documented.⁴ The Wisconsin Legislative Research Bureau (1997) describes the beginning of gambling on Indian Land concisely:

“Bingo games on reservation lands began to proliferate in 1982, when the U.S. Supreme Court let stand a lower court’s decision that Florida had no jurisdiction . . . to regulate bingo games on reservations if the game was legal elsewhere in the state” (Seminole Tribe of Florida v. Butterworth).

In 1981, U.S. Judge Barbara Crabb ruled that once Wisconsin had legalized gambling on bingo, it had lost its regulatory jurisdiction over bingo gambling on reservations. Subsequently, high-stakes bingo became big business for the Oneida on their reservation in Brown County near Green Bay and for the Potawatomi in Milwaukee.
In 1987, the U.S. Supreme Court, hearing an appeal of a California case, California v. Cabazon Band of Mission Indians, ruled that Congress, if it so chose, could enact laws to limit the gambling rights of tribes. Subsequently, the Indian Gaming Regulatory Act became federal law in 1988. It was the product of compromises between the federal government, the states and Indian tribes. The law states that tribes “may offer the types of gambling that are either specifically permitted or not criminally prohibited by the laws of the state in which the Indian lands are located” (Wisconsin Legislative Research Bureau, 1997). The act defines three levels of gaming; Class III gaming allows casino gambling, slot machines and electronic facsimiles, and pari-mutuel gambling on dog and horse racing and the like.

In addition, Class I and Class II gaming. Wisconsin has all three classes of gambling.
Class II gaming is defined as the game commonly known as bingo regardless of whether played with paper cards or an electronic device and if the game is played in the same location as other games similar to bingo. Class II gaming also includes games that are played against other players rather than against the house. The gaming act specifically excludes slot machines or electronic facsimiles of any game of chance from the definition of Class II games. Tribes are authorized to conduct, license and regulate Class II gaming if the state in which the tribe is located permits those games and if the tribe has a gaming ordinance approved by the National Indian Gaming Commission. The tribes are responsible for regulating Class II gaming with commission oversight.

Class I gaming includes social gaming for minimal prizes. Regulatory authority over Class I gaming is vested exclusively in tribal governments and is not subject to the gaming act’s requirements.

Questions of who authorizes and who regulates Class III casino-style gambling in tribal-owned casinos center on tribal sovereignty. Tribes that are officially recognized by the federal government are sovereign with respect to state and local government for many matters, including Class III gambling. The tribes are not sovereign with respect to the federal government. Thus, the federal government regulates and controls most aspects of Class III Indian gambling.

In 1992, Gov. Tommy Thompson called a special session of the Legislature to consider an amendment to the state constitution (Wisconsin Legislative Reference Bureau, 1999). The amendment was simply stated, but seemed at the time to carry significant implications:
“Shall Article IV of the constitution be revised to clarify that all forms of gambling are prohibited except bingo, raffles, pari-mutuel on-track betting and the current state-run lottery and to assure that the state will not conduct prohibited forms of gambling as part of the state-run lottery?”

The idea was that, were the amendment ratified, Indian tribes would be precluded from operating Class III casinos because all such gambling would be precluded in the state. The 11 recognized Wisconsin tribes formed a coalition and offered to give the state up to $250 million a year to shelve the amendment, to renegotiate gaming compacts, and, specifically, to build a large casino in southeastern Wisconsin. Nonetheless, the constitutional amendment was ratified, but it did not end Indian casino gambling in Wisconsin. In a majority opinion in 2004, the Wisconsin Supreme Court wrote that a 2004 decision by the U.S. Seventh Circuit Court of Appeals “appears to suggest that Wisconsin would have to amend its constitution to abolish the state-operated lottery and pari-mutuel betting and criminalize all Class III gaming in the state in order to regain some authority to prohibit any Class III gaming on Indian lands (Wisconsin Supreme Court, 2004). Because Wisconsin retained the state-run lottery, the constitutional amendment has had little effect except to solidify the Indian monopoly on casino gambling.

The Rules Keep Changing: Casinos Spread Across the State

Initially, the Indian Gaming Regulatory Act restricted tribes to building and operating casinos on land owned by the tribe and held in trust on reservation land as it existed before the law was enacted. “Generally, Class III gaming may not be conducted on trust lands acquired after Oct. 17, 1988, unless the land is adjacent to the boundaries of the reservation as of that date” (Wisconsin Legislative Reference Bureau, 1997). Why, then, are there casinos in places in Wisconsin that appear to be nowhere near Indian reservations? The short answer to that question is that the remote sites became part of the reservation when they were approved to be placed in trust by the federal government and the federal and state governments agreed that a casino could be built and operated on that parcel.

It’s no secret: a casino in an area with a big market makes more money than one located on a reservation in a remote part of the state. That realization led to continuing pressure by Indian tribes to build casinos in places with big markets, even though they might be far from the home reservation or even in another state. The Indian Gaming Regulatory Act states that gambling on newly acquired land (land acquired after 1988) may be authorized for casino gambling by the U.S. secretary of the interior if it is deemed in the best interests of the tribe, is not detrimental to the surrounding community or other nearby tribal gambling operations, and the tribe had some connection to the land at some time.

The Department of the Interior requires that the proposed casino be in “Indian Country.” The definition of what constitutes Indian Country, though, appears to have changed through time. Currently, it generally means land owned by a tribe or member of a federally recognized tribe that has been placed in trust for the tribe by the Department of the Interior.

In 2008, during the George W. Bush administration, the Department of the Interior and its Bureau of Indian Affairs imposed an administrative rule concerning locating casinos on land outside the 1988 reservation boundaries. The rule stated that casinos on newly acquired land must be within “commutable distance” (interpreted as 25 miles) from the pre-1988 holdings. The commutable distance rule would presumably ensure that casinos would be located so that tribal members would be able to work in them.

It turns out, however, that the rules concerning the limits within which casinos must be located when they are beyond the 1988 reservation boundaries are not a neat, tidy, permanent package. They are administrative rules and not statutory stipulations. The American Gaming Association reported that the head of the Bureau of Indian Affairs, Larry Echo Hawk, announced in June 2011 that he would launch a reconsideration of the commutable distance policy. The policy, Echo Hawk said, was “unnecessary and had been issued without adequate consultation with tribes” (American Gaming Association, 2011). It was reported by another source that on June 15, 2011, Echo Hawk announced at the National Conference of American Indians meeting in Milwaukee that the bureau had rescinded the “commutable distance” rule (Esch, 2011).

There appears, however, to be some ambiguity concerning the proximity rule. About three months after Echo Hawk’s announcement, the BIA “approved applications by two California tribes for land to be taken into trust for tribal casinos but rejected applications from another California tribe and a New Mexico tribe, largely because those proposed casino sites were so distant from existing trust land” (American Gaming Association, 2011).

With the nullification of the “commutable distance” rule, the door appears to be open for Indian tribes to seek authorization to build Class III casinos many miles from their 1988 reservations, or even in other states, provided the tribe can demonstrate some historical tie to the land in question. Revocation of the commutable distance rule does not, however, mean that the Department of the Interior will concur with the requests.

In Wisconsin, some casinos are clearly not within commuting distance of Indians living within the pre-1988 boundaries, so it is unlikely that enrolled tribal members living on the reservation will be the primary employees in the casino. Wisconsin’s Stockbridge-Munsee tribe even attempted to build a casino in the Catskills in New York. While the tribe has a historical connection to New York, the attempt was rejected, largely, it appears, at the request of tribes based in New York and primarily in terms of the potential competition with existing casinos.

Nothing Is Quite as Simple as It First Appears

The Forest County Potawatomi have a scattered-site reservation within Forest County. The tribe opened a bingo parlor in the City of Milwaukee (about 230 miles south of its Crandon headquarters), added slot machines in 1992, and upgraded its facility in 2000 to offer slot machines, table games, a 2,000 seat bingo parlor, restaurants and a theater (Potawatomi Tribal History, 2008). The casino is located in the Menomonee Valley where the Potawatomi had lived long ago. Establishing the bingo hall and then the casino so far from the reservation as it existed in 1988 might appear to be in violation of the Indian Gaming Regulatory Act, but, in actuality, the site was in trust prior to 1988 and was grandfathered in with the passage of the law and when compacts began to be developed between the state and the tribes.

The situation for the Ho-Chunk tribe in Wisconsin is somewhat similar. After a long history of being displaced from Wisconsin into Iowa, Nebraska and Minnesota when European-Americans miners and farmers moved westward into southwestern Wisconsin, a number of Ho-Chunk returned to Wisconsin. Like the Potawatomi, the Ho-Chunk tribe’s reservation is a scattered-site reservation. It comprises more than a thousand separate parcels in the western and southwestern part of Wisconsin. The Menominee, Oneida, Bad River and some other bands in Wisconsin have contiguous reservations, but the Ho-Chunk Nation was hardly in a position to build gambling facilities on its essentially nonexistent reservation. Thus, it has been able to build across much of western and southwestern Wisconsin on sites on or close to land held in trust for the tribe prior to 1988.

How Does a Parcel in Your Community Become a Tribal Casino?

How does a parcel of newly acquired land (land outside 1988 boundaries of the tribal reservation) become approved for a casino? What are the steps?

• A tribe seeking a location conducive to operating a profitable casino first has to find a local government looking for jobs and tax revenue that will agree to have a casino built and operated within its boundaries.
• The tribe must either acquire a land parcel in the local jurisdiction or obtain an option to buy the land upon which the facility would be built.
• The tribe and the local government within which the parcel exists must develop an agreement defining the terms of their business relationship. The compact is valid only following approval of the casino by the federal government and the state’s governor.
• The sponsoring tribe prepares an application to the secretary of the Department of the Interior asking that the land be placed in trust and, if that is approved, then requests that the site be approved for a casino.
• The secretary of the Department of the Interior, typically through the Bureau of Indian Affairs, then consults with the Indian tribe, with appropriate state and local officials, and with officials of other nearby Indian tribes to determine whether a gaming establishment on newly acquired lands would be in the best interest of the Indian tribe and would not be detrimental to the surrounding community.
• The secretary of the Department of the Interior then makes a determination as to whether the land should be placed in trust and whether Class III gambling may be permitted on the newly acquired lands. If the secretary determines that the land should be placed in trust, then he or she sends a letter to the governor of the state in which the land is located. The letter contains the details of the tribal application, including the rationale for his or her determination.
• The governor then decides whether to concur with the secretary’s determination. The governor will have an analysis conducted concerning the site, the likely profitability and other matters associated with adding another casino in the state. During the process, there usually are public hearings, comment periods and there may even be local referendums.
• The governor has the final word. If he or she determines that a proposed Native American casino on recently acquired land is not in the best interests of the people of the state, then it will not be built regardless of any determination of the Department of the Interior.

The tribal application asking the secretary of the Department of the Interior to make a determination about the proposed site is not simply, easily or quickly prepared. Nor does the secretary typically respond quickly. Proposals are analyzed for a year or more. The proposal must contain the following: a legal description of the location on which the casino will be built; proof of identity of present owner; the distance of the land from the tribe’s reservation or trust lands and tribal government headquarters; information to help the secretary determine whether the casino at the proposed location is in the best interests of the tribe and its members and will not be detrimental to the surrounding community; an environmental impact statement; an authorizing resolution from the tribe; the tribe’s gaming ordinance or resolution approved by the National Indian Gaming Commission; the compact with the state if one has been negotiated or, if the tribe has not negotiated a Class III gaming compact with the state, the proposed scope and size of the proposed gaming establishment; a copy of the existing or proposed casino management contract; projected gaming income statements, fixed assets accounting and cash flow statements; projected tribal employment, job training and career development; projected benefits to the tribe and its members from tourism; proposed uses of the increased tribal income; projected benefits to the relationship between the tribe and non-Indian communities; possible adverse impacts on the tribe and its members; distance of the proposed site from where the tribe maintains core governmental functions; and evidence of significant historical tribal connections of the proposed casino location, if any. Hearings may be held.

Four More Casinos in Wisconsin

The Lure: The Casino as a Local Economic Bonanza

The quest for economic development is a perpetual priority for local government officials. Many local officials and business people see a casino at or near the top of the list of ways to bring in new jobs, economic activity, prosperity and additional revenue.
Advocates often talk about the economic benefits that they expect to result from adding to the supply of off-reservation gaming facilities. Wisconsin tribes and tribal members, looking for an opportunity to escape a long history of reservation poverty, hope that a casino will generate increased income for them and generate profits that tribes can plow back into economic opportunities and social welfare programs and/or share with enrolled tribal members.

People who are not enrolled tribal members but who live near a proposed casino hope the casinos will provide good jobs, reducing area unemployment and underemployment. If the casino is located some distance from the reservation, the majority of jobs would most likely go to local residents. Local officials and business people at the proposed site look for positive spillover and multiplier effects to better their community. The local community looks for jobs, more visitors, more business and, essentially, a big addition to the community’s “magnet.”

The lure is attractive. Allan Mallach of the Federal Reserve Bank of Philadelphia summarizes it both succinctly and in agreement with the literature (March 2010):
“Casinos can produce significant economic effects in the communities and regions in which they are located, although the effects vary widely. The size of the local or regional effect depends most significantly on how many visitors the casino draws from outside the area, thus reducing displacement of existing economic activity, and the number of jobs it generates within the area, thereby increasing the multiplier effect of the casino.”
The Proposed Casinos

Today, four Wisconsin tribes are seeking approval for casinos in Beloit, Kenosha, Sheboygan and Shullsburg. Beloit, Kenosha, and Sheboygan are located on interstate highways that run between larger population centers and between those centers and high-traffic recreational areas. Shullsburg is about 90 minutes from Beloit and Madison and about 30 minutes from Dubuque, Iowa. It is not near a large population center and is not on a major highway, but a casino there would reduce travel time to a casino for a significant number of Wisconsin residents to less than one-half hour.

Each of the four proposed casinos is being presented as a destination spot that may include water parks, golf, shopping and an array of restaurants. The casinos are intended to be more like casinos on the Las Vegas strip, where people vacation and have the option to do a variety of things besides gambling.

Beloit. The Ho-Chunk tribe has targeted Beloit as the location for its sixth casino. In January, the Ho-Chunk reported to the community that it wanted to build a casino there at a cost of more than $150 million. The facility would include 2,200 slot machines and 50 gaming tables, a convention center, and a 300-room hotel. Local officials find the proposal attractive. It would, according to the Ho-Chunk, employ between 1,000 and 2,000 people. The city would receive 2 percent of net winnings with no offsets for state payments or casino operations. This is estimated as $5 million to $7 million per year. Of that, the city would give 30 percent to Rock County (Duwe, 2012). The project awaits approval of the Department of the Interior, approval of a compact with the state, and approval by the governor.

Beloit, a community of about 37,000, is located on the Wisconsin-Illinois border in Rock County at the confluence of the Rock River and Turtle Creek. Manufacturing has been a major employer, but over the past decade, the city has lost many of its manufacturing jobs. Janesville is less than half an hour from Beloit. It has a population of about 65,000. Like Beloit, Janesville has lost major employers in recent years. General Motors closed its assembly plant there in 2008, and Parker Pen is no longer in operation in Janesville. In April, the Janesville Metropolitan Statistical Area, which includes Beloit, had the second highest unemployment rate of any Metropolitan Statistical Area in the state at 8.3 percent (Wisconsin Department of Workforce Development, 2012). Rockford, Ill., is about 20 miles south of Beloit and has a metropolitan population of about one-third of a million. Unemployment in Rockford approached 20 percent in 2010 and is about 11.5 percent this year (U.S. Department of Labor, 2012).

From the standpoint of the Ho-Chunk tribe, Beloit makes good sense as a casino site. The proposed casino would be immediately adjacent to the intersection of Interstate Highways 90-39 and 43. I-43 is the primary connection to Milwaukee from the southwest and I-90 leads to Madison, the far north recreation areas, and Minneapolis-St. Paul. The Ho-Chunk report that about 40 percent of the cars entering Wisconsin come up from Illinois through Beloit. In addition, the high unemployment rate in Rock County means that community support would likely be strong because of the promised jobs and the benefits to local government revenue.

The Beloit area makes such good sense that the Ho-Chunk also proposed a casino across the Illinois border in Rockford. Legislation authorizing a casino in Rockford and four other sites passed both houses of the Illinois legislature in the summer, but that bill was vetoed on Aug. 28 by Illinois Gov. Pat Quinn because the legislation did not include sufficient ethical safeguards (Garcia and Long, 2012). This, presumably, makes a Beloit casino likely to be more profitable than if a competing casino were to be built about 20 miles to the south.

Kenosha. Kenosha is designated as a Wisconsin Metropolitan Statistical Area. It has also been targeted as a site for a casino by the Menominee Indian tribe of northern Wisconsin for a decade or more. The city is home to about 80,000, and Kenosha County has about 200,000 people. The city and the county have unemployment problems. Currently, the Kenosha SMA has among the highest unemployment rates in the state: about 11.2 percent in April (Wisconsin Department of Workforce Development, 2012). The high unemployment rate in the Kenosha area doubtlessly creates an incentive for local officials to seek new employment opportunities for local residents and a stable addition to its municipal revenue. That makes the proposed Menominee casino attractive to locals.

Like the proposed Ho-Chunk location in Beloit, Kenosha has access to an interstate highway. The city is directly between Chicago and Milwaukee. The proposed project would be on the site of the former Dairyland greyhound racetrack facility. The Menominee’s proposal, however, has encountered a number of obstacles over the years.

First, the Menominee tribe was involved in a lawsuit challenging the Department of the Interior’s “commutable distance” rule. The suit was settled in favor of the Menominee tribe after the Obama administration revoked those restrictions (Holyoke, 2011). Next, the effort to open the proposed $800 million Indian casino in Kenosha slowed when the Menominee tribe and its California partner broke off relations in May. It is the most recent of four non-Menominee groups to exit the project (Potente, 2012). A new partner is being sought.

Another problem is that the Forest County Potawatomi tribe is reportedly bitterly opposed to the Menominee’s proposal for a Kenosha casino. According to the Milwaukee Journal Sentinel (Spivak, 2012), the Potawatomi have spent millions of dollars fighting efforts by the Menominee to open a casino in Kenosha because of fears the competition would cut into profits at the Potawatomi’s Milwaukee casino. If the gamblers come to the Milwaukee casino primarily to gamble and not to savor the flavor of Milwaukee itself, then the proposed Kenosha casino, roughly 40 miles closer to northern Illinois and the Chicago area, would likely draw business away from Milwaukee. “ ‘About 20 percent of (the Milwaukee casino’s) business comes from Illinois,’ said a source close to Milwaukee casino. ‘You do the math’ ” (Spivak, 2012).

Sheboygan. Sheboygan is situated on Interstate Highway 43 along the shores of Lake Michigan. It is almost exactly midway between Milwaukee and Green Bay, about 65 miles south of the casinos in Green Bay and about 60 miles north of the casino in Milwaukee. Sheboygan, a city of about 50,000 has comparatively low unemployment (6.4 percent in April) (Wisconsin Department of Workforce Development, 2012). The city is developing a reputation as an attractive place to visit. It boasts an elegant lakeshore resort and spa, a significant number of quality restaurants, and immediate proximity to Kohler, with its fine dining, world-class golf courses and higher-end shops. A casino would enhance the Sheboygan area as a destination for those with an interest in gambling and, therefore, would likely generate employment and local government revenue.

Claremont New Frontier Resort, owner of the Blue Harbor Resort on Lake Michigan, announced earlier this year that it was exploring the possibility of developing a casino with the Sokaogon Chippewa Community of Mole Lake. The Sheboygan Press reported that the tribe, resort and city entered into an agreement in March that gave the tribe a three-month window within which to reach a deal (Daily Reporter, 2012). City officials said that the project has stalled because the developer and the Mole Lake Chippewa were unable to reach a formal development agreement.

One possible factor may be the a lawsuit filed in 2010 by Wells Fargo against the 1,200-member Sokaogon Chippewa Community after the tribe failed to make payments on nearly $20 million in bonds that the bank had issued to fund improvements on tribal land. In the lawsuit, Wells Fargo claims that the tribe’s gaming enterprise was insolvent as of July 2009 (Lintereur, 2012).

Shullsburg. Shullsburg is a community of about 1,200 located in Lafayette County. The county is in the southern tier of counties bordering Illinois, and Shullsburg is essentially on the border.

Lafayette County has among the state’s lowest unemployment rates — approximately 5.8 percent in May (Wisconsin Department of Workforce Development, 2012). Even so, Lafayette County and adjacent Grant County have some economic problems. They make up one of the 22 Wisconsin Community Development Zones. The Development Zone program is intended to stimulate economic development in areas suffering from economic hardship. The state has allocated $1 million to help improve employment opportunities and encourage private sector job creation in distressed areas. Lafayette County is also part of a Wisconsin Agricultural Development Zone. The agricultural zones are intended to foster development of agricultural businesses. Both programs provide job credits to employers for new positions created.

One of the state’s earliest communities, Shullsburg has a rich history as a center of lead mining. It has historic charm, but as one resident said, “I don’t know if we’re going to survive with just our history. We need more for our businesses to stay open and make a profit” (Adams, 2012). Thus, the proposal by the Lac du Flambeau Band of Lake Superior Chippewa Indians to build a casino in Shullsburg was attractive to local officials.
In 2004, the Lac du Flambeau Band bought almost 100 acres in Shullsburg and sought state and federal approval for a casino, a hotel and convention center, a water park, and an 18-hole golf course. Plans called for 1,700 slot machines in the casino. The president of the Shullsburg Common Council at the time said 87 percent of the residents who voted in an April 2003 referendum approved the casino project. “We’re excited to have this economic development opportunity,” he said (News from Indian Country (2002).

The proposed casino project was rejected in 2008 by the U.S. Department of the Interior’s Bureau of Indian Affairs because it did not comply with the “within commutable distance” provision for siting Indian-owned casinos. Now that the provision has been lifted, the Lac du Flambeau tribe has resubmitted its application. According to the chairman of the Lac du Flambeau tribe, “Shullsburg will benefit . . . as tourists flock to the casino and visit the city’s downtown historical district, the Badger Mine and Museum, and the restaurants and gas stations” (Adams, 2012). Hope, of course, springs eternal, despite the existence of two casinos in Dubuque, Iowa, about a half hour away and the proposed casino in Beloit, about 65 miles away.

Economic Benefits of Casinos to the Local Community: A More Critical Look

It is easy to see why community leaders get excited about the prospect of having a casino in their community. The question is whether their hopes and expectations are likely to be realized. Adam Rose conducted the most extensive review of books and articles in peer-reviewed scholarly journals in recent years in an attempt to learn whether a consensus existed among economists who examined the economic impacts of casino gambling (Rose, 1998). Rose’s review of the literature and his own analysis led him to conclude that the addition of a casino to a community was generally good for business (See Mallach as well, op. cit.). Local communities typically benefit economically from construction and operation of a casino in the immediate vicinity. It increases employment and income in that community. Rose concluded from his research, however, that “the majority of jobs are relatively low-skilled, low-paying service types.” He notes, however, that casino jobs are often the only immediate employment opportunities in some areas, including rural areas, inner city areas, and Indian reservations.

Rose adds an extremely important caveat. A casino is good for the local economy, he says, unless it is built in an area that already has ready access to another casino. Rose’s caveat applies, too, to circumstances in which the gamblers who live in an area for which the population’s desires for the gambling experience are satiated; i.e., when they have so many gambling opportunities that they don’t want or need any more. When other casinos are easily accessible and/or when demand is satiated, employment and expenditures at the new casino mainly substitute for employment and expenditures at previously existing casinos.

Just because a business benefits one community does not necessarily mean it will benefit the economy of the state. In their efforts at community development, local officials and chambers of commerce often work hard to attract businesses from other communities. To the extent that they are successful, their efforts often amount to little more than a zero-sum game. If one attracts a business from a community within the same state, the gain in one community is offset by the loss to the other community. Getting that business to move to your town may contribute to your local property base and add to the number of jobs in your community, but it does not contribute to aggregate economic development. It merely shifts good things from one community to another community with no net gain. That may not be of great concern to the “winners,” but it is to the “losers.” For the people of the state, there is no net gain and, most often, there are transaction costs, almost always borne by the “losing” community and by others in the state.

One way to examine the effects of a new casino on a community and on area businesses that are not associated directly with the casino is through a concept known as the multiplier effect. The multiplier effect is premised on having some part of a dollar earned by one member of the community spent at another business (call it Business B) in the locality. Some portion of that dollar then constitutes revenue to Business B and is subsequently spent at Business C and so forth. At each step in the series of transactions, some of the money stays with the person who spends it for savings, taxes or expenditure outside the community.

Overall, the economic impact of a dollar spent at a casino can end up contributing more than a dollar to the community economy, depending on several factors. One of those factors is the “marginal propensity to consume” of each of the persons who gets some part of that original dollar. People with lower incomes tend to pay lower taxes and to save less and to spend more of each dollar they get than those with higher incomes. That contributes to increasing the multiplier effect. The multiplier effect is diminished, though, when those who get a part of that original dollar do not spend it or when it is spent outside the economic market area. For example, Green Bay is home to a large meat packing industry. The industry employs large numbers of people who came there from Mexico and Central and South America specifically for the jobs in the meat packing industry. Many of them send money to family members in their home countries. Each dollar sent to one of those countries constitutes “leakage” from the economy and reduces the multiplier effect.

More “leakage” occurs if the money spent at the casino simply substitutes for money that otherwise would have been spent at a local grocery store, barbershop or tavern. In that case, the expenditures constitute a “substitution effect” and the dollar spent at the casino does not lead to a net gain to the local economy. In brief, the local community is interested in estimating how much of the dollar spent at the casino site will stay in the community and how much will be spent in other communities.

In the case of tourists who stop at a “convenience” casino, the money they may lose at the slot machines while getting a candy bar or cup of coffee can affect the multiplier effect, but the fact that they spend money at the casino does not mean they will spend any other money in the vicinity. Casinos that serve as resorts provide a wide range of services intended both to attract visitors and to help to ensure that out-of-town gamblers spend most of their money at the facility in the hotel, the restaurant, the gaming facilities and the gift shops and not necessarily somewhere else in the community. How much is spent in the community apart from the casino will vary by casino, community and visitor.

Traditionally, casinos have been thought by some to be essentially recession proof. That turns out not to be the case. In a subsequent section of the paper, data will show major reductions in total wagers in casinos across the country during the current recession. Some casinos are in serious financial trouble. When that happens, jobs disappear and revenues paid to both the state and local government decline.⁵

Certainly, casino and related operations (hotel, restaurant and gift shops) provided extraordinary employment opportunities to members of the Wisconsin Band of the Oneida Tribe of Indians in Brown County, raising the standard of living for tribal members substantially. The reinvestment of casino earnings by the Oneidas into non-gambling economic enterprises provided even more employment opportunities for both Indians and non-Indians. Because tribal members who work in tribal enterprises live and shop in the Green Bay area, the multiplier effect has been substantial. However, in the case of casinos located beyond commuting distance from the sponsoring tribe’s reservation, the jobs created by the casino would presumably go not to members of the sponsoring tribe, but to area residents, out-of-state management firms, or people who move to the area for the jobs. Barring any requirement that some percentage of employees must be enrolled tribal members living on the reservation, any significant employment opportunities for tribal members would presumably stem from proceeds from the casino being invested “back home” in successful enterprises.     

In summary, it is not a sure bet that a casino will be an economic boon to a community. Local economic effects will depend on how much business the local casino does, how much competition there is for the casino dollar, where the players come from, where employees live, and where they spend their income. Casinos can be good for a local community unless there is nearby competition and unless the public is satiated with gambling opportunities. In those cases, the additional casino may or may not be good for the sponsoring community and, in any case, would not provide any net benefits to the state.   

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