Washington - State and local officials increasingly are throwing the dice in an effort to bolster their finances, and at least some bond rating analysts believe the gambling development is a healthy one.
"As state and local governments battle budget constraints and the effects of the national recession, new gaming ventures could offset the impact of weakened tax collections," wrote Robert F. Durante, a Standard & Poor's Corp. associate director, and Peter J. D'Erchia, a director for the rating agency, in yesterday's tssue of Credit Week Municipal.
Moreover, casino and riverboat gambling can provide economic diversification, fueling increased tourism, construction, and employment, the authors wrote.
According to the article, titled "On a Roll: State-Sanctioned Gaming Grows," 34 states and the District of Columbia now allow some form of gambling. Also, there is increased interest tn riverboat gambling, plus an expansion of state lotteries and increased casino-style gambling on Indian reservations.
The authors wrote that when one jurisdiction legalizes a form of gambling, "other states and local governments are likely to duplicate such activities to generate comparable tax benefits." As an example, they pointed to Louisiana, which allowed riverboat gambling after the practice was sanctioned by Mississippi. Riverboat gambling also has been approved in Iowa and Illinois and will be put before voters in Missouri this fall.
Also according to the article, riverboat gambling has helped increase investment in older manufacturing towns along the Mississippi River, such as Davenport and Bettendorf. Iowa. and Moline and Rock Island, Ill. The region, known as the Quad City Area. lost about 27.000 manufacturing jobs in the 1980s when farm equipment manufacturers cut their staffs.
"Although the gambling investment will not replace the total losses in manufacturing, it has provided some alternative employment." the authors wrote.
The authors warned, however, that public investments in such ventures "should be made cautiously." They further noted that an inherent risk with boats "is that they can move to other parts of the river," as two Iowa boats did, relocating to Biloxi, Miss.
Though state-sanctioned gambling can help fill dwindling coffers, the authors also warned, gaming has had "varying effects" on credit quality. For example, casino gambling in Las Vegas helped improve the general obligation bond rating of Clark County, Nev., to A-plus from A in September 1987.
But Polk County, Iowa, had its GO rating lowered in 1989 to AA from AAA, largely because of operating subsidies paid to support a county-owned racetrack that filed for bankruptcy. "The obligation limited the county's financial flexibility at a time when operating and human services spending were growing rapidly," the authors wrote.
To assess the credit impact of state-sanctioned gambling, Standard & Poor's looks at the financial and administrative management of gaming ventures, as well as the ability of municipal governments to capture gambling revenues.
In addition, the rating firm looks at the use of gambling revenues. "Gaming revenues used to finance nonrecurring items, such as capital improvements, will be viewed as more manageable than those that finance ongoing operations," the authors wrote.
They noted the case of Northville, Mich., a town that received 21% of its operating budget in fiscal 1991 from the state, paid out of racetrack profits. The city used the money to fund public safety expenditures. But when the state decided to redirect the money to its own general fund, Northville was left with an unexpected and large deficit. The city was able to retain its BBB-plus rating, but only after devising a deficit elimination plan that included a property tax increase.