Gambling on Gambling
Lethargy in the Miller Administration
Leaves Nevadas Economy at Risk
by Steven Miller
evada, economically, is largely a one trick pony. And today that one trickgamingis looking more and more like a perilous base for the states economy.
All across the country gamblers are increasingly opting to get their legal-gaming fix closer to home. In California, Indian tribes pushing to legalize casino-style gambling this November are wielding an advertising budget 25 times that of their opponents. On Wall Street, Asian financial problems and other pressures seem to be bringing Americas most recent bull marketincluding a lot of capital investment for Nevadato at least a temporary end. At home in the Silver State, gaming and sales tax revenues are badly lagging behind projections. But as a recent Los Angeles Times cover story rudely points out, in Las Vegas, Strip moguls are "adding more than 12,000 rooms in a city whose economy has gone flat."
So Nevadas lag in economic diversification is increasingly risky for the state. But its also expensive. As Treasurer Bob Seale reminded state lawmakers last session, being a single-industry state costs Nevada dearly in the Wall Street bond markets. State and local entitiesalways struggling to even get an AA rating for their bondshave to pay higher interest rates to get investors to finance Nevada construction projects. And its been that way for the last 20 years.
eing a one trick pony when folks have become a bit bored with your trick can be risky. According to Michael Pitlock, executive director of the state tax department, Nevada gambling tax revenue was projected to grow 6.8 percent in both years of the current budget cycle. Instead, for fiscal 1998 the actual figure is less than half that3.2 percent. Similarly, sales taxes, projected to grow by more than 8 percent in fiscal year 1998, are coming in at about 4 percent. That slowdown in local sales tax growth means, for example, that Nevada schools face a multimillion funding shortfallan estimated $38.2 million for which the state will be liable. Maybe those bond traders in the canyons of lower Manhattan arent so dumb after all.
So what is going on? Economic diversification to reduce the states risk has been cited as an important goal by every Nevada governor from Grant Sawyer on. Yet today, almost four decades after Sawyer first won office, Nevada still finds itself precariously dependent on increasingly fickle gamblers and tourists. According to a study released a year ago by the state Division of Employment, the percentage mix of gaming to other industries in Nevada changed little from 1980 to 1996. Manufacturing had 4.6 percent of the jobs in Nevada in 1996, said the analysis, compared to 4.8 percent in 1980. And the percentage of jobs in hotels, gaming and the service industry actually inched up during the 16-year-periodfrom 42.3 percent to 43.2 percent.
The truth is, diversification of the Nevada economy has always had more friends in name than in actual fact. Administration after administration has publicly given the goal lip service while also privately recognizingand at times quietly collaborating withresistance to the idea in the states casino sector. Add in the normal all-too-human government tendencies toward procrastination, accentuated by Nevadas near-decade-long run of good luck in the booming Las Vegas tourist economy, and its not surprising what the state got in the Bob Miller years: a state economic diversification effort best expressedno doubt unconsciouslyby the slogan on the front page of the state Commission on Economic Development (CED) website: "Weve been waiting for you!"
Defenders of the commission will note with some justice that, given the relatively small state budget devoted to it, the CED and its 12 regional development authorities spread throughout the state, have performed well [see box].
Yet its precisely the relatively minuscule size of Nevadas state expenditure on economic diversification that raises some of the most serious questions.
While the states next-door neighbors and competitors, Utah and Arizona, were spending per capita $1.52 and $1.10 respectively on economic development and diversification, Nevada was spending only 9 cents per capita, according to testimony before the Assembly Ways and Means Committee last year.
Governor Miller especially gets tough reviews.
He nearly always took "the politically easy route by doing nothing," says University of Nevada, Reno, political science professor Erik Herzik. "He could have done more for economic diversification. He could have asked tougher questions about gaming expansion."
But the verdicts from some sources close to the CED were even harsher: "If you knew some of the crap that went on there behind the scenes it just gets disgusting," said one source.
An example cited was one Governors Industry Appreciation Lunch in the northern part of the statean event featuring the governor, business speakers and the Commission on Economic Development. Businessmen buy tickets to the affairs and sponsor tables; they see the lunches as a way to keep communication channels open to the administration.
But the governor, in actuality, doesnt share the feeling, said this participant in the events preparation: "If Miller could have figured out a way to have cancelled the Industry Appreciation Lunch he would have."
According to this account, the governors office conducted the event that year with such pronounced carelessness and indifference that it eliminated any benefit the event might have had for economic diversification.
It was "the year that he had Steve Wynn as the speaker up here in Northern Nevada," said the source. "Wynn found out that he was being leaned on to be the speaker the weekend before the thing, and it was on a Tuesday!"
The prolonged procrastination by the governors office, said the source, resulted in cancellations by a number of solid out-of-state prospects for investment and location in Nevadaprospects that had been arduously developed by staffers in the Commission on Economic Development.
Those individuals would have come, went the account, but every effort by the CED to line up speakers and manage the event for a reasonable time frame was being rebuffed by the governor.
"Miller just kept saying, Nah, thats not acceptableIll go find my own," recounts the source.
The proposed law, Senate Bill 345, was in many ways a complete disaster. Even in the view of some of its most committed proponents, the legislation was very badly drafted. Not only did it move the states 12 regional development authorities into a kind of vague and undefined purgatory where their future was seriously in doubt, the bill draft also appeared to essentially gut, in many respects, the state-level economic development operation itself. Finally, to make matters even worse, the whole operation was launched by the administration behind the back of not only the economic development commissioner responsible for representing the states rural areas, but even all the rural development authorities themselves.
"None of us were notified about it," says Churchill County Economic Development Director Shirley Walker. "I happened to read about the bill in the Ely Daily Times. So I called Mr. [Michael C.] Sheppard who at that time was the commissioner representing the rural areas on economic development, and he didnt know anything about it. And needless to say, he was pretty upset about it.
"So I said, Do you want me to go over? Because we hadnt seen the bill; we had seen nothing. And he said, Well, you go, and Im coming too. So thats how it came about," recounts Walker.
When she and Sheppard finally got a chance to review the proposed Miller administration legislation, says Walker, it was obvious that "it was not clear enough what was going to happen to the rural economic development organizations."
The whole affair, originating with Bob Miller himself according to his representatives, has to this day left many people scratching their heads: What was the governors real agenda in the whole mess?
"The simple answer is that the governor was trying to make a bigger job for Tom Tait," says Lieutenant Governor Lonnie Hammargren. "[At the same time] they were trying to kick out Tim Carlson over at the CED."
Tom TaitA Buddy
"Tom Tait was a buddy," said the lieutenant governor, "Miller was best man at Tom Taits wedding. Tom Taits been working for him for 20 years."
Though Carlson acknowledges most people at the time saw the events in the same light as Hammargren, he himself, he says, was all for the change.
After he was first approached by the governor, says Carlson, "Tom Tait and I sat down and talked about this issue, and Im the one that came up with the idea that Tom Tait ought to be the director of this new agency."
According to Carlson, he told Miller he would agree to that gracefully on one condition, which the governor acceptedthat the name of the new merged agency would be the "Commission on Economic Development and Tourism."
In his view, said Carlson, giving the economic development function top billing in the new agencys name would have gone a long way toward solving a fundamental long-term problem that the CED had never been able to surmountits need for a solid revenue foundation.
Why did the governor want to merge the Tourism and Economic Development Commissions? In Carlsons view, Millers intentions were entirely above-board.
"I truly honestly believe that Governor Miller wanted to do the right thing, and I truly believe he would have put a strong emphasis on economic developmentmore than he had in the past," said Carlson.
Noting Miller had spent much of the 1993 legislative session involved in large-scale efforts to consolidate and reorganize state government, Carlson says he saw Millers proposal for merging the commissions as in part "just a continuation of combining state agencies that have a potential of duplicating themselves in regards to administration and other ways."
Yet in addition to Millers cost-cutting agenda, said Carlson, "at the same time, I believe he really had" an intent to make economic diversification a higher priority for the state.
"He wouldnt have agreed to what I asked for, as quickly as he did, if he thought anything else. Hes a smart-enough man to recognize that if you call it by that name, its going to eventually be that."
Less Than Competent Management
"There were several people who were on the commission that were browbeaten by Bob Miller into supporting the thing," said one observer. "But I dont think there was a single person on the commission that really thought it was a good idea."
Given that situation, and coupled with the governors less-than-sterling support of the economic diversification effort in other contexts, this source focuses on a large financial consequence of the merger Miller and Tait were proposing.
"R&R Advertising, which ran [the governors] campaign, had the contract for tourism," he says.
"Anyway, there was another half-million bucks or whatever that was over in the Economic Development side. If you combine the two [commissions] together, [Miller] was going to give his ad agency another half a million bucks.
"I believe that was 90 percent of the motivation," asserts this source.
Whatever had been in the governors mind, however, Senate Bill 345, after its second hearing before Bill Raggios Senate Finance Committee, was essentially dead. Virtually the entire cohort of regional development authority representatives had testified against the bill, as had several private economic development consulting firms.
Yet the fact that the legislation had even been proposed in the form it wasand with such demonstrated indifference to the states economic diversification professionalsspoke volumes about diversifications political weakness in Nevada.
Senate committee minutes show that Carlson himself, while testifying in support of the bill, had put his finger on that core issue:
In contexteven if syntactically challengedwhat Carlson was saying is clear: The states major industry, tourism, is fundamentally ambivalent in its support for economic diversification. And that is the major problem the effort faces.
Former Lieutenant Governor Bob Cashell, as a member in good standing of the casino industry himself, was able to be more frank. Sitting right beside Carlson, Cashell, according to minutes of the May 11, 1995 hearing, laid it on the line:
When Nevada Journal asked various observers about Cashells analysis of gaming industry opinion, his views found widespread support.
"I think that is a very sophisticated and correct view, and enlightened," said University of Nevada, Reno, Professor of Economics Thomas Cargill.
An Industry of Two Minds
"There is a minority of the gaming industry that understands that it is not in their own best interest to be the only game in town," he said, "[and which understands] that economic diversification and creating new businesses and new companies in town is actually in their own vested interest, even though that means that they will have to compete for employees." That is something, he said, they are normally loath to do.
Cargill agrees. The prospect of having to bid for employees has been a big reason why gamers have been reluctant to support diversification. But, he says, there are also other reasons.
"I think that they would view any diversification as weakening their political position," said Cargill. "Also, a more diversified labor force tends to be a more educated labor forcea labor force that has more opportunities.
"See, one of the problems with being in the casino industry is that these people dont really learn a lot of transferable skills. I mean, they can go from one casino to another, but they cant easily go to a non-gaming environment.
"And so the more diversified the labor force, the more educated, the more skills it has, its going to be more demanding. Not just in wages but in working conditions.
"The casino industry doesnt want that," asserted Cargill. "No employer would."
On the other hand, points out State Senator Ann OConnell, Nevadas gaming interests are also aware that diversification of the states economy is the only way they can avoid higher future taxes.
"[T]heyre looking for somebody to share the tax burden, [rather than] look to them for more taxes," she said. "Ive never discussed that with any of the gamers, but off the top of my head, that would be what I would surmise."
OConnell also pointed out that the gaming industry is already giving financial support to the state diversification effort "with the money that they spend through the convention authorityto bring tourists here."
"And when people come here, and they like the city, they like the climate, well, a lot of people are convinced to move here from that."
C. A. Howlett, currently vice president of public affairs for America West, told the Las Vegas Review-Journal that the tourism industry can act as an important aid to diversification in the state, bringing to Nevada as individual tourists business people who subsequently will decide to exploit the business opportunities offered by the state.
"Historically," said Howlett, "particularly when Phoenix was an emerging giant of a city, market studies showed [that] a significant percentage of people who located their businesses in the Phoenix area were first exposed [while] either being a conventioneer or a tourist."
Discerning businessmen recognize that the issue for gamers in Nevada increasingly goes beyond their mere interest in not being "the only game in town" when local governments and the state go looking for tax revenue.
Increasingly, a deeper question is on the table: It is implicit in the increasing popular supportmapped in the pollsfor hiking state gaming taxes. It is present in the increasing willingness of some politicians to advocate that particular idea, and of other politicians to turn the casino industry itselfspecifically in its support for the Kenny Guinn gubernatorial candidacyinto a populist stick with which to beat about the head and shoulders both Guinn and the casinos. And it is implicit in the economic analyses advanced by Professor Cargill and others.
Recall the professors argument that most gaming interests resist diversification of the Nevada workforce in order to limit chances that casinos might have to compete against non-gaming industries for employees. Gaming faces a distinct risk that its foes will pick up that argument and deploy it in a much more inflammatory way: that gamers have for years and years been quietly using their power and influence to block better opportunities for Nevada workers in general, and Nevada parents kids in particular.
Stated that way, its a potentially explosive chargeand one which, in the new skepticism and suspicion present here in Nevada about the casino industry, could have a powerful political effect. Say the current trends mentioned at the start of this article continue and transform into a severe economic downturn for Nevadas number one industy. Without some significant economic diversification in the state to soften the blow, popular rageonce gamings decades of resistance to diversification becomes widely understoodcould easily sweep through the electorate and into state government.
To allay that possibility, the leaders of Nevadas gaming industry need to demonstrate now that they are, in fact, good citizens of the state on the question of the largest challenge it faces. Practically speaking, this means that the industry cease insisting that all tourism-sourced revenues collected by state and local government be channeled back only into the narrow promotion of tourism. Such indifference to the states long-term welfare is no longer viable; rather, its a ticking time bomb.
Legal gamings right to exist in Nevada, as in all other states, has always been contingent on its utility for the wider communitys pursuit of other, more general, purposes of public policy. That is the fundamental covenant between the people of Nevada and the gaming industry.
Leadership that takes the long view will respect that covenant. NJ
Steven Miller--no relation to the governor--is managing editor of Nevada Journal.