NATIONAL GAMBLING IMPACT STUDY COMMISSION

BRADFORD SMITH

CHAIRMAN JAMES: Thank you, Mr. Mulcahy.

Our next speaker is Chairman Bradford Smith, and I do want to thank you for your graciousness in being willing to switch, but I understand that's not necessary. We also owe you a special thank you for your assistance and your guidance as we were putting together our site visit and the assistance that you gave to the Commission staff. We are truly grateful for that. Also, for setting up our forthcoming Taj Mahal back of the house tour, thank you for that as well.

CHAIRMAN SMITH: Madam Chairwoman, it's our pleasure --

CHAIRMAN JAMES: I'm going to ask you to pull that mike right up close.

CHAIRMAN SMITH: -- I'm sorry -- it's our pleasure to have been of assistance to this Commission, and we hope that we are developing a relationship where we can continue to be of assistance to this Commission. It's a pleasure for me and an honor for me to be here today with you.

Over the last several months, the New Jersey Casino Control Commission has been preparing a report for this Commission on the effects of casino gaming in Atlantic City. This report is presented to you today, along with a separate appendix in binder which contains many of the forms that are required to be filed by license applicants.

The report is divided into three basic sections, regulation, economic impacts and social impacts. The purpose of the section on regulation is to give this Commission an idea of the intense scrutiny under which this industry operates. Over the past 20 years, the New Jersey Casino Control Commission has proven that this industry can be successfully regulated. I think that you, too, will come to that conclusion once you have had an opportunity to review the report and to see regulation firsthand, as you will later this afternoon.

But, my job today is not to discuss regulation and social impacts, it is to discuss the economic impacts as they relate to gaming in Atlantic City. Gaming came to Atlantic City in 1978, for the same kinds of reasons that gaming has been implemented in other jurisdictions since that time. It was to rejuvenate a failing city and to provide revenue.

In Atlantic City's case, most of the physical renovation of the city has come from programs funded through the Casino Reinvestment Development Authority and the 1.25 percent of gross revenue investment alternative contribution of the casino industry. They have also come via the special improvement district.

The Commission's report contains references to these projects. I am sure, however, that more detail will be provided by Mr. James Kennedy, Executive Director of the Casino Reinvestment Development Authority. I will now focus on economic impacts.

The casino gaming industry in New Jersey has generated more than $7 billion in taxes for federal, state and local governments over the past 20 years. And, if you include the cost of regulation, it's over $8 billion.

A primary gaming tax levied on casinos in New Jersey is an eight percent tax on casino gross revenue. Today, that tax amounts to over $300 million annually and is dedicated to programs for senior citizens and the disabled. As a result, senior citizens and the disabled in New Jersey enjoy programs that are not available in other states.

Over 210,000 residents enjoy a program funded by casino revenue and called Pharmaceutical Assistance to the Aged and Disabled. Under that program, if you meet income guidelines, you are able to obtain medical prescriptions for a co-payment of $5.00 per prescription, regardless of its actual cost. Other programs funded by casino revenue include real estate tax rebates, utility assistance, aid to shut- ins and persons in boarding homes, and transportation aid, and most recently a cap on property taxes for qualifying seniors and disabled citizens.

The New Jersey casino industry provides a wealth of direct and indirect employment. Today, there are approximately 50,000 full and part-time casino-related jobs with an annual payroll of over $1 billion, and that's without even considering the cost of fringe benefits. Over 11,000 of Atlantic City's 38,000 residents are employed by the casinos.

In 1995, a Rowan University study estimated that for every full-time casino job there are an additional 1.09 indirect jobs created elsewhere in the economy. They estimated that there are an additional 47,700 indirect jobs with a payroll of almost $1 billion dollars created by the casino industries. Therefore, direct and indirect employment, related to the New Jersey casino industry, announced to almost 100,000 jobs and a $2 billion annual payroll.

One way we know of the effects of the casino industry on other businesses is because we register or license every enterprise that does business with New Jersey casinos. Our licensing system effectively closes the back door of the casino industry to criminal elements. Since 1978, the New Jersey Casino Control Commission has authorized over 48,000 enterprises to conduct business with casinos. It has prohibited over 1,500 enterprises from doing such business.

An example of the importance of such licensing took place within the past year, when, as a result of the licensure investigation conducted by the Division of Gaming Enforcement, it was determined that a sales representative for a wholesale seafood company was the reputed head of an organized crime family. The order was directed to the casinos that they were not to do business with that company and access to the industry by that company was effectively closed.

Because our licensing thresholds depend on the dollar amount of business done with casinos, the New Jersey Casino Control Commission monitors business volume done with each such company. Consequently, we have accurate records as to the amount of goods and services provided to the casino industry.

In 1996, casinos spent almost $2.5 billion with over 8,000 companies across the United States. Over 3,400 New Jersey businesses sold over $1.5 billion of goods and services to the casinos. In Atlantic County alone, over 1,400 businesses sold almost $1 billion of goods and services to casinos.

Casinos have also made major capital investments in Atlantic City. To date, approximately, $6 billion has been invested in casino hotel facilities. There is the very real prospect that an additional $5 billion or more will be invested in the next several years.

In New Jersey, property tax is based on the assessed value of real estate and improvements from the local governments, schools and county government operations. Today, casino hotel properties represent almost 80 percent of Atlantic City's tax base. In 1997, casinos paid $87 million of the $109.8 million needed to run city government, and another $38.3 million of the $48.3 million needed to run the school system.

One major benefit from the expanded tax base has been the construction of the $83 million Atlantic City High School. The complex includes modern computer laboratories, an expansive library, professional quality basketball courts, Olympic pool, auditorium, television and radio studios, football stadium, tennis courts, boat house, greenhouse and much, much more.

The establishment of the casino industry in Atlantic City has also led to other public investment. The Atlantic City Convention Center, in which this meeting is being held, is an example of that industry. This $268 million state-of-the-art facility opened in May, 1997. It is considered to be a cornerstone of Atlantic City redevelopment. This facility contains more than 500,000 contiguous square feet of exhibit space, and more exhibit space on one floor than any other convention center from Atlanta to Boston.

The Atlantic City luxury sales tax and the tourism promotion fee revenues, amounting to over $20 million per year, are being used to fund marketing costs, operations and debt service for the convention center.

Complementing this facility is the $79 million Sheraton Atlantic City Convention Center Hotel. I believe I'm on firm ground when I say that but for the success of the casino industry in Atlantic City these facilities would not be here today.

The same can be said about the new multi- million dollar air terminal at Atlantic City International Airport, a new Atlantic City Bus Terminal, the $3 million restoration of the historic Abseekan Lighthouse, and many other infrastructure improvements throughout the city.

Other improvements are also being funded directly by casino dollars. The cost of regulating this industry amounts to over $50 million per year. That cost is not paid by casino tax revenue, what is not covered by licensing fees is assessed directly to the industry based on casino square footage. With certain statutory reforms that took place in January, 1995, the cost of regulation was reduced, but those savings were not returned to the casino industry, they were placed in a special fund called the Atlantic City Fund, and today are being used to finance the construction of a $14.5 million minor league baseball stadium and a marine life education center.

The $2.00 minimum charge at casino parking facilities amounts to over $15 million per year, and is being used to fund what is known as the Corridor Project, which is designed to provide an aesthetically pleasing entryway for Atlantic City. It includes a lighthouse with laser light shows, fountains, pool, attractive landscaping and street improvements.

For a more thorough review of the economic impacts of casino gaming in Atlantic City, the report of the New Jersey Casino Control Commission contains that, and I am submitting that today for the record.

However, I hope this brief factual summary helps the members of this Commission to understand that casino gaming in Atlantic City has become an important economic factor in New Jersey. I'm sure that you have questions beyond those that can be answered today, and would be happy to attempt to address any such questions as they arise.

This Commission has a very difficult task and a very short time frame within which to accomplish its mission. You should feel free to utilize the New Jersey Casino Control Commission as a valuable resource for your study. We offer our assistance wherever we may be helpful.

Thank you for your time and attention, and for your consideration of the information contained in this report.

Thank you.

CHAIRMAN JAMES: Thank you, Chairman Smith.

I would remind commissioners that we do have an ongoing relationship and the opportunity to ask questions and have answers submitted in writing, but with that I don't want to delay any -- or put aside any questions that you may have right now.

The Chair recognizes Commissioner Leone and then Commissioner Dobson.

COMMISSIONER LEONE: I have a question, I'll preface it by saying, I ask it because I -- I don't mean any disrespect to the other two people on the panel, I know two of the panelists very well, I know they are both broad-gauged and brave, while we disagreed about legalizing gambling we agreed about the income tax, which was a much tougher issue.

So, I want to ask this question, I'm struck by it, actually, listening not only to the testimony of the local restaurant owners representative, but it occurs in other contexts about racing so I'll throw you a little bit of a curve ball and I'll put it this way. We have a national mission, which it's important and interesting to understand what happened here in Atlantic City.

But, I often read into, perhaps, what people are saying, that the only cure for the competition provided by gambling is more gambling, so that we can successfully compete. We could legalize gambling of sports and generate a lot of revenues wherever that occurred and probably tax it and bring it into government coffers. I guess we think that America's sports are too important to be trifled with for those economic reasons.

But, places all over the country, places we'll be visiting and others, undoubtedly hear the stories and say, gee, well then, we better legalize gambling in our community in order to compete with Atlantic City, and we better put in some other facility at a race track in order to compete with gambling, and then another -- we need gambling in our restaurants in order to compete with gambling.

What do you think about that, and where does it all end, and who winds up as a winner if everybody decides they have to have gambling?

MR. PERSKIE: We tried to give that question some careful consideration at the beginning, recognizing, although we underestimated the extent to which gambling in Atlantic City would be a very powerful competitor, not just for restaurants, but for any leisure form activity. Movie theaters, for example, don't exist in Atlantic City today, they are all out in the suburbs, which is another problem that has almost nothing to do with gambling.

The point, though, is that as far as we were concerned, and I am concerned today, the solution is not the proliferation. You could address some aspects of a restaurant situation by allowing slot machines in the restaurants, but you do so at an enormous policy cost. It's the reason that I mentioned, for example, the story about my high school classmate friend who was in one kind of business and responded to the competition that gaming was created by taking his marketing talents that he and his family had done for many years and put them in another direction, so that he was able to, not only survive, but flourish.

The simple fact is, gaming in any community is a very powerful competitor for leisure time activity and leisure dollars, and the people who choose as a matter of policy to bring it into the community have to understand that and recognize it when they make that decision.

MR. FALDETTA: I would just like to make a statement here to the Commission. The Casino Control Act did promise us a revitalization of our industry, and it has not come. I mean, the casino industry is very successful, I mean they did almost $4 billion in 1996, and the restaurants and taverns that are left in Atlantic City are basically fighting for their survival.

Now, maybe gambling for restaurants is not the answer, but the state must realize there is a problem with the restaurant and tavern community here in Atlantic City, and they must approach that problem and find solutions to correct it. I mean, we cannot sit back another 20 years because we won't be here, it's that simple. The restaurant community in Atlantic City is at the verge where we won't be here for the next five years, we'll never see the new wave because when those other casinos are built and they open their facilities, with their buffets, and their restaurants, and they bring in their chain restaurants, there's nothing left for the local people.

Thank you.

MR. SMITH: Dick, I think -- first of all, I think it's an excellent question, and we've had numerous studies come in, groups, universities, come in to New Jersey to look at the gambling situation here, because we are the one state that has all the forms of gambling, including race tracks, casinos and the lottery. I think, like everything else, it's one of balance and proportion.

In public testimony, I've advocated less race tracks in the state. I have not advocated slot machines at the race tracks, but I did advocate that I thought that there was some formula for a small percentage share from the casinos for purse money to enhance the racing industry, simply because of all of the breeding industry that we have here, as well as the tracks.

And, I think that it gets back to balance and proportion, and it can't all exist, there's no question about that, and there's a limit to it. And, Steve spoke about it, you see it in focus groups that you do with both patrons and non-patrons and what they choose to do today with their entertainment dollars, and it's a difficult issue, but you can have too much gambling, and I think you've got to find a balance and a proportion and a way to deal with what you have here.

The problem in New Jersey is going to be that if they go to Governor's Island in New York, and they start to go to the Catskills, and then they go to Philadelphia and Pennsylvania, and you've got it all over our borders. When they put the slot machines in Delaware Park and Dover Dams, as I alluded to, I think they made a couple of mistakes. One was that they didn't do anything to enhance the racing business except increase the purses, which helped the horsemen in that state because they kept the horses there and they would stay there. They didn't do anything to enhance the environment, at least to this point, for the patrons going to the racing business.

So, I think that you have to be careful, and that's why I've been very careful about how you strike the balance in this state. Can you be over- gambled? Absolutely.

CHAIRMAN JAMES: Thank you very much.

Doctor Dobson?

COMMISSIONER DOBSON: Madam Chairman, I'd rather you'd finish the Q&A for the panel, I want to make a comment generally.

If we are through with the questions for the panel, I'd be glad to do it.

CHAIRMAN JAMES: Commissioner Lanni and then Commissioner McCarthy.

COMMISSIONER LANNI: I just have one question of Mr. Faldetta, and I don't know the numbers for this, but I know, having lived here for a period of two and a half years, and not being a native, but understanding that people who live here say that when you are not on the island you are off shore, which I kind of always thought was out in the ocean, but for some reason it's back on the mainland.

I would assume, just from driving through the mainland areas, that there is a substantive increase in restaurants in the mainland area, and I'm not trying to overlook the burden that you have.

MR. FALDETTA: Basically, there is the increase that Mr. Perskie talked about has been on the mainland, it hasn't been in Atlantic City.

COMMISSIONER LANNI: Down beach.

MR. FALDETTA: Down beach to a lesser extent, from the overall increase in business is in two areas, it's been in the off-shore communities and it's been in the casino industry. They now have licensed 280 restaurants and bars within the casino industry in the 12 casinos in Atlantic City, and they don't use gaming as a draw to bring people to their casinos, they use food and hotel rooms as a draw to bring people in to gamble.

COMMISSIONER LANNI: Do you know the number of restaurants that have been approved, licensed, or bars off-shore, if you will?

MR. FALDETTA: No, I don't have that information for off shore.

CHAIRMAN JAMES: Commissioner McCarthy.

COMMISSIONER McCARTHY: I was interested in Mr. Mulcahy's response to Mr. Leone's point, the point of Mr. Leone's question, which was who is going to place any limit on any form of gambling, and it seems that the only limit is, (A) if you are undermining my form of gambling than I'm going to bark about it, and if I've got the political strength I'll try to stop you; and (B) if the gambling is too abhorrent, like teenagers becoming pathological gamblers, then maybe there will be enough public unrest so that someone will do a little something about that.

Let me suggest something practical for your consideration, and this is not directed to you, Mr. Mulcahy, because you are the only one that volunteered to answer Mr. Leone's question. Has any of the New Jersey leadership thought about an interstate compact, none of you want federal control, except a good portion of the industry want federal control over the Internet, but what about an interstate compact so that the scenario doesn't develop like Mr. Mulcahy suggested, with all of those that surround you increasing their volume of gambling and, therefore, your gambling here being undermined. Is it at all possible that New Jersey, and New York, and Pennsylvania, and Maryland could talk to each other and maybe establish some parameters as to the nature and volume of gambling that might exist in this region?

CHAIRMAN SMITH: Commissioner, I'm not saying that that couldn't happen, but we have had jurisdictions from all over the United States come to the Casino Control Commission to investigate gaming and how it is regulated. And, my experience has been that each jurisdiction that comes in has different concerns, different wishes, different needs, although, you know, the needs in many ways relate to rejuvenating a city or obtaining revenue for different purposes.

But, they seem to be so different in what they need, that I think it would be difficult for, say, to have a compact like that, because they all develop their systems a little differently than what New Jersey does, or what Nevada does, I think if you study, and you are going to study, the different forms of regulation and gaming out there, you'll find that everybody is a little different.

MR. MULCAHY: In my view, Commissioner, for a practical political point of view, and having dealt with these states on a variety of issues, while we've been able to work some things out within the racing industry, I think the parochial views and political strength in the jurisdictions themselves would prevent the kind of compact that you suggest here, frankly. That's an honest answer.

MR. PERSKIE: Commissioner, just as a P.S. to that, I agree with Bob. Between us we have a lot of years looking at that kind of situation, and I'm just struck, frankly, by the two of you sitting next to each other, I would ask you, I follow from a distance what's going on out on the other side of the country, and I would ask you, for example, to imagine the prospects of an initiative from California that says to Nevada, well, we might consider licensing casinos in California, we might now, what do you think about getting together to share revenues from Nevada's casinos? That's the kind of mental image I had when I was listening to your question.

CHAIRMAN JAMES: I'm going to have to, at this point -- I do want to be fair to our next panel that's coming forward, Commissioner Bible, I did recognize you, if you have one question.

COMMISSIONER BIBLE: Just one real quick question. Do you have any tribal gaming in your city?

MR. PERSKIE: No. There are no recognized reservations that were in existence before 1988.

CHAIRMAN JAMES: Thank you.

Commissioner Dobson?

COMMISSIONER DOBSON: Again, this is not with reference to the panel. I just want to make a comment about our work in these two days, particularly, with reference to future meetings. I'm concerned about the lack of balance in the presentations that we've heard, and I'm not speaking disrespectfully of our panel here, I'm referring to the fact that we began yesterday with seven speeches, all of which might be called advocacy speeches or presentations.

Senator Tortelli said, "I will not defend my objectivity, because I have none, I'm an advocate." And, there's a place for an advocacy report, but three out of the four presentations that we've just heard were also in that vain more or less. So, we really only heard one person who talked about problems, or difficulties, or consequences of gambling in Atlantic City.

And, before I came here I was given a briefing paper, which described some of those other problems that we haven't heard about, and I want to enter that into the record. You can quarrel with some of the information on this report, it didn't come from me so I don't validate it all, but it deals with addiction, with community health, with crime, family breakdown, homelessness, poverty, restaurants, senior citizens, suicide and so on, and this information came from studies that have been made, and it came also from the media, newspaper articles and things of that nature.

I submit that just in the name of balance, but my larger point is that, we make a site visit to a particular order in order to hear the pros and cons, the positives and the negatives, and we have heard nearly all positives, there must be some problems that we should have addressed here.

So, for our future meetings, I'm asking that the presenters be invited to bring both points of view, and that it not simply be advocacy for a particular area.

I say in conclusion that I know that there's a courtesy factor to invite local dignitaries and people of influence in the community, who are necessarily going to speak positively about their communities, but there does need to be the other side of that presented too, and we haven't heard it here.

CHAIRMAN JAMES: Thank you very much, and we will enter that into the official record.