Developing Healthy Relationships Between State Governments and the Gaming Industry

I appreciate the opportunity to speak with you today. As I will discuss in more detail later, I think healthy partnerships between state governments and the gaming industry are going to be essential to all of our successes in the coming months, and I am excited to share with you the impact of our industry across the country, as well as get into some of the state issues that have the potential to threaten our future.

Before I get into the details of gaming and tourism, I’d like to tell you a little bit about the American Gaming Association. The AGA is the national trade organization representing the commercial casino industry, which consists primarily of publicly held casino companies listed on the New York and NASDAQ stock exchanges, including most of the names consumers are most familiar with in our industry: Caesars Entertainment, Harrah’s Entertainment, MGM MIRAGE and many others. In all, there are 432 commercial casinos operating in 11 states across the country. Our industry generated gross revenues of $26.5 billion in 2002 and paid $4 billion in gross gaming taxes. We also directly employed more than 350,000 people, paying $11 billion in salaries.

The AGA’s primary mission is to represent our members’ interests on federal legislative and regulatory issues. We also provide leadership in addressing newly emerging national issues and in developing programs on critical industrywide issues such as disordered gambling and serve as a clearinghouse for information on the gaming industry. In this role, we are here for decision makers like you, as well as the media and the general public, to provide statistics, studies and other materials to ensure that the perspective of the industry is fairly represented in any public debate on gaming.

It’s important for me to point out that the AGA does not take a position on state gaming issues, be it expansion debates or legislative issues. Our involvement in the states is limited to serving as an information resource, such as testifying before state legislatures to provide the facts about our industry or responding to inaccuracies reported by the media.

But we all recognize that the states are not only our primary regulators but also our primary beneficiaries. And so today, I wanted to share my thoughts on how our industry can work most effectively with state leaders such as yourselves to help promote tourism.

As we all know, a slower economy and the events of Sept. 11 have presented unprecedented challenges to the tourism industry over the past few years. While the terrorist attacks on our country affected nearly every business sector in our country, they hit those of us in the hospitality industry particularly hard.

In light of these challenges, the gaming industry has proven to be a particularly resilient and productive contributor to the nation’s economy. While the majority of the hospitality industry took a loss in 2001, the overall commercial casino industry actually grew by nearly 5 percent that year. Obviously, those destinations more dependent on air travel suffered more than drive-in markets. But the overall single-year growth statistic is consistent with the steady growth in our industry for the past 10 years. And with the national economy now showing significant signs of recovery, the outlook for our future is even more promising.

All this is not to say that we have been unaffected by recent economic and world events. The gaming industry is still going through a period of recovery like everyone else in the tourism and hospitality sector. But the gaming industry has become a major player in our nation’s tourism industry. In 2002, the commercial casino industry attracted more than 51 million people, making a total of 297 million trips to commercial casinos. More than one-quarter of all Americans visited a casino in 2002. In fact, more people visited a casino in 2002 than visited zoos, aquariums, and wildlife parks or attended regular season major league and minor league baseball games.

One of the states that has seen its tourism industry flourish as a direct result of casino gaming is Mississippi. According to a 2000 study by the University of Southern Mississippi, the two largest jurisdictions in that state—Tunica and the Gulf Coast—are primarily tourist-driven, generating 82 percent and 66 percent of their revenues, respectively, from nonresidents. Also in 2000, a separate report from the U.S. Census Bureau found that Mississippi led the country in the growth of service businesses, with a 66 percent increase in employment (from 108,000 to 180,000) and a 94 percent increase in receipts (from $5.5 billion to $10.7 billion). The state’s receipts in hotels and motels went from $235 million to $1.34 billion.

As the role of gaming has grown in the national tourism industry, so have the benefits to the states where we operate. Over the past five years, commercial casinos have paid $16.6 billion in direct gaming taxes to state and local governments. In Mississippi, we’ve brought 30,000 sorely needed jobs. In Iowa, we’ve generated $106 million in grants for charitable causes. In Michigan, we’ve contributed to a renaissance in downtown Detroit. There are success stories like these in every one of the 11 states where we do business.

But current legislative initiatives in the states threaten to stall that progress. As everyone in this room can surely attest, many states are facing large budget deficits that stand to increase even further over the next few years. And, to address this problem, many states are turning to tax increases on existing gaming operations or to an expansion of gaming as a way to generate new revenue.

For those of you who might not be familiar with our industry, commercial casinos pay taxes above and beyond the standard corporate income taxes, real estate taxes and payroll taxes paid by other businesses. Each state levies a direct gaming tax based on gross revenues, which helps fund education, infrastructure improvements and other programs. Typically, casinos also have contracts with their host communities to fund projects above and beyond those subsidized by direct casino tax dollars. Not only do we pay higher tax rates for the privilege of doing business in your state, but, unlike other industries, the commercial casino industry does not demand up-front tax breaks or other incentives.

But there are limits to what the casino industry can pay in order to continue to get the return on investment demanded by shareholders. If government saddles the industry with an unfair tax burden, it can’t expect “business as usual.” Higher tax rates in states such as Illinois have forced operators there to cut jobs, scale back planned capital investment projects and raise admissions taxes—all of which have combined to drive visitors to neighboring states.

Lower tax rates in states like Mississippi, on the other hand, have encouraged greater capital investment in hotels, restaurants, entertainment venues, convention centers and other similar facilities, which not only increase gaming and nongaming revenues but also increase the number of visitors and their length of stay—ultimately translating to higher tax collections for the state. Larger, more diverse facilities also create more jobs, bringing another significant benefit to the state.

The idea that greater capital investment in a facility—spurred by lower tax rates—can be beneficial to state and local economies was a lesson not lost on the National Gambling Impact Study Commission. When the commission released its final report in 1999, it singled out “destination resorts” for generating greater economic development and creating more and better quality jobs than “convenience gambling.”

As your states continue to face budget challenges this year, I hope you will consider the contrasting experiences in Illinois and Mississippi, as well as the conclusions of the National Gambling Impact Study Commission. While higher tax rates might seem like the way to bring in more revenue, lower tax rates actually bring greater long-term economic benefits by encouraging investment.

The commercial casino industry is proud of our contributions to state tourism, and we look forward to strengthening the existing partnership between our industry and your states. We need to work together to emphasize long-term economic strategies that will be mutually beneficial.  The first step in these efforts is to foster a greater understanding of our business and how it works, which I hope I’ve begun to do today. I look forward to our continued relationship and to partnering with you as we move forward.

History has shown there is tremendous opportunity for the gaming industry to become an even more significant contributor to our nation’s tourism revenue. With your help in advocating sound long-term economic models, we can turn this promise into a reality. Thank you.