THE BIG BLIND

Why the argument for casinos in Massachusetts ain’t nothing but a mathquerade

By JULIA REISCHEL + PAUL MCMORROW

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This past March, Dr. Clyde Barrow, the director of the Center for Policy Analysis (CFPA) at UMass Dartmouth, authored a paper outlining his recommendations for how to introduce casino gambling into Massachusetts. It detailed a very specific set of guidelines for how to "maximize the economic impacts of expanded gambling in Massachusetts."

Barrow's blueprint called for "three commercial resort casinos," to be situated in Suffolk Downs, southeastern Massachusetts and western Massachusetts. It promised that, collectively, the casinos would generate $1.5 billion in revenue and create 20,000 jobs. It recommended a 27 percent tax rate on gaming revenue, which would generate "over $400 million" in revenue for the state, half of which would be spent on local aid. It suggested that the state charge $600 million in casino licensing fees every 10 years. It also recommended that the casinos allocate 2 percent of their gross revenues to offset the costs of communities near the new casinos.

In August, just as Governor Deval Patrick was retiring to the Berkshires to study the research gathered by his Gambling/Gaming Internal Study Group, C. Stanley McGee, the Assistant Secretary for Policy and Planning in the Executive Office at Housing and Economic Development, added a copy of Barrow's report to the governor's packet of gambling research materials. The report was preceded by a rather unusual disclaimer:

"As most of you know, the work of Professor Barrow and The Center for Policy Analysis at UMass Dartmouth is not without some controversy, and many opponents of expanded gaming question the rigor of the economic analysis and the independence of the organization given its pro-gaming recommendations. All that being said, we wanted to circulate the report for your convenience since some of you have seen mention of it in the news and had asked for a copy."

Despite the warnings from his staff, a little over a month after receiving a copy of Barrow's blueprint, Patrick returned from his sojourn in the woods to deliver a gambling plan remarkably similar to Barrow's proposal: He recommended three casinos taxed at 27 percent, and said the state would reap $400 million in new tax revenues, $600 million in 10-year licensing fees, 20,000 jobs and a 2.5 percent allocation of gross funds to local communities. The end result would be $2 billion in instant economic development, Patrick said. Casinos would allow Massachusetts to surmount a fiscal crunch, advance an expensive gubernatorial agenda and close a $15-$19 billion transportation funding gap without raising taxes.

Outside of Barrow's papers and studies that casinos have funded (some of which rely on Barrow's research), hard numbers for casinos' economic benefits, by and large, don't exist. And if it's problematic that Patrick built a major policy decision on one man's research, it's doubly so that that research comes with a warning from the governor's own staff.

Barrow, a highly public figure in the state's casino debate and local journalists' go-to person for gambling quotes, pioneered a controversial technique known as "patron origin" analysis. It consists of counting cars in casinos' parking lots. Barrow estimates that the percentage of out-of-state license plates equals the percentages of out-of-state residents gambling at the casino, which, in turn, is equal to the percent of out-of-state money being spent there. Barrow's research is the only apparent source for the widely-repeated statistic that Massachusetts residents spent $1.1 billion at out-of-state casinos last year, which is often used to point to more than a billion dollars of "untapped demand" for gambling in Massachusetts.

Representative Daniel Bosley, who co-chairs the legislature's committee on economic development, has been attacking Barrow's research for nearly a decade. Barrow retorts that critics of his methods "simply don't understand sampling techniques or margins of error."

But methodology aside, it is clear that Barrow's casino studies have consistently painted a relentlessly optimistic picture of gambling in New England, and that he has worked for casino interests in the past. According to a copy of Barrow's resume that is attached to the CFPA's website, he was hired by the Aquinnah Wampanoag Tribe of Gay Head in 1995 to conduct what appears to be his first patron origin analysis at Foxwoods. In 1999, according to the CFPA's website and his resume, Barrow conducted a casino study for The Visions Group, which, according to a 1999 New Bedford Standard-Times article, was "a team of developers who hope to build a $300 million casino in Salisbury."

But today, Donald Widdis, the chairman of the Aquinnah Wampanoags of Gay Head, the same tribe that contracted with Barrow, says that even he doesn't trust Barrow's methods. "I think his report was long on assumptions that weren't really articulated," he says.

In materials Patrick's staff released last week, the administration claimed that it had based its decision on "our initial economic modeling." But a review of the research materials Patrick used to make his decision only shows that the study group compiled the research of others. In the process, it did little to distinguish dubious casino-funded studies from other, more authoritative sources, allowing Patrick to ignore anything he didn't want to know.

Several reports in Patrick's research packet cast doubt on the economic benefits of legalized casino gambling.

"Rigorous, independent analysis of the fiscal considerations of expanding legal gambling are scarce, to say the least," says an extensive report written in 2002 for former Massachusetts Governor Jane Swift. The only available revenue estimates for casinos are funded by biased sources, it notes, and their projections of hundreds of millions of dollars and thousands of jobs could be faulty.

"Such studies often overestimate benefits and underestimate costs," says a survey conducted by Harvard's Rappaport Institute for Greater Boston in 2005. Notably, its authors found "little difference between employment rates" in communities with casinos and communities without them.

"Predictions done before [casino] development are notoriously inaccurate," argues the 2003 report of the Rhode Island Special House Commission to Study Gaming.

"Much of what [research] does exist is flawed because of insufficient data, poor or undeveloped methodology, or researchers' biases," asserts the report of the National Gambling Impact Study Commission, a federal panel that assessed the costs and benefits of gambling in 1999.

Patrick has argued that casinos will largely act as tourist attractions, and that, by drawing tourists to the area, they will spur economic development. But a 2006 Federal Reserve Bank of Boston report found that tourists don't spend money outside casinos, and that urban casinos have "little secondary economic impact."

Astonishingly, considering Patrick's contention that casino gambling revenue will drive down property tax bills, fix the state's crumbling transportation infrastructure and fuel rapid economic development, a 2004 policy paper from the Federal Reserve Bank of St. Louis found that "Many states with casinos are facing budget crises similar to states without casinos." It also reported that, although employment rates went up in counties with new casinos, local retail trade plummeted by 25 percent.

In a 10-page memo that offered wildly contradictory conclusions on the economic costs and benefits of casino gambling, an aide to Secretary of Housing and Economic Development Dan O'Connell, who headed up Patrick's gambling study group, warned that "the economic analysis contained herein has not been independently verified." The memo recommended "the formal engagement of a third party firm" that could offer an independent analysis of the economic projections contained in the governor's research packet. "To do otherwise," the memo argued, "would be to risk entering negotiations over license fees, tax rates, etc. on an uneven information playing field. If any decision turns primarily on the economic development opportunities promised by some for expanded gaming in Massachusetts, then it is well worth testing the validity of those economic assumptions through more robust analysis ..."

Patrick's proposal doesn't reflect any of this caution. Instead, it echoes the more rosy assertions of studies funded by local casino developers who stand to make billions if casinos are legalized in Massachusetts. Materials from the Las Vegas Sands Corp., which wants to build a massive casino in Marlboro, and Suffolk Downs, which is noisily agitating for the right to add a casino and hotel to its East Boston horse track, were among the reports in Patrick's research packet.

The developers were not asked to provide O'Connell's study group with input, but when they did, they seem to have had their voices heard. (Think the Department of Public Health deals much with tobacco-funded research on cancer and nicotine addiction?) The memo quoted above briefly notes that "no estimates appear to exist on the construction employment impact of a destination resort casino in Massachusetts, aside from reports prepared by casino supporters." It then goes on to parse the revenue, jobs and economic development impacts of casino gambling using the only Massachusetts-specific job and revenue estimates available-those in Barrow's research, which so worried O'Connell's office, and those provided by Harrah's, Suffolk Downs, the Mashpee Wampanoags and Las Vegas Sands. Needless to say, the numbers are highly optimistic.

The Sands report promises $228.5 million in state revenue, and says that its single casino would generate 10,000 jobs and $1.8 billion in new economic activity, all without taking money away from the state lottery. In a slick packet stuffed with photos and pull quotes, Suffolk Downs claims that one casino would give Massachusetts $268.9 million in new state revenue, and two would up the state's annual take to $444.5 million.

Those studies were also stuffed with optimistic rhetoric of the kind that seems to be cropping up in Patrick's arguments for casinos. "While some argue that there are social and economic costs associated with expanded gaming, these fears are largely unfounded in the context of a resort-style casino," chirps the Suffolk Downs report. "By creating thousands of jobs, generating long-term spending and increasing tourism, a resort-style casino promises economic stimulation and growth, and hundreds of millions of dollars in revenues to the state, cities and towns."

Sound familiar?

Asked how such questionable research was allowed to go before the governor at all, let alone possibly form the foundation of such a monumental policy decision, Patrick spokeswoman Cyndi Roy said, "The mission of this group was never to verify information; it was to pull together all the information that was out there."

She said Patrick's jobs and revenue projections, which closely mirror those of questionable sources, but seem to disregard more pessimistic (though authoritative) reports, came from "internal staff" estimates "based on a review of the studies and the experiences of other jurisdictions." Those estimates have not been made available to the press.

"We did not independently verify any of the studies included in the briefing materials before submitting them to the governor," said Kofi Jones, O'Connell's communications director. Jones quickly added that "The governor did not solely rely on the information in this packet," saying that he also relied on conversations with members of the study group, legislators and "stakeholders on both sides."

"The purpose of the packet was to give him a fundamental education on the issue," Jones argued. "We wanted to look at the legitimate research that has been done in the past so he had a good basis to go from. This packet is not the be-all and end-all of the governor's decision."

"We met with O'Connell, and what I got from O'Connell was that he didn't have a good handle what the figures were," says Widdis, the chairman of the Aquinnah Wampanoag, who met with O'Connell this summer. "I think they're fishing."