blank.gif (51 bytes) Cover Story
Gambling on Gambling
Lethargy in the Miller Administration
Leaves Nevada’s Economy at Risk

by Steven Miller

evada, economically, is largely a one trick pony. And today that one trick—gaming—is looking more and more like a perilous base for the state’s economy.

All across the country gamblers are increasingly opting to get their legal-gaming fix closer to home. In California, Indian tribes pushing to legalize casino-style gambling this November are wielding an advertising budget 25 times that of their opponents. On Wall Street, Asian financial problems and other pressures seem to be bringing America’s most recent bull market—including a lot of capital investment for Nevada—to at least a temporary end. At home in the Silver State, gaming and sales tax revenues are badly lagging behind projections. But as a recent Los Angeles Times cover story rudely points out, in Las Vegas, Strip moguls are "adding more than 12,000 rooms in a city whose economy has gone flat."

So Nevada’s lag in economic diversification is increasingly risky for the state. But it’s also expensive. As Treasurer Bob Seale reminded state lawmakers last session, being a single-industry state costs Nevada dearly in the Wall Street bond markets. State and local entities—always struggling to even get an AA rating for their bonds—have to pay higher interest rates to get investors to finance Nevada construction projects. And it’s been that way for the last 20 years.

Not-so-dumb
Bond Traders
eing a one trick pony when folks have become a bit bored with your trick can be risky. According to Michael Pitlock, executive director of the state tax department, Nevada gambling tax revenue was projected to grow 6.8 percent in both years of the current budget cycle. Instead, for fiscal 1998 the actual figure is less than half that—3.2 percent. Similarly, sales taxes, projected to grow by more than 8 percent in fiscal year 1998, are coming in at about 4 percent. That slowdown in local sales tax growth means, for example, that Nevada schools face a multimillion funding shortfall—an estimated $38.2 million for which the state will be liable. Maybe those bond traders in the canyons of lower Manhattan aren’t so dumb after all.

So what is going on? Economic diversification to reduce the state’s risk has been cited as an important goal by every Nevada governor from Grant Sawyer on. Yet today, almost four decades after Sawyer first won office, Nevada still finds itself precariously dependent on increasingly fickle gamblers and tourists. According to a study released a year ago by the state Division of Employment, the percentage mix of gaming to other industries in Nevada changed little from 1980 to 1996. Manufacturing had 4.6 percent of the jobs in Nevada in 1996, said the analysis, compared to 4.8 percent in 1980. And the percentage of jobs in hotels, gaming and the service industry actually inched up during the 16-year-period—from 42.3 percent to 43.2 percent.

The truth is, diversification of the Nevada economy has always had more friends in name than in actual fact. Administration after administration has publicly given the goal lip service while also privately recognizing—and at times quietly collaborating with—resistance to the idea in the state’s casino sector. Add in the normal all-too-human government tendencies toward procrastination, accentuated by Nevada’s near-decade-long run of good luck in the booming Las Vegas tourist economy, and it’s not surprising what the state got in the Bob Miller years: a state economic diversification effort best expressed—no doubt unconsciously—by the slogan on the front page of the state Commission on Economic Development (CED) website: "We’ve been waiting for you!"

Defenders of the commission will note with some justice that, given the relatively small state budget devoted to it, the CED and its 12 regional development authorities spread throughout the state, have performed well [see box].

Yet it’s precisely the relatively minuscule size of Nevada’s state expenditure on economic diversification that raises some of the most serious questions.

While the state’s next-door neighbors and competitors, Utah and Arizona, were spending per capita $1.52 and $1.10 respectively on economic development and diversification, Nevada was spending only 9 cents per capita, according to testimony before the Assembly Ways and Means Committee last year.

Advising Pharoah
n light of the kind of long-term exposure the state could face from the loss of its historical monopoly on gaming, the obvious question is whether the Miller administration and recent legislatures neglected their responsibility to ready the state for possibly lean years ahead. Had Nevada’s political leadership been advising Pharoah during the renowned seven fat years, its counsel would have been—in the view of some—"Yo, baby—let’s party!"

Governor Miller especially gets tough reviews.

He nearly always took "the politically easy route by doing nothing," says University of Nevada, Reno, political science professor Erik Herzik. "He could have done more for economic diversification. He could have asked tougher questions about gaming expansion."

But the verdicts from some sources close to the CED were even harsher: "If you knew some of the crap that went on there behind the scenes… it just gets disgusting," said one source.

An example cited was one Governor’s Industry Appreciation Lunch in the northern part of the state—an event featuring the governor, business speakers and the Commission on Economic Development. Businessmen buy tickets to the affairs and sponsor tables; they see the lunches as a way to keep communication channels open to the administration.

But the governor, in actuality, doesn’t share the feeling, said this participant in the event’s preparation: "If Miller could have figured out a way to have cancelled the Industry Appreciation Lunch he would have."

According to this account, the governor’s office conducted the event that year with such pronounced carelessness and indifference that it eliminated any benefit the event might have had for economic diversification.

It was "the year that he had Steve Wynn as the speaker up here in Northern Nevada," said the source. "Wynn found out that he was being leaned on to be the speaker the weekend before the thing, and it was on a Tuesday!"

The prolonged procrastination by the governor’s office, said the source, resulted in cancellations by a number of solid out-of-state prospects for investment and location in Nevada—prospects that had been arduously developed by staffers in the Commission on Economic Development.

Those individuals would have come, went the account, but every effort by the CED to line up speakers and manage the event for a reasonable time frame was being rebuffed by the governor.

"Miller just kept saying, ‘Nah, that’s not acceptable—I’ll go find my own,’" recounts the source.

Merger Mania
nother event that critics of the governor say shows Miller’s fundamental indifference to the cause of Nevada economic diversification occurred in 1995, during the legislative session. That was when the Miller administration introduced legislation to merge the small Commission on Economic Development into the much larger Commission on Tourism.

The proposed law, Senate Bill 345, was in many ways a complete disaster. Even in the view of some of its most committed proponents, the legislation was very badly drafted. Not only did it move the state’s 12 regional development authorities into a kind of vague and undefined purgatory where their future was seriously in doubt, the bill draft also appeared to essentially gut, in many respects, the state-level economic development operation itself. Finally, to make matters even worse, the whole operation was launched by the administration behind the back of not only the economic development commissioner responsible for representing the state’s rural areas, but even all the rural development authorities themselves.

"None of us were notified about it," says Churchill County Economic Development Director Shirley Walker. "I happened to read about the bill … in the Ely Daily Times. So I called Mr. [Michael C.] Sheppard who at that time was the commissioner representing the rural areas on economic development, and he didn’t know anything about it. And needless to say, he was pretty upset about it.

"So I said, ‘Do you want me to go over?’ Because we hadn’t seen the bill; we had seen nothing. And he said, ‘Well, you go, and I’m coming too.’ So that’s how it came about," recounts Walker.

When she and Sheppard finally got a chance to review the proposed Miller administration legislation, says Walker, it was obvious that "it was not clear enough what was going to happen to the rural economic development organizations."

The whole affair, originating with Bob Miller himself according to his representatives, has to this day left many people scratching their heads: What was the governor’s real agenda in the whole mess?

"The simple answer is that the governor was trying to make a bigger job for Tom Tait," says Lieutenant Governor Lonnie Hammargren. "[At the same time] they were trying to kick out Tim Carlson over at the CED."

Tom Tait—A Buddy
ith Carlson—director of the CED’s core Division on Economic Development at the time—gone and the rest of the commission merged into the tourism agency, Hammargren told Nevada Journal, a nice little empire would have been constructed for Tait, director of the Commission on Tourism.

"Tom Tait was a buddy," said the lieutenant governor, "Miller was best man at Tom Tait’s wedding. Tom Tait’s been working for him for 20 years."

Though Carlson acknowledges most people at the time saw the events in the same light as Hammargren, he himself, he says, was all for the change.

After he was first approached by the governor, says Carlson, "Tom Tait and I sat down and talked about this issue, and I’m the one that came up with the idea that Tom Tait ought to be the director of this new agency."

According to Carlson, he told Miller he would agree to that gracefully on one condition, which the governor accepted—that the name of the new merged agency would be the "Commission on Economic Development and Tourism."

In his view, said Carlson, giving the economic development function top billing in the new agency’s name would have gone a long way toward solving a fundamental long-term problem that the CED had never been able to surmount—its need for a solid revenue foundation.

Why did the governor want to merge the Tourism and Economic Development Commissions? In Carlson’s view, Miller’s intentions were entirely above-board.

"I truly honestly believe that Governor Miller wanted to do the right thing, and I truly believe he would have put a strong emphasis on economic development—more than he had in the past," said Carlson.

Noting Miller had spent much of the 1993 legislative session involved in large-scale efforts to consolidate and reorganize state government, Carlson says he saw Miller’s proposal for merging the commissions as in part "just a continuation of combining state agencies that have a potential of duplicating themselves in regards to administration and other ways."

Yet in addition to Miller’s cost-cutting agenda, said Carlson, "at the same time, I believe he really had" an intent to make economic diversification a higher priority for the state.

"He wouldn’t have agreed to what I asked for, as quickly as he did, if he thought anything else. He’s a smart-enough man to recognize that if you call it by that name, it’s going to eventually be that."

Less Than Competent Management
arlson’s account of the various currents in play during the maneuvering over Senate Bill 345 is fascinating and—in regard to Carlson’s own motivations at least—tends to be convincing. But Carlson’s account of what happened does not, at last, exonerate the governor of responsibility for what has to ultimately be seen as at least less-than-competent management—if not something else. And indeed, there are those close to the CED who speculate that the governor’s motivation was indeed "something else."

"There were several people who were on the commission that were browbeaten by Bob Miller into supporting the thing," said one observer. "But I don’t think there was a single person on the commission that really thought it was a good idea."

Given that situation, and coupled with the governor’s less-than-sterling support of the economic diversification effort in other contexts, this source focuses on a large financial consequence of the merger Miller and Tait were proposing.

"R&R Advertising, which ran [the governor’s] campaign, had the contract for tourism," he says.

"Anyway, there was another half-million bucks or whatever that was over in the Economic Development side. If you combine the two [commissions] together, [Miller] was going to give his ad agency another half a million bucks.

"I believe that was 90 percent of the motivation," asserts this source.

Whatever had been in the governor’s mind, however, Senate Bill 345, after its second hearing before Bill Raggio’s Senate Finance Committee, was essentially dead. Virtually the entire cohort of regional development authority representatives had testified against the bill, as had several private economic development consulting firms.

Yet the fact that the legislation had even been proposed in the form it was—and with such demonstrated indifference to the state’s economic diversification professionals—spoke volumes about diversification’s political weakness in Nevada.

Senate committee minutes show that Carlson himself, while testifying in support of the bill, had put his finger on that core issue:

The organization of economic development as it currently exists is well organized, well developed and well received, Mr. Carlson stated. However, what is missing is the total support of the state in relationship to its major industry, he maintained. He said this would be accomplished by combining the two commissions [emphasis added]

In context—even if syntactically challenged—what Carlson was saying is clear: The state’s major industry, tourism, is fundamentally ambivalent in its support for economic diversification. And that is the major problem the effort faces.

Former Lieutenant Governor Bob Cashell, as a member in good standing of the casino industry himself, was able to be more frank. Sitting right beside Carlson, Cashell, according to minutes of the May 11, 1995 hearing, laid it on the line:

[H]e expressed the opinion the consolidation of the two commissions will probably help educate people in the gaming and tourism industry that they need to put more emphasis on economic diversification and development….

Senator Raggio repeated his question regarding the possible objection by the tourism industry to the diversion of marketing funds toward economic development efforts…. The senator said this is exactly his concern, that at some point tourism interests will begin complaining too much money is being expended on the promotion of economic development, to the detriment of tourism.

Mr. Cashell said in his opinion there has been a deficiency in this area, and the tourism industry must understand that for Nevada to be a viable state in the future, its economy must be diversified…. Mr. Cashell said the new commission must be very sensitive to the tourism efforts, but must also be strongly supportive of the economic development and diversification efforts. He maintained the gaming industry has not been sensitive in this regard and that combining the two agencies "will help focus."

When Nevada Journal asked various observers about Cashell’s analysis of gaming industry opinion, his views found widespread support.

"I think that is a very sophisticated and correct view, and enlightened," said University of Nevada, Reno, Professor of Economics Thomas Cargill.

An Industry of Two Minds
ashell, said another source who requested anonymity, is part of an intelligent minority in a gaming industry that’s of two minds.

"There is a minority of the gaming industry that understands that it is not in their own best interest to be the only game in town," he said, "[and which understands] that economic diversification and creating new businesses and new companies in town is actually in their own vested interest, even though that means that they will have to compete for employees." That is something, he said, they are normally loath to do.

Cargill agrees. The prospect of having to bid for employees has been a big reason why gamers have been reluctant to support diversification. But, he says, there are also other reasons.

"I think that they would view any diversification as weakening their political position," said Cargill. "Also, a more diversified labor force tends to be a more educated labor force—a labor force that has more opportunities.

"See, one of the problems with being in the casino industry is that these people don’t really learn a lot of transferable skills. I mean, they can go from one casino to another, but they can’t easily go to a non-gaming environment.

"And so the more diversified the labor force, the more educated, the more skills it has, it’s going to be more demanding. Not just in wages but in working conditions.

"The casino industry doesn’t want that," asserted Cargill. "No employer would."

On the other hand, points out State Senator Ann O’Connell, Nevada’s gaming interests are also aware that diversification of the state’s economy is the only way they can avoid higher future taxes.

"[T]hey’re looking for somebody to share the tax burden, [rather than] look to them for more taxes," she said. "I’ve never discussed that with any of the gamers, but off the top of my head, that would be what I would surmise."

O’Connell also pointed out that the gaming industry is already giving financial support to the state diversification effort "with the money that they spend through the convention authority—to bring tourists here."

"And when people come here, and they like the city, they like the climate, well, a lot of people are convinced to move here from that."

Hard-Data Support
couple of days after O’Connell made those comments, her viewpoint got hard-data support from the former chairman of the board of the Phoenix Convention and Visitors Bureau.

C. A. Howlett, currently vice president of public affairs for America West, told the Las Vegas Review-Journal that the tourism industry can act as an important aid to diversification in the state, bringing to Nevada as individual tourists business people who subsequently will decide to exploit the business opportunities offered by the state.

"Historically," said Howlett, "particularly when Phoenix was an emerging giant of a city, market studies showed [that] a significant percentage of people who located their businesses in the Phoenix area were first exposed [while] either being a conventioneer or a tourist."

Leadership Needed
o the route from where Nevada is now, to where it needs to be, is clear: The Bob Cashell-Tim Carlson vision of a statewide economic diversication effort robustly powered by the state’s gaming and tourism clout is definitely doable. Yet to accomplish it will take real leadership—within not only the state’s political class but also, and most critically, within the gaming community itself.

Discerning businessmen recognize that the issue for gamers in Nevada increasingly goes beyond their mere interest in not being "the only game in town" when local governments and the state go looking for tax revenue.

Increasingly, a deeper question is on the table: It is implicit in the increasing popular support—mapped in the polls—for hiking state gaming taxes. It is present in the increasing willingness of some politicians to advocate that particular idea, and of other politicians to turn the casino industry itself—specifically in its support for the Kenny Guinn gubernatorial candidacy—into a populist stick with which to beat about the head and shoulders both Guinn and the casinos. And it is implicit in the economic analyses advanced by Professor Cargill and others.

Recall the professor’s argument that most gaming interests resist diversification of the Nevada workforce in order to limit chances that casinos might have to compete against non-gaming industries for employees. Gaming faces a distinct risk that its foes will pick up that argument and deploy it in a much more inflammatory way: that gamers have for years and years been quietly using their power and influence to block better opportunities for Nevada workers in general, and Nevada parents’ kids in particular.

Stated that way, it’s a potentially explosive charge—and one which, in the new skepticism and suspicion present here in Nevada about the casino industry, could have a powerful political effect. Say the current trends mentioned at the start of this article continue and transform into a severe economic downturn for Nevada’s number one industy. Without some significant economic diversification in the state to soften the blow, popular rage—once gaming’s decades of resistance to diversification becomes widely understood—could easily sweep through the electorate and into state government.

To allay that possibility, the leaders of Nevada’s gaming industry need to demonstrate now that they are, in fact, good citizens of the state on the question of the largest challenge it faces. Practically speaking, this means that the industry cease insisting that all tourism-sourced revenues collected by state and local government be channeled back only into the narrow promotion of tourism. Such indifference to the state’s long-term welfare is no longer viable; rather, it’s a ticking time bomb.

Legal gaming’s right to exist in Nevada, as in all other states, has always been contingent on its utility for the wider community’s pursuit of other, more general, purposes of public policy. That is the fundamental covenant between the people of Nevada and the gaming industry.

Leadership that takes the long view will respect that covenant. NJ

Steven Miller--no relation to the governor--is managing editor of Nevada Journal.

News to Use
Nevada Commission on Economic Development http://www.state.nv.us/businessop/

Nevada State Legislature website
http://www.leg.state.nv.us/

Paul Simon's One Trick Pony
http://www.cybersuperstores.com/music/psimon.html

Gaming Control Law in Nevada
by John R. Goodwin, LL.B, JD


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