Discovering Montana

Gov. Racicot's Remarks on Gambling and Gaming in Montana

Bozeman Montana, September 4, 1997

Two years ago this weekend we met here to talk about tax reform in our state. Today, we meet on another very important subject. I would like to thank the Wheeler Center for inviting me back to speak on a topic that is not only important to our quality of life in Montana, but one which we can actually control if and when we are willing to do so.

I will be speaking to you tonight about gambling in Montana -- its history, because that will help us understand how we arrived at today's familiar scene, the current controversies over whether there is too much or not enough gambling, what its impact is on our society, our families, and our economy, what government's role in all this should be, what effect gambling on Indian reservations will have on all of us -- and the future of gambling, with the specter of new games, greater stakes, and the disturbing notion of wide-open gambling in cyberspace.

I do have a little experience in this arena. As an Assistant Attorney General, I argued on behalf of the State before the Montana Supreme Court in 1982 that "keno" is not "bingo," and could therefore not be played legally in bars throughout the state. I was unsuccessful in my argument. In 1989, I became Attorney General, and in that same year gambling enforcement was put under the Attorney General's jurisdiction, and the Gambling Control Division was born.

From the time I became Attorney General to the present, I have worked on negotiating gambling compacts on Montana's Indian Reservations. And along with Florida's Governor Lawton Chiles, I advise the National Governors Association on matters concerning Indian Gaming.

I must state up front that I have had and continue to have a clear position on the subject of gambling, of which many of you are already aware. I have never been an advocate of commercial gambling, and I remain opposed to its expansion in Montana.

Nevertheless, I will be speaking to you of facts and figures and will base my remarks on objective data, from which you may draw your own conclusions -- although I suspect most of you had deep feelings about this topic before you got to the auditorium tonight.

I also understand that gambling has a positive side -- it reflects our natural urge to take risks and escape to the world of make-believe. It fulfills the play impulse that human beings have, and for many, it is a means of social interaction and a way simply to have fun. It is also, of course, an industry that employs many people and pays many taxes.

To understand commercial gambling in Montana, it is helpful to understand its history, how it made its way from smoke-filled back-rooms of not too many years ago to today's casinos and convenience stores -- not just in this state but across the entire nation.

After getting off to a shaky start in the 1600s, when the Puritans allowed neither cards nor dice in their houses, gambling became more reputable during the colonial period. Today we are mightily challenged to find adequate funding for governmental services -- yet imagine the difficulty of building roads and schools at a time when there weren't many banks or other large pools of capital for such ventures.

The earliest settlements in America were funded, in part, by lotteries, encouraged and often sponsored by government. In 1793 President George Washington joined in sponsoring a lottery to finance improvements in the District of Columbia, and lotteries were used to raise money for Harvard College, the University of Virginia, and the University of North Carolina. Virginians of the time bet on horses, cards, dice, cockfights, as well as crops, prices, the weather, and just about anything else.

Closer to home, many of the frontiersmen were caught up in the gambling spirit. The French statesman and author, Tocqueville, visiting this country during the 1830s, wrote that Americans went west for the same reason they liked to gamble, "not only for the sake of the profit it holds out to them, but for the love of the constant excitement occasioned by that pursuit." Riverboat gambling started to flourish about this time too, but soon evangelical reformers began their steady assault on gambling, viewing it as a threat to their vision of the United States as a Christian nation. Political reformers worried too that gambling upset the discipline required of a capitalist democracy. Although at one point in our early days as a nation, nearly every state in the union had some kind of lottery, by 1878 Louisiana was the only state that still sponsored one.

The next wave of gambling appeared after the Civil War and the industrial revolution, when cities began to grow and immigrants began to move into the country in increasing numbers. Freed slaves, Irish, Germans, and southern and eastern Europeans were attracted to the "numbers" games, and although illegal, these games were popular and gambling prospered once again.

At the turn of the century, Victorian morality led to a sort of national self-purification that included wars on drugs, gambling and municipal corruption. The territories of New Mexico and Arizona were told by Congress to outlaw their gambling in order to be admitted to statehood. Even Nevada outlawed all its casinos in 1909. Large stakes gambling became identified with organized crime. The psychology of gambling emerged as a science, with gamblers being labeled as pathological, as neurotics with an unconscious will to lose, and as immoral. Law enforcement moved in on gambling with renewed vigor, and gambling was on the decline until prohibition was repealed in the 1930s, when bars re-opened, and gambling surfaced again.

Meanwhile, Montana was following a similar historical pattern with respect to gambling. It followed several waves, contracting and expanding over the years, just as in the rest of the country. In 1862 several three-card Monte dealers arrived in the Deer Lodge Valley and were shot and hanged. During Montana's territorial days, various cardgames were outlawed, and offenders were sentenced to five years in jail and $1,000 fines, although it is not known if any were ever charged with a violation of the law.

In 1889, Montana's first constitution contained an anti-gambling section. At the turn of the century the Legislature adopted laws to prohibit a variety of games, as Legislatures were doing in every other western state at the time. But these laws were not taken too seriously, and Hollywood's portrayal of cowboys and professional gamblers populating the saloon cardtables is probably not all that far from the truth.

After the repeal of prohibition, Montana, like much of the rest of the nation, began to legalize some forms of gambling. For a $10 annual license fee, drug stores, cigar stores, charitable organizations and other businesses could conduct certain card games under the protection of the state's "Hickey law." From 1945 to 1950, Montana had a law which appeared to allow charitable organizations to maintain slot machines for play.

However, the national moral climate was again swinging toward anti-gambling. Fergus County Attorney Louise Replogle, believing slot machines to be illegal, seized some of them in a raid near Lewistown on the evening of September 13, 1947--almost exactly 50 years ago today. Soon thereafter the Montana Supreme Court struck down the law that allegedly permited slots, and a subsequent voter referendum overwhelmingly rejected the legalization of slot machines.

Consistent with this roller-coaster history, gambling took off again after World War II. By this time, the nation's economy was on the upswing, air transportation was beginning to blossom, and parts of the country were resurrecting their lotteries, with New York, Atlantic City and Las Vegas inaugurating new gameing opportunities, such as off-track betting and casino gambling.

That brings us to the present scene. As you are all aware, Montanans adopted a new constitution in 1972, which contains a provision that prohibits gambling UNLESS it is approved by the Legislature or by voter initiative. Not long after our new constitution went into effect, the Montana Legislature legalized bingo, raffles, sports pools, and certain card games. Soon after, the Montana Supreme Court, holding that keno was a form of bingo, held that electronic keno was legal in the state.

Montana followed the national trend by adding to the already legalized forms of gambling. The State Legislature in the 1980s authorized 5 poker machines and unlimited keno machines in bars, and not long after refined the law to allow 20 video gambling machines per liquor license. We were the first state to permit video gambling machines in bars, giving rise to what some call "mini-casinos." Montanans approved a state lottery in 1986, and a law permitting betting on simulcast out-of-state horse-racing was passed in 1989, and prize limits on video poker machines were raised from $100 to $800 in 1995.

The rest is, as they say, history. Gambling has become a respectable business. By 1994, every state except Utah and Hawaii permitted some form of commercial gambling. Gambling has become a family activity, with riverboats, imitation wild west casinos and mining town resort themes.

Our risk-taking instincts have found a myriad of new outlets. New Orleans is promoting the world's largest casino, and public officials in other cities and states across the country are embracing new gambling proposals every day. Gambling has been integrated into our everyday life, in the form of television game shows, in restaurants and resort hotels where kids are playing within a few feet of their parents and grandparents pumping money into machines. Eat cheaply, see a magic show, win a fortune.

Gambling vocabulary has become an everyday part of our language--what, for example, do you think the odds are of a special legislative session on the speed limit? And lottery numbers and the point spreads of professional and collegiate athletics are routinely published in our daily newspapers.

It is no exaggeration to note that gambling today, as compared to just a few short decades ago, has exploded as a national and Montana pastime. Bear with me while I recite some of the most striking of the many statistics that we, as a state and a nation, have recently begun putting together.

Between the early 1980s and the early 1990s, legal gambling grew at almost twice the rate of personal incomes. In the six years between 1988 and 1994, casino revenues in the United States nearly doubled -- from $8 billion to about $15 billion annually. The number of American households in which at least one member visited a casino doubled in three years, between 1990 and 1993 -- from 46 to 92 million, with more than three-quarters of the increase as a result of visits to establishments outside Nevada and Atlantic City.

In total, about 150 million Americans walked into casinos in this country in 1995, an astounding increase of 235 percent over 1990, nearly as many as went that year to watch baseball, football, hockey, basketball, golf, and car races combined.

In 1996, Americans wagered $ 515 billion in legal betting, resulting in gross revenues of $48 billion for gambling proprietors, not including revenue from tribally-operated gambling. Those numbers do not include gambling on Indian Reservations. In one year, between 1993 and 1994, reservation wagering rose by 22 percent. Lottery revenues in the country rose by over 11 percent from 1995 to 1996, to a record $42.9 billion. It is not surprising then that gambling is one of the fastest growing industries in the world, where profits of 30 to 50 percent a year are not unusual.

And how does gambling in Montana compare? We have virtually all of the familiar types of games, except for Las Vegas-style mechanical slot machines and house games, including blackjack, which Montana voters rejected by a 62 to 38 percent margin when it was put to a vote in 1982. Later, when the vote concerned a state lottery, the vote was more than two to one in favor.

We are a state with what we call "small stakes" gambling, since there is a limit of 20 machines per premise and prizes are restricted to $100 for bingo and keno cards, $300 for card games, and $800 for video gambling machines.

We have gambling on most Indian reservations with stakes similar to off-reservation gambling, although the numbers of machines and prize limits are slightly higher for tribal enterprises that are typically isolated geographically and do not have liquor licenses. We also have a lottery run by state government with the state acting as advertiser and promoter.

In terms of growth, in fiscal year 1987 the state issued 3,600 video gambling machine permits and ten years later issued 19, 487. While Montana is growing rapidly in terms of numbers of gambling machines, we are declining in terms of numbers of live card game table permits and card dealer licenses.

As for how much legal betting went on in Montana, in 1996 legal wagering in Montana amounted to more than $2,3 billion, not including gambling on the reservations. Most of this betting was done on video gambling machines, with $31 million spent on lottery tickets. Montana is 44th in population among the states, but 19th in the total amount we wagered on gambling in 1996.

So -- business is good. And what's wrong with that?

What's wrong are the tremendous costs to our society -- costs that are unseen to some, but obvious to many of us who work in government, or in the fields of family and marriage counseling, addictive behavior, and bankruptcy. The costs are obvious to those of us who service loans, review credit accounts, and compete for restaurant and entertainment business. They are obvious to those of us who serve in law enforcement and who analyze crime statistics that measure convictions for stealing, embezzling at work, writing bad checks, and committing insurance fraud.

Again, some striking numbers. Somewhere around 5 percent of all gamblers become compulsive gamblers, and 90 percent of them turn to crime to support their habits, with 80 percent contemplating suicide and 14 percent actually attempting it. Based on existing research, it is estimated that there may have been as many as 9.3 million adults and 1.3 million teenagers with some form of problem gambling behavior in the United States in 1994. Teenagers and the elderly are the fastest growing categories of addicted gamblers. In 1985 there were no chapters of Gamblers Anonymous in Montana. Now there are 17.

You may have seen a recent article in some Montana newspapers reporting that consumer bankruptcies are at an all time record level this year, in spite of a healthy economy. In a report by SMR Research Corporation for the credit card industry, bankruptcy rates were found to be 18 percent higher in counties with at least one gambling facility. Twenty per cent of compulsive gamblers have filed for bankruptcy as a result of their gambling losses. Ten percent of all bankruptcy filings are thought to be linked to gambling losses, with most of the debt racked up on credit cards. It is believed by researchers that a mere 100 additional problem gamblers exact a monetary toll in gambling-related problems of more than $1 million. In Montana there were 68 pawn shops in 1990, and in 1996 there were 109.

With respect to gambling-related crime, the American Insurance Institute estimates that 40 percent of all white-collar crime has its roots in gambling. It is estimated that in 1996, $90 billion was bet illegally in the United States -- just on sports games. By contrast, America's drug trade is estimated to be at about $49 billion per year.

One of the reasons for the growth in gambling activity is that state and local governments, in a rush to find new sources of revenue to provide governmental services, have signed on as beneficiaries of the gambling industry's profits. Taxes on tobacco, alcohol, and gambling are easier to impose and increase than others. Some of the gambling tax revenues can be earmarked for things the voters want. Can't find that extra money needed to build and maintain our infrastructure? Raise those "sin" taxes. In my view that this response is a serious mistake on our part.

In the first place, as more and more casinos open, competition diminishes the amount of business one can expect. In other words, the more casinos, the smaller the share of gamblers any one of them will attract. Optimistic economic projections have failed, for the most part in places such as Deadwood, South Dakota, where the speedy arrival of dozens of casinos led to an economic bust. While Las Vegas, Nevada, and Foxwood in Connecticut are examples of financial successes, they are unique in that they draw visitors from a distance, and once there, tourists take a full-scale holiday, spending non-gambling dollars as well as gambling dollars. Or, in the case of Foxwood, the casino enjoys a monopoly that prevents competition with a vast nearby urban audience to draw from.

By contrast, it is local residents upon whom most of our casinos seem to rely. And when they are gambling in our casinos, they are not taking their vacation, but are spending what they would otherwise spend on such things as clothing and restaurants, resulting in a loss to other non-gambling businesses that end up paying less taxes and employing fewer people.

Between 1978 and 1995, thirteen casinos opened in Atlantic City; as of 1995, seven were involved in formal bankruptcy proceedings. Perhaps a more comparable situation for us in Montana can be found in Colorado, where in the early ‘90s limited stakes gambling opened up in three small mountain towns. The original 25 casinos grew to 68 by July, 1992, and within six months, over 21 of them had closed their doors and many non-casino businesses were boarded up.

Governments everywhere, including our governments in Montana, are beginning to rely more and more on gambling revenues. Montana's video gambling machines' gross income tax revenue was around $70 million in fiscal year 1988, and in 1996 was over three times that figure, more than $225 million. Distributions of that revenue to state and local governments in 1996 (and again this is from machines only ) amounted to around $11 million to the state and $21.5 million to local governments. In addition, revenue from the state-run lottery amounted to about $22 million. Another $7.8 million in revenue was transferred to the state's General Fund in fiscal year 1996.

Another facet of Montana's and the nation's gambling picture involves Indian reservations. You may recall that a federal law called the Johnson Act, passed in the early 1950s, resulted in the shutting down of certain types of gambling, including casino games, on our country's Indian reservations. In 1988 Congress passed the Indian Gaming Regulatory Act (know by many as "IGRA"), which permitted casino type gambling, so long as a tribe and the state entered into a gambling compact, approved by the United States Department of the Interior.

The literal terms of IGRA require that the gambling activities authorized by the compact be those activities permitted in the state, and this language has invited differing interpretations as to just what that meant. If a particular game was permitted in a state, could tribes demand the same type of activity -- to be conducted in a manner inconsistent with state law?

In Montana, such questions have arisen in the context of whether a tribe may rightfully request a compact that allows the tribe to conduct, for example, video poker gambling, but with far more machines per establishment and unlimited payouts, as contrasted with the 20 machines per establishment and $800 payouts permitted throughout the rest of the state.

Nationwide, there are 184 tribes operating around 275 Indian-owned casinos throughout the United States. Americans spend more than $4.8 billion a year in these casinos. A few states, such as Connecticut with Foxwood, have entered into revenue-sharing agreements where the states get up to 25 percent of gambling revenue from tribal casinos. Such agreements have more recently come into question with the Secretary of the Interior's invalidation ofNew Mexico's revenue-sharing agreement with tribes in that state.

In Montana, there have been up to six of the seven reservations with gambling compacts, but some compacts have been terminated without new compacts in place. The compacts between Montana and the tribes, for the most part, allow for a higher number of gambling machines per establishment and slightly higher payouts if the establishment is geographically isolated and does not serve liquor. The tribes maintain jurisdiction over gambling by Indians, while the State retains jurisdiction over gambling on a reservation by non-Indians.

For some time now, the nation's governors have been calling on Congress to clarify its position on Indian gambling. In the spring of 1994 and again in the fall of 1996 I submitted testimony to the Senate Indian Affairs Committee in Washington, D.C. I emphasized the fact that there are hundreds of cooperative agreements between the state of Montana and the tribes, on a variety of subjects. And I also emphasized the controversies created by IGRA, which raises questions about whether the tribes have jurisdiction over non-Indians as well as whether it permits large-stakes gambling on reservations in a state like Montana, where state law permits only small-stakes gambling.

With respect to the questions of who has jurisdiction over whom, I firmly believe, and have so stated that Congress, and not the states or the tribes, must assume responsibility for creating these jurisdictional problems. Congress has had more than an entire century to resolve Indian jurisdictional issues and has not done so. Congress has been assisted by the plodding, inconsistent, and largely impotent attempts of various courts, mostly federal, to fill the void left by Congress, and the result has been that they have left both tribal members and non-members in a state of constant uncertainty and acrimony.

It is a preposterous situation that strains the fabric of our mutual existence sometimes to the near breaking point. At best, it is a product of benign neglect. At worst, it is an unacceptable denial of responsibility.

In the past few years, Congress has discussed amending IGRA to permit tribes to conduct expanded gambling on reservations, even if the state where the reservations are located does not permit such gambling. If that occurred, the culture and quality of life in the entire state would change and the narrow window of advantage available to Montana's Indian tribes would quickly slam shut.

Public pressure would soon demand that the terms for off-reservation gambling be made equal to that offered on the reservations. The tribes would then have to compete with high-stakes gambling in the rest of the state, and because all but one of the reservations in Montana are located in fairly isolated areas, urban gambling operations would succeed, with rural economies and gambling investments left in worse shape that before. I believe the quality of life for all Montanans, Indian and non-Indian, would change drastically for the worse.

Recent federal court decisions have fortified state sovereignty by making the judicial remedy that is contained in IGRA and has been used by some tribes, including several in Montana, unenforceable against a state unwilling to accept federal jurisdiction.

Questions are now being raised about whether the Secretary of Interior may authorize tribal gambling operations without a compact with a state. The National Governors Association has taken a firm stand that there must be strict adherence to every aspect of a state's gambling laws, regulations, and procedures with respect to compact negotiations under IGRA. And I support that position.

I'd like to move on to a brief discussion of what is in store for us on the gambling horizon. Hold on to your seats -- and your wallets.

The future will bring new problems, from enforcement of gambling activities to the creation of new and more addictive games. At present, there are hundreds of gambling-related sites on the Internet; dozens more are being added monthly. Online gambling operations have raised the most concern for state and federal officials. A company near Philadelphia that claims to be the first to offer gaming on the Internet recently said it will not curtail its operations despite a court order to do so.

The Internet is also fertile ground for Internet casinos and sports book operations, although there are some technical difficulties that have temporarily limited their growth. A problem of particular concern with the Internet is the ability for gambling by children to occur.

The spread of offshore gambling services that operate in countries that permit sports gambling has forced regulators to take a new look at re-writing laws to address these activities. In-flight gambling on airlines began was inaugurated in 1996, although it is not yet permitted on domestic flights.

With the growth of urban casinos, the attraction to the more rural gambling sites will be diluted. Operators will vie for the same market, and the competition among states and cities will ratchet up to a new level. This will inevitably cause us to take a long hard look at the growth in gambling.

Montanans should take time now to seriously consider the direction gambling is taking. Other states, like Iowa, have curbed the spread of gambling, in part because of regional competition rather than from public pressure. But public pressure against increased gambling is building. Since 1994, more than 30 state legislative or ballot proposals to legalize or expand gambling have failed.

One of the things that we know we must do in order to fairly examine the impacts of gambling on our society is to collect and wisely use objective and accurate information. We will be aided in this effort by the recent creation of a National Gambling Impact Study Commission, with nine members who are undertaking a two-year study of the economic and societal impact of gambling. Similarly, the Montana Legislature has authorized a statewide study, to be completed before the next legislative session.

States are also considering making it more difficult for gamblers to have easy access to cash they did not bring with them to the gambling floors. These initiatives include prohibiting cash machines near a gambling establishment and banning credit card transactions altogether in casinos. According to the gambling industry itself, more than half of the money that gamblers play on video gambling machines is not money they brought with them.

It has also been suggested that lenders should mount more strenuous challenges to bankruptcies where it appears that gambling losses are the main reason for the filing, so that we do not forgive gambling debts and thereby promote the dysfunction that dominates the lives of compulsive gamblers. Although assistance for compulsive gamblers is a worthwhile objective, there is disagreement over whether the industry itself or government should pay the costs of research and rehabilitation.

As I mentioned, I am and have been opposed to the further expansion of gambling in Montana. Should the public, through its Legislature, decide to take on new forms of gambling, we should at least put any thoughts of expansion on hold until we can prepare comprehensive gambling plans that consider our goals and acceptable methods of achieving them. This should include the creation of an automated accounting and reporting system for gambling machines.

We must avoid the temptation to prevent the flow of state gambling dollars to out-of-state ventures by authorizing new ventures to compete with them. The pattern of gambling activities in this country follows a "keep up with the Joneses" mentality among the states.

And finally, we must avoid the continued financial dependence of our governments on gambling revenues. Which brings us back to the age-old debate of the creation of alternative sources of funding for public programs. But that, of course, is for another day -- and another speech.

We cannot ignore the fact that the gambling industry thrives in our state and nation. Most of the industry in Montana is known to be honest and hard-working. While that is the case, we should treat it fairly but firmly. But we should all remember that once we legalize any form of gambling, it is nearly impossible to go back. And we should always remember that--when we subscribe to the fiction that we can get something for nothing, in truth, we nearly always get nothing for something.

Babbitt Holds Fate of Gambling in N.M., BILLINGS GAZETTE (August 17, 1997).
Don't Gamble With the Future [Association], Helena, Montana.
Gallatin County v. D & R Music and Vending, 210 MT 409 (1982).
Gambling Control Division, Montana Dept. of Justice.
Gambling's False Promise, 342 THE ECONOMIST 26 (January 25, 1997).
Gay, Lance, Study: Gambling Drives Many Into Bankruptcy, Montana STANDARD (August 21, 1997).
Goodman, Robert, Grand Illusions, 24 WILSON QUARTERLY 24 (Autumn, 1995).
Goodman Robert, Legalized Gambling as a Strategy for Economic Development, 1994.
Gross Annual Wager ‘96, INTERNATIONAL GAMING & WAGERING BUSINESS, Supplement (August, 1997).
A History of Expansion and Contraction [of Gambling], MONTANA MAGAZINE 44 ( February, 1995).
Lears, Jackson, Playing with Money, WILSON QUARTERLY 7 (Autumn, 1995).
National Association of Attorneys General, Report to the Iternet Working Group (June, 1996).
Rose, Nelson, Gambling and the Law; Endless Fields of Dreams, 11 JOURNAL OF GAMBLING STUDIES 15 (Spring, 1995).
SMR Research Corporation, The Personal Bankruptcy Crisis, 1997; Demographics, Causes, Implications & Solutions (1997).
U.S. NEWS & WORLD REPORT, The National Bet (April 7, 1997, page 50).

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