|By Larry Eichel, Detroit Free Press|
Knight Ridder/Tribune Business News
July 19, 2004 - DETROIT -- When this city and the state of Michigan decided to go into the urban casino business in 1996, a lot of promises were made.
And some have been kept.
But two of the biggest still hang in the balance -- and with them the future shape of the entire endeavor.
What's happening in Detroit, which will cease being the largest U.S. city with full-scale gaming halls once Philadelphia gets its slot parlors going, is a reminder that government-sponsored gambling schemes rarely go exactly according to plan.
One of the promises in jeopardy is the commitment from each of Detroit's three casino operators to build "permanent" facilities, meaning Atlantic City-style hotels, complete with restaurants, shopping, meeting rooms and theaters.
It has been more than 71/2 years since the Michigan vote, and Detroit casinos still are housed in drab, "temporary" facilities -- an abandoned IRS center, a converted bread factory, a renovated warehouse. Pennsylvania's new law would let licensees use temporary quarters for as long as three years.
The other pledge at risk is the implicit one that Michigan gave the casinos at the outset: that the rules of the game wouldn't change for a while.
Now the legislature, confronted with a budget crisis, is poised to raise casino taxes by at least a third and allow video slot machines at racetracks throughout the state.
Should those changes go through, casino operators say, Detroit might have to forget about ever seeing those permanent casinos, already scaled down from 800 rooms each to 400 and entangled in litigation.
"We'd be looking at definite jobs losses and potentially the end of any hope of permanent casinos," said spokesman Roger Martin. "The operators are ready to invest $1.5 billion. But if the business climate is changed substantially, we won't be able to do it. And there's a clause in our contracts with the city that allows us not to."
Some city leaders, though, think the operators are looking for a justification not to go ahead with the hotels.
"They will make more money not building," said City Council President Maryannn Mahaffey. "At one point, they talked about advertising Detroit as a destination city, nationally and internationally. But they're doing beautifully drawing from this immediate region. So they're just going to continue to milk us and keep sending their profits home to Las Vegas," the site of their corporate headquarters.
For all the rhetoric, there's no question that the gambling experience in Detroit has delivered on the basic benefits of jobs and tax revenue.
Pretty much as promised, 8,200 jobs have been created by the MGM Grand, Motor City and Greektown casinos, which offer table games as well as slots. More than half of those jobs are filled by city residents, in keeping with the original commitments.
The casinos, open 24/7, hum with activity day and night, midweek and weekend, with average winnings of $1 million a day a site, more than $1.1 billion a year citywide.
For 2003, the city's direct take of 9.9 percent came to $112 million, while the state's 8.1 percent share amounted to $92 million, numbers that exceed original projections. The casinos pay other fees, too, bringing the total effective tax rate beyond 20 percent.
"In terms of the budget of the city of Detroit, the casinos have been a savior," said David Littmann, senior economist at Comerica Bank here. "They've exceeded expectations in a way nothing in the city ever has, not in my experience. Increasing the taxes on them now is a great idea -- if you want to risk turning them into white elephants."
Mayor Kwame Kilpatrick also opposes higher taxes.
Thus far, though, gambling has produced no spin-off economic development, at least none that's visible.
The casino buildings themselves are self-contained, windowless fortresses. Two of them, MGM Grand and Motor City, are on the outermost fringes of downtown, overlooking freeways and surrounded by parking garages and empty lots.
Nor have the casinos drawn in the promised influx of visitors from outside the region. Operators report that well more than 80 percent of their customers are from the three-county area.
"Yes, the casinos bring in a lot of suburban money, which some might say is a good thing," said the Rev. Kevin Turman, whose Second Baptist Church is a block away from the Greektown Casino. "But what's more important is that they take money from a large number of the people who can least afford it and funnel it to a very few, the casino investors."
In addition, critics cite tales of woe that come with gambling.
Personal bankruptcies in the Detroit area rose 64 percent from 1999 to 2003, although it's hard to say how much of that was due to the casinos.
"The proliferation in the number of problem gamblers has been incredible," said Arnold Keller, who runs the Gamblers Recovery Program in suburban Northville. "In addition to the bankruptcies, we're seeing more divorce and depression, not to speak of embezzlement, fraud and check-kiting."
There has been no study gauging the magnitude of the social impacts, although the city has one in the works.
Still, it is the absence of the permanent casinos that most bothers many Detroiters. The sight of those high-rises going up would provide some hope for a frayed downtown that is all but dead after business hours.
"We need to see something going on in the city," said David Griffin, who runs a hot dog cart outside the city-county office building. "We need to bring more people in and keep them here a little longer."
The plan called for the hotel rooms to be ready for Super Bowl XL, which the city will host in February 2006 at its new, enclosed, downtown stadium. Time is running out, or already has.
"Bring a blanket, bring a backpack," said Trisha Arndt, a lawyer who opposes gambling. "Get real, sports fans."
The delay in development of permanent facilities goes back to decisions made after the approval of gambling in 1996, two years after a casino opened right across the river from Detroit in Windsor, Ontario.
Responsibility for selecting Detroit's casino operators fell to the mayor and city council. And they decided to give preference to the businesspeople who had funded the campaign to get the voter referendum approved; those groups received two of the three casino licenses.
In response, a 500-member Indian tribe from Michigan's Upper Peninsula filed suit in federal court, challenging the preference system and arguing that the selection process should be redone. The Lac Vieux Desert Band of Chippewa Indians operates one of the state's 17 Indian casinos.
Six years later, the lawsuit remains unresolved, and an injunction blocking any casino construction is in place. Now along comes the prospect of video slots at racetracks and higher taxes to lengthen the odds.
(The slot-machine law in Pennsylvania seeks to discourage such changes in the gaming environment for the first 10 years -- by entitling licensees to multimillion-dollar credits and/or refunds should such changes happen.)
And there are other twists in Detroit's ongoing saga.
To counter the threat from the racetracks, the casino operators are placing a state constitutional amendment on the ballot this fall requiring voter approval for any expansion of gambling.
Then there's the pending merger between MGM Mirage, which owns Detroit's MGM Grand, and Mandalay Bay, which controls Motor City.
Should the merger go through, the new company would be forced by law to sell its stake in one of them, a move that might further delay construction.
"Having resort hotels would be great for this town, which is really messed up," Jim Saunders, a suburban funeral director, said as he left the MGM Grand the other day, counting his winnings. "But I don't expect them. Not in our lifetime."
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