Arkansas Issue 5: The Estimated Economic Impact of Casino Operations in Boone, Miller, and Washington Counties

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1 Arkansas Issue 5: The Estimated Economic Impact of Casino Operations in Boone, Miller, and Washington Counties October 10, 2016 Kyle Dean, PhD Russell Evans, PhD

2 2 Executive Summary Arkansas voters will vote on a constitutional amendment (Issue 5) to allow gaming in three (3) Arkansas counties this coming November. This report details the estimated economic impacts derived from the construction and operations of the three proposed casinos in Boone, Miller, and Washington counties. Statewide and county-specific impact estimates are reported within the body of the report. Highlights of our key statewide findings are provided below. One-Time Construction Impacts - Capital Expenditures are estimated to be $600 million, of which developers estimate $450 million will be spent within the state of Arkansas. - We estimate that these capital expenditures will spur: o $257 million in additional local spending from support industries and households, yielding a total statewide impact from construction of $707 million. o In total, we estimate that the construction phase will support 5,084 jobs paying $222 million in wages and benefits to Arkansas workers. Ongoing Annual Impacts from Casino Operations - The casinos and ancillary facilities are estimated to generate $768 million in revenues annually, providing 3,200 jobs, paying $134.4 million in wages and benefits to Arkansas workers. - We estimate that that casino operations will spur: o $487 million in additional local spending from support industries and households, yielding a total annual statewide impact from operations of $1.2 billion o 7,953 jobs paying $331 million in wages and benefits o $122 million in gaming taxes

3 3 Background Approval of Arkansas Issue 5 would amend the state constitution to authorize three (3) casinos in Arkansas. The authorized casinos would operate in Boone, Miller, and Washington Counties. The amendment would create a five-member Arkansas Gaming Commission with members appointed by the governor to staggered five-year terms. Each authorized casino would remit 18% of its annual net casino gaming receipts to the state in addition to a 0.5% annual net receipts tax to the county in which the casino is located at a 1.5% annual net receipts tax to the city in which the casino operates. The economic impacts from each casino can be conceptualized as occurring in two phases: capital outlays for construction and operations. Construction outlays are onetime expenditures while operation expenditures recur annually. Whether one-time or recurring, these expenditures represent an initial economic stimulus that ripples through the local economy. The cumulative effect of the economic ripples is commonly referred to as multiplier impacts. The multiplier (or spillover) economic impacts are a reflection of the underlying industry and institutional linkages in the regional economy. For example, an initial expenditure on gaming services requires upstream support to satisfy the new demand for gaming recreation. Upstream support may entail new expenditures on gaming machine leases, food services purchases, professional services, and more. Every new expenditure with an upstream support firm sets in motion a similar (albeit smaller) economic impact process. Total economic impacts are the sum of the economic changes attributable to the initial expenditure. Economic impacts are generally estimated in an input-output (IO) framework. This approach begins with a frozen-in-time snapshot of the regional economy. The snapshot captures baseline economic linkages in the region. Specifically, the baseline model estimates the extent to which output from one industry is reliant on inputs from

4 4 other industries, and the extent to which those inputs are expected to be procured in the local economy of interest. The challenge of traditional input-output models is defining the economy of interest. If the economy of interest in defined too narrowly (county level) the impacts will exclude any estimated economic activity outside the county but still potentially relevant (such as impacts in adjacent counties or rest of the state). Conversely, defining the economy of interest too broadly results in a capture of more of the economic impacts, but risks losing some local relevance. A partial remedy to this challenge is found in the use of multi-regional input-output models (MRIO). In this framework, economic activity that leaks out of the baseline county into the secondary region is allowed to exert a local impact as firms in the secondary region rely on firms in the primary region for supporting input. These feedback effects can be significant in local impact estimates. The county specific economic impacts presented below are estimated in a multiregional input output framework treating the county of operation as the primary region and the rest of the state of Arkansas as the secondary region. This approach allows for a local perspective while not losing important impact information. Additional perspective is provided by a traditional IO model treating the state of Arkansas as a single region and estimating the construction and operation impacts of the three proposed casinos jointly. A presentation and brief discussion of the impacts proceeds below for each county individually and then for the state as a single region. Note that the statewide perspective is its own modeling approach, and not the sum of the individual county impact estimates.

5 5 Boone County Impacts One-Time Construction Boone County Construction Impacts are based upon an estimated $300 million construction expenditure, of which 50% ($150 million) is expected to be spent directly within Boone County. The initial $150 million expenditure and associated employment and labor income are reported as the direct effect of the construction of the new facility 1. The initial construction expenditure stimulates additional local expenditures with Boone County vendors. The initial demand for construction services and local vendor responses combine to increase local household income. As households spend a portion of this new income locally, additional economic impacts are realized in the local area. These additional business and household expenditures are summarized in the table below as the Multiplier Effect. County-wide impacts are reported in the table below. Direct Effect 1,278 $41,330,398 $150,000,000 Multiplier Effect 357 $13,744,195 $48,076,289 Total Effect 1,635 $55,074,593 $198,076,289 1 Technically, these would be considered indirect effects as this expenditure is a change in final demand for construction (an upstream service necessary in advance of offering gaming recreation) rather than gaming. We have listed it as a direct effect so the reader may better follow how the impacts are generated.

6 6 Annual Operations Impacts from operations result from an initial change in the final demand for gaming recreation services. Accommodating this new demand for gaming services is estimated to involve 1,400 full and part-time local employees and labor compensation of nearly $59 million, or $42,000 per position 2. These revenues and associated jobs and payroll are the Direct Effect, or the direct contribution to the local economy. Casino operation stimulates additional local expenditures local vendors. Additionally, local income increases as casino workers and workers for supporting industries receive labor compensation. As households spend a portion of this new income locally, additional economic impacts are realized in the local area. These additional business and household expenditures are summarized in the table below as the Multiplier Effect. County-wide impacts are reported in the table below. Direct Effect 1,400 $58,800,000 $370,614,334 Multiplier Effect 989 $29,063,447 $96,270,784 Total Effect 2,389 $87,863,447 $466,885,118 2 Labor compensation includes wages and benefits. Salaries and wages sans benefits are estimated to average $28,000 per position.

7 7 Miller County Impacts One-Time Construction Miller County Construction Impacts are based upon an estimated $75 million construction expenditure, of which 50% ($37.5 million) is expected to be spent directly within Miller County. The initial $37.5 million expenditure and associated employment and labor income are reported as the direct effect of the construction of the new facility. The initial construction expenditure stimulates additional local expenditures with Miller County vendors. The initial demand for construction services and local vendor responses combine to increase local household income. As households spend a portion of this new income locally, additional economic impacts are realized in the local area. These additional business and household expenditures are summarized in the table below as the Multiplier Effect. County-wide impacts are reported in the table below. Direct Effect 298 $11,870,128 $37,500,000 Multiplier Effect 107 $3,441,811 $13,399,665 Total Effect 405 $15,311,938 $50,899,665

8 8 Annual Operations Impacts from operations result from an initial change in the final demand for gaming recreation services. Accommodating this new demand for gaming services is estimated to involve 500 full and part-time local employees and labor compensation of $21 million, or $42,000 per position. These revenues and associated jobs and payroll are the Direct Effect, or the direct contribution to the local economy. Casino operation stimulates additional local expenditures local vendors. Additionally, local income increases as casino workers and workers for supporting industries receive labor compensation. As households spend a portion of this new income locally, additional economic impacts are realized in the local area. These additional business and household expenditures are summarized in the table below as the Multiplier Effect. County-wide impacts are reported in the table below. Direct Effect 500 $21,000,000 $72,472,864 Multiplier Effect 411 $9,692,113 $31,950,779 Total Effect 911 $30,692,113 $104,423,643

9 9 Washington County Impacts One-Time Construction Washington County construction Impacts are based upon an estimated $225 million construction expenditure, of which 50% ($112.5 million) is expected to be spent directly within Washington County. The initial $112.5 million expenditure and associated employment and labor income are reported as the direct effect of the construction of the new facility. The initial construction expenditure stimulates additional local expenditures with Washington County vendors. The initial demand for construction services and local vendor responses combine to increase local household income. As households spend a portion of this new income locally, additional economic impacts are realized in the local area. These additional business and household expenditures are summarized in the table below as the Multiplier Effect. County-wide impacts are reported in the table below. Direct Effect 843 $37,465,453 $112,500,000 Multiplier Effect 350 $15,919,951 $48,528,862 Total Effect 1,192 $53,385,404 $161,028,862

10 10 Annual Operations Impacts from operations result from an initial change in the final demand for gaming recreation services. Accommodating this new demand for gaming services is estimated to involve 1,300 full and part-time local employees and labor compensation of $54.6 million, or $42,000 per position. These revenues and associated jobs and payroll are the Direct Effect, or the direct contribution to the local economy. Casino operation stimulates additional local expenditures local vendors. Additionally, local income increases as casino workers and workers for supporting industries receive labor compensation. As households spend a portion of this new income locally, additional economic impacts are realized in the local area. These additional business and household expenditures are summarized in the table below as the Multiplier Effect. County-wide impacts are reported in the table below. Direct Effect 1,300 $54,600,000 $305,900,860 Multiplier Effect 2,047 $74,977,473 $182,381,978 Total Effect 3,347 $129,577,473 $488,282,838

11 11 Statewide Impacts One-Time Construction Statewide construction Impacts are based upon an estimated $600 million construction expenditure, of which 75% ($450 million) is expected to be spent directly within the state. The initial $450 million expenditure and associated employment and labor income are reported as the direct effect of the construction of the three new facilities. The initial construction expenditure stimulates additional local expenditures with Arkansas vendors. The initial demand for construction services and local vendor responses combine to increase local household income. As households spend a portion of this new income locally, additional economic impacts are realized in the local area. These additional business and household expenditures are summarized in the table below as the Multiplier Effect. Statewide impacts are reported in the table below. Direct Effect 3,432 $148,541,694 $450,000,000 Multiplier Effect 1,652 $73,316,701 $257,041,107 Total Effect 5,084 $221,858,395 $707,041,107

12 12 Annual Operations The combined operations of the three gaming properties are estimated to necessitate 3,200 statewide jobs at average compensation per position of $42,000 for total compensation of more than $134 million. The annual operations of the properties will require support from upstream vendors in the state. Both the direct operations and vendor responses stimulate household income gains. As a portion of the household income is returned to the statewide economy in the form of household purchases, additional economic impacts are realized. Upstream vendor expenditures and local purchases by households are combined to create the multiplier effect. Statewide impacts from operations are reported in the table below. Direct Effect 3,200 $134,400,000 $751,811,230 3 Multiplier Effect 4,753 $196,289,454 $486,804,470 Total Effect 7,953 $330,689,454 $1,238,615,700 Tax Impacts Upon completion, each casino will be assessed an annual gaming tax of 20% of Net Gaming Receipts (18% going to the state, 1.5% going to municipality where the casino is located, and 0.5% to the county where the casino is located). With estimated net gaming receipts from operations of $610 million, annual tax revenues from the three casinos would be $122 million. 3 Actual estimated revenues are $768 million. However, some of these revenues derive from retail activities, of which only the retail margin affects local impacts. Thus, the direct effect is $751 million.

13 13 EIG Principal Economists Economic Impact Group (EIG) is a full-service consulting firm dedicated to furthering our client s understanding of their role in the local economy. Founded in 2005, EIG provides an array of services including impact and policy analysis, economic modeling, and market analysis. We specialize in clarity of presentation and dedicated service to our clients. Kyle Dean, Ph.D. Dr. Kyle Dean is an experienced professional economist who provides economic analysis for governments, businesses, tribes, and non-profit leaders. Dr. Dean cofounded EIG with Russell Evans in 2005 having since worked with local and national clients including the Oklahoma Bankers Association, Oklahoma Telephone Association, Oklahoma State Insurance Carriers, the U.S. Consumer Healthcare Products Association, Clean Line Energy Partners, and many others. Dr. Dean received his PhD in Economics from Oklahoma State University. He is a member of the American Economic Association and the National Association of Business Economists. Russell Evans, Ph.D. Holding undergraduate and graduate degrees in Economics from the Oklahoma State University, Dr. Evans specializes in regional economic forecasting, local tax incidence analysis, and forensic economics. Dr. Evans co-founded EIG with Kyle Dean in 2005 having since worked with local and national clients including the Oklahoma Bankers Association, Oklahoma state insurance carriers, the U.S. Consumer Healthcare Products Association, Clean Line Energy Partners, and many others. Additionally, Dr. Evans has served as an expert witness is personal injury, asset valuation, and regulatory cases.