High Stakes 

Divying up gambling's pot of gold

Local government finds itself hooked on the gaming industry

The keno machine's screen flashes as fast as any Nintendo game, the lights reflecting off the face of an old man in denim overalls who is sitting in front of the screen. His thumb hits the start button over and over again, the numbers on the screen glancing by in a near-blur of blue, yellow and black. To his right, a woman balances on a stool, lighting a cigarette as she plays a game of video poker. He notices neither her nor the woman three machines to his left, who pauses briefly to go to the ATM in the corner. Nor does he pay any attention to the nosy journalist watching over his shoulder the action on the screen.

It's lunch time on a Monday and the Southgate Mall is quiet. But inside Pepper's Bar & Casino, 16 of 18 video gambling machines are being used by people who look like they could be mall walkers. As the afternoon progresses, a decidedly younger crowd will straggle into Pepper's and take their places before the machines that tempt with the potential of big payouts.

With casinos like Pepper's sprouting up even in shopping malls, it appears that gambling has lost its once shady stigma. As a pastime, the industry has done much to repackage itself from the lurid underworld days of mobsters in pin-striped suits toting machine guns. Instead, gaming is now a tourist attraction, an entertainment form that is one of the fastest growing in the country. According to an article in the July/August 1997 issue of Mother Jones magazine, gambling generates more dinero nationwide than movies, spectator sports, theme parks, cruise ships, and recorded music combined.

And it's no different in the Treasure State. Numbers speak to the fact that Montanans love a good game of chance as much as anyone. There are now more than 17,000 video gambling machines in the state, with the numbers increasing steadily. In 1997, just over $225 million was sunk into those machines, a threefold increase in 10 years. So many people slipped so many quarters into gambling machines that the state raked in close to $34 million in tax revenue last year, with $11 million of that going into the state's general fund and the rest disturbed to city and county governments.

Missoula's take on that is just a tad over $2 million, a check which is signed directly over to the city police department where it comprises almost half of the agency's $4.7 million annual budget.

As a state, Montana has a long and colorful history of at least being tolerant of wagering, even if it wasn't always completely legal. The state's original constitution outlawed all forms of gambling, but gaming halls persisted anyway. In 1937, the legislature legalized various table games. Eight years later the use of certain "trade stimulators" for non-profit organizations was given the go-ahead as well. As a result, slot machines, still technically illegal, started popping up everywhere.

In the years that followed, law enforcement agencies attempted to crack down on illegal forms of gambling. About the same time law enforcement officials started flexing their muscles, voters shot down an initiative that would have legalized gambling by a 4 to 1 margin.

It wasn't until 1976, when the state Supreme Court legalized video keno, that gambling finally got a legitimate toehold. And then when the economic downturn of the 1980s kicked in, things started happening fast. In 1985, legislators passed a law allowing five machines per liquor license. The following year voters approved the state lottery. In 1987, the state imposed a 15 percent tax on video gambling revenues. And in 1991 the number of machines allowed per liquor license was bumped up to 20.

From zoning codes to crime rates to taxes, gambling's effect on the average Montanan, regardless of whether they ever chance the occasional buck on an electronic draw of the card, are perhaps farther-reaching and more costly than might have been thought. And despite its slide into mainstream acceptance, gambling is not without its detractors and reformers.


One such critic is Ellen Engstedt, executive director of Don't Gamble with Our Future, a grassroots organization working to stop the expansion of gambling. She says the group's memberships stands at 2,500 and growing statewide.

Engstedt finds the level of state oversight of the industry to be inadequate, and says the industry wields a disproportionate amount of power in Helena. During the last two legislative sessions, she says, the gambling industry had five lobbyists working lawmakers, while her group had only one.

"The arrogance of it is that they seem to believe they're above regulation," says Engstedt.

Engstedt is concerned as well that gambling is having detrimental impacts on communities. As proof she cites the rise in pawn shops and Gamblers Anonymous groups. "We have 70 percent more pawn shops in Montana now than we did five years ago," she says. And there are 30 Gamblers Anonymous groups throughout the state where there were none in 1985.

When asked if she'd like to see gambling abolished altogether in the state, Engstedt responds, "A few years ago I would have said 'no.' What we started was just to stop the expansion of gaming. The people that are joining my group are becoming more and more disgusted. Now I still wouldn't say that's the goal of my group, but it wouldn't hurt our feelings."

Ask Missoula's Assistant County Attorney and state Senator Fred Van Valkenburg the kinds of crimes he sees linked to gambling and he'll respond without missing a beat: bad check writing. While he admits there is no way to provide the numbers to back up his claim, Van Valkenburg says that it's his opinion that bad check writing is on the increase And his office has seen rises in other kinds of crimes, such as casino robberies, embezzlements and spousal abuse that oftentimes can be linked to gambling as well.

Van Valkenburg makes the point, however, that according to state law all the revenue a city or county receives from gambling taxes has to go into law enforcement.

"I'm not saying that the costs aren't being covered by the revenue, but I think there is more crime as a result of gambling."


Sit in on enough Missoula City Council meetings and you'll eventually hear the uneasiness in the voices of many council members over the fact that a near 10 percent chunk of the city's annual budget comes from gambling revenues.

Because of the social problems often associated with gambling and the uncomfortable reality that the more people gamble, the more money the city receives, a fair number of council members would like the city to disengage itself from such a source of revenue altogether. But in a time of tight budgets, and with the amount of other tax proceeds the state passes on to local governments remaining flat, Missoula is hooked. Council members are resigned to the fact that gambling is a source of cold cash the city can't do without.

In fact, some council members argue that with gambling oversight and regulations concentrated in Helena, it's the state's deal and the best the city can do is play the hand it has been given.

"My sense is that [gambling] is here and it's going to be here. I don't see where we would get any more money to fund the police department," says Ward 2 representative Jim McGrath. "The city has absolutely no say. I don't really appreciate saying that the city makes all this money, but there are all these problems. I think it hurts businesses more than it hurts city government. But if it hurts business then it hurts city government."

As an example, McGrath points to the Montana P.I.E. Co., which went out of business in last summer after 14 years of local ownership. The restaurant went belly up, in part, because it couldn't compete with casinos, the owner of the now defunct company, Steve Schultz, said in a newspaper report at the time. The restaurant tried a last ditch effort last spring to get a liquor license so it could serve beer and wine with dinner, but the Schultz didn't want gambling machines. Council members tried to accommodate his request by attaching certain conditions to the deal, but then found out that they had no authority to do so. Schultz withdrew his request and closed the doors in August.

While council members are attempting to revise the zoning ordinance that may have contributed to the Montana P.I.E. Co.'s downfall, McGrath also points out that by tying gambling licenses to liquor licenses, the state makes it hard for small business owners to compete if they want to serve liquor and food unaccompanied by the clanging and dinging from gambling machines.

There is still a lingering stigma to gambling, and McGrath says this encourages business owners to do some disingenuous politicking when asking for permits. Few people complain when a proposal comes in for a family restaurant or even a tavern near a residential area, says McGrath. But a casino will likely draw the ire of residents. As a result, proposals that come before the council as a restaurant with a liquor license sometimes turn into a casino by the time the business has opened. While this is not an illegal tactic, McGrath says, it's one that causes city officials to grumble.

Case in point: Rocky Mountain Grill and Bar & Lucky Buck Casino. When Bill McQuirk first approached council last summer, his lawyer told the city that the permit was for a restaurant only. But when the business opened last week it was as plain as the sign out in front of the West Broadway business that something had changed.

When asked why the establishment had gone from restaur- ant-only to restaurant-and-casino, McQuirk claimed not to even own the place, despite the fact that Prime Cut Inc. is listed as owner on the business license with McQuirk as president.

McQuirk did say, however, that because restaurants traditionally have tight profit margins, they are often forced into the gambling business in order to pay for basic city services. According to McQuirk, the Rocky Mountain Grill had to dish out more than $40,000 in order to comply with city sewer reqs.

"The biggest thing that really hurts restaurants is the city's cost of operating."


While someone like McGrath may take a more moderate view of gambling, state Rep. David Ewer (D-Helena) has taken a strong stance that gambling in the state needs to be reigned in.

"I think that the industry is not being regulated properly at all," he says.

Ewer would like to see the state provide more support for problem gamblers, do away with the lottery, give the Justice Department's Gambling Control Division more authority to audit gambling machines, remove ATMs from casinos, and limit the growth of the number of casinos.

"The legislature, to its credit, has said no to expansion. But the reality is that we probably have all the compulsive gamblers playing already," says Ewer.

Perhaps the issue Ewer feels most strongly about, however, is evidence that the industry isn't paying its fair share of taxes. Ewer points to a 1994 report by the state's Legislative Auditor's office that slams the state's antiquated paper accounting system, which is supposed to monitor the amount of money being put into video gambling machines. The report's findings state that somewhere from 28 to 38 percent of the gambling establishments in the state pay an incorrect amount of tax; another 18 to 22 percent is questionable.

The report concludes: "The current video gambling tax reporting system is not effective or efficient. Our review of tax returns revealed the existing tax reporting system is not effective for ensuring the proper amount of tax is paid on proceeds of video gambling machines."

The report strongly recommends converting over to an automated system called "dial-up" that would link machines to a central computer and keep tabs on the amount of money going into each individual machine.

As a result of the report, bills were introduced in the 1995 and 1997 legislative sessions that would have required conversion to dial-up. But despite support from the governor, the attorney general and the legislative leadership, the bills failed in each session.

Ewer doesn't accept the notion either that cities like Missoula can't do without the gambling revenue tax.

"There's a value issue here. I think a lot gambling is done by people whose tax money we probably don't want. We have young people, the elderly, poor people, people on public assistance. That's a very regressive form of taxation. And people shouldn't deny that gambling is really a state sanctioned, incredibly regressive tax."


Dennis Casey, of the Montana Gaming Association, an industry lobbying group which claims about 175 members, has a much different take on the gambling biz.

Casey likes to point out the benefits of his industry, like the number of jobs it provides and the fact that in order to get a gambling license a person must first have a liquor license for which you must be a resident of the state.

"We don't have large [gaming] corporations in Montana. These are all Montanans who own these businesses. They employ thousands of people, many of whom would be on welfare rolls if it weren't for those jobs," says Casey.

Casey dismisses many of Ewer's concerns as well. For instance, he says that removing ATMs from casinos will make little difference to those with a serious gambling addiction. Compulsive gamblers, he says, will "walk through a snowstorm for two miles to get money."

The 1995 dial-up bill, which would have given operators heavy incentives to convert to automated machines, was supported by his association, says Casey. In 1997, the association's membership was evenly divided on the revised bill, which didn't give operators such sweet deals to convert to automation, and so MGA didn't take a stance. Casey acknowledges, however, that the current accounting system is a "paperwork nightmare" and passing a dial-up bill would probably do much help his industry's public image.

"There is with the electronic system a greater certainty that the correct taxes are being paid. And I think that the development of an electronic monitoring system would help the industry as viewed by other people," he says. "There probably is a distrust out there that there shouldn't be and wouldn't be if we had an electronic monitoring system."

Casey also takes issue with an article published in the Montana Business Quarterly put out by the University of Montana's Bureau of Business and Economic Research that sharply criticizes the state's 15 percent tax on gambling income.

"Our state has by far the smallest split at 15 percent. South Dakota's is 50 percent, Oregon's 65 percent, and Alberta's 85 percent. In fact, Montana government's share of video gaming revenues is the smallest in the U.S. or Canada. Doubled to 30 percent, ours would still be the smallest," reads the article.

In all three places, Casey says, the state or provincial governments basically run the video gambling as their own business and operators rent the machines instead of owning them. In Montana the stakes are higher, according to Casey, because the investment and responsibility lie with the operator.

The article raises the issue that gambling brings in a relatively small amount of tax money. The figures bare this out. If the $23 million funneled to local governments in 1997 were divided among the state's 56 counties equally, it would give each county only about $410,000.


Back at Pepper's the sparse Monday evening crowd trickles in. A young couple strolls in from the mall. Another woman shakes her head at the results on a video screen. An attendant eyes the casino's atmosphere, which has a neighborhood bar-like feel combined with an almost palatable sense of anticipation, as the young couple sits down at two machines.

Each puts a five dollar bill into their respective machines. The woman quips that they aren't to spend more than this. The man rolls his eyes to this as his screen starts flashing. No one hits the jackpot-at least not right now. But no one seems particularly desperate or down-and-out. It's just another evening at the mall.

Or as Casey puts it, gaming is good, healthy entertainment that pays its own way. "The vast majority of Montanans accept gambling for themselves and their families," he says.

Gaming has come a long ways from the back-room poker days romanticized in movies like A River Runs Through It, but in many ways it's still a wild card, with Montana's state and local governments hoping, just as eagerly as any casino patron, that with a little good luck they'll hit the big one.

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Revenue from the gaming industry funds nearly half of Missoula's annual police department budget. Photo by Jeff Powers.

Backgroom poker games persist even today at places like the Oxford Cafe and the Stockman's Bar. Photo courtesy of Tim Gordon.


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