Put casino licenses up for auction
ARE WE in danger of forgetting the scene in “The Godfather, Part II,’’ where the odious Senator Geary demands $250,000 from Michael Corleone in exchange for a gaming license? Massachusetts is careening toward casinos, but we are paying too little attention to the mechanics of allocating casino licenses.
Massachusetts could do much more than the current casino bill does to lay down protections against corruption and cronyism — risks that always loom anytime the government is giving away a valuable asset. In the early 1900s, Lincoln Steffens chronicled how “ ‘combines’ of municipal legislators sold rights, privileges, and public franchises for their own individual profit, and at regular schedule rates.’’ Lady Bird Johnson’s family wealth reflected, in part, favorable licensing treatment by the Federal Communications Commission. More recently, a video involving a state senator, liquor licenses, and cash suggests that Massachusetts is in no way immune to political avarice.
The current legislation on Beacon Hill puts its faith in an empowered, independent gaming board. The bill sets down at least some hard limits: For instance, the three destination casinos contemplated in the bill “shall make a capital investment’’ of at least $500 million and pay a minimum licensing fee of $85 million. But within those limits the board can choose. That’s a lot of latitude; board members would have to weigh many disparate factors of different casino proposals, including potential tax revenues, job creation, and social impacts on the neighboring communities.
But the plan that Pennsylvania approved in 2004 raises red flags that remind us that independent boards do not solve every problem. A recent grand jury investigation there found that “the Pennsylvania Gaming Control Board, through its administration and regulatory process . . . failed to thoroughly protect the public from unlawful gaming practices; failed to maximize potential new revenue to the Commonwealth . . . and, otherwise engaged in activities which eroded, at a minimum, this Grand Jury’s confidence in the system.’’
Well aware of the Pennsylvania precedent, our lawmakers are trying to make a better board. The proposed board here would be insulated to some extent from Beacon Hill bonhomie. Its members would be appointed by the governor, the attorney general, and the treasurer - an arrangement that reduces the probability of legislative license peddling. But potential licensees will lay siege to any system.
Consider how much money is at stake. A report by the Spectrum Gaming Group — admittedly, somewhat outdated — estimates that three destination casinos in Massachusetts could generate up to $1.78 billion in gross gambling revenue a year. The right to earn hundreds of millions of dollars every yea r— even after operating costs and tax payments — is worth far more than a one-time payment of $85 million.
Rather than leave the choice among casino bids to the board, there are more transparent ways of allocating valuable public resources — and making sure that no one gets a great deal at the public’s expense. The FCC, which has learned something since Lady Bird’s day, has raised $60 billion for the United States since 1994 by auctioning off sections of the electromagnetic spectrum.
Granted, an auction for casino licenses would be more complicated: We wouldn’t just want to reward the highest bidder. We want more than just revenues from our casinos, like capital investment and sensitivity to our communities.
But a good auction can be about more than money. Casino bidders would propose a licensing fee, a minimum level of capital investment, and a number of jobs they would vow to create. A good auction system would make the tradeoffs explicit; bidders would know in advance that for every, say, 500 extra jobs they added or every $10 million more they spent on their facilities, they could knock a set amount off their proposed licensing fee.
This system should be designed by the gaming board, not the legislators, who will be unlikely to agree on such a mechanism. After the system is designed, it should be vetted by a second panel — an independent oversight committee. With clear rules, we have far less chance of undue influence and allegations of impropriety.
The dangers of casino licensing are enormous. Even if the gaming board is totally honest, there will be ugly allegations unless members limit their own discretion — and make all the rules explicit up front.
Edward L. Glaeser, a professor of economics at Harvard University, is author of “The Triumph of the City.’’ His column appears regularly in the Globe.