EAST ST. LOUIS PLACES ITS BET

By Margot Hornblower

FOR DECADES EAST ST. LOUIS HAS BEEN MIRED IN MISERY. Its 1992 murder rate was the highest in the nation, while the property-tax rate was one of the highest in Illinois. Six years ago, it achieved national notoriety when, crippled by debt, it gave up the city hall to settle a lawsuit. Garbage lay uncollected in the streets. Businesses fled. Today half the 40,000 residents, in a town that used to be integrated but is now 98% black, qualify for public assistance. Drugs are rampant. Where better than this slum on the Mississippi River to build a glittering $45 million floating casino?

The question is not ironic. For if most investors would hesitate to bet on a basket case, the five businessmen who launched the Casino Queen in June 1993 recouped their money in six months--and have been raking in profits ever since. Meanwhile, taxes on the riverboat's $150 million annual revenues have doubled the city's budget to $12 million, allowing East St. Louis to reduce property levies 30%, slash its debt, double the number of police officers and patrol cars, and thus cut the murder rate by a third. The boat, with 1,250 workers, is now the city's largest employer. Says Mayor Gordon Bush: "It is bringing about the city's renaissance."

In the past seven years communities across the nation have embraced gambling as an economic savior. But for all its glitter, gambling's gold is, in many cases, more mirage than miracle, because in addition to the obvious fiscal benefits there are many less obvious economic and social costs. For one, notes Robert Goodman, author of The Luck Business, a critic of the industry, "casinos are an extremely regressive means of financing government" since many gamblers are low income-retirees on Social Security, blue-collar workers, even welfare recipients.

The cities that benefit most from casinos are those that can attract enough out-of-towners so that the regressive losses, and attendant social problems, fall less heavily on their own citizens. In Las Vegas, Southern California tourists bear the burden, while the riverboat in Council Bluffs, Iowa, lives off bettors from Omaha, Nebraska. And although most Illinois casinos attract few out-of-staters, East St. Louis is an exception. On two recent nights some 70% of the Casino Queen's patrons were white, many of them from across the river in Missouri. "Casino gambling is a shell game," explains Earl Grinols, a University of Illinois economics professor, "attracting dollars from one person's pocket to another and from one region to another."

That helps explain why the casinos' record on spurring nongambling economic growth is so spotty. Local restaurants are often squeezed out by cheap in-house casino eateries. Atlantic City, New Jersey, lost about a third of its retail businesses after casinos moved in and former customers gambled away their discretionary dollars. In South Dakota, when slot machines were legalized to revive the Black Hills resort of Deadwood, the three car dealerships, the hardware store, the clothing shop and the local Taco Bell all converted into mini-casinos--a more lucrative business, gutting the town's retail base.

East St. Louis had less to lose. Still, the rising tide of riverboat revenues has not lifted all boats. The Casino Queen parking lot is surrounded by a high-security fence with guards in two watchtowers and on the ground. A new stop on the MetroLink commuter train, which deposits visitors at the boat, was designed to bypass the heart of East St. Louis, which even now has large tracts of urban desolation and 1,700 abandoned buildings.. "You have not seen a lot of gambling revenue trickle into the neighborhood," says community activist Alandra Byrd. But the casino has set up a $2.5 million foundation to provide low-interest business loans and grants to community groups. Average salary on the boat is $25,000 plus benefits, and no job pays less than $5 an hour.

But converts to casino culture are just beginning to compute the social costs of compulsive gambling, which, studies show, leads to lost productivity, bankruptcies, divorce, suicide, child abuse and crimes such as robbery, fraud and embezzlement (with consequent police, prosecution and imprisonment costs). Nevada, where gambling is the dominant industry, has a suicide rate more than double the national average, and led the nation in child-abuse fatalities in the period when casinos were still limited to Nevada and Atlantic City. Within two years of Deadwood's casino influx, child-abuse reports rose 43% and domestic violence 80%.

According to Harvard University's Center for Addiction Studies, between 3.5% and 5% of adults exposed to gaming can be expected to develop into pathological gamblers. In Collinsville, Illinois, a short drive from East St. Louis, a teacher dropped off her two children at school one day last January, drove to a parking lot and shot herself in the head. Although a riverboat spokesman said he had no record of her visits, friends told the local press that the 40-year-old woman gambled frequently at the Casino Queen. The day she died sheriff's deputies were on their way to her home with an eviction order. She left a note on the door explaining that her husband, a refinery worker, knew nothing of their financial problems, although she had pawned their wedding rings and skipped making the house payments for 17 months.

In Florida a plan to build 47 casinos was defeated in a 1994 referendum after the state pegged expected crime and social costs at $2.16 billion a year--far higher than the likely $320 million to $470 million in gaming-tax revenues. Frank Fahrenkopf, president of the American Gaming Association, calls such calculations "educated guesses, at best--and pure fabrication, in some cases."

Indeed, just about everything about the economics of gaming is unpredictable, since the very success of casinos can sometimes breed future failures when the market becomes oversaturated. Rock Island, Illinois, had to rebate more than three-quarters of a million dollars in gambling taxes when its casino revenues plummeted because of new competition from Iowa. In New Orleans the gargantuan hulk of a half-built casino, slated to be the world's largest, sits rusting on the edge of the French Quarter. The builder, Harrah's Jazz Co., is bankrupt, done in by an overly optimistic tax deal with the state. Louisiana Governor Mike Foster, once a gambling booster, now wants to outlaw both casinos and video poker.

But East St. Louis is standing pat, betting all its chips on the Casino Queen and praying that new Missouri casinos will not siphon off its customers. In the gambling business, losing is as much a part of the game as winning.

--By Margot Hornblower. With reporting by Jyl Benson/New Orleans and Wendy Cole/East St. Louis

With reporting by JYL BENSON/NEW ORLEANS AND WENDY COLE/EAST ST.LOUIS