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91-2291 `��; Z2q I ,/ � . �� Coun�� File � ai Green sheet # I 1 I 3 2.. RESOLUTION CITY OF SAINT PAUL, MINNESOTA Presented By �%� Referred To Committee: Date 1 WHEREAS, Mayor James Scheibel and the City Council requested that the Planning Commission 2 study the option of Riverfront Gaming for Saint Paul; and 3 4 WHEREAS, the Planning Commission studied the experience of U.S. Cities with Riverfront 5 Gaming; and 6 7 WHEREAS, the Planning Commission reviewed projections concerning the effects of Riverfront 8 Gaming on the economy of Saint Paul; and 9 10 WHEREAS, the Planning Commission produced a report of their findings and recommendations; 11 and 12 13 WHEREAS, the Director of the Department of Planning and Economic Development presented the 14 report to the City Council Human Services Committee on November 27, 1991; therefore be it 15 16 RESOLVED, that the Saint Paul City Council receive the report; and further be it 17 18 RESOLVED, that the City Council review the information contained in the report as it considers 19 the possibility of Riverfront Gaming in Saint Paul. Yeas Navs Absent Requested by Department of: imon �- oswitz .� on Macca ee —T et man �'- T une � i son � BY� � � Form Approved by City Attorney Adopted by Council: Date �. � Adoption Cert' ed by Council cr tary By: /� By' Approved by Mayor for Submission to Approved by yor: Date EC 19 1991 Council By: By' P�US�lE� ��A�,` �� `:�2 . ql-z�9 � � DEPf�TMENT/OFFICE/COUNCIL DATE INITIATED NO. 1713 2 City Council 11-2�-91 GREEN SHEET CONTACT PERSON&PHONE INITIAUDATE INITIAUDATE �DEPARTMENT DIRECTOR �CITY COUNCII Councilmember Ma.ccabee 5378 ASSIGN �CITYATTORNEY �CITYCLERK MUST BE ON COUNCIL AGENDA BY(DATE) NUMBER FOR �BUDGET DIRECTOR �FIN.&MOT.SERVICES DIR. ROUTINQ ORDER �MAYOR(OR ASSISTAN� � TOTAL#OF SIGNATURE PAGES (CLIP ALL LOCATIONS FOR SIGNATURE) ACTION REQUESTED: To accept the report on Riverboat Gaming from the Department of Planning & Economic Development entitled: "Riverboat Gambling in Saint Paul, Minnesota". RECOMMENDATIONS:Approve(A)or Reject(R) PERSONAL SERVICE CONTRACTS MUST ANSWER THE FOLLOWING QUESTIONS: _PLANNING COMMISSION _ CIVIL SERVICE COMMISSION �• Has this person/firm ever worked under a contract for this department? _CIB COMMITTEE _ YES NO _sTAFF _ 2• Has this personffirm ever been a city employee? YES NO _DISTRICT COURT _ 3. Does this personlfirm possess a skill not normally possessed by any current city employee? SUPPORTS WHICH COUNCIL OBJECTIVE? YES NO Explain all yes answers on separate sheet and attach to green aheet INITIATINQ PROBLEM,ISSUE,OPPORTUNITY(Who,What,When,Where,Why): The Mayor and City Council requested that the Planning Commission study the option of Riverboat Gaming for Saint Paul. ADVANTAGES IF APPROVED: PED's report will be accepted. RECEIVED DISADVANTACiES IF APPROVED: D E C O � 1591 None. CITY CLERK DISADVANTAQES IF NOT APPROVED: PED's report will not be accepted. TOTAL AMOUNT OF TRANSACTION $ COST/REVENUE BUDGETED(CIRCLE ONE) YES NO FUNDING 80URCE ACTIVITY NUMBER FINANCIAL INFORMATION:(EXPLAIN) tiro doe. w g� nu . d� • . NOTE: COMPLETE DIRECTIONS ARE INCLUDED IN THE GREEN SHEET INSTRUCTIONAL ' MANUAL AVAILABLE IN THE PURCHASING OFFICE(PHONE NO.298-4225). ROUTING ORDER: Below are correct routings for the five most frequent types of documents: CONTHACTS(assumes authorized budget exists) COUNCIL RESOLUTION (Amend Budgets/Accept. Grants) 1. Outside Agency 1. Department Director 2. Department Director 2. City Attorney 3. City Attorney 3. Budget Director 4. Mayor(for contracts over$15;000) 4. Mayor/Assistant 5. Human Rights(for contracts over$50,000) 5. Ciry Council 6. Finance and Management Services Director 6. Chief Accountant, Finance and Management Services 7. Finance Accounting ADKAINISTRATIVE ORDERS(Budget Revision) COUNCIL RESOLUTION (all others,and Ordinances) 1. Activity Manager 1. Department Director 2. Department Accountant 2. Ciry Attorney 3. Department Director 3. Mayor Assistant 4, Budget Director 4. City Council 5. City Clerk 6. Chief Axountant, Finance and Management Services ADMINISTRATIVE ORDERS(all others) 1. Department Director 2. Ciry Attorney 3. Finance and Management Services Director 4. Ciry Clerk TOTAL NUMBER OF SIGNATURE PAGES Indicate the#of pages on which signatures are required and paperclip or flag each ot these papss. ACTION REQUESTED Describe what the proJect/request seeks to accomplish in either chronologi- cal oMer or order of importance,whichever is most appropriate for the issue. Do not write complete sentences. Begin each item in your list with a verb. RECOMMENDATIONS Complete if the Issue in question has been presented before any body,public or private. SUPPORTS WHICH COUNCIL OBJECTIVE? Indicate whlch Council objective(s)your projecUrequest supports by listing the key word(s) (HOUSINCi, RECREATION, NEIGHBORHOODS, ECONOMIC DEVELOPMENT, BUDC�ET, SEWER SEPARATION). (SEE COMPLETE LIST IN INSTRUCTIONAL MANUAL.) PERSONAL SERVICE CONTRACTS: This information will be used to determine the city's liability for workers compensation claims,taxes and proper civil service hiring rules. INITIATING PROBLEM, ISSUE,OPPORTUNITY Explain the situation or conditions that created a need for your project or request. ADVANTAOES IF APPROVED Indicate whether this is simply an annua�budget procedure required by law/ charter or whether there are specific ways in which the City of Saint Paul and its citizens will benefit from this projecUaction. OISADVANTAOES IF APPROVED What negat(ve effects or major changes to existing or past processes might this projecUrequest produce if it is passed(e.g.,traffic delays, noise, tax increases or assessments)?To Whom?When? For how long? DISADVANTAf3ES IF NOT APPROVED What will be the negative consequences if the promised action is not approved? InablAty to deliver service?Continued high traffic, noise, accident rate?Loss of revenue? FINANCIAL IMPACT Although you must tailor the information you provide here to the issue you are addressing, in general you must answer two questions: How much is it going to cost?Who Is going to pay? � __ __ _. . . _ _ _ . _ _ . � � -,..� 91-2Z91 ✓ . �� CITY OF SAINT PAUL :,�;a�i;�.: OFFICE OF THE CITY COUNCIL PAULA MACCABEE kECEIVED SUSAN ODE Counc7member �OV 2 '� qp9� LegislativeAide IJ �ITY CLERK Members: Paula Maccabee, Chair Bob Long Janice Rettman Date� November 27, 1991 COMMITTEE REPORT HUMAN SERVICES, REGULATED INDUSTRIES AND RULES AND POLICY COMMITTEE 1. A. Presentation on Riverboat Gambling. NO PRESENTATION WAS MADE. COPIES OF A PROPOSAL FROM "LOUISIANA CASINO CRUISES" WERE DISTRIBUTED. JB. Resolution 91-1826 - approving requests for presentations from interested parties and City staff regarding riverboat gaming in Saint Paul (Last in Committee 10-9-91) . COMMITTEE RECOMMENDED APPROVAL OF A SUB LUTION, 3-0; � ��_�, �� COMMITTEE ALSO RECOMMENDED APPROVAL 0 A RESOLUTION RECEIVING PLANNING & ECONOMIC DEVELOPMENT'S REPORT ON RIVERBOA ING ENTITLED: , � � v�(�� / "RIVERBOAT GAMBLING IN SAINT PAUL, MINNESOTA". Cr- 'c'.,��:�--' .-�`'`°'d�-r-r �`7'�<�r / �.;1�,�,- 2. ✓ Resolution 91-1861 - a resolution to modify Child Care Partnership Program guidelines to match federal requirements for CDBG funds. COMMITTEE RECOMMENDED APPROVAL, 3-0 ��. ; 3. � Ordinance 91-1480 - an ordinance to repeal the eligible 10% Club recipients �.4 �`• � listed under Section 409.235 of the Saint Paul Legislative Code and to amend �%`� provisions relating to the Youth Funds established by Section 409.23 (Last in Committee 9-25-91) . COMMITTEE RECOMMENDED APPROVAL OF A SUBSTITUTE ORDINANCE, 3-0 ��'� ,,; 4. � Ordinance 91-648 - an Ordinance amending Chapter 411 of the Legislative - !�`,Y�''' v Code to provide simpler procedures for taking of adverse action against Entertainment Licenses (Last in Committee 11-13-91). COMMITTEE RECOMMENDED APPROVAL OF A SUBSTITUTE ORDINANCE, 3-1 CITY HALL SEVENTH FLOOR SAINT PAUL,MINNESOTA 55102 612/298-5378 5�46 PHated on Recycied Paper - . q� '�Za � ✓� I _ � _ _ � ; , � � � ; � � _ ; ; � _ � � � � RBOAT GA,MBLING in Saint Paul, Minnesota � � � i . ' ! A Report to the Mayor and Members of City Council, , and the Planning Commission �. Prepared By the Department of Planning and Economic Developrnent i Acknowiedgements: j I Robert Sprague, Director + Dan Cornejo, Deputy Director for Planning 1 Lisa Clemens, Deputy Director for Economic Development i Amy Filice, Planner Mark Vander Schaaf, Planner/Research Analyst � I I , i I City of Saint Paul, Minnesota November 4, 1991 � _ V REQUEST FOR REPORT � This report has been prepared in response to the following three directives: 1. The City Council of the City of Saint Paul passed Resolution 91-1826, in April 1991, encouraging the Legislature and the city administration to study whether or not to legalize riverboat gambling, and if so, under what conditions the City would approve development proposals. 2. The Mayor, in response to the City Council resolution, asked PED to study the interrelated physical, social, and economic issues of this potential new business activity in Saint Paul. Further, he asked that the Planning Commission review these issues also. 3. Subsequent to a presentation by proponents for a specific riverboat gambling proposal, on October 10, 1991, the chair of Council's Human Seivice, Regulated Industries, Rules and Policy Committee, sent a memo to PED requesting specific information on economic development impact, revenue generation potential, possible criminal activities, an appropriate structure for granting development rights to an owner/operator, public image consequences, and the relationship between Saint Paul's decision on riverboat gambling and the debate amongst the legislators and the Governor. � : �'` � QUESTIONS TO BE ADDRESSED BY THE MAYOR AND COUNCIL i.., The major questions to be addressed are: l. Should the City of Saint Paul encourage the legalization of riverboat gambling? j 2. If riverboat gambling is legalize�, how should the City select and regilate owner/operators? LEGAL CONTEXT �' When the above resolution was introduced in April 1991, the Legislature was still in session and had not finalized the gambling bill. In the final version of the bill, riverboat gambling was not addressed. Consequently, it remains an illegal form of gambling in the � State of Minnesota. In response to the question, "Are there legal constraints on our ability to issue an ! exclusive franchise?", the City Attorney's Of�ce responded "...the City of Saint Paul does ; I 2 _ V SECTION I - GAMBLING IN SOTA � ( ' _ . Gambling in Minnesota is big business. It is an industry that has undergone . explosive growth in the last 10 to 15 years. Because of this rapid expansion, the ' economic and social benefits and costs are not well understood, and regulation and enforcement has seriously lagged behind the growth in some areas of gambling. Besides riverboat gambling, several additional new forms of gambling are being proposed. Debate on the all encompassing topic of gambling is being called for by many state leaders because of the complex inter-relationship of these issues. To aid in the understanding of this debate, this section provides background information on legal forms of gambling in Minnesota and describes several areas of gambling controversy. i � FORMS OF LEGAL GAMBLING IN MINNESOTA Legal gambling began with the legalization of bingo in 1945. Since 1980, Minnesota has legalized pull tabs, pari-mutuel horse racing, a lottery, and off-track betting in the form of tele-racing. In 1985, gross receipts from legalized gambling were approximately $200 t. million. By 1G90, Minnesotans were betting slightly more than $2 billion a year, a ten- ma woman and child in the fold increase. That averages approximately $450 for every n, , state. Nationally, Minnesotans lead the country in the amount spent per capita on gambling - the national average is only $172 per person. There are four forms of legal gambling in Minnesota. � � 1. L.awful gambling (formerly known as charitable gambling) includes bingo, iaffles, paddlewheels, tipboards, and pull-tabs. Lawful gambling represents the largest ! revenue segment of the industry in Minnesota at approximately $1.3 billion dollars for 1991. In Saint Paul alone $39.4 million dollars was spent in lawful gambling during the first nine months of this year. ; � Since 1985 lawful gambling receipts have quadrupled, growing from $300 million a year to $1.3 billion in 1991. However, the �gures that have just been released for ; fiscal year 1991 show that growth for the past year was essentially flat and the amount of money actually distributed for "lawful purposes" (i.e., money distributed to the j churches, schools, and sports clubs) was down 9%. , � 4 � ' i � � q�-�Zq � �i � not possess the prerequisite authocity to grant this request for exclusive rights to � ' downtown development. There are legal constraints on the ability of the city to issue an exclusive franchise....The City has not been authorized by the State Legislature to allow gambling on the riverfront, which is a mandatory prerequisite to be able to issue any � franchise, exclusive or otherwise, for river boat gambling....Issuance of any exclusive-type I of franchise may violate either state or federal anti-trust legislation. Exemption from such legislation may apply if the Legislature should expressly authorize a city to grant , such exclusive rights." I f SCOPE OF REPORT i i It may appear to be most expedient to consider riverboat gambling as a single and discrete activity as it pertains to the City of Saint Paul. However, the legalization of � riverboat gambling is part of a much larger debate on gambling that is taking place in Minnesota. This larger debate centers�around whether or not gambling opportunities should be expanded, and if so, whether gambling in our state is well enough understood so that informed decisions on expansion and regulation can be made. Because there are so many issues related to the question of riverboat gambling, this report attempts to present the larger context of gambling in Minnesota as background for the debate on the legalization of riverboat gambling in Saint Paul, as well as more specifics on riverboat gambling operations. This report is organized as follows: � Section I - GAMBLING IN MINNESOTA provides background for the debate on riverboat gambling by outlining the forms of gambling that are presently legal and summarizing the issues concerning gambling that are being debated at the State level. Section II - RIVERBOAT GA.MBLING discusses pertinent aspects of riverboat gambling operations, focusing primarily on current enterprises in Iowa and Illinois. Section III - THE ECONOMIC IMPAC"T OF RIVERBOAT GAMBLING reviews the proposal for a Saint Paul riverboat gambling facility in light of Iowa's e�cperience and a study by KPMG Peat Marwick commissioned by the City of L�avenport, Iowa. Section N - THE FISCAL IMPACT OF RIVERBOAT GAMBLING estimates the annual revenue Saint Paul could gain from riverboat gambling, assuming the same taxing system Iowa currently uses. Section V - CONCLUSIONS AND DECISION ALTERNATIVES, summarizes the issues and describes the decision alternatives, describing the advantages and disadvantages of each. Section VI-RECOMMENDATIONS 3 � � � �l�z291 ,/ � The lawful gambling dollar is divided in the following manner: The payback in lawful (<<;;; gambling in Minnesota is approximately $2%, meaning that $.82 of the dollar is � �"� returned to the customer in prizes. Of the remaining 18%, 3.7% goes to taxes, 6.6% goes to allowable expenses, and the remaining 7.4% goes for lawful purposes which include purchase, construction, and maintenance of buildings owned by the gambling '' organizations, social activities, community benefit, contributions to other charitable � organizations, sports, and religious activities. In addition, a locality can tax an additional 3% to be used solely for enforcement. (These �gures represent the � breakdown of expenditures in 1990.) � � � Pull tabs are the most popular lawful gambling venue in both the state and in Saint f Paul. Minnesota sells more pull tabs than any other state in the country. According to the Licensing Division, one bar on Rice Street sells $400,000 worth of pull tabs I every month. While this is not the typical volume of business for a11 pull tab outlets, the example serves to illustrate the significant amount of money being spent on pull tabs. � There are thiriy-four groups with bingo licenses in Saint Paul. Operators report a recent drop in their revenues, due in part, they believe, to competition from similar operations at Indian gaming facilities. 2. Pari-mutuel horseracing was legalized in 1982. Canterbury Dovms in Shakopee opened in 1985, and is the only licensed horse track in Minnesota, providing betting on both live and simulcast racing. Total receipts for the fiscal year 1991 were just under $54 million. This is the fitth year in a row that racing revenues have declined 'X" from a high in 1986 of $133.7 million. The horse racing dollar is distributed in the following manner: 79% goes back to the betters; 10.3% goes to the track; 8.4% goes to the horse owners in purses; 1.3% goes to the Minnesota Breeders Fund, and 1% goes to the state. During the last legislative session, tele-racing, also called off-track betting, was approved. These facilities wilI broadcast racing, not only durir,g the season at Canterbury Downs, but from tracks year-round across the country. Teleracing is seen by some as a way to expand the racing audience and to subsidize live horse racing at the track. The first two facilities could be established by January 1992 - one of which will probably be in the metropolitan area. However, legislation is being drafted that could delay the �rst license until 1993. 3. The State Lottery is the third and most recent form of legalized gambling. In 1991 $321.5 million dollars were bet on the lottery state-wide. Roughly $26.8 million was spent on lottery tickets at the 202 outlets within the ciry limits of Saint Paul. 5 V The lottery dollar is distributed as follows: 56% goes to player payback; 17% is for � ' r tio o erations and retailer commissions; 27% is state revenue which is `��`�:�� ad�run�st a n, p , allocated to the Environment and Natural Resources Trust Fund, Minnesota Technology, Inc. (formerly the Greater Minnesota Corporation) and the Infrastructure Development Fund for Capital Improvement Projects (state institut�ons of higher education). 4. Indian gaming' was established when the Federal Indian Gaming Regulatory Act was passed in 1988. Indian tribes were allowed to negotiate compacts with their respective states to pemut gaming on the reservations. All eleven Minnesota tribes have signed compacts permitting video slot machines and video poker, and live black jack. During the last year, Indian gaming has been the fastest growing sector of the Minnesota gaming industry with receipts of approximately $400 million dollars. Most of the tribes have extensive expansions planned which include luxurious casinos, hotels, camp grounds, and restaurants. Revenues from Indian gaming are to be used to (1) fund tribal government; (2) provide for the general welfare of the tribe and its members; (3) promote tribal economic debelopment; (4) donate to charity; and (5) help fund local governmental agency operations. The State has no taxing authority but receives some fees for some regulatory functions. T�:e chart on the following page further describes the legal forms of gambling in �� Minnesota. STATE-WIDE GAMBLING ISSUES The interest in riverboat gambling has arisen at the same time that gambling has become a raajo: issue at the State level, botY; in terms of existing volume and pr�posed £orms of growth. 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N .:i- .. ::ti:�;: �.':.:::::w:.:::::n...........v:'.�.::: . ..:.��:: . :...... . :. .::: ... �. . ........ .. ....................... ... .. . ............ .. .... .. .. 1 7 _ V � Issues Related to Overall Level of Gambling Activities: , Regulation , � There is a lack of coordination of regulation authorities within the industry. The � Minnesota Gambling Control Board, and local authorities regulate lawful gambling. The � Minnesota Racing Commission regulates horse racing. The Minnesota Lottery Board regulates the state lottery. Indian Gaming is regulated by the federal govemment. ( Social Costs According to the Bouza report proliferation of gambling opportunities probably increases � the number of compulsive gamblers from about 1% to 4% of the population. Gambling by adolescents was also cited as a growing problem. Compulsive gambling is often 1 paired with a second addiction to drugs or alcohol. Some forms of gambling (e.g. video , slots, and pull tabs) seem to be more addictive than others because of their fast play and easy accessibility on a daily basis. The report found that 13% of the criminals in � Minnesota prisons are confined because of gambling related offenses. Additional study would help to deternune whether the social issues and costs are being adequately addressed. � Market Saturation Gambling has recently enjoyed unprecedented growth nationwide, yet logically it will � reach a saturated market at some point. At present there is no authoritative research on ( the potential size of the gambling ir.dustry, or to what extent tl�e variaus forms of ,,.,. gambling draw revenue from each other or from other outlets for consumer spending. �i There is no market research to contribute to informed decision making. � Issues Related to Specific Forms of Gambiing: � � Lawful Gambling (charitable gambling) ! According to the Bouza report, "Gambling i�� ivlinnesota", that was released by the Department of Gaming in December i990, "Lzwful gambling is out of c�ritrol, riddled � with abuses and wrongdoing and in desperate need of reforms." I In addition, findings of the Legislative Auditor's report of January 1990 point out some iproblems with lawful�gambling: , - there is not an adequate system to detect fraud and abuse in lawful gambling, - lawful purpose contributions include questionable payments to lobbyists, to other ) _ lawful gambling entities, or to their own organizations, l organizations cannot fully account for gambling receipts, - theft or error appears to be widespread, i - use of cash makes skimming and insider-trading easier and makes it more � di�cult to investigate or check. � i 8 i QI -ZZq ! J According to the Minnesota Bureau of Criminal Apprehension, it is not unusual to have , an investigation in progress in which $250,000 is missing. Enforcement of the regulations is difficult due to lack of suf�cient personnel. -" Video Slot Machines The restaurant and bar industries are strongly urging the legalization of video slot machines. Enforcement of this type of gambling would be simpler than with lawful gambling venues, providing a fairer game for the customer. The controversy surrounds the distribution of profits and the probability of e�cplosive growth. Charitable gambling proponents are concerned that these machines would drastically cut into pull tab sales. Nintendo Lottery Betting The state lottery intended to set up a test program for betting on the lottery from individual homes using Nintendo video game machines. Several legislators expressed concern about the introduction of this form of gambling and the state lottery director recently cancelled the demonstration project. Telephone Betting Horse racing interests want telephone betting legalized. A patron could place a bet by phone, drawing on a pre-established account using a personal code. Proponents see this method of betting providing additional support for live racing at Canterbury Downs. Indian Gaming Indian gaming has been a major economic boon to the tribes, allowing for reduction in ._ economic dependency on government, significant infrastructure improvements and funds �� for such benefits as postsecondary education opportunities for tribe members. The controversy stems from the fact that Indian gaming cannot be taxed or regulated by the state. Some claim this gives Indian casinos an unfair advantage in the marketplace. The state does not receive the tax revenues that could be realized if expansion took place in the private sector. Addi±ionally, if riverboat gambling is legalized, tribes could launch rive.r�oats on stretches of river passing threLgh rese:vation lar.ds; increasing competition to state regulated boats. If full casino gambling is allowed on riverboats, as it has been in Iowa and Illinois, Indian casinos will have the right to expand to full casino operations in their existing facilities, providing a wider expansion of gambling options in Minnesota. Indian Casinos Based Off Reservation Lands There are provisions in current law for the establishment of Indian gaming on property purchased outside reservation boundaries. Several conditions have to be met including the specific approval of the governor. Proposals have been floated to establish casinos in downtown Minneapolis, possibly at the site of the Little Earth Housing Project, and at the "mega mall" in Bloomington, and at the Union Depot in Saint Paul. 9 � � � SECTION II - P►IVERBOAT GAMBLING . ! In its first seven months of operation, riverboat gambling in Iowa has been � enormously successful as a tourist attraction, and has provided a new revenue stream for both the state and the docking communities. Because of this success, i many states, including Minnesota, are considering enabling legislation that would ' bring boats to their watervvays. j In order to provide�a context for what is being proposed, this section briefly � describes the history of riverboat gambling, and the riverboat experience in a few communities in Iowa and Illinois. States considering enabling legislation are Ilisted and major aspects of enabling legislation in Iowa and Illinois are described to illustrate the many aspects of this industry which must be addressed. Existing � legislation will no doubt serve as a�model for Minnesota legislators. Finally � some conditions specific to Saint Paul, as a potential docking city, are discussed. If legislation is proposed and if Saint Paul supports riverboat gambling, it would � be in the City's best interests to understand riverboat gambling and to work with State officials in crafting the final legislation. � �� HISTORY During the heyday of riverboat travel (1835-1860), riverboat gambling was found in many � parts of the United States. Huge steam paddle wheelers replete with opulent dining facilities, orchestras, and gambling casinos plied the rivers, providing entertainment 1 aboard and entertainment for people gathered on the banks. The river was the ; economic lifeblood of these communities during the 1800s. The gambling scandals of the ! late 18t�?s, combined with the dang�rous riverboat explosior.s and fires which had plagu�d operaticns, brought this chapter of riverboat gambling to an end. Now, however, some see the return of riverboat gambling as a way to help restore economic health to many of these same riverfront communities in the 1990s. � ELEMENTS OF THE RIVERBOAT EXPERIENCE IN IOWA AND ILLINOIS Cruises � The cruises generally last between 3 and 5 hours, usually include a meal and entertainment, and cost around $40. Some operators run as many as seven cruises per i day starting with breakfast cruises and finishing off with late evening moonlit cruises. 10 , � q!-ZZ'R 1 ✓ Boat Size and Capacity The boats now on the Mississippi in Iowa and Illinois range in size from 204' to 387' in length and can accommodate from 1,000 to 3,000 passengers. The casino takes no more than 30% of the passenger area. Federal law requires sleeping accommodations and a visit to a "foreign" port if a larger portion of the boat is devoted to gambling. The Dubuque Casino Belle, (which has been used as an example by Riverboat Entertainment Partners, a Saint Paul development group) is 387 feet long and 60 feet wide. The boat resembles a 19th century side wheeler with four decks. Inside there is a 30 foot high grand lobby, three casinos, a large theater lounge, two dining rooms capable of seating 650 people, a children's activity center and a gift shop. The casinos feature 500 slot machines and 26 gaming tables. To provide local comparison, the Delta Queen, which docks in Saint Paul, is 250 feet long, and the Johnathan Padelford, capable of carrying 308 passengers, is only 85 feet long. Riverboat Gambler Profile The profile of an average riverboat gambler in Iowa is that of an older, moderate- income person - lots of retirees on bus tours. Different boats have different "themes" which in turn, attract different types of crowds. Iowa prides itself on attracting a "family audience". According to the executive director of tourism in Dubuque, their boat attracts quite a few families with children. Facilities for children generally consist of rooms with video games. � The average gambling loss per passenger on Iowa boats is about $30. The return to the player on the slot machines is about 90%, with the return on the tables ranging from 60% to 75%. STATE ENABLING LEGISLATION Riverboat gambling is legal in four states: Iowa, Illinois, Louisiana and Mississippi. Only Iowa and Illinois have boats operating. Legislation has been passed but is not yet ratified in Missouri. In addition to Minnesota, legislation is being considered in Pennsylvania, Colorado, Indiana, Maryland, Kansas and Texas. In October, a Wisconsin bill to permit riverboat gambling was killed in committee. Enabling legislation in the states permitting riverboat gambling, and that being proposed in those states considering introducing this form of gambling, vary greatly in terms of guidelines to de�ne and regulate it. Examples of the range and variety of issues addressed are: 11 � J Local or state-wide referendums - Mosi states which have or are considering riverboat gambling have provision for this type � of citizen consultation/endorsement/rati�cation. � Police Issues/Regulation and Enforcement In both Iowa and Illinois, law enforcement on the riverboats and surveillance and regulation of all the gaming equipment is the responsibility of a state law enforcement agency similar to Minnesota's Bureau of Criminal Apprehension. 1fie boats in Iowa are required to have extremely sophisticated surveillance and security equipment on board, under the direct supervision of a state gambling law enforcement employee. Cameras are capable of focusing on every hand of cards being dealt or played, and all teller cages and counting rooms. All of the gambling machines are regularly checked and monitored. I When questioned about the possibility of infiltration of organized crime, city and state � officials in both Iowa and Illinois responded that they feel confident that the rigorous licensing process for both operators and employees, and the sophisticated enforcement procedures and surveillance systems will keep riverboat gambling free of the graft and crime with which other gambling venues have been plagued. � Operator Licenses The number of licenses is limited in Illinois. Iowa has no limits on the number of operators, and sees advantages in creating a whole string of operations similar to the "Las Vegas Strip". Licensing in both states is done by the State, with some input by the . local docking city. ��=��- ;�� Tax Structure � This varies in each state, with different percentages of different bases (e.g. gross receipts, net receipts) going to the State, docking city, home county, and "gamblers funds" (which address compulsive gambling and related issues). Total taxes range up to 20% of the adjusted gross receipts in both Iowa and Illinois. Bet and Loss Limits are legislated in Iowa, setting the maximum bet at $5 and limiting individual losses to $200 per cruise. Illinois places no limits on either bets or losses. Location and Season Some states will allow boats only on major rivers, others allow them on any navigable waterway or lake. Illinois has excluded Lake Michigan because of Mayor Daly's � opposition to riverboat gambling. Riverboats will operate year round, cruising in the spring, summer, and fall, but remaining docked in the wintertime. When operating docked, people will have to stay aboard for a certain length of time and are not allowed to leave and then return. � 12 i - � J improvements to its waterfront. Some of the additional dockside improvements promised � by the developer have yet to materialize, however. Bettendorf, a town of 27,000, has not invested any public money to date, but it is looking at approving $3 million dollars of tax increment financing to invest in an outlet mall at the docking site. It cunently is receiving approximately $35,000 a month from its admission fees and their percentage of the gross take on the boat docked in their town. In both Bettendorf and Davenport there is concern about the temporary feel of the boat riverboat operation. The ticketing facility and an additional restaurant facility used in conjunction with the riverboat, are both on floating barges. The whole operation could literally float away overnight to a new location on the river. In Alton, Illinois, the development agreement specified that the developer pay for the riverfront promenade improvements which were built according to city specification, pay an additional attendance fee of $.50 more than required by state legislation, and also build a 300-room hotel within the next five years. If the hotel is not built, the developer will default on a $500,000 bond. In the first month of operation, the city received $110,000. The Iowa cities that have riverboat gambling counseled that developer estimates and pledges for related on-shore investments should be taken with a grain of salt. The on- shore developments that were part of developer "packages" were not living up to earlier promises. G . The experience in Iowa and Illinois suggest that dockside improvements should be "' determined an asset to the City short term and long term, even if a riverboat operator pulls out or fails. Financing and design for such improvements should meet with city approval. Local Licensing Even though, as stated above, licensing in Iowa and Illinois is done by the State, consideration is b�ing given to iicenses beino issued by the local geverning jurisdiction; and then subsequently approved or disapproved hy th� State. Unused licenses would revert back to the issuing government. Licenses could not be sold or otherwise transferred. The City would have the right to initiate a process for revoking the license if the recipient was not fulfilling all the requirements. Local Police Issues Some boat owners in Iowa and Illinois hire additional private security personnel (to supplement State officials) to a�d to the air of security on the boats and at dockside. City o�cials in Dubuque had been prepared to provide more local police presence, but found it unnecessary. Bettendorf and Davenport in Iowa, as well as Alton, Illinois, have had similar experiences. Traf�c problems have been minimal. There has been a marginal increase in tourist-related crimes, such as pick-pocketing, which often occurs i 14 � . q� �ZZq � ✓ Other Miscellaneous Considerations Some legislation encourages hiring local employees and using in-state suppliers. Iowa requires that the minimum wage for employees of the riverboat operations be $.50 higher than the federal minimum wage. Mississippi is requiring that the boats meet certain historical standards, and other legislation requires all boats to be of a certain , size. Iowa requires facilities for children on all boats. Additional Issues for Minnesota Enabling Legislation - The local vs. state role in licensing needs to be set forth in State enabling legislation. �! Should an owner/operator be licensed by the State only, or by the City? If the , former, should a State license be predicated on first receiving local"approval" by the + docking city? The transferability of a license should be determined: should it revert back to the licensing agency, or be permitted to be sold or traded to another party? Also, a process for revocation of a license should be established. i . - The permissible uses of tax revenues accruing to the docking city is another issue to be considered in State enabling legislation. Is riverboat gambling to be legalized as a ( local revenue option, or a State and local revenue source? Local decision-makers may want to reserve the right to use it for the general fund or earmark it for a specific use. ( ; � - Jurisdictional issues Goncernir.g operatiuns on the river need to be clearly defined in such areas as law enforcement, �re fighting, and emergency services, liquor and restaurant licensing, etc. - Multiple city agreements might be appropriate in Minnesota. For instance, Saint Paul and South Saint Paul might want to have one boat that stopped in both cities rather than run competing lines. �i - Permission to participate in in±erstate rivPrb�at trips would be important if other states pursue longer cru:ses. Saint Pau! wosld �e a likely destination or startiag point for a Mississippi cruise. ISSUES FACING THE DOCKING CITY City Investment and Dockside Improvements The experience in each town has been different - some providing financial incentives and some not. In Dubuque the city spent a hefty $4 million dollars on a 900 car parking lot, improving access to the riverfront, and extending sewer and water lines. The developer has built a dockside facility and refurbished a hotel, and the State has constructed a new Iowa Tourist Center. Dubuque has already paid off its bonds and has realized significant 13 9 I Z�91 J when there is an increase in tourism. � . Job Creation Many of the jobs are part-time in nature because of the nature of cruise scheduling. In Bettendorf, the boat has provided many jobs for homemakers and school teachers out of work. Riverboat gambling jobs have not replace the heavy-manufacturing jobs, in terms of quantity or pay level, that were lost in this community over the last 10 to 15 years. Iowa estimates that about 2,500 casino and boat jobs have been created, with payrolls totalling between $35-40 million. All jobs pay above federal minimum wage, as required by the Iowa law enabling riverboat gambling. Most jobs fall into the $5-6 dollar-an-hour category. In terms of construction jobs, experience in Iowa an Illinois has indicated that the large boats designed especially for the gambling market have been build in the South. Local construction job creation would be primarily for dockside improvements. Fiscal Considerations Because riverboat gambling is so new, there is no trend to review in terms of fiscal costs and benefits. In its first partial year of operation, Iowa is predicting $73.1 million in revenues from the five boats in operation, which will generate $13 million in taxes. One million tourists are projected to visit Iowa this year for riverboat gambling. Riverboat gambling is positively perceived as a boon to the local and state economies in Iowa, in part due to the fact that Iowa was the �rst and only state with riverboat gambling. Visitor Industry Hotels have been filled to near capacity in Dubuque, Davenport and Bettendorf. When the traditional tourist season is over and the boats have an opportunity to run through a winter, these communities feel they will be better able to predict yearly trends. Many of the visitors arrive by tour bus and stay only for the day, but communities also package other local attractions with a trip on the riverboats to tempt tourists to stay longer. Location/Physical Development Saint Paul's climatic, geographic and other physical factors must be considered. The Mississippi River freezes here in the winter and our climate is significantly harsher than Iowa's. Our channel may not be deep enough nor wide enough for easy cruising for a boat as large as those in Iowa and Illinois. Changes to the floodway and floodwall would have to be considered vis-a-vis existing river traf�c (tugboats, barges, commercial and pleasure boats). Clearance under the Robert Street Bridge is only 47 feet, which is why the Delta Queen cannot go further upstream than the L.ower Landing. A boat similar to the Dubuque Casino Belle has four decks and is 54 feet high. ` 15 J Parldng and access requirements are unique to each site; provision must be made for buses and for fire/emergency vehicle access. With respect to zoning, riverboat gambling could be considered as "indoor commercial recreation", or as "amusement and entertainment uses". Generally, these uses are � permitted as indicated on the map below. Riverboat gambling operations along other areas of the River would require a rezoning, and in some cases, amendment of the City's Comprehensive Plan. � � � V, : . , � : . _ . � . . v�� , . �� , �� . . . , . ..� � . _ . �. � OO .. o . o�� _ : . , .- �� .� : . .. . � . . .. a . _ . , _ - . . �.. _ o :,:: � . _ . _ _�� .�:_ . � _ . � �oa0 , � o . � � �- . � � . - :. - � . �o�� O . � - . � . :;� � � � . a�o00 �� (� � . .. � . � � . � �� - � . °�DD� � � � � o �. �a . � . � . ,�� _- o�a � � � oo : .. . - � . aoo� . . �� 0 � . - �- . � �� ao � �°�� . � : ��a�o �o�ao . . . � � �, . . � . ` �, - �. � . : .. °a��oQOO � . . . �� ---- . . . . . . . � ;? . . : . _ . . w�. �; . . , - . . ' �i��R� :��+�-� �4 . .. . ' J • � �' •^¢?A�� '°a.� . . h � ,t+,d�:�'�� i'Y�.. . ' � ' � �� ' ' . � , ' '1�� .�y -+�'��'l�['i. "�"W�' .v �{C ' . . '. � . . � � �.• wj� . . . � . .s�t:�. ' ._ ._._—____ r . � ... . . ' . ' . . . 'Vh _.. . \ .. .s'�1"_�� , .\ ' ' , �}:� _ � 'i. D : �. � . � : � � _�;` � � ��i,�«? . . . �� (��__ ��: � COMMERCIAL RECREATION PERMITTED ....... ...... ............ �/ � COMMERCIAL RECREATION NOT PERMITTED / \. � 16 � . ! � Q � -2ZqI � SECTION III - THE ECONOMIC Il1�IPACT OF RIVERBOAT GAMBLING .. , The Saint Paul City Council has been presented with a proposal for a riverboat gambling facility by Riverfront Entertainment Partners (REP), and has been requested by this enterprise to declare its support for the proposal. PED staff has reviewed this proposal in light of Iowa's experience with riverboat gambling, and has reached the following conclusions: 1. A thorough market study of sustained support for riverboat gambling is a , prerequisite for a wise pubtic policy decision on this issue. Several communities in other states prepared such studies prior to legalizing riverboat : gambling — including the community of Davenport, Iowa, which commissioned KPMG Peat Marwick to do such a study in 1989. No such study has yet been mandated or prepared in Saint Paul. 2. PED research has determined that the methodology of the Davenport market study leads to estimates for Saint Paul which are considerably lower than projections provided by Riverfront Entertainment Partners. Tt�e contrast between the Davenport-based PED estimate and the REP claim is illustrated by the following table: Estimated Annual EcQnemic Impact of Riverboat Gambling in Saint Paa�l �-� Passengers Expenditures Jobs PED Staff Estimate 283,000 $ 17,567,000 790 REP Estimate 1,000,000 $228,952,000 9,845 3. If riverboat gambling does come to Saint Paul, it will be important for the City to ensure tha: the public beneGts of such an enterprise are maximized a*�d the public costs 8re min'smired. The nature of spinoff economic ber.efits for riverboat gambling is such that many of these benefits can be limited to the riverboat itself (not shared with surrounding businesses), or leaked to areas outside of the local economy. Proactive steps are necessary to stimulate broad-based local economic development in coordination with riverboat gambling. 17 V The balance of this section discusses the Davenport study and the assumptions used to derive the estimates indicated in the above table. Passenger P�ojections Riverboat passengers are the source of any economic impact provided by riverboat gambling. There are two main di�culties involved in estimating the potential impact of gambling on riverboat passenger numbers. First, because contemporary riverboat gambling is a new activity in the United States, there is little in the way of track ' record to study for comparative purposes. Second, existing data are difficult to � interpret. For one thing, since riverboat gambling began only in April of 1991, it is I stiil a novelty and attracts more customers for that reason. Moreover, the limited ` 1991 activity also benefits from a "monopoly effect" Only five boats in Iowa were � able to offer riverboat gambling during the summer of 1991, but competitors in other ! A communities and states are now lining up to get a piece of the action. j In order to interpret the implications of the popularity of riverboat gambling evident ( in 1991, it is important to consider evidence about the market for riverboat gambling gathered in Iowa prior to 1991. Fortunately, we do have such evidence from the city I of Davenport which in 1989 commissioned an in-depth study of the market potential l for riverboat gambling in that community. This study, prepared by KPMG Peat Marwick, is based on surveys of current Davenport residents and interviews with business people involved in tourism and riverboat operations. The KPMG study is � especially helpful for Saint Paul for two reasons. First, the riverboat gambling facility ' in Davenport, the "President", has a passenger capacity of 3,000 -- the same size as �- the boat that has been proposed for Saint Paul by Riverfront Entertainment Partners (REP). And second, Davenport, with a 1990 metropolitan area population of 350,861, is closer in size to Saint Paul than other, smaller Iowa communities. � The KPMG study was designed to reveal the market for a mature riverboat gambling � industry in Davenport (i.e., the market four or five years after riverboat gambling was established). The study cor.cluded that the number of passengers on riverboats in the Davenport area woulc; �hange in the fello��ing way as a resu!t of rive.rboat gambling: Estimated Sustained Effect of Gambling on Annual Number of Riverboat Passengers in Davenport Area (KPMG Peat Manvick Study, 1989) ' Pre-Gambling Riverboat Passengers 450,000 � New Passengers Attributable to Gambling (Est.) +400,000 +89% Total 850,000 I � i 18 �� LCQ �J This estimate is signi�cant information that should be born in mind when interpreting riverboat gambling activity in Davenport and other Iowa communities in 1991. For ! the cunent year, riverboat gambling activity is indeed on track to surpass the estimate made in 1989. A total of 743,000 admissions were recorded on the "President," Davenport's gambling riverboat, between April 1 and October 20 of this year. The ! "Diamond Lady," docking at the Davenport suburb of Bettendorf, recorded another � 301,000 during the same time period. In short, over 1,000,000 admissions have been recorded on gambling riverboats in the Davenport area so far this year. Nevertheless, the KPMG Peat Marwick estimate seems highly plausible, given that riverboat gambling activity in Davenport would be expected to diminish when the novelty wears off and when competition from other communities heats up. No study comparable to the KPMG Peat Marvvick study has been prepared in Saint Paul, so our estimates of passengers must rely on insights from the Davenport study. Four alternative estimates are presented, resting on four alternative assumptions: ' 1. "Conservative" Estimate. This estimate rests on the assumption that riverboat passenger activity due to gambling will increase in Saint Paul at the same percentage rate that was projected for Davenport. According to this estimate, Saint Paul would have 283,�0 riverboat gambling passengers annually. 2. "Moderate" Estimate. The basis for this estimate is an assumption that the , increase will be the same in absolute numbers in Saint Paul as was projected in Davenport. The results of this estimate are that Saint Paul would have 550,000 riverboat gambling passengers annually. 3. "Optimistic" Estimate. This estimate relies on an assumption that the percentage �nd absolute increases in Saint Paul passenger numbers will be even greater than those expected in Davenport, but that the totals will be the same. Specifically, this estimate gives Saint Paul 850,000 riverboat gambling passengers annually. 4. REP Estimaie. F.iverfront Entert�inment Partners assert that their boat will attract a miliion passengers annaally. No market reason is given for this assumption in their proposal. It is notable that the REP estimate is even more optimistic than Estimate #3. All four estimates are interpreted in light of a figure of 150,000 as the "pre-gambling" annual passenger figure for Saint Paul. This is the cvrrent level for Saint Paul's only riverboat excursion company, the Padelford Packet. The following tables detail the results of the four estimates: 19 - J SUSTAINED EFFECT OF GAMBLING ON ANNUAL NUMBER OF RIVERBOAT ' PASSENGERS IN SAINT PAUL � Estimate #1: Conservative Pre-Gambling Riverboat Passengers 150,000 New Passengers Attributable to Gambling (Est.) +133,000 +89% Total �3�� Estimate #2: Moderate Pre-Gambling Riverboat Passengers 150,000 l New Passengers Attributable to Gambling (Est.) +400,000 +333% Total 550,000 �� ; �,::. i Estimate #3: Optimistic + Pre-Gambling Riverboat Passengers 150,000 , New Passengers Attributable to Gambling (Est.) +700,000 +467% Total 850,000 i + Estimate #4: Riverfront Entertainment Partners (REP) � Pre-Gambling Riverboat Passengers 150,0()0 . New Passengers Attributable to Gambling (Est.) +850,000 +567% ; Total 1�� ' � I 20 � q I 7z9 � J , � � In the absence of a market study for Saint Paul, it is difficult to say which of the above estimates is most reliable. However, staff advises against accepting either the '� "optimistic" estimate or the REP estimate for several reasons: -- � 1. Riverboat excursions were a popular activitv in Davenport. even before riverboat j gambling was le alized. Indeed, in many ways Davenport's central tourist ' marketing image has been as a "riverboat town." For years, the nationally prominent Bix Beiderbecke Jazz Festival has highlighted this image by celebrating the heritage of this Davenport-born jazz legend. 2. �n line with its image as a riverboat town. Daven�ort y 1989 sustained a �re- gambling annual level of 450.000 riverboat excursion Qassengers. a level three times higher than Saint Paul's current passenger level of 150.000. Thus, it is reasonable to suppose that riverboat gambling will be more popular in Davenport than it would be in Saint Paul. . 3. Davenport is onlv 150 miles from Chicago. Although Saint Paul's metropolitan ; market is larger than that of Davenport, Davenport is actually better situated to take advantage of Chicago, the Midwest's largest consumer market. 4. Minnesota already possesses a wide variety of gambling options. As noted in Section I above, our state leads the nation in gambling per capita. Thus, there is less room for the local gambling market to expand. ( The above considerations lead staff to support the "conservative" passenger estimate • as the most reliable, in the absence of a thorough market study for Saint Paul. Economic Impact The passenger estimates in the Davenport's KPMG Peat Marwick study provide the necessary foundation for the market-based economic impact analysis which that study also provides. A simila� mar?cet-based analysis should be undertaken for Saint Paul but, in the absence of such a study, helpful estimates can again be derived using the insights of the Davenport study. Based on interviews with tourism professionals and riverboat operators, the Davenport study translated additional passengers into new direct and indirect expenditures by tourists and riverboat operators. Also, the study calculates the job impact of these changes. The conclusions of this study are summarized as follows: 21 ✓ Estimated Sustained Impact of Riverboat Gambling on Annual Expenditures and Jobs in Davenport Area (KPMG Peat Marwick Study, 1989) Expenditures Jobs Associated with New Tourists $52,700,000 1,807 � Associated with Operations $16,300,000 564 Total $69,000,000 2,371 Note that expenditures and jobs in this estimate are directly linked to the previous estimate of new passengers attributable to gambling. Note also that this estimate � properly excludes expenditures by local residents (i.e., it assumes that such expenditures represent a shifting from other local economic activity, and thus create no net impact). � If we make the reasonable assumption that the relationship between total � eupenditures,jobs and new passengers remains constant, we can derive "conservative," "moderate" and "optimistic" scenarios of economic impact in Saint Paul as well. L These too can be compared to the estimates provided by Riverboat Entertainment Partners. The results of these estimates range from a conservative job impact of 790, to the REP job estimate of 10,095. Similarly, the estimates of the impact of + riverboat gambling on annual expenditures range from a conservative estimate of I $23,000,000 to the REP estimate oF $244,552,000. t The following tables detail the results of these estimates: 1 22 � . q � - zz41 ✓ SUSTAINED ECONOMIC IMPACT OF RIVERBOAT GAMBLING FROM A BOAT IACATED IN SAINT PAUL Estimate #1: Conservative Expenditures Jobs Associated with New Tourists $17,567,000 602 Associated with Operations $ 5,433,000 188 Total $23,000,000 790 Estimate #2: Moderate Expenditures Jobs Associated with New Tourists $52,700,000 1,807 � Associated with Operations $16,300,000 564 � Total $69,000,000 2,371 Estimate #3: Optimistic Expenditures Jobs Associated with New Tourists $92,225,000 3,162 Associated with Operations $28,525,000 987 Total � $120,75Q,000 4;149 I Estimate #4: Riverfront Entertainment Partners Expenditures Jobs Associated with Tourists $228,452,000 9,845 Associated with Operations $ 16,200,000 250 Total $244,652,000 10,095 23 ✓ For the same reasons as those outlined in the section on passenger estimates, PED staff recommends that the conservative estimate be accepted as the most reliable in the absence of a special market study for Saint Paul. � An additional aspect of the economic impact estimates requires emphasis. The proper way to interpret all four estimates is to apply each to ihe geog_raphic area �v,here the impact is likely to occur. This has important implications because the impact area for riverboat gambling will tend to be considerably larger than the community where the boat is located. For example, when a tour bus from Chicago brings people to gamble in Davenport, a good deal of the impact could be in Chicago itself (if the ticket were purchased from a tourism firm in that city). If the bus stopped at a restaurant midway between Chicago and Davenport for lunch, the impact of those food expenses would be focused on the community where the people actually ate. Two implications flow from this realization. First, each of the above estimates actually overstate the economic impact on Saint Paul of a boat located in Saint Paul, although it is not possible to determine how large the overstatement is. Second, policies and development/operation guidelines can be crafted to enhance the degree to which the impact will occur in our own community. For example, a condition of docking a boat in Saint Paul could be that group tours visiting the boat be ananged through Twin Cities tour vendors. ( i � � 24 � � � 91-ZZq i � � SECTION IV - THE FISCAL IMPACT OF P:IVERBOAT GAMBLING ; An important objective for communities with riverboat gambling has been for those communities to enhance their pubtic revenues with gambling activity. This section presents alternative estimates of the revenue potential of riverboat gambling for Saint Paul, assuming that Saint Paul adopted the same taxing mechanism as that stipulated by Iowa law. , The conclusions of this section are as follows: 1. The amount of revenue derived by cities from taxes on riverboat gambling in, � Iowa is very small. Applying the Iowa taxing system to the four Saint Paul � scenarios articulated in Section III above, Saint Paul would gain between �186,000 (in the conservative passenger scenario) and $655,000 (in the , Riverfront Entertainment Partners scenario) in annual revenue for its General Fund. 2. �ecause of the low amount of tax revenue potential from riverboat gambling, it is important for a ..ity with riverboat gambling to j�egotiate the best possible deal for revenue enhancement from potential riverboat owners and operators located in those cities. This consideration is a major reason why a Request for Quali�cations (RFQ) and a Request for Proposals (RFP) should precede the selection of any riverboat gambling operation in a city. The balance of this section discusses how the above conclusions were reached Iowa law stipulates two speci�c ways in which Iowa cities can gain public revenue from riverboat gambling: 1. Wagering Tax. The law mandates that one-half of one percent of the "adjusted gross receipts" (total amount wagered minus prizes) for each riverboat be remitted to the treasurer of the city where the excursion originates for the City's General Fund. 2. Admission Fee. State law further ermits each city to assess a special admission fee 25 I " of up to fifty cents for each person embarking on an excursion gambling boat docked within the city. (This admission fee would be in addition to the fee charged by the riverboat itself.) The city admission fee is also remitted to the General-Fund. Although these two taxes are technically independent (e.g., some people who pay an � admission fee may not gamble), they are closely correlated. In Iowa, it is estimated that I each passenger generates approximately $31 in gross adjusted receipts. � By applying these two potential taxes to Saint Paul, we can estimate the annual revenue ' that our city could gain from riverboat gambling, assuming the passenger estimates � outlined in Section III. The results are as follows: i ` Estimated Annual Revenue Potential for Saint Paul I City City � Wagering Admission Passengers Tax Fee Total 1 Conservative Estimate 283,000 $ 44,000 $142,000 $186,000 j Moderate Estimate 550,000 $ 85,000 $275,000 $360,000 Optimistic Estimate 850,000 $132,000 $425,000 $557,000 ( REP Estimate 1,000,000 $155,000 $500,000 $655,000 I The strikini feature of these estimates is that a relatively modest amount of monev is ' involved. Since a riverboat would not be taxed as would most developments (as land � plus a building), the revenue potential from wagering taxes and the special admission fee � would have to substitute for regular real estate taxes. If the "conservative" annual passenger estimate holds true, the city tax collections from riverboat gambling would be ' equivalent to a small downtown commercial building such as the Degree of Honor Building ($158,215 in taxes for Saint Paul payable in 1991). Even under the extremely ! �ptimistic passenger scenario Frovided by Riverboat Entertainment Partners, the revenue would be comparable only tc a modest downtcwn ccmmercial stn:cture s�ch as the Hemar Building ($562,686 in taxes for Saint Paul payable in 1991). Under any assumption, the additional revenue added by a gambling riverboat to Saint � Paul's General Fund would be minuscule under the Iowa system of taxation. Saint Paul I General Fund revenues in 1991 were $133,318,000. The conservative estimated vield of �186 000 would have increased Saint Paul's General Fund b�only lJ8 of one percent; ( under the $655 000 yield associated with the REP estimate. the increase would still � amount to only 1�2 of one percent! ( Iowa cities have discovered that the way to avoid such a disappointingly low revenue 1 yield from riverboat gambling is to negotiate customized agreements with the owners and ' 26 � � � ql-�ZZ9l � operators permitted to provide riverboat gambling in particular communities. Such a negotiation process yields the greatest public benefits when the city has a clear sense of the objective it wishes to achieve through negotiation. For example, one ciry may choose to maximize the revenue collected directly and to downplay the need for economic development spinoff in the community. Another city may choose to negotiate conditions that would enhance spinoff tourist activity, while sacrificing direct revenue collection from the riverboat owner and operator. 27 V SECTION V - CONCLUSIONS AND DECISION � ALTERNATIVES - At the same time that the City is considering whether it supports or opposes the legalization of riverboat gambling it is also being asked to consider awarding exclusive development rights to an owner/operator. 1fie range of issues concerning not only riverboat gambling, but also all other forms of gambling as outlined in Sections I and II, indicates that riverboat gambling for Saint Paul cannot be considered in isolation. Our current inability to deal adequately with these issues (as detailed the Bouza report, "Gambling in Minnesota" and the Legislative Auditor's report) strongly suggests a high level of caution and a deliberative approach to introducing any new form of gambling at this time. It should be considered with (1) a State and City examination of present gambling, and (2) the development of public policy detailing the amount and mix of gambling activities that are consistent with Minnesota's and Saint Paul's long-term goals and desired image. Since Saint Paul appears to some to be a logical and attractive location for riverboat gambling, it is reasonable to expect some positive economic impact on the city. However, the amount and kind would be dependent on the competitive � gambling climate created by other riverboats and other forms of gambling both in and out of the State of Minnesota. Since gambling currently produces funds �� for charitable purposes and revenues for the State and cities, it is reasonable to presume that riverboat gambling could be a new revenue source for the City. However, the results of the preliminary economic and fiscal impact analyses in Sections III and IV are inconclusive: � - Implementation of riverboat gambling in Saint Paul � or m� not produce the votume of economic activity suggeste� t�y o�mer;oFerators. � - Depending on the tax and fee structure adopted, and the degree of local vs. state authority established in the enabling legislation, riverboat gambling � or ma•y not be a significant revenue raiser for the City. Within this cloudy context, even if the City were to move affirmatively on the , question of supporting the legalization of riverboat gambling, the immediate designation of an owner/operator is seriously premature, and illegal. � ; 28 9i-z�� / Given the above, the most basic task next facing the Ciry would be for it to enumerate clearly its objectives for implementing riverboat gambling in Saint Paul. For example: poes the City s1R�ort riverboat gambling because it is a tourist attraction? If so, does riverboat gambling enhance or detract from existing efforts to build the city's tourism niche as a "charming historic capital city, with a small-town, friendly feeling and big-city access, offering a world of fun and educational activities for adults and children, at a good value for the dollar" (Saint Paul Visitor Industry Study, Davidson-Peterson Associates, Inc., February 1990). How many riverboat passengers does the City wish to attract on an annual basis? Is that level of visits achievable? Or, does the Ci , su�port riverboat gambling as a local revenue option? If so, what level of net revenues is desirable? Through what taxing or fee mechanisms would local revenues be generated? Should riverboat gambling be strictly a local revenue option or a shared source and local revenues? Should the permissible uses of gambling revenues be a local decision or dictated by state policy? What are the costs of achieving the desire� revenue stream, �.g., licensing, collection, regulatory, and enforcement? Should these be local responsibilities '�� and costs, or contracted services from the state? These questions add a significant degree of complexity to the riverboat gambling discussion and reinforce the need to measure the City's desired objectives with the results projected through an economic impact and fiscal analysis. It is not until this work has been completed that Saint Paul is in any positien to identify the combination of �nancial strength, manageria: �xpertise, �xperience �n� other qualities needed in the owner/operator in order for the City to accomplish its tourism or revenue objectives. Riverboat gambling is more than a real estate project; it is running a business with substantial cash transactions to be accounted for. The best way for the City to select the strongest possible owner/operator is through a formalized Request for Quali�cations and Proposal (RFQ/RFP) process. The advantages of the RFQ/RFP process are: 1. The City is forced to clearly articulate its objectives, thereby creating a more even playing field for the potentially larger number of proposing firms, which results in superior proposals. 29 V � i 2. The identification of firms, each of which may have a particular expertise or special qualifications. - 3. The development of city-desired parameters whcih may encourage proposing firms to � more carefully and more competitively formulate their response to requests. 4. The elimination or reduction of charges of favoritism, through the use of prior agreed-upon evaluation criteria. ' � Therefore, the decisions before the City can be outlined as follows: � � RNERBOAT GAMBLING i � � DECISION ALTERNATIVES � , t. 1: Support call for statewide �lt• #2: Support call for state moratorium�on expansion of new le�alization of riverboat gambling forms of gambling i , , � Alt. 2 a : Seleci owner/operator t. 2 : Select owner/operator through a non-competitive process ihrough a competitive open process and award exclusive rights and award eacclus:ve (o: nor_- � � exclusive) operators rig�ts � � 30 � . . qi-zzq� � Alternative #1: �upport the call for a state-wide moratorium on the Qxpansion of new forms of �amblin� . Advantages: � 1. Attorney General Hubert Humphrey, Senate Majority Leader Roger Moe, and Senator Charles Berg, Chair of the Senate Gaming Regulation Committee, and the legislative committee of the state Gambling Control Board, have all called for a moratorium on the expansion of gambling. Governor Arne Carlson has vowed to veto legislation enabling any new forms of gambling this session. Proponents argue that a moratorium would allow time for a more comprehensive look at the entire gaming industry and its regulations, evaluation of new proposed gambling venues, and allow for the thoughtful development of public policy consistent with Minnesota's ;: goals and desired image. ( : 2. A state-wide moratorium would allow time for an investigation of the effectiveness of regulation and enforcement of the gambling industry. Gambling has undergone ferocious growth in the last five years. Enforcement has not kept up with the speed ( of this expansion. I 3. Although no study has been done in Saint Paul, the results of the Davenport study � , strongly suggest that the economic impact estimated by Riverfront Entertainment • Partners (REP) is exaggerated. A moratorium would provide time for a thorough study of long-term market support for riverboat gambling. ' 4. The potential fiscal impact of riverboat gambling is closely connected to the potential economic impact. Additional information on the economic impact will be helpful in determining the most beneficial method of generating public revenue. 5. There would be the opportunity to assess the impact of riverboat on the City's efforts to market itself as a "family-friendly" city, and on market growth and saturatior. measures. Disadvantages: 1. The City may lose ihe advantage of early market presence. The longer we wait, the more competition is likely to develop elsewhere on the Mississippi in terms of riverboat gambling and in other forms of gambling in other states. 2. Indian gaming is expected to expand in Minnesota, creating additional competition if , or when Saint Paul permits riverboat gambling. 31 _ t�/ 3. Riverboat gambling may require,an amendment to the State Constitution. If so, adding a moratorium to the time possibly needed to ratify an amendment would � cause further delay in implementing riverboat gambling. � Alternative #2: Su�aort the call for State IeQalization of riverboat gambling during this legislative session. Advantages: 1. Riverboat gambling legislation is already being prepared by certain members of the House and Senate for consideration by the Senate Committees on Economic Development and Housing and Gaming Regulation, at the same time that other committee members are considering the call for a moratorium. Supporting legalization would give the city a greater opportunity to affect the form of the legislation. 2. Minnesota, and subsequently Saint Paul, could achieve an early market presence in riverboat gambling. ' Disadvantages: � .. 1. Such support would precede an informed debate of public policy issues sunounding enforcement issues of present gambling venues and the expansion of types of gambling. 2. Without a better understanding of the likely economic or �scal impact, the City is not adequately prepared to draft or respond to proposed legislation with respect to many local vs. state issues, e.g. licensing, levy, distribution and use of fees and taxes, and regulatory issues (i.e. zoning, lan� use, �arking etc.) 3. To oppose the call for a moratorium by advocating riverboat gambling legislation may impose certain political costs which should be weighed in the decision. If the City were to decide on alternative #2, then it could either: (2a) declare support for awarding exclusive development rights ta an owner/operator through a non-competitive process, or (2b) declare support for use of a competitive Request for Proposal process. � 32 ! � ' �� zz��J The advantage of (2a), a non-competitive process, is that it represents potential(y the fastest implementation. The disadvantages are that it is currently illegal to do so, the City would lose its leverage to require interested owner/operators to r.espond to the City's objectives. A non-competitive process would reduce the possibility of receiving the best and most creative development and business plans, and gaining adequate assurances of performance. The advantages of (2b), a competitive RFP process, are outlined on page 29-30. Simply put, the city would be pro-active in articulating its goals and, through an open process, could choose the best plan and best developer/owner/operator team to achieve the city's expectations. 33 V SECTION VI - RECOMMENDATION5 (; 1. Support the call for a state-wide moratorium on the expansion of new forms of gambling. 2. Whether or not the call for a state-wide moratorium is successful, the City of Saint Paul should: (a) encourage the State to thoroughly examine the entire gambling industry in Minnesota, identify areas in need of closer regulation and control for _ the protection of the consumer, develop public policy for the growth of the industry that is consistent with Minnesota's overall goals, review distribution of proceeds and taxes, examining the potential economic impact and competitive climate for all forms of legalized gambling, and use a state-wide referendum to determine citizen support for changes to proposed legislation. (b) carry out its own in-depth study of gambling within its city limits to determine the overall impact of the potential addition of riverboat gambling and other new forms such as tele-racing and video gaming. j; .: (c) carry out its own market and economic impact study of riverboat gambling to develop advice on which provisions to include in State legislation that would be most bene�cial to Saint Paul, and to develop standards, expectations, and objectives for a competitive process to select one or more owner/operators. 3. If or when riverboat gambling is legalized, and if Saint Paul wants to encourage such activity, tt-�e City should select one or more owner/operators through a competitive Request for Proposal process, as de�eloped through the study described in 2(c). 34 �_