Too many eggs in the same basket By Ken Adams, CDC Gaming Reports May 31, 2020 at 7:56 pm In the modern world, for better or worse, the economy is all. If the economy fails, society itself is at risk. Now, of course, we are living in a time when the economy did not fail on its own but was closed down by the government. To protect people from the COVID-19 pandemic, all non-essential activities have been restricted by gubernatorial edict. The crisis has led to many conflicts and conflicting ideas, and casinos have been at the heart of the debate. Nationwide, casinos have been closed for nearly three months. Now, finally, casinos in Nevada are preparing to open on June 4. That reopening will be a welcome relief for the hundreds of thousands of workers who have been idled since mid-March. The unemployment rate in Nevada is 28%; in Las Vegas, it is 33%. That is the highest rate in the country, higher even than the average 25% unemployment during the Great Depression. Besides having to deal with an unemployment crisis, Nevada is also flirting with an economic meltdown. Over 60% of Nevada’s general fund comes from gaming taxes – and, as it happens, education makes up sixty percent of the state’s expenses. There is clearly a direct correlation between the two. In essence, without gaming, there is no education system in Nevada. MGM’s Gold Strike Casino in Tunica, Mississippi, which had been closed due to the pandemic/ Photography via Sophorn Vongphrachanh The state has a problem: it is overly reliant on gaming and tourism. That is a message that has been sent to officials and legislators many times in the last sixty years, beginning in the mid-1960s, when a study of the state’s finances revealed a great revenue stream, with a minimal sales tax, no income tax, and a very minor sales tax, but one almost entirely contingent on the success of the gaming industry. If something happened to gaming, the state would be in serious trouble. Until now, that hadn’t been an issue: gaming has weathered recessions and drastically reduced revenues before, but has never had to deal with a complete halt to operations. When the casinos in Nevada closed, a thriving, growing, dynamic economy was stopped dead in its tracks, and the state stopped collecting gaming taxes. With the casinos opening in June, the state will have lost over 20% of its annual gaming taxes. It will likely take years for a full recovery. Nevada is far from the only place that is casino dependent. In many states, casino gaming has become a very important part of the economy and tax base. In those places, governments are facing the same kind of crisis Nevada is facing. Social costs have risen dramatically due to unemployment, while at the same time, revenues from most tax sources have dropped significantly. The stress between the reduced income and increased expenses has created pressure to reopen casinos and the rest of the economy. Some states, like Nevada, have begun opening up, while others are waiting for signs that the virus has run its course. The longer states are locked down, of course, the higher the costs and the longer time it will take to recover. Among those hit hardest are Indian tribes, particularly gaming tribes. Prior to the National Indian Gaming Regulatory Act, the highest rate of unemployment in the nation was on Indian reservations. Except for government funding, tribes had very few resources. Gaming became a way out of poverty and into a sort of prosperity. The most successful Indian casinos have generated huge cash flows that tribes have used for government, social services, and to expand and diversify their economies. The percentage of tribal revenue that comes from gaming is apt to be close to 90 percent. Its loss threatens entire communities. In Michigan, California, and Connecticut, the tribes and the governors are on opposite sides of the debate. The states think that, in the best interest of public health, the lockdown should last longer. The tribes largely feel, in the interest of their own health, that they cannot wait any longer. The tribes and the states have approved compacts. Those compacts state explicitly what authority the states have over the tribal gaming operations and what authority it lacks. Closing for a pandemic is not an area where the state has authority, just as it cannot force tribes to operate smoke-free casinos. It is a matter of sovereignty. In each of those states, the governors are not in a hurry to open up. Gaming’s contribution to those states’ budgets is relatively minor and unimportant. For the tribes involved, it is exactly the opposite. The casinos are an essential business, and the tribe needs that revenue to survive. In preparation for reopening, Kathy George, the CEO of FireKeepers casino in Michigan, said, “As you know, any tribe is a sovereign nation,” she said. “We are an essential business… the tribe needs the resources that are created through FireKeepers for the well-being of the entire tribe.” At least ten other tribal representatives from other tribes have said roughly the same thing. Granted, most of the tribes that have reopened their casinos have not had a severe outbreak of the virus. Some haven’t had a single case. But even if there have been cases of COVID-19, there has been increasing pressure to reopen the casinos. That was also the case in Nevada. Governor Steve Sisolak was careful in his approach to imposing coronavirus-related restrictions in March. He consulted medical and scientific experts at each stage, and if he erred, it was on the side of caution. As he started to think about reopening, he used business people to help him formulate the reopening plans. With each passing week, the pressure on Sisolak to reopen the economy grew. Nevada, like other states, has had numerous demonstrations calling for a return to an open society. Those demonstrations both in Nevada and nationally have gotten lots of press and often lots of criticism. But they demonstrate a very real factor in our lives: the economy is essential to our long-term health. These two seemingly conflicting health issues have become a battleground. In New York, Los Angeles, San Francisco, Boston, Chicago and several other major metropolitan centers, the spread of the virus has thus far outweighed the economy. But in other areas – remote Indian tribes, Nevada, other rural locations – the economy is beginning to win the argument. As important as sequestering, social distancing and wearing masks have been in containing the pandemic, they are only one side of the issue. On the other side is the ability of people to feed, house, and care for themselves and their families. In normal times, the two do not come into conflict, but this is not a typical time. It has exposed some of our weaknesses, such as in our healthcare system. But the most important of the vulnerabilities is the economy. The COVID-19 virus has not pushed us over the edge, but it has shown us the edge. We have too many of our eggs in one economic basket. If that basket breaks, so do our eggs. If we learn anything from this crisis, it’s the importance of our health system. We need the health system not just to protect our health, but to protect our economy and, thus, our nation. The healthcare and educational systems are like the military, the first line of defense that protects the very core of our existence. Nevada and some Indian tribes may be overly dependent on gaming, but we are all totally dependent on the economy.