Full text of Bridges (Federal Reserve Bank of St. Louis) : Bridges, Winter 2002-2003

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WINTER 2002–2003

COMMUNITIES

P U B L I S H E D Q U A RT E R LY
BY THE COMMUNIT Y
A F F A I R S D E PA RT M E N T O F
THE FEDERAL RESERVE
B A N K O F S T. L O U I S

INDEX

8

Are Casinos
Beneficial?

BRIDGES
10

W W W. S T L O U I S F E D . O R G

Have You Heard

Spanning the Region

11

Seeds of Growth
Conference Set

12

A Fresh Start in Distressed Cities
Exper ts Present
Ideas on Renewal
By Linda Fischer
Assistant Editor
Let’s play a word association
game. I say, “East St. Louis.” You
say? Most likely “crime, corruption, poverty.” You might want to
add “crumbling buildings, inferior
schools, trash-filled vacant lots.”
And the list goes on.
For decades, poverty has tightened its grip on this city, keeping thousands who live there in
its stranglehold. To those who
don’t know better, the situation
seems hopeless.

East St. Louis, Ill., like many
impoverished areas, is all of the
things mentioned above. But
take a second look. In the midst
of the devastation that pervades
the city, there are signs of new
life. New stores are going up,

new schools are under construction, new houses stretch down
tree-lined streets. The progress
is on a small scale, but something is happening in the city.
That “something” prompted
the Community Affairs department of the Federal Reserve

efforts there inspired the title of
the conference: Rays of Hope:
A New Day for America’s
Distressed Urban Areas.
The specific work going on
in East St. Louis and the general
themes of how community
development comes about were

John Gulick makes a point during a roundtable discussion at the Rays of Hope conference
in East St. Louis on Oct. 22 and 23. Gulick is a community development specialist with
the Missouri Department of Health and Senior Services.

Bank of St. Louis to hold its
recent conference on community
development across the river in
East St. Louis. The revitalization

interwoven throughout the event
Oct. 22 and 23 at the Jackie
Joyner-Kersee Center. The East
St. Louis Action Research Project

(ESLARP), a community assistance
program run by the University
of Illinois at Urbana-Champaign,
joined the Fed as co-sponsor.
Panelists covered many topics,
including building individual
wealth, traditional and nontraditional approaches to redevelopment, attracting businesses to
the inner city, redeveloping
brownfields, models for urban
design and the economic
benefits of a light-rail system.
Keynote speakers focused on:
(1) the breakdown of cities and
programs that were intended to
help but did just the opposite;
(2) the renewal that is going on
in some communities.
The Breakdown of Cities
An overview. Federal housing
policies going back to the 1930s
are generally seen as contributing
to the demise of many urban
neighborhoods, with major
changes kicking in after World
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War II. Prior to the war, cities
had a healthy mix of upper-,
middle- and lower-income populations, said Andrew Theising,
an associate political science
professor at Southern Illinois
University Edwardsville. He
cited historian Kenneth Jackson’s
book Crabgrass Frontier, which
lists three ways federal policy
began to interfere with growth
in the cities after the war.
“Federal housing subsidies
shifted the balance of affluence
from cities to suburbs…and made
tremendous changes to the housing landscape of the United
States,” Theising said. Making
money available for home loans
became a priority. Second, there
was the “ghettoization” of public
housing. Although the original
intent was that public housing
would be a transitional step to
home ownership, it became
instead a way to clear out slums.
Third, the federal government’s
transportation policies had
a negative impact on urban
growth. The construction of
interstate highways to accommodate automobiles meant that transit options started to diminish.
Decisions about where to build
highways hurt the economy in
many urban areas.
“Government didn’t understand
what impact these policies would
have on cities,” Theising said.
Federal Reserve Board Gov.
Mark Olson added, “The conventional wisdom at the time was
that improvements in housing
conditions would enhance urban
residents’ overall quality of life,

thereby resolving other social
and economic ills that had beset
inner-city neighborhoods.”
Into the 1960s, federal agencies
were dedicated to funding home
mortgages, constructing public
housing and replacing substandard housing in the cities. “With
a large budget and a heavy hand,
neighborhoods were transformed
as urban planners demolished
long-standing homes and businesses and replaced them with
high-density, subsidized apartment buildings for low-income
residents,” Olson said.

are more payday lenders in
California than McDonald’s and
Burger Kings altogether,” Carr
said. That is significant because
McDonald’s and Burger King are
located throughout the state,
while payday lenders are located
mainly in low-income neighborhoods, he said. It is also
significant because payday
lenders are not subject to the
same regulations as banks.
Such urban areas also have
become incubators for criminal
activity by predatory lenders.
Although Carr is quick to point

In addition to housing, meaningful
community renewal requires community
involvement, broad-based partnerships
and local, sustained investment by the
private sector. —Fed Gov. Mark Olson
Those affected by the policies
had no say in the redevelopment
that drastically affected their
lives, he said.
The unintended consequences
were displacement of residents,
demoralized communities and
the concentration of poverty,
unemployment and crime.
Wealth stripping. James Carr, a
senior vice president at the
Fannie Mae Foundation, specifically linked inadequate financial
services in many urban areas
with their breakdown. Through
the years, reputable financial
institutions have moved out,
leaving a void that was easily
filled by subprime lenders, payday lenders, pawn shops and
rent-to-own businesses. “There

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out that many alternative financial institutions operate within
the law, he said they target the
nation’s most vulnerable people
and do not offer savings plans.
High-cost loans turn into a cycle
of debt, with the borrower often
taking out a second loan to pay
off the original loan.
For someone in a distressed
area who is lucky enough to buy
a home, it often comes through a
subprime lender with high interest rates, Carr said. Although
Carr acknowledged the legitimacy
of subprime home mortgage lending, he said high interest rates
have an adverse effect on homeowners. “Money spent on interest could have been spent on
home repairs instead,” he said.

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COMMUNITIES

Adding to the cycle of poverty
are rent-to-own businesses, Carr
said. He gave an example of a
person who rents a television and
ends up paying three times what
it’s worth in rent. If the customer
misses one payment, he may
lose the product. “People often
furnish their entire households
at rent-to-own places,” he said.
“The problem is, they aren’t
building wealth.”
Renewal in the Cities
An overview. It became clear
to policy-makers who craft urban
revitalization programs that the
federal government’s early unilateral approach to community
development did not work, Olson
said. In addition to housing,
meaningful community renewal
requires community involvement, broad-based partnerships
and local, sustained investment
by the private sector, he said.
Community involvement
became so important to the
process that by 1970, local community development corporations were created and given
federal assistance in mobilizing
neighborhoods to improve their
social and economic conditions.
The process of funding redevelopment initiatives has also
changed. “For example,” Olson
said, “the Community Development Block Grant program
authorized local governments to
allocate federal funding for community redevelopment, rather
than the direction being dictated
by federal agencies.” This began
a process that would expand local
involvement and investment and

use philanthropic and private-sector funds to leverage federal dollars for revitalizing distressed communities, he said. Foundations,
as well as banks, have become
important sources of capital for
urban redevelopment, he said.
“The change in the base of
capital providers for community
development…fostered innovation in the financing strategies,”
Olson said. The federal government’s role shifted from being the

with individual wealth building,”
Carr said. It’s important for community developers to figure out
how to empower residents to
build wealth, he said. In turn,
the entire community will prosper.
He touted home ownership as
the most significant way Americans
build wealth. Because a house is
a major investment, homeowners
will work to improve their communities, which results in rising
property values, improved busi-

is intended to help low-income
workers increase their financial
stability. The General Accounting
Office estimates that 25 percent
of these refundable tax dollars
go unclaimed every year.
“There are billions of dollars
sitting in the Treasury Department
that are untapped,” Carr said.
As for payday lenders and
rent-to-own shops, Carr said
they are here to stay. And since
the majority of their customers

Conference attendees ride MetroLink, the St. Louis area’s light-rail system, and listen to John Roach explain how its extension into Illinois
has spurred development in the East St. Louis area. Roach is with the St. Clair County Transit District. In red tie is Fed Gov. Mark Olson.

sole source of funding to providing tax incentives and credit
enhancements to encourage private investment. “This fundamental shift in community
development financing philosophy
engendered market-based strategies for redeveloping distressed
communities,” Olson said.
Wealth building. “Communities that are really vibrant start

nesses and services, increased
wealth and a cycle of wealth, he
said. However, low- and middleincome people have a difficult
time saving for a house and
when they do, they often can’t
find a bank to give them a loan.
Carr said the Earned Income
Tax Credit could be a valuable
tool for increasing wealth. The
federal tax credit of up to $4,000

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don’t have bank accounts and
deal mostly in cash, it’s difficult
to track how much money flows
through poor neighborhoods.
Customers could be drawn
away from fringe lenders by
banks and other lenders that
offer competitive rates, Carr
said. Financial literacy classes
for residents also would help.
In order to prosper, low-income

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people need a full range of
financial services and insurance to guard against disaster,
Carr stressed.

The power of the people. One
theme that ran through the conference was the importance of
using the power that already
exists within a distressed area.
John Kretzmann, co-director of
The Asset-Based Community
Development Institute at
Northwestern University, said
those involved in redevelopment
often dwell on the negative
aspects of a community. They
might see unemployment, crime,
illiteracy, gangs, broken families,
welfare recipients. If they focused
on the assets in a community,
they might see youth, elderly,
artists, libraries, block clubs,
churches, parks, community
colleges. “We’re not just talking
about economic assets,” he said.
A South Bronx resident once
told Kretzmann that the most
difficult thing about living in her
neighborhood was other people’s
perceptions. Whenever she told
people where she lived, they
immediately defined her by her
neighborhood’s deficiencies, she
said. As hard as she worked to
improve her community, she felt
imprisoned by outsiders’ views
of what her community was like.
About 15 years ago, Kretzmann
and members of his organization
decided to find out what they
could learn by talking to people
who had improved some of the
nation’s toughest neighborhoods.
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They embarked on a three-year
nationwide odyssey, collecting
3,000 success stories from
neighborhoods where young
people were prospering, where
drug dealers were being moved
out, where schools were being
brought back to life, where
microenterprises were thriving,
where things were happening
without a lot of fanfare.
The most important lesson
they learned was that successful
revitalization starts with residents in the neighborhood.
“When problems come up,
turn to each other first,”
Kretzmann said. “The solutions
might be down the block or
in the church or in the local
school, not necessarily in the
big systems or institutions
whose job is to treat us after
we have gotten sick.”
In most communities, there
are many small civic, faith-based
and cultural groups, from softball teams to choirs, with the
potential to have a positive
effect on the neighborhood.
His group also learned that
the community needs to take
advantage of the local economy—there is often an untapped
market—and figure out how to
link it to a larger economy.
Kretzmann said the findings
do not mean that communities
have everything they need or
that they can survive without
help from governments. They
need help from the traditional
institutions, but they also need
recognition that they are capable
of improving themselves.

Kretzmann said when his
group asked people what they
did best—instead of asking what
they were lacking—it became
clear that poor neighborhoods
have many skilled people who are
capable of bringing about change.
The National Center for Neighborhood Enterprise takes a strikingly similar approach. Founded
in 1981 by Robert L. Woodson Sr.,
its members have traveled to
low-income, high-crime neighborhoods around the country to
find residents who are functioning within those communities

that are having some measure
of success, links them to sources
of support and evaluates their
experience for public policy.
The organization particularly
works with groups on the issues
of youth violence, substance
abuse, teen pregnancy, homelessness, joblessness, education and
deteriorating neighborhoods.
“It’s a lack of imagination
and new thinking that prevents
us from serving the poor,”
Woodson said.
Millions of dollars have been
invested in programs to help

Conference participants pick up resource material.

despite the problems.
“National Center looks for
strengths in neighborhoods.
Once they identify successful
people in low-income neighborhoods, they bring them together
and get them interacting with
their peers,” Woodson said.
He called such people “antibodies” to the societal diseases
around them.
The center helps community
and faith-based organizations

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the poor, yet millions of people
live in poverty, Woodson said.
“Secular comforts aren’t making
affluent people happy. How can
we expect low-income people
to be happy?”
Government programs often
are weakened by the struggle
between conservatives and liberals. “People who suffer in this
struggle are the low-income
people,” Woodson said. “People
to the left of center see a sea of

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victims who must be rescued by
experts,” he said. When the
community doesn’t respond, the
liberals seek more money for
programs to resolve the problems. “People on the conservative right say if people are not
responding to all that those on
the left are giving them, we
should cut the program,” he said.
Woodson contends that
poverty does not cause social
dysfunction. During the Great
Depression, a time when unemployment soared to 25 percent,
crime and substance abuse rates
were minimal compared with
today, and families and communities formed networks of support, he said. He attributes
many of today’s critical problems to an internal and spiritual
void. He cites the success of
faith-based grassroots groups
and calls their leaders “community healers.” He points to
groups that are not rooted in a
particular religion but whose
members have spiritual motivation for their tireless efforts.
Many of these organizations have
forged solutions to youth violence
and drug abuse because they have
inspired an internal transformation in young people, on the
level of heart and spirit, he said.
Woodson recommends one
important criterion for evaluating public policy on social and
economic issues: “How does it
affect the least of our society?”

East St. Louis: One City’s Story
“You don’t have to look far in
East St. Louis to see something
profound has happened there.”
Andrew Theising, associate political science professor at Southern
Illinois University Edwardsville, was
telling the story of East St. Louis’
tumble into impoverishment to the
audience at the St. Louis Fed’s fall
conference. (See story on Page 1.)
The city’s dilapidated landscape
attests to his statement. Although
it’s hard to see the city the way it
once flourished, there are some
indications, such as new housing
and stores, that East St. Louis
could make a comeback. But first,
what happened there?
At the turn of the century, East
St. Louis was a thriving industrial
town built by the “great capitalists,”
including Andrew Carnegie and
J.P. Morgan. The railroad played a
major role in its economic growth.
Factories ran 24 hours a day. Jobs
were plentiful. The population not
only grew, but doubled each decade
through the first half of the 1900s.
In 1959, the National Civic League
named East St. Louis an All-America
City, honoring its culture of civic
excellence and the cooperative
spirit among residents, businesses,
nonprofits and government.
Ironically, by that time, East
St. Louis was on the precipice of disaster. Industries had already begun
to abandon the city for greater economic opportunities elsewhere.
Between 1960 and 1970, the city
lost nearly 70 percent of its businesses. Unemployment soared.
Residents moved out of town. The

population drain continued for years.
Between 1970 and 2000, the city
lost 55 percent of its population.
During all this time, inaction by
an ineffective city government compounded the problems, Theising
said. East St. Louis slipped into a
downward spiral that has been tough
to stop. As businesses left and the
local government struggled, the tax
base shrunk. As the tax base shrunk,
the local government struggled more.

The city eventually had to eliminate
all but basic city services, and even
those were cut. The city couldn’t pay
its light bill or pay for its garbage collection. Street lights and stoplights
were turned off, and abandoned lots
became dumping grounds for trash.
Police and fire protection was spotty,
at best. Buildings began falling down.
Crime and unemployment rose.
East St. Louis and devastation
became synonymous.

Parson’s Place, with 174 townhomes, is located in the Emerson Park neighborhood.

The Jackie Joyner-Kersee Center provides recreational and educational opportunities for
youngsters from surrounding communities.

Today, for most of the city’s residents, things haven’t changed much.
Poverty is a way of life. However, in
the last few years, organizations
and investors have made headway
in economic and community redevelopment. Concurrently, the population in the surrounding county has
been growing dramatically, which
Theising sees as good for the city.
“East St. Louis has too great a
concentration of poverty,” he said.
“We need to bring back a middle
class.” As more people move near
to and become familiar with East
St. Louis, the more comfortable
they will be with the city and what
it has to offer, Theising said. He
also said the city plays an important role in the revitalization of
St. Louis, across the river.
The importance of creative partnerships in spearheading the growth
that has occurred in East St. Louis
was emphasized by Mark Olson, a
member of the Board of Governors
of the Federal Reserve System.
He cited the work of the federal
government’s Enterprise Community
program, which has spurred collaboration among local government agencies and community organizations.
“The Enterprise Community has
tapped federal, state and local
resources to expand community
development groups, provide workforce development programs and
make infrastructure improvements,”
he said.
Both existing businesses and
new enterprises in East St. Louis
have benefited from private-sector
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investments that were cultivated by
the program, he said. One of the
many outcomes was the construction of a new building for the city’s
oldest bank, Union Bank of Illinois
(now First Bank).
Other partners that are committed
to improving East St. Louis include
the Casino Queen Foundation, which
provided partial funding for Kim’s Kids,
a 24-hour day-care facility; the
Jackie-Joyner Kersee Center, which
provides educational and recreational
programs for children; and the Metro
East Lenders Group, a group of
banks working together on economic
development in East St. Louis and
in nearby distressed cities.
One of the city’s most effective
partnerships is with the University
of Illinois at Urbana-Champaign,
which sponsors the East St. Louis
Action Research Project (ESLARP).
The project’s goal is to nurture
partnerships between community
groups in the city and the students
and faculty at the university.
Ken Reardon, former director of
the project and currently an associate professor at Cornell University,
is credited with establishing ESLARP,
a revamped version of an earlier
university program.
Reardon, who spoke at the Fed
conference, echoed what others had
to say: Look to the leaders in the
community. Those leaders, for
Reardon, turned out to be long-time
resident Ceola Davis and a group
of her friends who were members
of the Emerson Park Development
Corp., a neighborhood organization.
“These were eight African-American
women pledging to each other that
they would show up for work every

day to begin building a citizens’ movement in East St. Louis that could
transform a very old and a very difficult political system,” he said.
The group sought help from the
university and also was instrumental in organizing a coalition of black
churches to assist them. Through the
years, they were able to develop
partnerships among local communitybased organizations, public agencies
and university students and faculty.
Early on, it was evident to Reardon
that Davis and her friends had dealt
with the university before and that
they weren’t in the market for another
university study. At their first meet-

taxpayers. Not one had resulted
in a benefit to her neighborhood,
she said.)
• The university would commit to a
long-term partnership, a minimum
of five years—after a probation
period of one year.
• The university would help create
a community-controlled, nonprofit independent organization to
provide technical assistance to
neighborhood groups. This would
ensure support for the residents
if the university ever pulled out.
Together, the Emerson Park group
and Reardon and his students came
up with an award-winning community

Kim’s Kids, a 24-hour child-care center, opened in 1992 at 1000 Gaty Ave. and
expanded to two buildings in 1997.

ing with him in 1990, they outlined
what it would take for them to work
with the university:
• Residents, not the university, would
decide which issues to tackle.
• Residents would be involved in
every part of the planning and
development process.
• The university would actively participate in projects, not just collect
data for a study. (Davis showed
Reardon 61 reports that the
University of Illinois had done on
East St. Louis between 1956 and
1990 at a cost of $13 million to

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development plan. There was one
problem. No one would fund it.
In the end, 30 regional agencies
turned them down.
The lack of interest was no surprise
to Davis, who convinced Reardon
that they should start community
redevelopment on their own, with a
cleanup of one street in the Emerson
Park neighborhood.
A large group of volunteers collected trash along the main street
through Emerson Park. Because
there were no funds to have it hauled
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middle of the street. A local television station did a story on the volunteers’ plight, and by the next week
the Emerson Park Development Corp.
received a check for $15,000. It
was the beginning of bigger and
better things, Reardon said.
Over the course of the next summer, they used the money to haul
away trash that volunteers cleared
from hundreds of lots. They designed
a playground and got a local church
to build it. They fixed up and painted
the outside of houses with paint
the university donated.
The efforts of the neighborhood
group and ESLARP drew the attention of the Illinois state treasurer,
who worked out a plan for them to
receive $75,000 in state funding.
They used it to buy materials for
more serious rehabs of houses.
Habitat for Humanity workers offered
their help and started a faith-based
initiative in East St. Louis to construct new houses.
Eventually, ESLARP set up the
Neighborhood Technical Assistance
Center, which offers training in community organization, neighborhood
planning, building and urban design,
grant writing, digital technology and
nonprofit management.
From a weekend cleanup project
in Emerson Park back in the early
1990s to ongoing multiple projects
in various neighborhoods, ESLARP
today is a model for an enduring
university-community partnership.
Its goal is to have a strong presence
during its initial involvement in
neighborhood organizations and a
diminishing role as the organization
becomes stronger.
The Emerson Park Development
Corp. has evolved into a well-run

neighborhood organization capable
of bringing about major changes.
An impressive example is the
MetroLink (light-rail system) stop
in Emerson Park, Reardon said.
Original plans for the extension of
the light-rail line called for trains to
bypass the neighborhood. Undeterred by the fact that the plans
were already drawn, the development corporation persuaded the
powers-that-be to reroute the trains
and put a stop in Emerson Park.
Since then, the corporation has
partnered with McCormack Baron
& Associates to build affordable
housing near the stop.
“Everyone had written off this city,”
Reardon said. “But it just took one
dedicated woman to start bringing
people together to do the impossible.
“If we can create this kind of
long-term, sustainable partnership
for real development here in East
St. Louis, what can we accomplish
in the rest of the region? We can
do whatever we set our minds to.”

5th & Missouri MetroLink Stop
Construction on the initial MetroLink
route from Lambert-St. Louis International Airport to the 5th & Missouri
station began in 1990 and was
completed in July 1993. The construction of the St. Clair County
extension from 5th & Missouri to
College Station began in 1998
and opened in May 2001.

The State Street Shopping Center is at the core of a revitalized shopping district.

East St. Louis has a new public library at 5320 State St.

Progress in East St. Louis
Among a number of developments
in recent years are:
Parson’s Place
This complex of 174 townhomes
for rent is located in East St. Louis’
Emerson Park neighborhood. Adjacent to a MetroLink station and just
blocks from the Jackie JoynerKersee Center, it is the first phase
of more than 400 units of affordable rental and 100 units of forsale housing. The Emerson Park
Development Corp. and McCormack
Baron & Associates are partners on
the development.

The 5th & Missouri MetroLink station is also a hub for buses and has a parking lot for commuters.

East St. Louis Community
College Center
Scheduled for completion in the
fall of 2003, it will be shared by
East St. Louis Community College,
Southern Illinois University and the

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Illinois Department of Employment
Security. Located at 601 James
Thompson Blvd., it also will be a
one-stop service center for Illinois’
Workforce Advantage program.

Jackie Joyner-Kersee Center
Opened in 2000, the 41,000square-foot youth center is named
for the Olympic star and native of
East St. Louis. The facility provides
computer rooms, learning resource
centers, a music room and athletic
activities.
State Street Shopping Center
This $3 million development at
24th and State streets is anchored
by Walgreen’s and Blockbuster
Video stores. The shopping area
opened in 1999 directly across the
street from a Schnucks supermarket, making this area the city’s
commercial center. Work recently
began on an addition, which will
include a McDonald’s restaurant
and a Foot Locker shoe store.
AutoZone, an auto-parts retailer, is
slated to open next to Schnucks.
East St. Louis Public Library
The 18,000-square-foot facility
opened in January 2001 at 5320
State St. The library provides the
community with regional and global
information resources through the
Internet and through the online
services of the Lewis and Clark
Library System.
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Casinos and Economic Development
A Look at the Issues
By Thomas A. Garrett
Senior Economist
Federal Reserve Bank of St. Louis
Casinos have become a major
industry in the United States over
the past two decades. Prior to
the 1980s, casino gambling
was legal only in Nevada and
Atlantic City, N.J. Since then,
nearly 30 states have legalized
casino gambling.
Many states have approved
commercial casino gambling primarily because they see it as a
tool for economic growth. The
greatest perceived benefits are
increased employment, greater
tax revenue to state and local
governments, and growth in
local retail sales. Increasing
fiscal pressure on state budgets,
the fear of lost revenue to casinos
in neighboring states and a more
favorable public attitude regarding casino gambling all have led
to its acceptance, according to
the National Gambling Impact
Study Commission’s Final Report.
In addition, the passage of the
Indian Gaming Regulatory Act
in 1988 allows Indian tribes to
operate casinos on their reservations. Many states now have a
combination of tribal and corporate casinos.
The amount of money wagered
in American corporate casinos
is not trivial. More than $370
billion was wagered during
2000 alone. This is roughly

$1,300 per person in the United
States. Of this annual total
wagered, nearly 93 percent is
returned to players in the form
of winnings, leaving casinos
with $26 billion in annual
adjusted revenue.
Casino revenue varies greatly
across states, however. Nevada
has the largest market, with casinos capturing nearly $9.5 billion
annually in adjusted gross revenue.
Atlantic City casinos generate
more than $4 billion annually,
whereas the riverboat casinos in
Missouri and Illinois collected
more than $1 billion and $1.8
billion in adjusted gross revenue
during 2001, respectively.
Although economic development is used by the casino industry and local governments to sell
the idea of casino gambling to
the citizenry, the degree to which
the introduction and growth of
commercial casinos in an area
leads to increased economic
development remains unclear.
What are some of the issues surrounding the perceived benefits?
Casinos increase employment.
Issue 1: Casino proponents
commonly point to a lower local
unemployment rate after a casino
is introduced as evidence that
casinos improve local employment. Because the local unemployment rate dropped after the
casino was introduced, it must
be that the casino helped lower

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the
local
unemployment
rate. Maybe.
The change in
the unemployment rate in the
local area should
be compared with
the change in the
statewide unemployment rate during the
same period. If the
changes are about the
same, then it is possible
that all of the employment
growth in the casino area is
the result of the natural movement of the business cycle (economic changes in other sectors
of the economy) and not the
introduction of the casino. If
the drop in unemployment is
larger in the local area than
statewide after the casino is
introduced, then one could
argue that the casino has indeed
reduced local unemployment.
The point here is that local
changes in unemployment should
be compared with statewide
unemployment changes. Other
factors, such as population
changes and local business conditions, should also be considered
when comparing local unemployment rates before and after a
casino opens. Just looking at
differences in local unemployment rates over time without an

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understanding of
population dynamics and the
statewide business cycle can
paint a false picture as to the
employment benefits of casinos.
Issue 2: The basic idea regarding increased employment is that
a casino’s operation requires
labor, and this labor will come
from the local area. This, in turn,
will reduce unemployment in
the area. The question to ask is
not just whether casinos decrease
unemployment, but for whom
they decrease unemployment.
Most casino jobs require some
kind of skill, be it accounting,
dealing cards, security or other
expertise. If a casino is planning
to move to a rural area having a
relatively less skilled work force,
the casino probably will draw

skilled labor from outside of
the area. If this labor remains
outside of the local
area and workers commute to
the casinos, then
unemployment in
the local area will
remain unchanged.
If some of this skilled
labor decides to move
near the casino, then
the unemployment
rate (which is the number unemployed divided by the labor force)
in the local area will fall
because the labor force
has increased. It is this
decreased unemployment
rate that is often used as
evidence that casinos have
indeed improved local employment. However, it is important
to realize that unemployment
for the original, relatively less
skilled population has remained
essentially unchanged—only the
higher skilled, new arrivals have
found employment with the
casino. It is the employment
of these new arrivals that has
decreased the unemployment rate.
The main lesson regarding
casinos and their impact on the
local unemployment rate for the
original population is that local
officials and the citizenry need
to know whether the work force
for the new casino will come
from their area. The promise
of increased employment for the
original population that is often
used as an argument for the
construction of casinos may not
be realized. In a relatively urban

area, there is probably enough
variety in the work force to ensure
that skilled labor will be provided
locally. In rural areas, however,
most of the labor will be from outside of the local area, thus leaving
the unemployment rate for the
original population unchanged.
Casino tax revenue is a benefit.
Issue 1: Most states tax
adjusted casino revenue and
use the taxes to fund state and
local programs. In Missouri, the
tax rate is 18 percent, and there
is an additional 2 percent tax
to aid local city governments.
Indiana has a 20 percent tax
rate. Illinois and Mississippi
have a graduated tax schedule.
Casino proponents and state
and local governments promote
casino tax revenue as a benefit.
This revenue is a benefit for the
recipients of taxed casino revenue. However, it is important
to realize that this revenue is not
“new money” to society. Taxes
result in a transfer of income from
one group to another group—in
this case, casino owners to state
and local governments (and eventually to program recipients).
So, for example, while the state
of Missouri collected nearly
$190 million in casino taxes
during 2001, this $190 million
is a cost to casino operators.
Zero new money was created
as a result of the casino tax.
Issue 2: State governments
use casino tax revenue for various programs, but public education seems to be the favored
destination for casino tax revenue in many states. In fact,

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states often promote how much
money from casino revenue is
earmarked to public education.
This suggests to the public that
spending on education has
increased since the taxing of casino
revenue began. Not necessarily.
The problem is that all earmarked revenue is interchangeable. Consider the following
example: Your son is in college
and spends $40 a week on pizza.
You send him a check for $20
and insist that he spends the
money on pizza. This suggests
that his total spending on pizza
will now be $60 a week. But
there is nothing from preventing
your son from taking $20 out of
his original $40 and using it for
something else, and then simply
adding your $20 back to get the
final $40.

The same works for state, local
and federal governments regardless of the tax and destination of
revenue. If $100 million a year
from casino taxes is earmarked

9

WWW.STLOUISFED.ORG

to education, one would expect
total education spending to
increase by $100 million.
However, state legislators can
simply reduce the total amount
of funds budgeted for education
by $100 million and use these
funds elsewhere, and then use
the $100 million from casino
revenue to bring total education
expenditures back to their precasino levels. No increase in
education spending has occurred.
The swapping of casino revenue has yet to be tested empirically, but the issue has been
explored using state lotteries.
Numerous studies have found
that in those states that earmark
lottery funds for education,
spending on education has not
increased beyond historical
trend levels after the introduction of the lottery. Essentially,
contrary to the claim made by
lottery officials, state lotteries do
not appear to help public education. There is no reason to
doubt the same result could
occur with casino revenue.
Casinos help boost local
retail sales.
The issue of whether casinos
help or hurt local retail sales, and
thus retail sales tax collections,
has received the most attention
in the academic literature. Essentially, the degree to which casinos
attract visitors from outside the
local area relative to local customers determines the casino’s
impact on local retail sales. If the
bulk of a casino’s clientele is local,
then one would expect retail sales
continued on Page 10

continued from Page 9

(and thus retail sales tax revenue)
in the local area to be negatively
impacted. This is the substitution effect, i.e., consumers substitute casino gambling for other

consumption activities such as
dining out or going to the movies.
However, if casinos act as part of
a “tourist vacation,” where nonlocal visitors spend several days
gambling, touring museums and
dining out, then local retail sales
would probably increase.

Have you

HEARD
Fed Adjusts Reg Z Trigger
The Federal Reserve Board recently
adjusted the dollar amount of mortgage
loan rates or fees that trigger additional
disclosure requirements under the Truth
in Lending Act, implemented by
Regulation Z.
The fee-based trigger has been

Another factor to consider is
that many casinos have restaurants, shops and hotel rooms
for casino customers. All items
purchased in these outlets are
taxable under state and local
sales tax laws.
A possible loss
in retail sales in
the local community may be
partly offset by
an increase in
retail sales
activity in
the casinos.
Rural areas
that have one or
two casinos are
more likely to
experience a
decrease in local retail sales than
urban areas that attract a greater
number of tourists. Areas such
as St. Louis and Kansas City
would probably experience less,
if any, of a decrease in retail
sales compared to rural casino
areas such as Booneville or

increased from $480 for 2002 to $488
for 2003. The adjustment was based
on the annual percentage change
reflected in the Consumer Price Index
on June 1, 2002. The change is effective Jan. 1, 2003.
The Home Ownership and Equity
Protection Act of 1994 requires additional disclosures when the consumer’s
total points and fees exceed the feebased trigger (initially set at $400 and
adjusted annually) or 8 percent of the
total loan amount, whichever is larger.

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Caruthersville,
Mo. Of course,
only empirical
testing can provide a definite
answer regarding retail sales
losses and gains
due to casinos.
An interesting
point is that
many rural communities do promote their
casinos along with other area
attractions to draw out-ofarea visitors.

Regardless of the specific issues,
casino gambling in the United
States is likely here to stay. The
only question is to what degree
its popularity will increase in the
future. The topics presented
here should be understood by
both citizens and government
officials when they debate the
issues surrounding casinos and
economic development.

HUD Seeks Opinions
on Housing Regulations
Are there regulatory barriers to
affordable housing? The U.S. Department of Housing and Urban Development (HUD) wants to know.
Community groups across the country can submit material to HUD about
their experiences with state and local
regulations that present barriers to
affordable housing. HUD is particularly
interested in regulations that are
thought to be exclusionary, duplicative

10

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Thomas A. Garrett joined the
Federal Reserve Bank of St. Louis
in July 2002. A senior economist
for the Bank’s Research and
Community Affairs departments,
Garrett will contribute articles to
Bridges on community and economic development issues.

Where to Find Information
• The National Gambling Impact
Study Commission’s Final
Report (www.casino-gamblingreports.com/GamblingStudy/)
offers a detailed look at gambling in the United States.
• Casino revenue for Las Vegas
and Atlantic City, as well as
national totals, is listed in The
Gaming Stocks—2002 Gaming
Industry Outlook, published
by Salomon Smith Barney.
• Casino revenue data for individual states can be found on
the web site for each state’s
gaming commission.

or otherwise unnecessary. The agency
may post the information on its new
Regulatory Barriers Clearinghouse, a
component of the web-based resource
HUD USER.
The clearinghouse will serve as a
source of information on public policies
that adversely affect the availability of
affordable housing and will try to identify
strategies for overcoming those barriers.
For information, visit
www.huduser.org/regbarriers/.

SPANNING

THE REGION
The region served by the Feder al Reserve Bank of
S t. L o u i s e n c o m pa s s e s a l l o f A r k a n s a s a n d pa rt s o f I l l i n o i s ,
I n d i a n a , K e n t u c k y, M i s s i s s i p p i , M i s s o u r i

Illinois Facilities Fund
Receives National Honor
The Illinois Facilities Fund
recently became the first recipient of the Wachovia CDFI
Excellence Award for Advocacy.
The national award recognized
the fund’s leadership role in the
formation of the Illinois Community Development Financial Institution Coalition, which works to
increase economic activity in
underserved markets.

and Tennessee.

The Illinois Facilities Fund, a
nonprofit lender, provides belowmarket real estate loans and
consulting services to nonprofit
corporations serving low-income
or special needs residents in
Illinois. Since its inception in
1988, the fund has started a
number of initiatives, including
a real-estate services program, a
study of the financial status of
Illinois nonprofit organizations
and a fund to increase licensed
child-care facilities in Chicago.

To expand its work into central
and southern Illinois, the fund
opened an office in Springfield in
January 2001 and recently conducted workshops in Carbondale.
For more information, contact the Illinois Facilities Fund,
730 E. Vine St., Suite 109,
Springfield, IL 62703 or call
(217) 525-7701.

Faith-Based Community Economic
Development: Principles & Practices—
Those who are new to faith-based community
economic development can benefit from this
booklet. Produced by the Federal Reserve
Bank of Boston in collaboration with New
Hampshire College (now Southern New

Bridges is a publication of the Community
Affairs department of the Federal Reserve
Bank of St. Louis. It is intended to inform
bankers, community development organizations, representatives of state and local
government agencies and others in the
Eighth District about current issues and
initiatives in community and economic
development. The Eighth District includes
the state of Arkansas and parts of Illinois,
Indiana, Kentucky, Mississippi, Missouri
and Tennessee.
Contributors:
Glenda Wilson
Community Affairs Officer
Editor
Linda Fischer
Assistant Editor
Ellen Eubank
Community Affairs Manager
Matthew Ashby
Community Affairs Specialist
Lyn Haralson
Community Affairs Analyst
Faith Weekly
Community Affairs Analyst
Diana Zahner
Community Affairs Analyst

RESOURCES
Financial Literacy: An Overview of
Practice, Research and Policy—Studies
indicate that the effectiveness of financial
literacy training depends on human traits
and the type of training provided. A new
article from the Federal Reserve focuses
on recent research on personal money
management styles and offers insights
that may be useful in developing successful
training programs and strategies. Go to
www.federalreserve.gov/pubs/bulletin/
2002/02bulletin.htm#nov.

BRIDGES

Hampshire University), it can be accessed at
www.bos.frb.org/commdev/html/capubs.htm
#faith. A hard copy is available for a minimal
charge from the Bank by sending an e-mail
to PublicComm.Affairs-Bos@bos.frb.org.
Ten Things Your Faith Community Can Do
to Encourage Homeownership—Ten simple
suggestions list how a faith-based group can
help its members and families in their neighborhood take the first steps to homeownership. Go to the Department of Housing and
Urban Development’s web site www.hud.gov/
initiatives/fbci/topten/index.cfm.
Arkansas Business Resource Guide—A
publication of the Federal Reserve Bank of
St. Louis, the guide provides a list of planning,
development and financing sources throughout the state. The guide can be viewed at

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11

www.stlouisfed.org/community/other_pubs.html
or ordered from Lyn Haralson at the Fed’s
Little Rock Branch, 1-800-482-9463, ext. 240.
Beyond Merger: A Competitive Vision
for the Regional City of Louisville—The
Brookings Institution examines key trends
challenging the Louisville region as it merges
with Jefferson County in 2003. After the
merger, Louisville will be the 16th largest city
in the country. The report provides a fivepoint competitive agenda for how local leaders can ensure that the new city becomes a
top-tier American metropolis. The report
is posted on the web at www.brookings.edu/
dybdocroot/es/urban/louisville/abstract.htm
.

WWW.STLOUISFED.ORG

If you have an interesting community
development program or idea, we would
like to consider publishing an article by
or about you. Please contact:
Linda Fischer
Assistant Editor
Bridges
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, MO 63166
The views expressed in Bridges are not
necessarily those of the Federal Reserve
Bank of St. Louis or of the Federal Reserve
System. Material herein may be reprinted
or abstracted as long as Bridges is credited.
Please provide the assistant editor with a
copy of any publication in which such
material is reprinted.
Free subscriptions and additional copies
are available on request by contacting Jean
Morisseau-Kuni at (314) 444-8646 or by
e-mail to Jean.B.Morisseau-Kuni@stls.frb.org.

Federal Reserve Conference Set March 27, 28
The Community Affairs officers of the Federal Reserve System
will present their third biennial research conference on community development March 27 and 28 in Washington, D.C.
Seeds of Growth, Sustainable Community Development: What
Works, What Doesn’t and Why will bring together economists
and scholars from the Federal Reserve System, colleges and
universities, and major research institutions to present research
on community economic development tools, programs and
strategies. Discussants will review each paper, and conference
attendees will have an opportunity to talk with the presenters
and discussants.
Papers selected for presentation evaluate credit counseling
and financial literacy programs, the impact of the Community
Reinvestment Act, partnerships in sustainable community development, housing developments, public policy intervention, and
international and cultural approaches to community development.
This conference will be of interest to scholars, financial
institution employees, community and economic development
policy-makers, and staff of community and economic development organizations.
For information, go to www.federalreserve.gov/communityaffairs/national.

Post Office Box 442
St. Louis, MO 63166-0442
Editor: Glenda Wilson.
Contributors: Matthew Ashby, Ellen Eubank, Linda Fischer,
Lyn Haralson, Faith Weekly and Diana Zahner. Bridges is published quarterly by the Community Affairs Office of the Federal
Reserve Bank of St. Louis. Direct any questions to Glenda Wilson,
Community Affairs officer, at (314) 444-8317.
Bridges is available on the Internet through www.stls.frb.org.
Views expressed are not necessarily official opinions of the Federal
Reserve System or of the Federal Reserve Bank of St. Louis.

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U.S. POSTAGE
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