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Big push into casino business by N.Y. comes with red flags

ALBANY – New York State is charging headlong into the casino business, with four full-service gambling resorts expected to be approved this fall and opened as early as next year, and talk of a torrent of new revenue, thousands of new jobs and a powerful economic jump-start for long-depressed upstate communities.

Supporters of the expansion – mostly notably Gov. Andrew M. Cuomo – hope that it will reverse the fortunes of economically stagnating regions such as the Catskills, where little has filled the void left by the demise of the so-called Borscht Belt.

But analysts, economists and casino operators warn that the industry is already suffering the effects of fierce competition, if not saturation, even in the Northeast, once a rich, untapped market.

Winnings are flat or shrinking in many places. Casinos in Atlantic City, N.J., are closing; Foxwoods, in Connecticut, is cutting costs. The long-standing image of gambling as a no-doubt winner for state governments has quietly gone the way of a bettor’s bankroll after too many hours at the tables.

None of which bodes well for the long-term goals of Cuomo’s plan.

“He’s 15 years too late to the party,” said Harold L. Vogel, a longtime gambling industry analyst.

Pitfalls abound: Four of the state’s nine existing racetrack casinos, which have collectively poured billions into the state’s educational system, could be undercut and endangered by the new casinos. The jobs created, experience elsewhere suggests, could offer low wages instead of providing a pathway to the middle class. Localities could face new expenses for public safety services, not to mention the indirect costs of problem gambling.

And while large casinos such as Maryland Live, outside Baltimore, have capitalized on unmet demand for gambling, such promising markets are becoming harder to find as casinos proliferate.

Cuomo, a Democrat seeking re-election this fall who is believed to have national aspirations, would likely be able to point to a large influx of revenue and economic activity in the run-up to the 2016 presidential campaign.

But any sudden windfall for New York could be short-lived if the novelty of new casinos wears off quickly, as it often does, or if other jurisdictions respond with new casinos of their own.

Many people in the industry believe that New Jersey would allow slot machines or more at the Meadowlands, a few miles from the Lincoln Tunnel, or perhaps even closer, in Jersey City.

And while the new casinos are “intended to attract non-New York residents and bring downstate New Yorkers to upstate,” according to the state’s request for applications, a recent report from the state comptroller’s office warns that many players will be from nearby communities – posing the risk of an economic wash, rather than a net gain.

State officials may also face a vexing decision: choosing between areas in the greatest need of economic assistance and those where a casino could deliver the greatest effect for the state.

The prospect of a casino in suburban Orange County, for example, less than an hour from Manhattan, has already chilled the prospects for a casino in the rural Catskills, farther north, where gambling had long been seen as a key to economic revival. Two of those proposals have now been shelved. Only three developers are competing for a license in the Catskills; six are contending in Orange County.

For years, New York had resisted as other states welcomed the gambling industry’s march from coast to coast. That changed after the terrorist attacks of Sept. 11, 2001, when the reeling economy prompted lawmakers to approve slotlike video lottery terminals at racetracks.

Tribal casinos, enraged, stopped making revenue-sharing payments under prior agreements. Beginning in 2011, Cuomo pushed for the constitutional amendment to allow full-scale casino resorts, in part to pressure the tribes to come to terms.

But by then, casinos had sprouted up throughout the country, and industry employment was past its 2007 peak, leaving many to wonder whether maturation or saturation was at hand.

Once confined to Nevada and Atlantic City, gambling has become a fixture of the economy in states across the country, with nearly 1,000 commercial and tribal casinos in 39 states, and dozens of casinos in the Northeast corridor between West Virginia and Maine.

The nation’s gambling thirst also is being slaked by lotteries and scratch-off games, an expanding world of Internet gambling and office pools on everything from March Madness to the Super Bowl.

“I think the entire industry knows that there’s too much supply for the demand that’s out there,” said Richard McGowan, an economics professor at Boston College who studies casino gambling. “The gusher is over.”

Recent developments have been ominous: Thousands of layoffs are expected this year in Atlantic City, where three casinos are poised to be shuttered. Closings and revenue declines have also hit states such as Mississippi, Missouri and Iowa, all early adopters in the nation’s casino craze.

Still, even the most pessimistic analysts say that some New York casinos may initially reap big winnings – particularly those near the city and its 50 million tourists a year.

Novelty, for one, continues to attract gamblers. According to a 2013 report from the American Gaming Association, the casino industry owes some of its rebound after the 2008 recession to new gambling operations in Ohio, Maryland and New York, where an $830 million hall opened in Queens at Aqueduct Racetrack in late 2011 and almost instantly became the nation’s most popular slot machine parlor.

The new upstate casinos will not lack for bells and whistles. The owner of the Aqueduct complex, Malaysia-based Genting Group, proposed a $1.5 billion resort rising from just north of the border with New Jersey, complete with a botanic garden, revamped ski slopes and a year-round Renaissance Faire. Other bidders have imagined putting a $425 million casino on a patch of farmland opposite an Amish encampment outside Syracuse, or a Hard Rock casino in Rensselaer.

But New York’s new casinos will be facing much stiffer competition than the Aqueduct complex did.

Cuomo administration officials express confidence that the new casinos will, on balance, make money for the state. But they agree that gambling is not a panacea, rather “just a part of a comprehensive effort to grow the upstate economy and bring good-paying jobs to these host communities,” said Richard Azzopardi, a spokesman for the governor.

A report by the Budget Division – released a month before last year’s casino referendum – suggested that New York would collect an additional $238 million a year for education or property tax relief, as well as $192 million more for local government aid, even after lost racino revenue was figured in.

The Cuomo administration had similarly sanguine estimates last year of employment growth from the new casinos: nearly 3,000 permanent jobs, and an additional 6,700 temporary jobs in construction, estimates based on seven casinos in Pennsylvania, including six of the state’s largest, along with the most successful casino in Maryland.

Curiously, all seven of the Pennsylvania casinos saw declines in slot machine revenue in the past year.

Casino jobs are also unlikely to lift many New Yorkers into the middle class. Federal labor statistics show that many gambling-related jobs – cashiers, cage workers, card dealers – average less than $30,000 per year. Casino industry data suggests wages are closer to $40,000. Some jobs also earn tips.

For all their bullishness about expanding into upstate New York, neither state officials nor industry leaders can offer much certainty.

“The shiny new objects attract all of us as customers,” said Geoff Freeman, chief executive of the American Gaming Association. “The question is what happens when the grand opening sign is taken down.”