N G I S C Chicago Meeting, May 20, 1998



CHAIRMAN JAMES: It's my pleasure to welcome Mr. Belletire, again administrator of the Illinois Gaming Board. Mr. Belletire, thank you again, and your staff, particularly Susan Weber for all of your help in pulling together all the logistics for this particular meeting and for finding us meeting space during one of the biggest convention weeks of the year. We are very grateful to you for that. We're anxious to hear your remarks.

MR. BELLETIRE: Thank you, Chairman James, Director Kennedy, members of the Commission. We're glad to have you here in the great state of Illinois and in the city of Chicago and in the building they call star ship Illinois. The introductory portion of my remarks give you a little bit of a background on the make up of our regulatory structure, the board I serve for. I'll pass through those, and I will say that I've attempted to include in my remarks this morning much more of a Midwestern perspective than a single state perspective, though I'll borrow liberally from our direct examples.

Generally the Midwestern states have only cautiously embraced legalized casino style gambling. Illinois, Michigan and Indiana each limit by statute the number of operating licenses allowed. Iowa and Missouri administratively determine the number of licensed operations, though Iowa's legislature, as has been pointed out, has recently enacted a five year moratorium.

In addition to restricting the number of operating licenses, the Midwestern states have also placed various limitations on the conditions under which gambling takes place. As you've heard today, there are nuances of difference between Illinois and the sister states of Missouri and Indiana, yet all require casino style gambling to be conducted on riverboats. In general, whether those boats navigate or not, access is limited to prescribed entry times.

Iowa imposes fewer restrictions on entry times and in addition to riverboats, as you've heard, allows electronic gaming devices at its dog and horse race tracks. Missouri, by statute, imposes a $500 per cruise loss limit, while Illinois restricts the number of gaming positions that each of its operations may have.

Each of the Midwestern states imposes significant taxes on admissions and gaming revenues. The level of taxation varies somewhat from state to state, but in the aggregate the effective tax rates across the Midwest states, when adding in locally imposed taxes, ranges from 25 to 35 percent of gaming revenues or casino win. This level of taxation is of course far greater than that imposed by the three largest casino gaming jurisdictions, Nevada and New Jersey and Mississippi.

One of the topics this panel was asked to discuss with you is to the extent to which competition between the states for the gambling dollars has resulted in state policies that are reactions to what other jurisdictions do. The question was put to us this way. Has competition lead to a race to the bottom in terms of regulation? The answer to that question is a firm and solid no.

If there is a race between our Midwest states, it is not a sprint, not even a mile run, but more a marathon. It has been eight years since Iowa and Illinois have authorized riverboat casinos and almost six since Missouri and Indiana followed suit. Since that initial authorization of riverboat casinos in these states, there have only been a few significant changes that have served to liberalize the regulatory and policy approach to gambling in the Midwest.

The two most consequential changes occurred in 1994. Iowa's legislature did act as the representative state to eliminate loss limits and eliminate most access limitations, while at the same time permitting EGDs (electronic gambling devices) in horse race and dog tracks. Also in 1994 Missouri's voters approved a constitutional amendment that authoritatively, at least some thought, settled the question of whether the existing riverboat casinos could have EGDs in addition to the table games already being offered.

The third development in the Midwest was in 1996 when Michigan joined the ranks of the Midwestern states authorizing casino style gambling as voters in Michigan approved an initiative for three casinos in Detroit. There's no doubt that each of these three measures came about in part as a result of competitive factors. However, there's been no rush for the states to leap frog one another in changing policy. That is not to say that there haven't been voices for change.

For several years running, operators in Illinois and Missouri have cried out, level the playing field, seeking an end to cruising and boarding requirements in Illinois and Missouri and an end to loss limits in Missouri. Each of these matters may eventually become law but in general the legislatures in the Midwest have shown little appetite for abrupt change or even fine tuning the broad conditions under which limited scale casino gambling operates.

At the administrative level and by that I mean the work of my Board and our counterpart agencies in other states, there have been some measures taken that serve to liberalize the conditions which afford access. The changes, however, have not altered the fundamental frame work of tight controls and limited licensure. In Missouri and Iowa, for example, there are no limits on the number of operating licenses that can be awarded, but no new licenses have been awarded in the past three years and both states have rebuffed prospective applicants.

The Indiana Commission which has legislative authority to grant one additional license has yet to do so and shows no signs of acting soon. If there is a common theme to Midwestern regulation of gambling, it is not competition but cooperation. Our agency and its sister agencies in Iowa, Missouri, Indiana and Michigan have adopted what I consider to be a model of inter-governmental collaboration and cooperation. The cooperation has been manifested in a number of ways, ranging from training to the sharing of rules and regulations to joint or coordinated investigations.

If my Indiana counterpart were before you today, I believe he would tell you that the opening of riverboat casinos in Indiana went smoothly and expeditiously, partly as a result of the assistance of the Illinois Gaming Board.

It is standard operating procedure for each of the Midwestern regulatory agencies to share background information and to examine carefully the implications of adverse actions taken by another jurisdiction. There is a fundamental recognition on the part of the Midwestern state regulators that we rise and fall with one another when it comes to effective and tight control of casino gambling.

We've been asked to comment today also on whether or not state officials balance the desire for revenues from casino gambling with the responsibility to protect the public interest. In my judgment, the Midwest regulatory agencies do not find this a difficult task. The Illinois Gaming Board and its counterparts exert firm and consistent controls of the conduct of gambling and over those involved in the gambling operations. The record shows their actions have been based on the public interest, and pardon the play on words, when it comes to revenues they let the chips fall where they may.

To an extent our Midwestern experience differs somewhat from that of other regulatory approach, New Jersey, for example, over the past few years has engaged in a concerted de-regulation effort, oriented in part by bolstering the attraction and profitability of the industry. There has been no such similar effort here.

It needs to be understood, however, that Illinois and other Midwestern states shape the regulatory climate with the benefit of assessing the strengths and weaknesses of New Jersey and Nevada. I think those in the industry would agree that in the Midwest our approach is somewhat less onerous than the historic New Jersey approach and more restrictive than the Nevada approach.

The Board I work for sees itself first and foremost as a regulatory body. Board members are cognizant, however, of the provisions of the riverboat gambling act that call for licenses be awarded in a manner that encourages economic development and revenue generation. Our board does not hesitate to act in the public interest. They have rejected measures, even though gaming revenues and hence, state taxes would increase.

I could cite a number of examples but let me give you one. Two years ago our board was asked to authorize the use of so called wide area progressive slot machines. Simply speaking, these systems link slots across several casinos. The progressive feature of these machines build very large prize pools with a single player eventually winning $1 million or more. Our board rejected these inter-linked casino systems for a number of reasons. One was the discomfort with the implied get rich quick award of the mega systems. As the chairman of our board noted, the industry has consistently represented itself as offering entertainment and the message that you should gamble to strike it rich seems somewhat out of harmony with the entertainment concept.

None of this is to say that there is not a strong sense of competition within the casino industry itself. Of course, there is. Our Illinois operators compete with one another as well as those in bordering jurisdictions.

Though there's an exceptionally high level of cooperation among our Midwest regulators, each of these regulatory agencies approaches policy questions differently. In the main, Midwest regulators and public officials have been far less oriented towards what could be seen as cultivating an industry than have public officials in Mississippi, New Jersey and Nevada. Part of the explanation for this lies in the differences in overall approach to casino gambling.

Our act, and to an extent the frame work for casinos in Iowa, Missouri and Indiana encourages a dispersion of a limited number of licenses across the state. In New Jersey and Mississippi the opposite is true; there is, there has been a policy determination in these states to concentrate casinos in cluster like settings. The latter choice tends to breed a more urgent sense of managing development and investment and a close relationship between regulators in the industry.

My personal view of the experiment with casino gambling in the Midwest states has been generally positive. Those seeking to be operators have been subjected to rigorous scrutiny. Safe and popular attractions have been built with meaningful capital investment. New jobs with decent wages and fringe benefits have been created. Local communities hosting riverboat casinos have in the main benefited from the experience with new revenues and infrastructure and in some instances, a new sense of optimism about their economic future. The experience has not been uniformly positive.

What some saw as an economic renaissance for aging river towns has generally not materialized. There is little evidence that the riverboat casinos have fostered a positive retail ripple effect in their immediate vicinity. In general, there has been no increase in crime in riverboat communities, but it cannot be said that the propensity to gamble in excess has not lead to tragic consequences for some, albeit I would observe a relatively small number of individuals.

Overall I would observe that riverboat gambling in the heartland has not been as detrimental or as malignant to social fabric as its critics contend or as important or as benign as the industry makes it out to be. The answers are not all in and the experience is an evolving one.

There are issues left to wrestle with, though I believe those issues can best be resolved in the state capitols and not in Washington. As you go about your work I encourage you to make a distinction in what can be called the regulation of gambling. From an administrative perspective my board and its Midwest counterparts are primarily regulating the conduct and ownership of casino style gambling. They are not, in the main, regulating gamblers.

Regulating the decisions or the dysfunctional behavior of those who gamble is not, I submit, an administrative matter but a political and philosophical matter. The choice made by the Illinois General Assembly to limit patron access to casinos in Illinois is essentially a political decision to regulate gamblers by making it more difficult to gamble as a spur of the moment decision.

Other states have made different choices about access. Yet despite allowing differing levels of access, the various states have developed effective regulation over the conduct of the business of gambling. When you look at the political or philosophical issue of controlling gamblers, you take on a much more difficult task. As has been the experience with alcohol, it is far easier to regulate the manufacture, distribution and dispensation of alcohol than it is to control the behavior of the consumer.

In our nation's history we've been at the extremes with alcohol, from the unregulated to prohibition, and we appear to have found the value of the middle ground. If there's a lesson with the experience with alcohol it may be that the industry itself holds the key to maintaining an equilibrium. Over the long term, consumer behavior will be shaped by industry practice and measured by visible social consequences, the criminal justice system and the tort system.

As is often the case, government policy will likely be derived as a reaction to an imbalance in the equilibrium. I don't believe it's necessary for this Commission to establish conclusively which point of view expressed in dueling and directly contradictory studies are, quote, "correct," particularly when the motivation for those studies is to send a message about the acceptability or the unacceptability of gambling.

Theoretical or even real but anecdotal information about the ill effects of gambling should not be a basis for sweeping policy change. Such information, however, should serve as fair warning to those in the gaming industry that they should take care in cultivating their future. For the present, as I believe our Illinois experience shows, there's a consensus that we have properly regulated the conduct of riverboat casino gambling and avoided creating an environment in which the unintended or undesired elements of the new business offset its benefits. Thank you.

CHAIRMAN JAMES: Thank you, Mr. Belletire.

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