EconImpact October Presentation

7/29/2019 EconImpact October Presentation

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Economic Impact of the SugarHouseand Foxwoods Slot Parlors Proposed

for PhiladelphiaFrederic H. Murphy

Fox School of Business and ManagementTemple University

October 2007

Prepared for the National Coalition Against Gambling ConferenceArlington Virginia

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Structure of Presentation

The first part is what I presented to thePhiladelphia City Council. The results werebased on an analysis of the impact of Foxwoods

casino but were presented in the context ofSugarHouse

The second part is how to generate your ownnumbers for estimating economic impacts

I conclude with a new dimension to social costthat anyone can use


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Why Im Here

I was asked to evaluate the casino estimates ofeconomic benefits

I am here to say that the economic impact is

really a job killer and the direct tax benefit isreally a budget-busting loss

Before placing a casino closer than 1500 feet ofa neighborhood, a more careful analysis should

be done. It is a mistake to risk a neighborhoodwhen casino statements on the economicbenefits are not real


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Who am I to say this?

I have over 30 years analyzing economic benefits Advisor to the tax reform commission

Analyzed channel deepening for Steve Van Dyke, first head ofPICA

Ran the US forecasting and policy analysis for the USDepartment of Energy for the critical legislation in the 1970s

I have spent over 160 hours of volunteer effort on thisanalysis

Im the son of a union carpenter. So I understand thevalue of construction jobs. We need a growing economyto generate those jobs.


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Why the job losses?

More money goes out of the city thancomes in

Only 27.6 cents of each dollar lost in

a Philadelphia casino dollar getsspent in the city. The rest leaves.

The casino profits go to Chicago and the

suburbs: that is where the owners ofSugarHouse live


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Why more money out?

Brookings Institute: people have a fixedrecreation budget

Atlantic City gamblers will continue to goto Atlantic City for table games (but someslots players will spend in Philadelphia)

My analysis presumes 35% new moneycomes into the city


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New Money Assumption

Every dollar spent on slots other than ACdollars is lost to local/regional recreationalbusinesses

The losers in the neighborhoods:

Restaurants, diners, pizza places

theaters

taverns

church bingo

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Consider three couples in thePhiladelphia Area

A Fishtown couple

An Abington couple A Norristown couple


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A Fishtown Couple

When they go to the casino on a Friday night

They dont go to Taconellis pizzaria

They dont go to the Standard Tap tavern

Les and Doreens Happy Tap

North Bowl Lounge and Lanes

The people who own these establishments are

Philadelphians who are in the cityThe owners of SugarHouse live, work and spend

in Chicago and the Philadelphia suburbs


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Money goes to NeilBluhm and his familyin Chicago who get

66.25% ofSugarHouse profits

Remaining investorsare in the suburbs ofPhiladelphia.

The money does notstay in the city.


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The Norristown Couple

The Econsult report onFoxwoods assumes thaton 1/3 of the trips of morethan 10 miles awaygamblers will spend $75

per person outside thecasinos as well as $60per person in the casino.

(I use Foxwoods

estimates because thereis no SugarHouse impactreport)


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The Norristown Couple

This assumption means a couple fromNorristown will spend $270 on one third oftheir visits to a casino.

Can they afford to spend $270 on one trip when

they have a median household income of$39,000?


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The Abington Couple

Would they visit SugarHouse?

Convenience Gamblers go to the closestcasino

Philadelphia Park is closer and has easieraccess from the PA Turnpike

The city is bracketed by convenience

casinos on both the north and south andthe Schuylkill Expressway is a parking lot


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The Abington Couple

If they visit the city, it is for the uniqueexperience the city offers that they cannotget in the suburbs

They wont come for the casinos

Almost all visitors to SugarHouse arefrom the city and spend dollars theywould have spent elsewhere in the city


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The Abington Couple

They live just outsidethe ten-mile radius.

They would be more

likely to visitPhiladelphia Park.


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City job losses

Neighborhoods lose 5424 jobs

The casinos add 1502 jobs

On net the city loses 3922 jobs soon afterthe casino opens


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Why losses

Econsult says every $1 million spent in a casino

adds 4.3 jobs Econsult says every $1 million of recreational

spending outside casinos generates 14.7 jobs I say every casino dollar costs 65 cents in city

recreational spending

4.3 14.7 .65 = 5.24 jobs lost per million spentin casinos


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Why a budget buster?

Neighborhood businesses lose businessand pay fewer taxes

People who lose their jobs in neighborhoodbusinesses dont pay wage taxes

Closed businesses mean vacant storefronts: property values and taxes decline

in the whole neighborhood

The policing and social costs causenew city spending


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Social Costs

Proximity doubles the active addicts and theirfamilies become a social burden

They are more likely to commit crimes to feed

the addiction Family problems(domestic violence,child abuse, divorce)

Higher likelihoodof suicide

The city pays forincreased social

services


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How big is the budget hole?

$29,341,000

$12 million reduced tax revenue fromneighborhood businesses

$6.5 million in increased policing costs

$27.5 million in budget impact from socialconsequences of gambling addicts

$5 million in taxes from alternative uses forthe site


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Tax and ExpenditureConsequences of Casinos

The city budget plan spends the full increase. Thetax loses and extra expense creates a budget hole.

The state will lose 12814 jobs

$37 million tax revenues

$57.9 million in social costs

The state either keeps more casino taxes or raisesother state taxes. What do you think they will do?

Expect the casinos to ask for lower taxes to makethe currently unprofitable expansions profitable.

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Conclusion

I have shown

More money out than in

Job losses

Broken city budget

I have shown that the benefit numbersused to sell the casinos are based on

assumptions that have no basis in reality.

Why rush into approving a bad deal for thecity?


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The details are in the full report. I inviteanyone in city government to go throughmy analysis.

Im available and I can bring my

spreadsheet.


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Econsult report (for Foxwoods)

High qualitythe best Ive seen for aPhiladelphia project

Econsult has to serve its clients. It is in theconsulting business

The assumptions were chosen to servethe client

Econsult wrote clear documentation so it ispossible to assess the results

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The arithmetic of economic impacts

Benefits:

Direct expenditurescasino direct spending forsalaries, utilities, services, etc.

Ancillary spendingthe spending that takes placebecause people come from away to visit the casino

Indirect expenditures a multiplier that reflects theextent to which direct expenditures and ancillaryspending lead to more local expenditures, e.g. localemployees spending for food, shelter, etc. Typicallyaround 50-60% of direct expenditures


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The arithmetic of economicimpacts, cont.

Costs Lost economic activity from expenditures in

casinos. The losses depend on the extent to

which local dollars are diverted from otheractivities as opposed to inducing newexpenditures from outsiders or divertingexpenditures by locals in other places to thelocale.

The multiplier of 50-60% can be applied tothese numbers


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Costs, cont. Opportunity cost of activity forgone. The

casino site is prime waterfront land that does

not make use of the waterfront and createsnegative neighborhood effects. The revenuestream from more residents or recreationactivities that bring in new expenditures islost.

A multiplier for indirect effects can be appliedhere.


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More costs

Increased social costs, public services,addiction, policing, suicide, Medicaid, etc.

Increased personal costs/distress


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Annual Benefit Claims for 3000Slots

Econsult

estimatesRealistic

assumptions

Casino revenue $362,500,000

Total direct

spending $99,900,000Total city

output $164,835,000Lost revenue to

city businesses $217,500,000

Total state

output $218,781,000

Lost economic

activity to

state $584,531,250

Total jobs-city 1330 City jobs lost 5006

Total jobs state 2656 State jobs lost 15309

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Ancillary Spending Assumption

A typical slots gambler is middle income or less

Econsult assumes that on 1/3 of the trips ofmore than 10 miles away gamblers will spend

$75 per person outside the casinos as well as$60 per person in the casino

This assumption means a couple from Manayunk willspend $270 on one third of their visits

Can they afford this?

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Comments on the New-Money andAncillary Spending Assumptions

There are no data behind the assumptionsin the economic impact report

They put the project in the best possiblelight

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New Money Assumption revisited

The city is surrounded by conveniencecasinos

The Colorado experience is that peoplewill not travel the extra mile to go toCentral City instead of Blackwood

The city and close-in Western suburbs are

the only source of customers

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New Money Assumption revisited

A better assumption: 65% of casinorevenues are diverted recreation dollars

I have only partial data for thisassumption. However, it matches commonsense

You would have to drop the 65% to 27% to

stem the job losses

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Probability of knowing an addicted gambler

Number offriends/relatives inPhiladelphia

Probabilitythat onebecomes anaddictedgambler in a

local casino= .05

Nationalaverageaddiction rate

=,015

Addiction ratewith nocasinos

=.005

10 friends/relatives

.4 ,14 .05

25 .72 .31 .12

50 .92 .53 .22

EconImpact October Presentation

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