Convenience Gambling: Information on Economic and Social Effects in
Selected Locations (Letter Report, 10/18/2000, GAO/GAO-01-108).

This report summarizes GAO's finding on the economic and social effects
of convenience gambling. The National Gambling Impact Study Commission
defined convenience gambling as the placement of slot machines or video
poker terminals in restaurants, bars, drugstores, and other retail
businesses meant to attract local residents, as opposed to tourists.
Although available data from the communities GAO studied indicated that
legalized convenience gambling increased tax revenues and created jobs,
local government officials said that its presence discouraged some
business from coming into the community. While government officials in
these communities suggested that convenience gambling had an impact on
bankruptcy filings, GAO was unable to find evidence of such a link.
Numerous factors prevented GAO from clearly identifying the social
effects of gambling in the communities studied. GAO was able to gather
anecdotal evidence that suggested a link between certain social problems
and a gambling, but hard evidence to support those findings was lacking.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-108
     TITLE:  Convenience Gambling: Information on Economic and Social
	     Effects in Selected Locations
      DATE:  10/18/2000
   SUBJECT:  Behavioral sciences research
	     Community development
	     Economic research
	     Economic development
	     Bankruptcy
IDENTIFIER:  Charleston (SC)
	     Great Falls (MT)
	     Salem (OR)

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GAO-01-108

CONVENIENCE GAMBLING

Information on Economic and Social Effects in Selected Locations

United States General Accounting Office

GAO Report to the Honorable Frank R. Wolf, House of Representatives

October 2000 GAO- 01- 108

United States General Accounting Office Washington, D. C. 20548

Page 1 GAO- 01- 108 Convenience Gambling

October 18, 2000 The Honorable Frank R. Wolf House of Representatives

Dear Mr. Wolf: This report is the third in a series of reports we have
prepared for you on the impact of gambling in the United States. The first
report provided information on contributions from gambling interests to
federal political candidates and national political party committees. 1 The
second report provided information on the social and economic impact of
gambling on communities, based on information presented in the 1999 report
of the National Gambling Impact Study Commission (NGISC) 2 and our case
study in Atlantic City, NJ. 3 This report responds to your request for
information specifically on the economic and social effects of convenience
gambling. NGISC defined convenience gambling as the placement of slot
machines or video poker terminals in restaurants, bars, drugstores, and
other retail businesses meant to attract local residents, as opposed to
tourists. 4 In its 1999 report, NGISC noted eight states as having legalized
convenience gambling. 5

You were interested in convenience gambling because it is different from the
primary type of gambling (destination casino resorts) covered in our second
report in that most of the patrons live in the community where the gambling
machines are located. As you requested, we looked at the economic and social
impact of convenience gambling on selected communities and families. We
focused on the

(1) economic effects of convenience gambling, particularly on employment,
tax revenues and community investment, and bankruptcy; and

1 Campaign Finance: Contributions From Gambling Interests Have Increased
(GAO/ GGD- 99- 127, July 27, 1999). 2 National Gambling Impact Study
Commission Final Report, June 1999.

3 Impact of Gambling: Economic Effects More Measurable Than Social Effects
(GAO/ GGD- 00- 78, Apr. 27, 2000). 4 In this report, we use the term
“convenience gambling” instead of “video gambling”
to refer to the operation of video gambling machines, including video
terminals, video bingo, and other electronic gambling devices placed in
local establishments, such as restaurants, bars, and convenience stores.

5 NGISC highlighted the following eight states as having legalized
convenience gambling: California, Louisiana, Montana, Nevada, New Mexico,
Oregon, South Carolina, and South Dakota.

Page 2 GAO- 01- 108 Convenience Gambling

(2) social effects of convenience gambling, including the prevalence of
pathological gambling. 6

To accomplish these objectives, we selected Charleston, South Carolina;
Great Falls, Montana; and Salem, Oregon, to conduct case studies. These
communities were located in three of the eight states noted in the NGISC
report as having legalized convenience gambling. We selected the three
states primarily because they did not have destination gambling casino
resorts. The specific communities in these states were selected on the basis
of two additional criteria. First, we selected communities that did not
border other states. It seemed to us that border communities with legalized
gambling are more likely to attract gamblers from both inside and outside of
the community, thus diffusing some of the potential effects of convenience
gambling on the community. Second, we identified communities with a large
number of video gambling machines as well as large amounts of revenues from
video gambling relative to other nonborder communities in each state. As you
know, South Carolina banned convenience gambling as of July 1, 2000.
However, as agreed with your office, we included Charleston to obtain
information on the effects of convenience gambling on a South Carolina
community while convenience gambling was legal in the state.

In addition, since convenience gambling was legalized statewide in all three
states, much of the data we reviewed are compiled on a statewide basis;
therefore, much of our discussion refers to the entire state.

For our case studies, we visited the three cities and the state capitals in
South Carolina, Montana, and Oregon. We interviewed city, county, and state
officials involved in economic, social, regulatory, and law enforcement
areas, as well as individuals representing the restaurant industry, the
convenience gambling industry, and nonprofit social organizations. We also
analyzed economic and social data provided by federal, state, county, and
city agencies, where available, for several years before and after
convenience gambling was legalized in each community. Data for some of the
indicators we studied were not readily available for the city, so we used
the county data. The three cities in our case study were either the largest
or second largest city in their respective counties.

6 The American Psychiatric Association defines pathological gambling as a
pathological disorder having the essential feature of “persistent and
recurrent maladaptive gambling behavior that disrupts personal, family, or
vocational pursuits.”

Page 3 GAO- 01- 108 Convenience Gambling

We did our work from December 1999 to August 2000 in accordance with
generally accepted government auditing standards. Appendix III provides
further details about our objectives, scope, and methodology. We requested
comments on a draft of this report from various officials in South Carolina,
Montana, and Oregon and the Chair of the former NGISC. 7 Their comments are
discussed near the end of this letter.

Available data for the three communities studied in general showed that the
introduction of legalized convenience gambling created some jobs in the
communities and increased tax revenues. Funding for community investment
also increased in two of the communities. The unemployment rate appears to
have been unaffected by the legalization of convenience gambling in the
three areas we studied. Local government officials in Charleston, SC, and
Great Falls, MT, commented that the atmosphere of convenience gambling
created a negative environment and stigma in the communities, which hurt
local commerce and residential areas and had a detrimental effect on
community investment. They said that the proliferation of video gambling
machines in “tacky” establishments discouraged new business from
coming into a community. While most of the officials we interviewed said
they believed that convenience gambling had some impact on bankruptcy
filings and some studies have shown a link between pathological gambling and
bankruptcy, we found no evidence on whether or not a link existed between
convenience gambling and bankruptcy in the general population in the areas
we studied. An analysis of available bankruptcy data we obtained from the
Administrative Office of the U. S. Courts showed that while bankruptcy rates
increased from 1990 to 1999 in the areas we studied, so did the national
rate by roughly the same rate.

Because of numerous factors, we were not able to clearly identify the social
effects of gambling upon the three communities. Measuring the social effects
of gambling is difficult in part because of the limited amount of quality
data on the social effects of gambling and the complexity of determining
whether a cause- effect relationship exists between gambling and social
problems. This determination is made more complex because of the difficulty
of isolating gambling from other factors that may contribute to increases in
certain social problems, such as substance abuse and personality disorders.
Aside from specific anecdotal examples linking social problems and
convenience gambling, we found no conclusive evidence showing whether or not
convenience gambling caused increased social problems in the three
communities.

7 NGISC ceased operation in 1999. Results in Brief

Page 4 GAO- 01- 108 Convenience Gambling

In general, postlegalization social indicators did not vary widely from
prelegalization trends and were similar to national trends. However, total
crime increased in Charleston, prostitution and drug arrests increased in
Salem, divorces and child abuse and neglect cases increased in Marion County
(where Salem is located), divorces increased in Cascade County (where Great
Falls is located), domestic violence incidents increased in Charleston
County (where Charleston is located), and child abuse and neglect cases
decreased in Charleston County. However, state and local officials said
those changes were not related to convenience gambling, but were primarily
due to reporting or definitional changes or more concentrated law
enforcement efforts for certain crimes. In addition, data were not always
available to show pre- and postlegalization trends for all indicators in all
of the communities. Because problem gambling studies had not been done in
the three states prior to the legalization of convenience gambling, it was
not possible to analyze whether the prevalence of pathological gambling
changed with the introduction of convenience gambling. Available data for
Oregon and Montana showed that recent pathological gambling prevalence rates
fell within the range of other states. Recent studies were not available for
South Carolina.

The Chair of the former NGISC and officials from South Carolina, Montana,
and Oregon generally agreed with our report.

Video poker machines started as arcade games in South Carolina where players
could only win credits to replay a game. In 1991, the South Carolina Supreme
Court ruled that cash payoffs were legal if the money did not come directly
from the gaming device. 8 This effectively legalized convenience gambling in
South Carolina. In 1993, South Carolina enacted the Video Game Machines Act
to govern the operation of video poker machines in the state. 9 In 1996, the
Governor authorized South Carolina's Department of Revenue and the State Law
Enforcement Division (SLED) to coordinate enforcement of the video gambling
regulations. According to a Department of Revenue official, their budget was
funded from the state's general fund, and in 1999, 13 Department of Revenue
staff members worked solely on convenience gambling and the regulatory
budget dedicated to convenience gambling totaled about $6. 2 million.
According to a SLED official, 33 agents were responsible for convenience
gambling enforcement- 6 of the agents worked full- time on convenience
gambling and the remaining 27 agents spent about 50 percent of their time on

8 State v. Blackmon, 403 S. E. 2d 660 (S. C. 1991). 9 S. C. CODE ANN. sect.12-
21- 2770, et seq. Background

Page 5 GAO- 01- 108 Convenience Gambling

convenience gambling enforcement. The official said that SLED would have
difficulty isolating the budget for convenience gambling from the total SLED
budget.

Unlike Montana 10 and Oregon, 11 South Carolina did not restrict video
gambling machines to only those establishments that have licenses to serve
alcoholic beverages. Video gambling machines were located in convenience
stores, gas stations, restaurants, and bars whether or not they had a
license to sell alcoholic beverages. Private businesses owned or leased the
video gambling machines and operated the video gambling business in South
Carolina. However, state legislation required that the state license each
machine every 2 years. 12 According to South Carolina officials, in 1999,
the number of video gambling machines operating in South Carolina totaled
about 32, 300 (the largest of the 3 states), including 966 in Charleston.
They said that, in 1999, South Carolina received about $63 million from
video gambling license fees, which represented about 8 percent of the
reported $770 million of the gross proceeds (the amount remaining after
prizes have been paid) from convenience gambling in the state.

A 1999 South Carolina Supreme Court decision upheld a state law banning
convenience gambling in South Carolina effective July 1, 2000. 13 The U. S.
Supreme Court refused to hear an appeal of the ban, 14 and as of July 1,
2000, the operation of video gambling machines was illegal in South
Carolina. SLED gave video gambling machine operators 7 days to remove the
video gambling machines from the state.

Montana's state legislature legalized video gambling in 1985. 15 With the
exception of Montana's lottery and horse racing, the Gambling Control
Division within Montana's Department of Justice licenses and regulates all

10 MONT. CODE ANN. sect.23- 5- 611.( 1)( a). 11 OR. REV. STAT. sect.461. 217( 2). 12
S. C. CODE sect.12- 21- 2720( A) (1998). 13 Joytime Distrib. and Amusement Co.
v. State, 528 S. E. 2d 647 (S. C. 1999). South Carolina Supreme Court ruled
on two parts of South Carolina Act 125, signed by the Governor on July 2,
1999. Part I prohibited cash payouts on video gambling machines effective
July 1, 2000. Part II required that a referendum be held for voters to
ascertain whether video gambling machines should continue to be allowed in
the state. The Court upheld part I and ruled that part II violated the state
constitution.

14 Cert. Denied, Joytime Distrib. and Amusement Co. v. South Carolina, 120
S. Ct. 1719, 2000 U. S. LEXIS 2883, 68 U. S. L. W. 3668 (U. S. 2000). 15
Video Gaming Machine Control Law, Part 6, Chapter 5 of Title 23, MONT. CODE
ANN.

Page 6 GAO- 01- 108 Convenience Gambling

legal gambling in the state, including convenience gambling. According to a
Division official, the Division's budget was about $3 million in 1999, and
of the 50 Division staff members, 5 worked solely on convenience gambling.
Similar to the practice in South Carolina, private businesses own or lease
the video machines in Montana. Montana law requires that each machine be
licensed by the state annually. 16 In addition, establishments that apply
for video gambling licenses in Montana must also own a license to sell
alcoholic beverages. 17 Video gambling machines authorized by Montana's
legislation are bingo, keno, and draw poker machines. 18 In 1999, video
gambling operators in the state had 17,000 machines, including 1,452 in
Great Falls, according to Montana officials. Montana officials said that in
1999, Montana received $38 million from convenience gambling, which
represented 15 percent of the $253 million in gross proceeds derived from
convenience gambling in the state.

In 1991, Oregon passed legislation that legalized video gambling machines
and in 1992, began operating them as part of its ongoing state- operated
lottery. 19 The Oregon State Lottery Commission (Commission), a state agency
operated by a five- member commission, sets policy and rules for the state
lottery operations, including convenience gambling, which consists of video
poker machines. 20 Annually, 9 percent of the profits from video gambling
are allocated to pay expenses of the Commission. According to Commission
staff, 150 Commission staff members worked solely on convenience gambling
and the Commission's budget dedicated to convenience gambling totaled about
$29.8 million in 1999. Oregon's video gambling machines are allowed only in
bars, taverns, and restaurants that have licenses to serve alcoholic
beverages. 21 Unlike South Carolina and Montana, Oregon only allows video
lottery game machines in establishments that have a contract with the
Commission as video game retailers. 22 The Commission owns the machines. In
1999, Oregon had 8,900 video gambling machines, including 290 in Salem. In
1999, Oregon received

16 MONT. CODE ANN. sect.23- 5- 612. 17 MONT. CODE ANN. sect.23- 5- 119. 18 MONT.
CODE ANN. sect.23- 5- 603( 2). 19 OR. REV. STAT. sect.167.166. 20 OR. REV. STAT.
sect.461.100( 2)( a) and (c)( 4). 21 OR. REV. STAT. sect.461.217( 2). 22 OR. REV.
STAT. sect.461.217( 1).

Page 7 GAO- 01- 108 Convenience Gambling

about $236 million, about 59 percent of total gross proceeds ($ 403
million), from convenience gambling in the state.

The three states operated convenience gambling in a similar manner for some
areas and differed in other areas. All three states prohibited minors from
playing video gambling machines. Persons under the age of 21 were not
permitted to play the machines in South Carolina and Oregon, and persons
under age 18 were prohibited from playing the machines in Montana. 23 In
addition, all three states limited the number of machines per single place
or premises. 24 The limit was 5 in both South Carolina and Oregon and
generally 20 in Montana. While Montana and Oregon allowed convenience
gambling 7 days per week, South Carolina prohibited convenience gambling on
Sunday. 25 Also, while Montana allowed advertising of convenience gambling,
both Oregon and South Carolina prohibited advertising of convenience
gambling. 26 Oregon only allowed retailers to place signs inside of premises
provided that the signs had been approved by the Oregon State Lottery.

Convenience gambling created some jobs and tax revenues in the three areas
we visited, and provided funding for some community investment in Great
Falls and Salem, but not in Charleston. Bankruptcy rates in the three
communities after the legalization of convenience gambling increased, but so
did the rate in the rest of the nation. Also, county bankruptcy data for
1989 and earlier were not available, so our analysis was limited.

Convenience gambling created some jobs in all three areas we visited. Most
of the officials we interviewed who worked in areas dealing with economic
issues said that convenience gambling had created jobs for the local
economy. However, state employment officials said that the estimated number
of jobs created by convenience gambling was minimal in comparison to total
private sector jobs. An employment official in South Carolina said that the
estimated 3,500 jobs created by convenience gambling represented less than 1
percent of the 1.5 million private sector

23 S. C. CODE ANN. sect.12- 21- 2804( c) (1998); MONT. CODE ANN. sect. 23- 5- 158,
and OR. REV. STAT. sect. 461- 600. 24 S. C. CODE ANN. sect.12- 21- 2804( A) (1998);
MONT. CODE ANN. sect. 23- 5- 611( c)( 3); and OR. REV. STAT. sect.461.217( 3). 25 S.
C. CODE ANN. sect.12- 21- 2804( E) (1998).

26 S. C. CODE ANN. sect.12- 21. 2804( B) (1998). Economic Effects of

Convenience Gambling on Communities

Employment

Page 8 GAO- 01- 108 Convenience Gambling

jobs in the state in 1998. 27 Montana's estimate of 3,700 jobs created by
convenience gambling represented about 1 percent of the 391,700 total
private sector jobs in the state in 1997. The estimated number of jobs
created by convenience gambling in Oregon was 2, 500, which was less than 1
percent of the 1.3 million private sector jobs in the state in 1999.

The estimated number of jobs created by convenience gambling may be
inaccurate, according to state officials. According to state employment
officials, no precise figures exist on the number of people employed solely
by convenience gambling. They said that determining the number of
convenience gambling jobs was difficult because many of the video gambling
machines were located in establishments that existed before the legalization
of convenience gambling. According to the officials, the establishments
might not have added new employees when they began operating video gambling
machines and instead used existing workers to monitor the machines along
with their other responsibilities (e. g., clerks, cashiers, and bartenders).
They also said that convenience gambling jobs were included in various job
classifications (mostly the Department of Commerce amusement and recreation
standard industry classification), and isolating jobs solely dedicated to
convenience gambling is difficult.

Generally, the unemployment rate appears to have been unaffected by the
legalization of convenience gambling in the three areas we studied. The
cyclical pattern observed in the national unemployment rate was evident in
all three states and communities both before and after the legalization of
convenience gambling. After the legalization of convenience gambling,
unemployment rates generally followed the same prelegalization pattern of
periodic fluctuations of increases and decreases.

All three states received either tax revenue or fees from convenience
gambling. South Carolina charged a 2- year $4,000 license fee for each video
gambling machine operating in the state. 28 In 1999, the state received
about $63 million from video gambling license fees, which represented about
8 percent of the reported $770 million of the gross proceeds (the amount
remaining after prizes have been paid) from convenience gambling in the
state. In 1999, Charleston received an additional $144,000 in video gambling
license fees. State and city officials said that both state and city

27 A South Carolina Employment Security Commission official said that the
estimated number of jobs created by convenience gambling (3, 500) has to be
qualified because that number also included other jobs in the amusement
coin- operated device and recreation job classification.

28 S. C. CODE ANN. sect.12- 21- 2720( A) (1998). Tax Revenue and

Community Investment

Page 9 GAO- 01- 108 Convenience Gambling

convenience gambling revenues were deposited into the general fund account
for no specific program or designated purpose.

Montana's state legislation mandates that convenience gambling operators pay
Montana 15 percent of convenience gambling gross proceeds, plus an annual
license fee of $200 for each video gambling machine. 29 In 1999, Montana
received $38 million from convenience gambling, which represented about 15
percent of the $253 million in gross proceeds derived from convenience
gambling. Montana received another $3.6 million in video gambling machine
license fees in 1999. State legislation also requires the state to deposit
one- third of the funds derived from convenience gambling into the state's
general fund and distribute the remaining twothirds to local communities. 30
In 1999, Great Falls received $2.5 million of the funds.

Unlike South Carolina and Montana where private businesses operate
convenience gambling, in Oregon, convenience gambling is part of the state-
operated lottery. The state and the businesses (retailers) share the
proceeds on the basis of a four- tiered compensation system. In 1999, Oregon
received about $236 million, which represented about 59 percent of total
gross proceeds ($ 403 million) from convenience gambling in the state. State
legislation requires that 2.5 percent of funds from convenience gambling be
distributed to all counties for economic and development activities. 31
State legislation also requires that the remaining proceeds from convenience
gambling be deposited in the State's Administrative Services Economic
Development Fund for creating jobs, furthering economic development, or
financing public education. 32 State officials said they could not isolate
the amount of convenience gambling funds that Salem had received because the
state distributes the funds by specific programs and projects-- not by city.
The Oregon legislature distributes the revenue to state agencies, which in
turn grant the funds to selected projects and programs, thus the amount the
state used for Salem projects could not be specifically identified. In
addition, according to the Oregon State Lottery Commission, in 1999, Oregon
also derived about $1.8 million from the amusement device tax, a tax imposed
upon individuals for operating a video lottery terminal.

29 MONT. CODE ANN. sect.sect. 23- 5- 610( 1) and 23- 5- 612( 2)( a). 30 MONT. CODE
ANN. sect.23- 5- 610( 6)( a) and (b). 31 OR. REV. STAT. sect.461. 547( 1). 32 OR.
REV. STAT. sect.sect. 461.544 and 461. 540( 1)( a)( b) and (c).

Page 10 GAO- 01- 108 Convenience Gambling

The amount of tax revenues and license fees the states received from
convenience gambling ranged from 1 to 5 percent of state budgets.

While officials from both Montana and Oregon said that convenience gambling
contributed to community investment to some extent, most of the officials we
interviewed in South Carolina said that convenience gambling had not
increased funds for community investment. Both South Carolina and Charleston
deposited video gambling machine license fees into their general funds with
no designated purpose. While Montana also deposited the funds the state
derived from convenience gambling into its general fund with no designated
purpose, Great Falls officials reported that the funds Great Falls derived
from convenience gambling were used for police, fire safety, and parks and
recreational activities. State officials said most of Oregon's lottery funds
(including those from convenience gambling) are dedicated to education.
According to state officials, beginning with the 1995- 1997 state biennium
budget, the state legislature designated over 70 percent of Oregon's lottery
proceeds for education. Oregon distributed the remaining funds derived from
convenience gambling throughout the state, including Salem, for various
programs and projects. Community investment projects have included workforce
training for youth, flood control and recovery efforts, and revitalization
of downtown areas. According to officials in Montana and Oregon, the
convenience gambling industry has not directly contributed to community
investment. They said that funding for community projects was derived from
Montana's and Oregon's taxes on convenience gambling.

Also, some officials in Charleston and Great Falls commented that the
atmosphere of video poker parlors (also called “casinos” in
Montana) has had a detrimental effect on community investment. They said
that convenience gambling establishments created a stigma that discouraged
new businesses from coming into a community and that the parlors/ casinos
were sometimes “tacky” and did not contribute to a quality urban
setting.

While officials in all three communities said they believed that convenience
gambling contributed to bankruptcy filings, we found no conclusive evidence
linking gambling and bankruptcy for the general population. The officials
provided anecdotal evidence to support their belief. They said (1) persons
with gambling addiction problems have experienced personal bankruptcy as a
result of their illness and the convenient availability of convenience
gambling contributes to the illness and (2) the accessibility and
availability of convenience gambling have led many to use credit cards for
their gambling needs and, in some instances, Bankruptcy

Page 11 GAO- 01- 108 Convenience Gambling

have led to refinancing their homes to liquidate their credit card debts
only to renew their credit cards and accumulate more debt-- a vicious cycle
that eventually leads to bankruptcy or financial hardship.

Also, gambling studies have shown a link between bankruptcy and individuals
suffering from pathological gambling. A 1998 Montana gambling study 33
reported that 10 percent of Montana's lifetime problem or probable
pathological gamblers had filed for bankruptcy, while approximately 4
percent of those who did not have lifetime gambling problems had filed for
bankruptcy. 34 In addition, the National Opinion Research Center in doing
research for NGISC, reported that on the basis of a 1998 national survey, 19
percent of pathological gamblers reported filing for bankruptcy compared
with 5.5 percent for low- risk gamblers and 4.2 percent for nongamblers.

An analysis of available bankruptcy data obtained from the Administrative
Office of the U. S. Courts showed that while the bankruptcy rates increased
during 1990 to 1999 in the areas we studied, so did the national rate, at
roughly the same level of increase.

We were unable to show bankruptcy trends pre- and postlegalization of
convenience gambling because county bankruptcy data were not readily
available before 1990, according to an official of the Administrative Office
of the U. S. Courts. See appendix I for a more detailed discussion on the
economic effects of convenience gambling.

NGISC reported in its 1999 report that one controversial feature of
convenience gambling is the location of video gambling machines in close
proximity to children and families, including those in impoverished
neighborhoods. The report stated that convenience gambling occurs in close
proximity to residential areas and because video gambling machines are
located in consumer- oriented sites, patrons regularly encounter them in the
course of their day- to- day activities. The report further stated that

33 The 1998 Gambling Study: A Report to the Governor and the 56 th
Legislature by the Gambling Study Commission, Montana Legislative Council,
and Montana Legislative Services Division, Final Report, November 1998.

34 Researchers estimate the prevalence of pathological gambling by
conducting surveys among populations or within clinical settings and using
screening instruments to identify individuals with gambling disorders. In
general, individuals who score 3 or 4 points on the screen are classified as
“problem gamblers.” Those who score 5 or more points are
classified as “probable pathological gamblers.” As noted by
NGISC, prevalence rates are stated in terms of timeframes, either
“lifetime” (prevalence rate of individuals who have at some time
met the criteria for a gambling disorder category) or “past-
year” (prevalence rate of individuals who met the criteria for a
gambling disorder category in the past year). Social Effects of

Convenience Gambling on Communities

Page 12 GAO- 01- 108 Convenience Gambling

NGISC heard testimony stating that convenience gambling is often found in
neighborhoods where money spent on gambling could otherwise be spent on
needed goods and services and that it provided few economic benefits and
created potentially greater social costs by making gambling more available
and accessible.

Because of numerous factors, we were not able to clearly identify the social
effects of gambling upon the three communities. Measuring the social effects
of gambling is difficult in part because of the limited amount of quality
data on the social effects of gambling and the complexity of determining
whether a cause- effect relationship exists between gambling and social
problems. This determination is made more complex because of the difficulty
of isolating gambling from other factors that may contribute to increases in
certain social problems, such as substance abuse and personality disorders.
As a noted gambling researcher stated, social impacts of gambling are
qualitative, elusive, and very difficult to measure. 35 One official in
Montana pointed to his own contact with clients seeking treatment for
alcohol and drug abuse and their occasional self- reporting of gambling
problems. He noted that social indicators are difficult to attribute to
gambling because determining the underlying cause of the problem is a
“chicken and egg” question-- counselors and researchers cannot
determine whether the social problem or problem gambling preceded the other.

Some officials pointed to specific examples of the negative social effects
of convenience gambling. They cited examples that included (1) a South
Carolina incident where an infant reportedly died of heat exhaustion after
being left in a car outside of a convenience gambling casino, while the
infant's mother played video gambling machines; (2) two gambling- related
suicides in Oregon; and (3) defendants in embezzlement and employee theft
cases in Montana, stating that their crimes were associated with their
gambling problems. Other officials said convenience gambling had no impact
on social indicators or said they had no basis to judge the impact of
convenience gambling.

In general, postlegalization social indicators we reviewed did not vary
widely from prelegalization trends and were similar to national trends.
However, total crimes increased in Charleston, prostitution and drug arrests
increased in Salem, divorces and child abuse and neglect cases increased in
Marion County (where Salem is located), divorces increased

35 William Eadington cited in The 1998 Montana Gambling Study, A Report to
the Governor and the 56 th Legislature by the Gambling Study Commission,
Montana Legislative Council, and Montana Legislative Services Division,
Final Report, November 1998.

Page 13 GAO- 01- 108 Convenience Gambling

in Cascade County (where Great Falls is located), domestic violence
incidents increased in Charleston County (where Charleston is located), and
child abuse and neglect cases decreased in Charleston County. However,
officials said these changes were not related to convenience gambling.

Sufficient data for all of the family social indicators were not available;
therefore, we could not show all trends before and after the legalization of
convenience gambling in the three communities. 36

Analysis of data on suicides showed that the rates both before and after the
legalization of convenience gambling remained almost constant in the three
communities and were similar to the national rate.

State officials said that problem gambling studies had not been conducted in
any of the three states before the legalization of convenience gambling.
Thus, we were not able to show pathological gambling prevalence rates in the
three communities before and after the legalization of convenience gambling.
However, we were able to obtain recent prevalence rates for Oregon and
Montana. Oregon's and Montana's pathological gambling prevalence rates fell
within the range of other states that have completed studies of problem and
pathological gambling but were higher than the national average. NGISC
reported in its 1999 report that problem and pathological gambling estimates
in 17 states ranged from 1.7 to 7.3 percent of adults and that the national
rate of U. S. adults classified as pathological gamblers ranged from 1.2 to
1.6 percent. Researchers looking at the prevalence of pathological gambling
in Oregon and Montana estimated that the percentage of probable pathological
gamblers ranged from 1.6 to 2.8 percent of Montana's adult population and 1.
4 to 1.8 percent of Oregon's adult population in 1997. A study conducted in
South Carolina covered a limited population-- adults receiving alcohol and
drug treatment– thus, we could not compare South Carolina results with
the other rates. See appendix II for a more detailed discussion on the
social effects of convenience gambling.

We requested comments on a draft of this report from the Chair of the former
NGISC; the Administrator of Registration, Licensing, and Local Government
Services, South Carolina's Department of Revenue; the Director of the
Department of Planning and Urban Development,

36 Single- parent family data for Charleston, SC, and Salem, OR, and
domestic violence data for Great Falls, MT, and Salem, OR, were not readily
available. Thus, trends before and after the legalization of convenience
gambling could not be determined for those social indicators in those
communities. Agency Comments

Page 14 GAO- 01- 108 Convenience Gambling

Charleston, SC; the Manager of Public Affairs of the Oregon State Lottery
Commission; the County Commissioner of Marion County, OR; the Acting
Administrator of the Gambling Control Division of Montana's Department of
Justice; and the Assistant City Manager of Great Falls, MT.

We received written comments from the Chair of the former NGISC in a letter
dated October 12, 2000, which is reproduced in appendix IV. The former Chair
said that our findings and the difficulties we encountered in obtaining
conclusive information on the economic and social effects of convenience
gambling reinforced NGISC's findings and experiences. She said that overall
our report appeared to be a balanced analysis of the facts present in the
communities we studied. Furthermore, she concurred in our approach to
selecting the three states and communities included in our review. She also
noted that the fact that our report found that bankruptcy rates in the
communities increased during the period 1990 to 1999 at roughly the same
rate as national bankruptcies should be viewed cautiously and that
policymakers should obtain more extensive data on underlying factors of
local bankruptcies before attributing or dismissing local increases to
national trends. We agree. Finally, the former Chair said that our report
reinforces the need NGISC identified for more extensive research on both the
economic and social effects of convenience gambling.

In October 2000, we received oral comments from a Public Affairs
Representative of the Oregon State Lottery Commission; the Assistant City
Manager of Great Falls, MT; the Acting Administrator of the Gambling Control
Division of Montana's Department of Justice; the Assistant Public Affairs
Director of South Carolina's Department of Revenue; and the Director of the
Department of Planning and Urban Development, Charleston, SC. They said that
they generally agreed with the report and some provided technical comments,
which we incorporated into the report where appropriate. As of October 16,
2000, we had not received comments from Marion County, OR.

We are sending copies of this report to Senator Fred Thompson, Chairman, and
Senator Joseph I. Lieberman, Ranking Minority Member, Senate Committee on
Governmental Affairs; Representative Dan Burton, Chairman, and
Representative Henry A. Waxman, Ranking Minority Member, House Committee on
Government Reform; Senator Orrin Hatch, Chairman, and Senator Patrick Leahy,
Ranking Minority Member, Senate Judiciary Committee; Representative J. Henry
Hyde, Chaiman, and Representative John Conyers, Jr., Ranking Minority
Member, House Judiciary Committee; and other interested parties. Copies will
be made available to others upon request.

Page 15 GAO- 01- 108 Convenience Gambling

If you have any questions regarding this report, please call me or John
Baldwin on (202) 512- 8387. Key contributors to this report are acknowledged
in appendix V.

Sincerely yours, Bernard L. Ungar Director, Physical Infrastructure

Page 16 GAO- 01- 108 Convenience Gambling

Contents 1 Letter 20 Effects of Convenience Gambling on Employment 21
Effects of Convenience Gambling on Tax Revenue and

Community Investment 29

Effects of Convenience Gambling on Bankruptcy 33 Appendix I

Economic Effects of Convenience Gambling on Communities

39 Effects of Convenience Gambling on Families 41 Effects of Convenience
Gambling on Suicide 45 Effects of Convenience Gambling on Crime 46 Estimated
Prevalence of Pathological Gambling in the

Three Communities 58

Overall Costs of Convenience Gambling Versus Benefits of Convenience
Gambling

62 Appendix II

Social Effects of Convenience Gambling on Communities

64 Appendix III Objectives, Scope, and Methodology

69 Appendix IV Comments From the Chair of the Former National Gambling
Impact Study Commission

72 Appendix V GAO Contacts and Staff Acknowledgments

Contents Page 17 GAO- 01- 108 Convenience Gambling

Table I. 1: Welfare Caseload (Families) Per 10,000 Population in the United
States, South Carolina, Montana, and Oregon, 1980- 1999

28 Table I. 2: Tax and Fee Revenues Received by South

Carolina, Montana, and Oregon From Convenience Gambling in 1999

29 Table II. 1: Responses from Social Services Officials in

South Carolina, Montana, and Oregon to Questions on the Social Impact of
Convenience Gambling

41 Table II. 2: Divorces Per 10,000 Population in the United

States, South Carolina, Montana, and Oregon 42

Table II. 3: Suicides Per 10,000 Population in the United States, South
Carolina, Montana, and Oregon

45 Table II. 4: Responses by Officials in South Carolina,

Montana, and Oregon to Questions on the Impact of Convenience Gambling on
Crime

47 Table II. 5: Embezzlement Arrests Per 10,000 Population

in the United States, South Carolina, and Oregon 54

Table II. 6: Prostitution Arrests Per 10,000 Population in the United
States, South Carolina, Montana, and Oregon

55 Table II. 7: Responses From Officials in South Carolina,

Montana, and Oregon to Question on Whether the Costs of Convenience Gambling
Outweigh the Benefits

62 Tables

Figure I. 1: Unemployment Rate in the United States, South Carolina, and
Charleston, SC, 1980- 1999

24 Figure I. 2: Unemployment Rate in the United States,

Montana, and Great Falls, MT, 1980- 1999 25

Figure I. 3: Unemployment Rate in the United States, Oregon, and Salem, OR,
1980- 1999

27 Figure I. 4: Personal Bankruptcy Rates in the United

States, South Carolina, and Charleston County, SC, 1990- 1999

35 Figure I. 5: Personal Bankruptcy Rates in the United

States, Montana, and Cascade County, MT, 1990- 1999 36

Figure I. 6: Personal Bankruptcy Rates in the United States, Oregon, and
Marion County, OR, 1990- 1999

37 Figures

Figure II. 1: Total Crimes in the United States, South Carolina, and
Charleston, SC, per 10,000 Population, 1980- 1998

48

Contents Page 18 GAO- 01- 108 Convenience Gambling

Figure II. 2: Total Crime Rates in the United States and Montana, 1980- 1998

49 Figure II. 3: Total Crime Rates in the United States,

Oregon, and Salem, OR, 1980- 1998 50

Figure II. 4: Property Crime Rate in the United States, South Carolina, and
Charleston, SC, 1980- 1998

51 Figure II. 5: Property Crime Rates in the United States

and Montana, 1980- 1998 52

Figure II. 6: Property Crime Rates in the United States, Oregon, and Salem,
OR, 1980- 1998

53 Figure II. 7: Drug Abuse Violation Arrest Rates in the

United States, South Carolina, and Charleston, SC, 1980- 1998

57 Figure II. 8: Drug Abuse Violation Arrest Rates in the

United States, Oregon, and Salem, OR, 1980- 1998 58

Abbreviations

APA American Psychiatric Association DSM Diagnostic and Statistical Manual
of Mental Disorders FBI Federal Bureau of Investigation NGISC National
Gambling Impact Study Commission SLED State Law Enforcement Division of
South Carolina UCR Uniform Crime Report

Page 19 GAO- 01- 108 Convenience Gambling

Appendix I Economic Effects of Convenience Gambling on Communities

Page 20 GAO- 01- 108 Convenience Gambling

Convenience gambling created jobs and tax revenues in the three areas we
visited, but its effect on bankruptcies was uncertain. State employment
officials estimated that convenience gambling created about 3,500 jobs in
South Carolina, 3,700 in Montana, and 2,500 in Oregon. The estimated number
of jobs created by convenience gambling represented less than 1 percent of
total private sector jobs in South Carolina and Oregon and about 1 percent
of total private sector jobs in Montana. In addition, state employment
officials said the estimated number of jobs may be inaccurate because of the
difficulty of isolating convenience gambling jobs from other jobs in the
amusement and recreation industrial job classification and because some
employees who work with video gambling machines also perform in other
capacities, such as cashiers or bartenders.

Governments of all three communities received revenues from convenience
gambling. In 1999, South Carolina received about $63 million in video
gambling machine license fees and Charleston received an additional
$144,000. In 1999, Montana received $38 million from taxes on convenience
gambling proceeds (the amount remaining after prizes have been paid) in the
state and distributed $2.5 million to Great Falls. In 1999, Oregon received
about $236 million from its state- operated convenience gambling operations
and distributed the funds throughout the state. The amount Salem received
was not available because funding was distributed to state and county
programs and projects and not directly to cities. The amount of tax revenues
and license fees that the three states received from convenience gambling
ranged from 1 to 5 percent of state budgets.

While officials from Montana and Oregon said that funding derived from
convenience gambling had contributed to community projects to some extent,
most of the officials we interviewed in South Carolina said that convenience
gambling had not increased funds for community investment. Great Falls
officials reported that the funds Great Falls derived from convenience
gambling were used for police, fire safety, and parks and recreational
activities. Oregon distributed funds derived from convenience gambling
throughout the state, including Salem, for various programs and projects,
including community investment projects that have included water resources
projects, revitalization of downtown areas, and funding to enhance timber-
stressed communities.

While officials in all three communities said they believed that convenience
gambling contributed to bankruptcy filings, we found no conclusive evidence
linking gambling and bankruptcy for the general population. County
bankruptcy data for years before 1990 were not available so we were unable
to analyze pre- and postlegalization of

Appendix I Economic Effects of Convenience Gambling on Communities

Page 21 GAO- 01- 108 Convenience Gambling

convenience gambling bankruptcy rates for the three communities. An analysis
of available bankruptcy data we obtained from the Administrative Office of
the U. S. Courts showed that the bankruptcy rate after the legalization of
convenience gambling for the three states and communities increased, but so
did the rate in the rest of the nation. No data were readily available to
provide the underlying cause of bankruptcy filings. A 1998 Montana report on
problem gambling in Montana reported that persons suffering from
pathological gambling filed for bankruptcy two and one- half times more than
those who did not have gambling problems.

According to state and local officials in the three states and communities
we studied, figures on the number of people employed solely in convenience
gambling jobs are not collected. They said that determining the number of
convenience gambling jobs was difficult because many of the video gambling
machines were located in establishments that were existing businesses before
the legalization of convenience gambling. State employment officials said
the establishments might not have added new employees when they began
operating video gambling machines and instead used existing workers to
monitor the machines along with their other responsibilities (e. g., clerks,
cashiers, and bartenders).

South Carolina Employment Security Commission officials said no methods
exist to determine the number of convenience gambling jobs because the jobs
are included in various industrial codes. While one Commission official
estimated that the number of convenience gambling jobs was about 3,500,
another official said that the number should be qualified because it
included jobs in the amusement coin- operated device and recreation job
classification, which includes more than convenience gambling jobs. 1 The
estimated 3,500 convenience gambling jobs represented less than 1 percent of
the total 1. 5 million private sector jobs in South Carolina, as of 1998.

Since convenience gambling was banned in South Carolina as of July 1, 2000,
a review of the number of individuals who were former convenience gambling
employees filing unemployment claims could shed light on the number of
convenience gambling jobs that had existed in the state. According to an
official of South Carolina's Employment Commission, between July 1 and July
28, 2000, 2,399 unemployment claims had been

1 We were unable to independently verify the number of jobs associated
solely with convenience gambling because the jobs were not isolated but were
grouped with other types of jobs in the Department of Commerce's amusement
and recreation services and coin- operated amusement devices standard
industrial classifications. Effects of Convenience

Gambling on Employment

Appendix I Economic Effects of Convenience Gambling on Communities

Page 22 GAO- 01- 108 Convenience Gambling

filed by video poker employees for the entire state, including 64 with the
Charleston Employment Office. 2

A 1998 gambling study published by Montana's Legislative Council and
Services Division stated that no standard definition existed for
gamblingrelated employment and presented three separate estimates for
convenience gambling employment in Montana in 1997. 3 One estimate (16,300)
included all employees working at gambling establishments (including
restaurants and bars); another estimate (10,000) included only those
employees at gambling establishments who had face- to- face contact with
gamblers; and the third estimate (3,700) represented revenue allocated jobs
where the employment was fully supported by gambling. We decided to use the
lower number of 3,700 because this estimate appeared to be more closely
related solely to convenience gambling. This estimate represented about 1
percent of the 391,700 total private sector jobs in Montana in 1997.

Oregon State Lottery Commission officials also said that determining the
number of jobs specifically created by video poker was difficult because
Oregon law requires that video poker retailers be established businesses
before they are accepted as video poker retailers. They said that according
to the Oregon Restaurant Association, video poker has created about 2,500
jobs for video poker retailers. The estimated number of video poker jobs
(2,500) represented less than 1 percent of the 1.3 million total private
sector jobs in Oregon in 1999.

State and local officials and various researchers said that jobs in the
convenience gambling industry are generally low- paying with minimal
benefits. A Great Falls official said that the jobs created by convenience
gambling are generally part- time, minimum wage jobs, usually without
benefits. According to the 1998 Montana gambling report, employees at
gambling establishments in Montana earned an estimated average of $9,600
annually, excluding benefits and tips. However, the report noted salaries of
other jobs in the service area, such as amusement and

2 An official in the South Carolina Employment Commission said Commission
staff stopped monitoring unemployment claims filed by former convenience
gambling employees as of July 28, 2000, because by that time, the weekly
number of claims filed by convenience gambling employees had leveled off to
almost none.

3 The 1998 Montana Gambling Study: A Report to the Governor and the 56 th
Legislature by the Gambling Study Commission, Montana Legislative Council,
and Montana Legislative Services Division, Final Report, November 1998.
According to the Director of the Bureau of Business and Economic Research,
at the University of Montana- Missoula, who worked on the report, the
majority of the gambling discussed in the report is convenience gambling; a
miniscule amount included live card games.

Appendix I Economic Effects of Convenience Gambling on Communities

Page 23 GAO- 01- 108 Convenience Gambling

recreation services and hotels and lodging places, that were close to the
estimated salary in Montana's gambling establishments.

Of the 10 government, private industry, and community officials we talked to
in the three states who worked in areas that covered economic issues,
including state economic and community development and gambling industry
officials, 9 said that convenience gambling had some effect on creating new
jobs. While 5 of the 10 officials said that convenience gambling increased
wage rates and employee benefits for local employees, 3 said that
convenience gambling had no effect on employee wages and benefits, and 2
said that they had no basis to judge.

According to the 1999 NGISC report, convenience gambling, such as video
poker, attracts local residents and does not offer the jobs and economic
benefits found in destination resort casino gambling, which brings in
visitors and money from outside the immediate community. The report further
stated that convenience gambling creates few jobs and fewer good quality
jobs and is not accompanied by any significant investment in the local
economy. Jobs derived from convenience gambling in the three states were
minimal compared with destination resort gambling. For example, in 1998, the
jobs (both full- and part- time) in casino hotels in Atlantic City
represented about 80 percent of the private sector jobs in that city.

Generally, the unemployment rate appears to have been unaffected by the
legalization of convenience gambling in the three areas we studied.
Initially, unemployment rates for the three states and communities increased
following the legalization of convenience gambling; however, the increases
were not sustained. After the legalization of convenience gambling, rates
generally followed the same prelegalization pattern of periodic fluctuations
of increases and decreases. In addition, the cyclical pattern that was
observed in the national unemployment rate for the period 1980 to 1999 was
also evident in the rates for all three states and communities during the
same period.

As shown in figure I. 1, both South Carolina's and Charleston's unemployment
rates (along with the national rate) initially increased from 1990 to 1993,
then decreased. Convenience gambling was legalized in South Carolina in
1991.

Appendix I Economic Effects of Convenience Gambling on Communities

Page 24 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the U. S. Department of Labor's
Bureau of Labor Statistics.

Although Charleston's unemployment rate followed the state and national
patterns, it was generally lower than the state and national rates. For
example, in 1991 (the year convenience gambling was legalized in South
Carolina), Charleston's unemployment rate was 4.3 percent, South Carolina's
rate was 6.3 percent, and the national rate was 6.8 percent. An official in
South Carolina's Employment and Security Commission said that Charleston's
unemployment rate was lower than the state and national rates because the
city is a major coastal metropolitan area with a yearround economy supported
by tourists.

A South Carolina Employment and Security Commission official also said that
convenience gambling- related jobs had little, if any, impact on the state's
employment. She said that from 1991 (the year convenience gambling was
legalized in the state) to 1999, the number of new paying

Figure I. 1: Unemployment Rate in the United States, South Carolina, and
Charleston, SC, 1980- 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 25 GAO- 01- 108 Convenience Gambling

jobs in the amusement and other recreation industrial classification (of
which convenience gambling is included) was 3,150. This number represented
less than 1 percent of the total 319,000 new jobs created in the state
during the same period.

Montana's and Great Falls' unemployment rates fluctuated after Montana
legalized convenience gambling in 1985 but in general declined from 1985 to
1999, as shown in figure I. 2.

Source: GAO analysis of data obtained from the U. S. Department of Labor's
Bureau of Labor Statistics.

According to an official in Montana's Department of Labor and Industry, from
1985 (the year Montana legalized convenience gambling) to 1999, the number
of new paying jobs created in Montana was 104, 000 and of that amount,
1,200, or 1.15 percent were “other recreation” sector jobs,
which includes such jobs as recreational guides and gambling- related jobs.
He

Figure I. 2: Unemployment Rate in the United States, Montana, and Great
Falls, MT, 1980- 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 26 GAO- 01- 108 Convenience Gambling

said that considering these numbers, convenience gambling had very little,
if any, impact on employment in Montana.

An official in Montana's tavern industry said that convenience gambling has
helped the state's economy by keeping establishments open, especially
taverns in rural areas, and provided opportunities for second incomes for
lower middle class workers. He also said that the use of other services by
the convenience gambling industry has contributed to other state employment,
including construction jobs, accountants, lawyers, and repair service
employees.

Oregon's and Salem's unemployment rates also generally decreased (along with
the national rate) after Oregon introduced convenience gambling in 1992, 4
as shown in figure I. 3.

4 Although Oregon legalized convenience gambling in 1991, it did not begin
operating convenience gambling machines until 1992. OR. REV. STAT. sect.167.
166.

Appendix I Economic Effects of Convenience Gambling on Communities

Page 27 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the U. S. Department of Labor's
Bureau of Labor Statistics.

According to an official in Oregon's Employment Department, Oregon's and
Salem's unemployment rates were generally higher than the national rates
during 1980 to 1999 because (1) the state experienced annual employee
layoffs, because some of Oregon's industries, especially logging, are highly
seasonal; (2) in the early 1990s, management of federal land was revised,
which limited the availability of timber harvests; (3) problems with the
Asian economy had a much larger effect on Oregon's external trade than on
the national economy's; and (4) certain timber from the Southeastern part of
the United States has become less expensive than Oregon timber, and this
resulted in fewer jobs in Oregon.

Since the introduction of convenience gambling in Oregon in 1992,
convenience gambling has accounted for a very small number of the new jobs
created in the state, according to an Oregon Department of Labor

Figure I. 3: Unemployment Rate in the United States, Oregon, and Salem, OR,
1980- 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 28 GAO- 01- 108 Convenience Gambling

official. He said that from 1992 to 1999, 304,800 new paying jobs were
created in Oregon and of that amount, 7,900, or 2.6 percent, were in the
amusement and other recreation job sector, which includes gamblingrelated
jobs.

An official of Oregon's restaurant industry said that convenience gambling
has contributed to the state's economy by helping to keep restaurants open
and thus helping to save jobs in Oregon. He said that a restaurant's
revenues have to be about $250,000 annually for it to remain in business and
on average, about one- fourth of that amount is derived from convenience
gambling. He also said before convenience gambling, a number of taverns
could not pay their bills in a timely manner, but because convenience
gambling increased business for the average tavern by about $70,000
annually, those taverns no longer have this problem.

Because some proponents of gambling have reported that gambling
establishments produce jobs in communities and in turn contribute to a
decrease in welfare rolls, we looked at trends in welfare caseloads before
and after the legalization of gambling in the three communities. 5 As shown
in table I. 1, analysis of 1980 to 1999 data indicated that after the
legalization of convenience gambling, welfare caseloads (families) per
10,000 population for the three states and communities varied as they had
before the legalization of convenience gambling, but by 1999 had decreased
significantly, as had the national rate. (The bold area denotes the period
of time convenience gambling had been legal and/ or operating in the area.)

Year United States South Carolina Charleston County, SC Montana Cascade

County, MT Oregon Marion County, OR

1980 161 178 218 88 100 146 a 1981 169 183 215 92 91 131 a 1982 154 162 185
72 93 108 a 1983 156 153 170 80 93 104 a 1984 158 143 158 88 102 102 a 1985
155 132 151 96 106 104 a 1986 156 138 145 109 125 113 125 1987 156 134 131
118 131 112 126 1988 153 120 108 119 133 112 130

5 Welfare caseload data were not readily available for the cities of
Charleston, SC, and Great Falls, MT; state agencies maintained the data by
the county level. To be consistent, we used county data for all three
cities.

Table I. 1: Welfare Caseload (Families) Per 10,000 Population in the United
States, South Carolina, Montana, and Oregon, 1980- 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 29 GAO- 01- 108 Convenience Gambling

Year United States South Carolina Charleston County, SC Montana Cascade

County, MT Oregon Marion County, OR

1989 153 108 94 117 123 115 133 1990 159 111 86 122 122 115 138 1991 173 125
101 125 131 129 159 1992 187 138 130 133 137 139 168

1993 193 147 148 140 142 140 178

1994 194 142 148 139 145 136 178

1995 185 132 142 133 137 125 159

1996 171 122 132 124 131 105 128

1997 145 90 95 101 111 74 90

1998 118 66 63 72 78 56 64

1999 97 47 43 55 65 51 60

Note 1: Data were not available at the city level for Charleston, SC, and
Great Falls, MT. To be consistent, we used county data for all three cities.

Note 2: The bold area represents the period of time convenience gambling had
been legal and/ or operating in the area. South Carolina banned convenience
gambling as of July 1, 2000. a Data were not available for Marion County
from 1980 to 1985.

Source: GAO analysis of data obtained from the U. S. Department of Health
and Human Services, the Bureau of the Census, South Carolina's Department of
Social Services, Montana's Department of Health and Human Services, and
Oregon's Department of Human Services.

State officials said the recent decreases resulted mostly from federal and
local government regulations established to reduce welfare rolls.

All three areas received either tax revenue or fees from convenience
gambling operations, but little community investment from convenience
gambling in Montana and Oregon, and none in South Carolina. As shown in
table I. 2, the percentage of gross proceeds (the amount remaining after
payment of gambling prizes) received by each state varied.

South Carolina Montana Oregon

Number of video gambling machines in state

32,300 17,000 8,900 Total statewide convenience gambling gross proceeds
(after prizes paid) (in millions of dollars)

$770.2 $252.7 $402.6 Amount received by state (in millions of dollars)

$63.1 $38.0 a $235.7 b Percent received by state 8.2 15.0 58.5 a This amount
does not include the $3.6 million Montana received in 1999 from video
gambling license

fees. b This amount does not include the $1.8 million Oregon received in
1999 from the amusement device

excise tax.

Effects of Convenience Gambling on Tax Revenue and Community Investment

Table I. 2: Tax and Fee Revenues Received by South Carolina, Montana, and
Oregon From Convenience Gambling in 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 30 GAO- 01- 108 Convenience Gambling

Note: Of the three states, only Oregon had a computerized centralized
monitoring system. The stated gross proceeds from the other two states are
based on convenience gambling industry reports provided to the states.

Source: South Carolina's Department of Revenue, Montana's Department of
Justice/ Gambling Control Division, and the Oregon State Lottery Commission.

Unlike Montana and Oregon, states that received a percentage of convenience
gambling gross proceeds, South Carolina's revenue from convenience gambling
consisted of a flat license fee on video gambling machines. In 1999, South
Carolina charged a 2- year $4,000 license fee for each video gambling
machine operating in the state. 6 According to South Carolina officials,
license fees the state derived from convenience gambling were deposited in
the state's general fund with no specific use designated. Also, South
Carolina legislation allowed local governments to impose a license fee on
video gambling machines not to exceed $360. 7 According to South Carolina's
Department of Revenue, the City of Charleston received $144,000 in video
gambling machine license fees in 1999. Like the state's license fees,
Charleston's license fees were designated for the city's general fund with
no specific designated use, according to a Charleston official.

State legislation mandates that convenience gambling operators pay Montana
15 percent of convenience gambling gross proceeds, plus an annual license
fee of $200 for each video gambling machine. State legislation also requires
Montana to deposit one- third of the funds derived from convenience gambling
in the state's general fund and distribute the remaining two- thirds to
local communities. The amount each local government receives depends on the
amount of the state's revenue derived from the video machines located in the
local jurisdiction. In 1999, Great Falls received $2.5 million of these
funds. Montana also received $3. 6 million in video gambling license fees in
1999.

Unlike South Carolina and Montana where private businesses operate
convenience gambling, in Oregon, convenience gambling is part of the state-
operated lottery. The state and the businesses (retailers) share the
proceeds on the basis of a four- tiered compensation system. Under the
compensation system, the amount the retailers receive depends on the volume
of sales or plays. Overall, under the system effective in July 1999, private
businesses received about 32 percent of gross proceeds, Oregon received
about 59 percent, and the remaining 9 percent was allocated to cover
expenses of the Oregon State Lottery Commission, the regulator of

6 S. C. CODE ANN. sect.12- 21- 2720( A) (1998). 7 S. C. CODE ANN. sect.12- 21- 2720(
B) (1998).

Appendix I Economic Effects of Convenience Gambling on Communities

Page 31 GAO- 01- 108 Convenience Gambling

convenience lottery. The proceeds Oregon receives are to be deposited in the
state's general fund, except for 2.5 percent that is legislatively mandated
for economic development in counties. 8 According to an Oregon 1996 audit on
the use of lottery funds and in accordance with Oregon law, of the 2. 5
percent designated for counties, 90 percent of the funds is distributed to
each county in proportion to the gross proceeds from the video lottery games
played in each county, and the remaining 10 percent is distributed equally
among all counties. 9

The Oregon legislature decides which specific programs will receive the
remaining 97.5 percent of the funds derived from convenience gambling. These
funds are combined with other funds derived from the stateoperated lottery.
Legislation requires that the proceeds be deposited in the state's
Administrative Services Economic Development Fund, a general fund account,
for creating jobs, furthering economic development, or financing public
education. 10 According to the Oregon State Lottery Commission, in 1999,
Oregon also received about $1.8 million from the annual amusement device
excise tax on video gambling terminals, which goes to Oregon's Department of
Revenue to be used for general state and county expenses.

Local governmental officials in Charleston, SC, and Great Falls, MT,
commented that convenience gambling establishments created a negative
atmosphere in the communities. They said that video poker parlors (also
called “casinos” in Montana) presented a negative image that
hurt local commerce and residential areas and have (1) had a detrimental
impact on established residential neighborhoods because of the proliferation
of gambling establishments and machines; (2) created a stigma that tends to
discourage new business from coming into a community; (3) introduced an
undesirable element in restaurants, shopping malls, and neighborhood
commercial centers; and (4) resulted in “tacky” gambling
establishments that have not contributed to a quality urban setting-- the
buildings are generally cheap, landscaping is minimal and usually not well-
maintained, and the signs (where advertising is legal) are gaudy.

Officials, including individuals working in the economic and planning areas,
also said that while convenience gambling hurt some businesses, it benefited
others. They said that restaurants/ bars were the primary

8 OR. REV. STAT. sect.461. 547( 1). 9 State of Oregon's Use of Lottery Funds,
No. 96- 33, Sept. 9, 1996, and OR. REV. STAT. sect.461.547( 1). 10 OR. REV.
STAT. sect.sect. 461.544 and 461. 540( 1)( a)( b) and (c).

Appendix I Economic Effects of Convenience Gambling on Communities

Page 32 GAO- 01- 108 Convenience Gambling

beneficiaries of convenience gambling. Other types of establishments cited
as benefiting from convenience gambling included convenience stores,
advertising agencies, hotels and motels, loan companies, gas stations, pawn
shops, casinos, and ski resorts/ golf courses. The officials said they
believed that these establishments and their employees have benefited
because of increased revenues, increased employment opportunities, and
improved employee benefits, especially in taverns/ bars. According to the
officials, entertainment and retail establishments, including grocery stores
and charities, suffered because of convenience gambling. The officials said
the retail businesses suffered because spending patterns shifted from their
businesses to convenience gambling; people began spending more money on
gambling machines instead of other entertainment and clothes and as a
result, some stores have closed. They said that charities had suffered
because people who spend money on video gambling machines reduce their
financial donations to charities.

While officials from both Montana and Oregon said that funding derived from
convenience gambling had contributed to community projects to some extent,
most of the officials we interviewed in South Carolina said that convenience
gambling had not increased funds for community investment. Neither the state
nor Charleston allocated video gambling machine license fees to any
particular project; the funds were placed in their general fund accounts.

According to officials in Montana and Oregon, the convenience gambling
industry has not directly contributed to community investment. However, they
said that funding for community projects was derived from Montana's and
Oregon's taxes on convenience gambling.

According to Great Falls planning and budget officials, taxes derived from
convenience gambling have been used primarily for police and fire safety,
with a small portion going to parks and recreational activities.

Of the three communities, Salem was the only one where local officials could
provide examples of specific community investment projects funded by
convenience gambling. Information provided by officials of Marion County
(which includes Salem) showed that funds derived from the 2.5 percent of
convenience gambling proceeds that the state provides to counties for
economic development purposes have funded numerous projects, including
contributions to

ï¿½ revitalization of downtown areas,

Appendix I Economic Effects of Convenience Gambling on Communities

Page 33 GAO- 01- 108 Convenience Gambling

ï¿½ the Riverfront Park in the City of Salem,

ï¿½ water resources projects,

ï¿½ workforce retail business training for youth,

ï¿½ flood control and recovery efforts,

ï¿½ Salem Rodeo Foundation,

ï¿½ purchase of a building to provide medical service to migrant workers and
other low- income residents, and

ï¿½ enhancement of timber- stressed communities. The remaining 97.5 percent of
Oregon funds from convenience gambling is combined with the state lottery
funds and distributed throughout the state for various projects. According
to an Oregon audit report on the use of Oregon lottery funds, the lottery's
initial primary objectives were to maximize revenue for economic development
and the creation of jobs. In 1995, voters added financing of education as an
authorized use of the funds. According to Oregon State Lottery officials,
beginning with the 1995- 1997 biennium budget, the state legislature
allocated over 70 percent of all lottery proceeds to education. The audit
report noted that the remaining funds were used to support other endeavors,
such as the school to work transition programs of Oregon's Mental Health and
Developmental Disability Services and promotion of tourism.

County bankruptcy data were not available before 1990, and because Montana
and South Carolina legalized convenience gambling in 1985 and 1991,
respectively, and Oregon introduced convenience gambling in 1992, sufficient
bankruptcy data were not available to determine bankruptcy trends before the
legalization and introduction of convenience gambling in the three
communities. Bankruptcy rates for Charleston County (where Charleston is
located), Cascade County (where Great Falls is located), and Marion County
(where Salem is located) generally increased from 1990 to 1999, following
the national trend.

While the data we reviewed provided no conclusive link between gambling and
bankruptcies in the three states and communities for the general population,
officials we interviewed in the three states said they believed that
convenience gambling had at least some impact on bankruptcy. They provided
anecdotal evidence to support their belief. A South Carolina law Effects of
Convenience

Gambling on Bankruptcy

Appendix I Economic Effects of Convenience Gambling on Communities

Page 34 GAO- 01- 108 Convenience Gambling

enforcement official provided examples of family problems caused by a
bankruptcy filing due to convenience gambling. Great Falls and Montana
officials commented that the people who can least afford to gamble tend to
be the most attracted to it and often find themselves in financial trouble.
They further commented that the accessibility and availability of
convenience gambling have led many to use credit cards for their gambling
needs and, in some instances, have led to refinancing their homes to
liquidate their credit card debts only to renew their credit cards and
accumulate more debt-- a vicious cycle that eventually leads to bankruptcy
or financial hardship. Oregon officials said that persons with gambling
addiction problems have experienced personal bankruptcy as a result of their
illness and that the convenient availability of convenience gambling
contributes to the illness.

Gambling studies have shown a link between bankruptcy and individuals
suffering from pathological gambling. The previously mentioned 1998 Montana
gambling study reported that 10 percent of Montana's lifetime problem or
probable pathological gamblers had filed for bankruptcy, while approximately
4 percent of those with no lifetime gambling problems had filed for
bankruptcy. 11 In addition, the National Opinion Research Center, in doing
research for NGISC, reported that on the basis of a 1998 national survey, 19
percent of pathological gamblers reported filing for bankruptcy compared
with 5.5 percent for low- risk gamblers and 4.2 percent for nongamblers. We
note here that because of the low percentage of the population suffering
from pathological gambling (1.2 percent to 1.6 percent of the adult American
population, as reported by NGISC in its 1999 report), population- wide data
are not likely to reflect the linkage between gambling and bankruptcy for
this subgroup of the overall population.

The number of bankruptcy filings per 10,000 population in Charleston County
increased from 17 in 1990, the year before convenience gambling was
legalized in South Carolina, to 28 in 1999. However, the national rate also
increased from 29 to 47 during this period, as shown in figure I. 4.

11 As noted by NGISC in its 1999 report, prevalence rates of problem and
pathological gamblers are stated in terms of timeframes, either
“lifetime” (prevalence rate of individuals who have at some time
met the criteria for a gambling disorder category) or “past-
year” (prevalence rate of individuals who met the criteria for a
gambling disorder category in the past year).

Appendix I Economic Effects of Convenience Gambling on Communities

Page 35 GAO- 01- 108 Convenience Gambling

Note: Bankruptcy data were not readily available at the city level. Source:
GAO analysis of data obtained from the Administrative Office of the U. S.
Courts and the Bureau of the Census.

We were unable to show prelegalization of convenience gambling bankruptcy
trends because sufficient data were not available. South Carolina legalized
convenience gambling in 1991, and county bankruptcy data were not readily
available before 1990, according to an official of the Administrative Office
of the U. S. Courts.

We were also unable to show trends for the bankruptcy rate in Cascade County
(which includes Great Falls) after Montana legalized convenience gambling
(1985), because county data prior to 1990 were not readily available. As
figure I. 5 shows, between 1990 and 1999, Cascade County's and Montana's
bankruptcy rates increased, similar to the national trend.

Figure I. 4: Personal Bankruptcy Rates in the United States, South Carolina,
and Charleston County, SC, 1990- 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 36 GAO- 01- 108 Convenience Gambling

Note: Bankruptcy data were not readily available at the city level, and data
for Cascade County, (which includes Great Falls) were not readily available
before Montana legalized convenience gambling (1985).

Source: GAO analysis of data obtained from the Administrative Office of the
U. S. Courts and the Bureau of the Census.

Cascade County's (which includes Great Falls) bankruptcy rate was
consistently higher than the state's rate for the period 1990 to 1999 and
for some of the years, higher than the U. S. rate. For example, in 1996,
Cascade County's bankruptcy filings were 45, national filings were 42, and
Montana's filings were 29 per 10,000 population. Montana officials said they
did not know why Cascade County's rate was higher. An official of the U. S.
Bankruptcy Court, District of Montana, said Cascade County's rate was
probably higher than Montana's rate because Great Falls is part of Cascade
County's jurisdiction and Great Falls is the second largest population
center in Montana. He said that with the exception of four other counties,
Montana is very sparsely populated, and a very small number of bankruptcy
filings occur outside of those five counties, thus, the

Figure I. 5: Personal Bankruptcy Rates in the United States, Montana, and
Cascade County, MT, 1990- 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 37 GAO- 01- 108 Convenience Gambling

overall state rate is kept lower than the large populated areas by the low
filing rate of the smaller populated areas.

The 1998 Montana gambling study concluded that problem gamblers are more
likely to file for bankruptcy than others in the population. The report
stated that 22 percent of Montana's Gamblers Anonymous members had filed for
bankruptcy and that about 10 percent of Montana's lifetime problem or
probable pathological gamblers had filed for bankruptcy, while approximately
4 percent of those who did not have lifetime gambling problems had filed for
bankruptcy.

After Oregon introduced convenience gambling in 1992, the bankruptcy rates
for Oregon, Marion County (where Salem is located), and the nation generally
decreased until 1994 and generally increased between 1995 and 1997, as shown
in figure I. 6.

Note: Bankruptcy data were not readily available at the city level.

Figure I. 6: Personal Bankruptcy Rates in the United States, Oregon, and
Marion County, OR, 1990- 1999

Appendix I Economic Effects of Convenience Gambling on Communities

Page 38 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the Administrative Office of the
U. S. Courts and the Bureau of the Census.

We were unable to show prelegalization trends because as previously
mentioned, county bankruptcy data were not readily available before 1990.

While Oregon and Marion County bankruptcy rates generally followed a pattern
similar to the national rate pattern, both the state and county rates were
higher than the national rate during most of the period between 1990 and
1999. For example, in 1996, the county bankruptcy rate was 62 per 10,000
population, the state's rate was 50, and the national rate was 42. Officials
in Oregon said they did not know why Oregon and Marion County rates were
higher than the national rates, especially during the 1990s. They said the
state's economy had suffered during the 1980s because of problems in the
timber industry, but during the 1990s, the high technology industry had
helped stabilize the state's economy. One official in Oregon's Employment
Department said a contributing factor might have been the reduced demand for
Oregon exports to Asian countries beginning in the late 1990s.

A 1996 Oregon report prepared by a Governor's Task Force on Gaming stated
that the Association of Community Mental Health Programs (the entity that
coordinates Oregon's problem gambling treatment) reported that the average
annual gambling debt of gamblers in state- funded treatment programs was
roughly 72 percent of the gamblers' gross annual household income. 12 The
task force reported that it heard testimony stating that gambling may be a
factor in an increasing number of the state's bankruptcies, although it
noted that no systematic research existed to support this impression.

12 State of Oregon Governor's Task Force on Gaming Final Report, October 4,
1996.

Appendix II Social Effects of Convenience Gambling on Communities

Page 39 GAO- 01- 108 Convenience Gambling

Aside from specific anecdotal examples linking social problems and
convenience gambling, we found no conclusive evidence showing whether or not
convenience gambling caused increased social problems in the three
communities. To assess the social effects of convenience gambling on the
three communities, we reviewed problem gambling studies completed in Montana
and Oregon; interviewed state and local officials; and reviewed data from
1980 to 1999, where available, regarding the following social indicators:
families (including divorce, single- parent families, domestic violence, and
child abuse and neglect); suicide; crime; and the prevalence of pathological
gambling. Analysis of the available data showed that rates for some
indicators were higher than the state and national rates in some years and
lower in other years, both before and after the legalization of convenience
gambling. While some state and local officials pointed to specific examples
of negative social effects of convenience gambling, other officials said
either convenience gambling had no impact or they had no basis to judge the
impact of convenience gambling.

Measuring the social effects of gambling on communities is difficult in part
because of the limited amount of quality data on the social effects of
gambling and the complexity of determining whether a cause- effect
relationship exists between gambling and social problems. This determination
is complex because of the difficulty of isolating gambling from other
factors (such as substance abuse and personality disorders) that may
contribute to increases in certain social problems. An attempt to isolate
the effect of any particular type of gambling, such as convenience gambling,
further increases the complexity of establishing a cause- effect
relationship. As stated by noted gambling researcher, William Eadington, in
a 1998 Montana gambling study, social impacts associated with gambling are
qualitative, elusive, and very difficult to measure. 1

Montana's 1998 state government- funded gambling study reported that
determining the social effects of problem gambling is difficult because
research on the social impact of problem gambling is limited due to the
relatively few problem gamblers and the difficulty of identifying them. The
report further stated that while household surveys provide an estimate of
the number of problem gamblers, the surveys are not able to estimate
detailed social impact associated with problem gamblers.

1 William Eadington cited in The 1998 Montana Gambling Study, A Report to
the Governor and the 56 th Legislature by the Gambling Study Commission,
Montana Legislative Council, and Montana Legislative Services Division,
Final Report, November 1998.

Appendix II Social Effects of Convenience Gambling on Communities

Page 40 GAO- 01- 108 Convenience Gambling

One official in Montana pointed to his own contact with clients seeking
treatment for alcohol and drug abuse and their occasional self- reporting of
gambling problems. In his view, “addictions travel in threes”
(for example, drug, alcohol, and gambling addictions) for dependent
personality disorders. He cited gambling as one of the primary social
problems in Great Falls. However, he also noted that social indicators are
difficult to attribute to gambling because it is a “chicken and
egg” question- counselors and researchers cannot determine whether the
social problem or problem gambling preceded the other.

As previously mentioned, the data we reviewed do not, by themselves,
indicate whether or to what extent convenience gambling has affected
families; a trend in either direction does not necessarily imply a
connection to convenience gambling because numerous other factors also
influence the trend, such as changes in data reporting, behavior problems,
and other societal trends.

In an effort to obtain additional information on the social indicators and
to obtain the opinions of officials working in the three states and
communities, we asked the individuals included in our case studies about the
social impact of convenience gambling. Of the 42 agencies and organizations
included in our case studies, 13 were government and community agencies that
provided social services to residents in the three communities. We asked
officials in those 13 agencies for their opinions on the social impact of
convenience gambling. As table II. 1 shows, while some of the officials said
that they had no basis to judge the social effects of convenience gambling,
most of the officials said that convenience gambling had at least some
impact on social problems, such as divorce, domestic violence, and
pathological gambling.

Appendix II Social Effects of Convenience Gambling on Communities

Page 41 GAO- 01- 108 Convenience Gambling

Number of agencies /officials In your view, to what extent has the presence
of convenience gambling in your community had negative social impacts? Great
impact Some impact No impact

No basis to judge

Total number of agencies/ organizations with officials responding

Increased rates of domestic violence 3 5 0 4 12 Increased rates of child
abuse and neglect 3 5 0 5 13 Increased rates of divorce 4 4 0 5 13 Increased
rates of homelessness 3 3 0 6 12 Increased rates of alcohol abuse 4 5 0 4 13
Increased rates of drug abuse 3 6 0 4 13 Increased rates of problem and
pathological gambling

10 3 0 0 13 Increased rates of suicide 2 5 0 6 13

Source: GAO analysis of responses to questions on the social impact of
gambling.

In response to questions about potential positive social benefits of
convenience gambling, some of the officials responded that convenience
gambling had some impact on increased sources of entertainment for community
residents and increased contributions to nonprofit organizations, especially
fraternal groups, who used their proceeds from video gambling machines for
their charitable causes.

NGISC reported in its 1999 report that one controversial feature of
convenience gambling is the location of video gambling machines in close
proximity to children and families, including those in impoverished
neighborhoods. The report stated that convenience gambling occurs in close
proximity to residential areas and because video gambling machines are
located in consumer- oriented sites, patrons regularly encounter them in the
course of their day- to- day activities. The report further stated that
NGISC heard testimony stating that convenience gambling is often found in
neighborhoods where money spent on gambling could otherwise be spent on
needed goods and services and that it provided few economic benefits and
created potentially greater social costs by making gambling more available
and accessible. In its conclusions, NGISC recommended that states should
cease and roll back existing convenience gambling operations.

With the exception of increased divorces in Cascade County (where Great
Falls is located), increased divorces and child abuse and neglect cases in
Marion County (where Salem is located), increased domestic violence cases in
Charleston County (where Charleston is located), and decreased child abuse
and neglect cases in Charleston County, available data for the

Table II. 1: Responses from Social Services Officials in South Carolina,
Montana, and Oregon to Questions on the Social Impact of Convenience
Gambling

Effects of Convenience Gambling on Families

Appendix II Social Effects of Convenience Gambling on Communities

Page 42 GAO- 01- 108 Convenience Gambling

social indicators did not show much difference after the legalization of
convenience gambling. However, data were not available for some indicators.
2

While officials in 8 of the 13 social service agencies/ organizations said
convenience gambling had at least some impact on increased divorce rates,
officials in 5 of the entities said they had no basis to judge the impact.
As shown in table II. 2, divorce data generally showed no increase in the
number of divorces per 10,000 population after convenience gambling was
legalized or introduced in the communities we studied, with the exception of
Marion County (where Salem is located) and Cascade County (where Great Falls
is located), which showed an increase. 3 (The bolded area shows the period
of time convenience gambling had been legalized and/ or operating in the
area.)

Year United States South Carolina Charleston County, SC Montana Cascade

County, MT Oregon Marion County, OR

1980 52 44 54 a 70 67 58 1981 53 a a a a 67 60 1982 51 a 48 57 68 63 50 1983
50 a a 57 63 61 48 1984 50 a 48 53 53 59 45 1985 50 a 46 52 52 59 45 1986 49
40 44 53 68 59 44 1987 48 40 43 51 66 58 42 1988 48 42 48 51 64 55 39 1989
47 43 41 51 69 54 25 1990 47 46 51 51 69 55 30 1991 47 43 43 55 70 54 27
1992 48 43 51 51 70 54 27

1993 46 42 42 51 65 54 33

1994 46 43 52 49 63 51 52

1995 37 41 46 49 62 49 53

1996 43 41 46 48 63 47 42

1997 a 42 49 46 61 46 48

1998 a 39 41 a a 46 46

Note 1: Divorce data were not readily available at the city level.

2 Single- parent family data for Charleston, SC, and Salem, OR, and domestic
violence data for Great Falls, MT, and Salem, OR, were not readily
available, thus, trends before and after the legalization of convenience
gambling could not be determined for those social indicators in those
communities.

3 Although Oregon legalized convenience gambling in 1991, it did not begin
operating convenience gambling machines until 1992. OR. REV. STAT. sect.167.
166. Divorce

Table II. 2: Divorces Per 10,000 Population in the United States, South
Carolina, Montana, and Oregon

Appendix II Social Effects of Convenience Gambling on Communities

Page 43 GAO- 01- 108 Convenience Gambling

Note 2: The shaded area represents the period of time convenience gambling
has been legalized and/ or operating in the three states and communities.
South Carolina banned convenience gambling as of July 1, 2000. a Data were
not available.

Source: GAO analysis of data obtained from the U. S. Department of Health
and Human Services, South Carolina's Department of Health and Environmental
Control, Montana's Department of Public Health and Human Services, and
Oregon's Health Division, Center for Health Statistics.

An Oregon official in the Office of the Registrar said that the increases
and fluctuations in Marion County's divorce rates were not related to
gambling, but were due to inconsistent record reporting and a change in
state law during the 1990s. The new law required that at least one of the
parties petitioning for a divorce had to live in the county where the
divorce is filed; before enactment of the statute, petitioners could file
for a divorce in any Oregon county, according to the official.

An official in Montana's Department of Health and Human Services said it
would be almost impossible to determine why Cascade County's divorce rates
were higher than the national rates because Montana is a no- faultdivorce
state. Montana's 1998 gambling study reported that 31 percent of the problem
and pathological gamblers in Montana were divorced (an increase from 8.6
percent in a 1992 study) compared with 12 percent for the total state
population. The report recommended that services for problem gamblers target
marital and family counselors because of the negative impact gambling has
had on families and the ever- growing divorce rate among problem gamblers.

The 1990 Census data were the most complete and recent readily available
data on single- parent families. Because both South Carolina and Oregon
legalized convenience gambling after 1990, we were unable to compare single-
parent family statistics for Charleston, SC, and Salem, OR, before and after
the legalization of convenience gambling, nor were we able to show post 1990
data for Montana. Montana legalized convenience gambling in 1985.

On the basis of data obtained from the Bureau of the Census, between 1980
and 1990, the percentage of families with children under 18 that were
single- parent families in Great Falls and Montana increased. However, the
increase for Great Falls was lower than the increases in the national and
state percentages. Specifically, from 1980 to 1990, the percentage of
families with children under 18 that were single- parent families increased
by

ï¿½ 3 percentage points in Great Falls, from 21 percent to 24 percent;
Percentage of Families With

Children Under 18 That Are Single- Parent Families

Appendix II Social Effects of Convenience Gambling on Communities

Page 44 GAO- 01- 108 Convenience Gambling

ï¿½ 7 percentage points in Montana, from 14 percent to 21 percent; and

ï¿½ 5 percentage points in the United States, from 20 percent to 25 percent.
Domestic violence data were not available for Great Falls, MT, and Salem,
OR, prior to the legalization of convenience gambling in the respective
states. Thus, we were unable to determine trends in the incidence of
domestic violence before and after legalization of convenience gambling for
those communities.

Reported domestic violence incidents per 10,000 population in Charleston
County increased by 11 between 1988 and 1991 (the year convenience gambling
was legalized in South Carolina). From 1991 to 1994 (3 years after
legalization) the number increased by 15-- a difference of 4 between the two
periods. South Carolina's incidents increased by 19 between 1988 and 1991
and also increased by 19 between 1991 and 1994. Because of a lack of
complete national data, we were unable to compare state and local trends
with national trends for reported domestic violence incidents and child
abuse and neglect cases. 4

The number of incidents of child abuse and neglect cases in South Carolina
decreased after convenience gambling was legalized in 1991 from 54 to 50 per
10,000 population. Charleston County's rate decreased from 54 to 52 during
this period. Thereafter, the number of incidents for both the state and
county fluctuated periodically through 1997, the most recent year data were
available

The number of child abuse and neglect cases per 10, 000 population in Great
Falls fluctuated from 3 in 1984 (the year before Montana legalized
convenience gambling) to 5 in 1986, 6 in 1988, and 3 in 1996, the most
recent readily available data. Montana's rate also fluctuated.

After Oregon introduced convenience gambling in 1992, the number of child
abuse and neglect cases per 10,000 population in Marion County increased
from 5.0 to 7.3 in 1998. The Oregon rate increased from 3.4 to 4. 4 during
the same period. An Oregon official said the increases occurred because the
definition of child abuse and neglect was expanded to include

4 According to a Department of Justice official, national data on the
reported number of domestic violence incidents are based on surveys and not
actual reported incidents. Also, a contractor of the Department of Health
and Human Services said that complete national data on child abuse and
neglect cases were not available because the data are reported on a
voluntary basis and all states do not report certain data. Thus, the
national and local data are not comparable. Consequently, we did not include
figures to show trends for these two indicators. Also, domestic violence
data were not readily available before the legalization of convenience
gambling in Great Falls, MT, and Salem, OR. Domestic Violence and

Child Abuse and Neglect

Appendix II Social Effects of Convenience Gambling on Communities

Page 45 GAO- 01- 108 Convenience Gambling

the “threat of harm” during this period. He said that most of
the new cases were in that category.

While officials in 8 of the 13 social services agencies/ organizations we
interviewed said that convenience gambling had at least some impact on
increased rates of child abuse, the remaining five said that they had no
basis to judge the effect. An official with the Community Health Center in
Charleston said that gambling has never come up as an issue in his 13 years
of investigating child abuse cases. However, he also said that he has seen
parents playing video gambling machines while their children wait for their
parents to finish playing. In a South Carolina incident during the late
1990s, an infant reportedly died of heat exhaustion after being left in a
car outside a convenience gambling casino while the infant's mother played
video gambling machines.

Available data showed that in general, the suicide rates per 10,000
population remained almost constant both pre- and postlegalization of
convenience gambling and were similar to the national rates between 1980 and
1998, as shown in table II. 3

Year United States South Carolina Charleston County, SC Montana Cascade

County, MT Oregon Marion County, OR

1980 1 a a a a a a 1981 1 1 a 2 a 1 a 1982 1 1 a 2 2 1 a 1983 1 1 a 2 2 2 a
1984 1 1 a 2 1 2 a 1985 1 1 a 2 1 2 a 1986 1 1 a 2 3 2 a 1987 1 1 1 2 3 2 a
1988 1 1 1 2 3 2 a 1989 1 1 1 2 2 2 a 1990 1 1 1 2 2 2 2 1991 1 1 1 2 2 2 1
1992 1 1 1 2 2 2 1

1993 1 1 2 2 2 2 1

1994 1 1 1 2 1 2 1

1995 1 1 2 2 2 2 1

1996 1 1 1 2 2 2 1

1997 1 1 1 2 2 2 1

1998 a 1 1 2 a a 1

Note 1: Suicide data were not readily available at the city level.

Effects of Convenience Gambling on Suicide

Table II. 3: Suicides Per 10, 000 Population in the United States, South
Carolina, Montana, and Oregon

Appendix II Social Effects of Convenience Gambling on Communities

Page 46 GAO- 01- 108 Convenience Gambling

Note 2: The bolded area represents the period of time convenience gambling
had been legalized and/ or operating in the three states and communities.
South Carolina banned convenience gambling as of July 1, 2000. a Data were
not readily available.

Source: GAO analysis of data obtained from the Bureau of the Census; the U.
S. Centers for Disease Control and Prevention; Computer Center of Marion
County/ Salem, OR; South Carolina's Department of Environmental Controls;
and Montana's Department of Public Health and Human Services.

Officials in 7 of the 13 social services agencies/ organizations said that
convenience gambling had an impact on suicide, while officials in 6 of the
agencies/ organizations said that they had no basis to judge convenience
gambling's impact on suicides. One Oregon official commented that the state
has had a couple of well- known gambling- related suicides. According to an
Oregon task force on gambling that issued a report in 1996, testimony before
the task force included statements attesting that broken families and
suicides were associated with problem gambling in Oregon. 5 However, the
report noted that there was no basis to estimate the extent of these
problems or the cost.

Crime data were not available for all of the years between 1980 and 1998 for
Great Falls. Available data showed that all crimes generally increased in
Charleston after convenience gambling was legalized, and prostitution and
drug arrests increased in Salem but not other crimes. Law enforcement
officials said that convenience gambling had little, if any, impact upon the
higher crime rates. They cited other reasons for the higher crime rates,
including law enforcement's concentrated efforts directed toward certain
crimes, which led to more arrests, thus raising the arrest rates. Also,
while pre- and post- data were not always available for the three
communities, for the most part, trends shown by the available data on crimes
did not vary widely after convenience gambling was legalized in the three
communities. That is, in many cases, communities that had an increase in
crime after the legalization of convenience gambling also had increases
before the legalization of convenience gambling.

Both Montana's 1998 and Oregon's 1996 gambling reports concluded that while
some linkage between problem gambling and crime existed, the extent of the
linkage was not clear because (1) no systematic effort had been made to
assess the reason crimes are committed and (2) no systematic study had been
conducted to determine the number of problem gamblers who have committed
crimes to support gambling. The task force that completed Oregon's 1996
gambling report stated that the task force

5 State of Oregon Governor's Task Force on Gambling, Final Report, October
4, 1996. Effects of Convenience

Gambling on Crime

Appendix II Social Effects of Convenience Gambling on Communities

Page 47 GAO- 01- 108 Convenience Gambling

heard testimony from several problem gamblers who relayed stories of
engaging in first- time criminal behavior to obtain money to gamble.

As table II. 4 shows, while about one- half of the officials in the 39
agencies/ organizations involved in social, economic, and law enforcement
activities who responded to our question on convenience gambling's impact on
crime said that convenience gambling had increased property and white-
collar crimes, many of the officials said they had no basis to judge the
impact of convenience gambling on crime.

Number of agencies/ organizations In your view, what impact has the presence
of convenience gambling in your community had on the following crime rates?
Great impact Some impact No impact

No basis to judge

Total number of agencies/ organizations

responding

Increased violent crime rates 1 8 11 19 39 Increased property crime rates 1
19 4 15 39 Increased white collar crime rates 5 20 2 12 39 Increased
prostitution 0 6 9 24 39 Increased drug- related crime rates 2 8 8 19 37

Source: GAO analysis of officials' responses to questions on the impact of
convenience gambling on crime.

We examined crime data from the Federal Bureau of Investigation (FBI)
Uniform Crime Report (UCR) for the three communities before and after the
legalization of convenience gambling and compared the crime rates with
national rates. 6 Total crime data were not readily available for all of the
years between 1980 and 1998 for Great Falls, MT.

As shown in figure II. 1, total crimes per 10,000 population initially
decreased in Charleston after 1991, when convenience gambling was legalized,
but increased after 1994. 7 The state's total crime rate remained fairly
constant during this period, while the national rate decreased.

6 We used the FBI's UCR to calculate the rate of crime in the three states,
the three cities, and the United States. UCR included reported incidences of
violent crime (murder, forcible rape, robbery, and aggravated assault) and
property crimes (burglary, larceny- theft, and motor vehicle theft).

7 Total crimes includes both violent and property crimes.

Table II. 4: Responses by Officials in South Carolina, Montana, and Oregon
to Questions on the Impact of Convenience Gambling on Crime

Appendix II Social Effects of Convenience Gambling on Communities

Page 48 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

A Charleston, SC, law enforcement official said that convenience gambling
had little, if any, impact on Charleston's total crime rate. He said that
Charleston's rates were higher because of the heavy annexation the city has
experienced over the years. He said most of the annexation has been the
annexation of major commercial areas into the city's jurisdiction, which led
to increased property crime rates, including larceny (nonviolent property
crimes such as hotel room theft), shoplifting, and vandalism. He further
stated that increased property crimes drive the total crime rate because
total crime includes property crime.

As previously mentioned, total crime data for all of the years between 1980
and 1998 were not readily available for Great Falls, MT. As shown in figure
II. 2, after the legalization of convenience gambling in 1985, Montana's
crime rate had some decreases and increases, but in 1998 was below
prelegalization rates.

Figure II. 1: Total Crimes in the United States, South Carolina, and
Charleston, SC, per 10, 000 Population, 1980- 1998

Appendix II Social Effects of Convenience Gambling on Communities

Page 49 GAO- 01- 108 Convenience Gambling

Note: Total crime data were not readily available for all of the years
between 1980 and 1998 for Great Falls.

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

As shown in figure II. 3, both Oregon's and Salem's total crimes per 10,000
population varied after Oregon introduced convenience gambling in 1992. By
1998, Oregon's crime rate had decreased from 582 to 564, and Salem's crime
rate decreased from 861 to 837 per 10,000 population.

Figure II. 2: Total Crime Rates in the United States and Montana, 1980- 1998

Appendix II Social Effects of Convenience Gambling on Communities

Page 50 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

Salem's total crime rates were higher than the U. S. rate during the period
from 1980 to 1998, and Oregon's rate was higher than the U. S. rate most of
the years during this time period. A Salem law enforcement official said
that the city's crime rate had not been affected by gambling. He said that
both Salem's total and property crime rates resulted mostly from
consequences of having all but one of the state prisons located in Salem's
city limits until 2 years ago. He said that when many of the individuals got
out of prison, they stayed in the area and sometimes, their cycle of crimes
continued.

Trends in property crime rates in the communities were generally similar to
the trends in the total crime rates. As figure II. 4 shows, South Carolina's
property crime rate did not change dramatically after convenience

Figure II. 3: Total Crime Rates in the United States, Oregon, and Salem, OR,
1980- 1998

Appendix II Social Effects of Convenience Gambling on Communities

Page 51 GAO- 01- 108 Convenience Gambling

gambling was legalized in 1991 and while Charleston's rate initially
decreased, its rate began an overall increase after 1994.

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

A Charleston law enforcement official said that Charleston's property crime
rate was not related to convenience gambling, but was related to increased
commercial activities annexed into the city's jurisdiction throughout the
years.

Property crime data for all of the years between 1980 and 1998 were not
readily available for Great Falls, MT. However, analysis of the state's
property crime data showed that Montana's rate varied in the decade after
Montana legalized convenience gambling in 1985, but by 1998 did not widely
vary from the prelegalization rates, as shown in figure II. 5.

Figure II. 4: Property Crime Rate in the United States, South Carolina, and
Charleston, SC, 1980- 1998

Appendix II Social Effects of Convenience Gambling on Communities

Page 52 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

After Oregon introduced convenience gambling in 1992, both Oregon's and
Salem's property crime rates fluctuated, but by 1998 were at about the same
level as 1992, as shown in figure II. 6.

Figure II. 5: Property Crime Rates in the United States and Montana, 1980-
1998

Appendix II Social Effects of Convenience Gambling on Communities

Page 53 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

Most of the officials in the 42 agencies and organizations said they
believed that convenience gambling had at least some impact on white- collar
crime rates. An official in Montana said that a number of defendants in
embezzlement and employee theft cases claimed that their crimes were
associated with their gambling problems. Similarly, another official in
Montana said that anecdotal information from treatment providers supports
the belief that gambling addiction contributes to higher rates of white-
collar crime, such as embezzlement. Two officials in Oregon also noted that
several problem gamblers have reported committing whitecollar crimes, such
as embezzlement.

Embezzlement data for Montana and Great Falls for all of the years between
1980 and 1998 were not readily available. As table II. 5 shows, embezzlement
arrests per 10,000 population for Charleston fluctuated

Figure II. 6: Property Crime Rates in the United States, Oregon, and Salem,
OR, 1980- 1998

Appendix II Social Effects of Convenience Gambling on Communities

Page 54 GAO- 01- 108 Convenience Gambling

before and after the legalization and/ or introduction of convenience
gambling, but did not increase noticeably.

Year United States South Carolina Charleston, SC Oregon Salem, OR

1980 0.42 0.03 0.14 0.02 0.11 1981 0.42 0.01 0.14 0.02 0.11 1982 0.39 0.02 a
0.01 a 1983 0.38 0.02 a 0.02 a 1984 0.40 0.03 a 0.10 a 1985 0.48 0.06 0.27
0.04 a 1986 0.52 0.07 0.15 0.09 a 1987 0.53 0.05 a 0.11 a 1988 0.61 0.04
0.28 0.13 a 1989 0.65 0.06 0.12 0.18 a 1990 0.61 0.07 a 0.16 a 1991 0.55 a a
0.22 a 1992 0.55 0.04 0.12 0.23 a

1993 0.51 0.08 a 0.19 0.79

1994 0.56 0.10 0.12 0.20 0.60

1995 0.57 0.18 0.26 0.47 1.79

1996 0.60 0.20 0.26 0.27 1.34

1997 0.65 0.31 0.13 0.30 1.32

1998 0.92 0.51 0.14 0.26 0.71

Note: The bolded area represents the period of time convenience gambling has
been legalized and/ or operating in the three states and communities. South
Carolina banned convenience gambling as of July 1, 2000. a Data were not
readily available.

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

Because of insufficient data, we could not determine whether Salem had an
increase in embezzlement arrests after Oregon introduced convenience
gambling in 1992. As shown in table II. 5, Salem's rate increased in 1995,
then decreased. According to a Salem law enforcement official, the initial
increase was not related to convenience gambling but was due to a data
reporting change. In the early 1990s, the city began to consistently
document embezzlement arrests. He said prior to then, the city did not
maintain consistent records on embezzlement arrests.

Oregon's 1996 gambling report noted that the examination of crime statistics
alone makes it impossible to link statistics on certain crimes to gambling.
The report stated that fluctuations in the number of embezzlement arrests
occur because some employers refuse to report financial crimes, such as
embezzlements. The report noted that (1) the number of embezzlement arrests
in Oregon has fluctuated from year to

Table II. 5: Embezzlement Arrests Per 10, 000 Population in the United
States, South Carolina, and Oregon

Appendix II Social Effects of Convenience Gambling on Communities

Page 55 GAO- 01- 108 Convenience Gambling

year, showing both increases and decreases as the availability of legalized
gambling has spread; (2) the number of overall embezzlement arrests in
Oregon increased from 454 in 1992 (the year video poker was introduced) to
558 in 1995, but this does not mean gambling caused this increase; (3) a
decrease does not indicate that gambling is not related to embezzlement
arrests; and (4) it is theoretically possible for the total number of
embezzlement arrests to decrease over time but still have an increasing
number associated with gambling.

Most of the 39 officials who responded to our question on the impact of
convenience gambling on prostitution either said that convenience gambling
had no impact on prostitution or said that they had no basis to judge the
impact of convenience gambling on prostitution arrests. Data on prostitution
arrest rates (where available) showed that the communities' rates have been
generally lower than the U. S. rates. As shown in table II. 6, prostitution
arrests varied from year to year and generally increased in Charleston and
Salem after convenience gambling was legalized and/ or introduced. Data for
all of the years between 1980 and 1998 were not available for Great Falls.

Year United States South Carolina Charleston, SC Montana Oregon Salem, OR

1980 4.24 1.08 0.43 0.64 0.21 a 1981 5.07 1.41 0.70 a 4.67 a 1982 5.93 1.37
0.69 1.03 5.43 0.11 1983 5.94 1.16 1.22 0.79 5.89 a 1984 5.66 1.85 0.83 0.50
5.56 0.99 1985 5.53 2.93 a a 4.82 0.11 1986 5.23 2.06 0.44 0.61 4.59 0.11
1987 4.99 2.34 0.14 1.13 6.14 0.53 1988 4.25 1.89 0.56 0.30 3.59 6.89 1989
4.42 1.86 0.49 1.14 5.19 3.94 1990 4.64 2.06 0.37 1.04 2.21 3.53 1991 4.53 a
a 0.25 4.91 3.25 1992 4.37 0.86 0.12 0.02 3.57 3.99

1993 4.43 1.27 0.12 0.03 3.30 3.94

1994 4.17 1.82 1.09 a 2.54 2.84

1995 4.46 2.67 2.73 a 3.11 5.19

1996 4.25 2.80 1.29 a 3.39 7.01

1997 4.19 1.99 1.39 0.32 2.63 2.97

1998 5.05 2.11 0.82 1.46 2.60 4.19 Table II. 6: Prostitution Arrests Per
10,000 Population in the United States, South Carolina, Montana, and Oregon

Appendix II Social Effects of Convenience Gambling on Communities

Page 56 GAO- 01- 108 Convenience Gambling

Note 1: The bolded area represents the period of time convenience gambling
has been legalized and/ or operating in the three states and communities.
South Carolina banned convenience gambling as of July 1, 2000.

Note 2: Data were not readily available to show Great Falls prostitution
arrest rates pre- and postlegalization of convenience gambling in Montana. a
Data were not readily available

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

A Salem law enforcement official said the increases in Salem's prostitution
arrest rates occurred because in the late 1980s, the Salem Police Department
created a street crime unit and began a concentrated effort directed toward
pursuing prostitution violations.

Officials' comments on the impact of convenience gambling on drugrelated
crimes were similarly mixed. While some of them said convenience gambling
had some impact on drug- related crimes, others said either that convenience
gambling had no impact on drug- related crimes or they had no basis to judge
the impact of convenience gambling on drug- related crimes.

Sufficient drug abuse arrest data to show trends for Montana and Great Falls
were not readily available. 8 As shown in figure II. 7, between 1980 and
1998, data for the years they were available showed that Charleston's drug
abuse arrest rate fluctuated both before and after the legalization of
convenience gambling in South Carolina in 1991.

8 Drug abuse arrest data for Montana and Great Falls were available for only
a limited number of years.

Appendix II Social Effects of Convenience Gambling on Communities

Page 57 GAO- 01- 108 Convenience Gambling

Note: Data on Charleston's drug abuse arrests were not readily available for
some of the years during the period 1980 to 1998.

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

According to a Charleston law enforcement official, Charleston's higher drug
abuse arrest rate is not gambling- related, but is related to the city's
concentrated efforts directed toward narcotics violations. He said that the
city had received federal funds to pursue narcotics violations, and the
city's success rate in drug violation arrests has resulted in higher arrest
rates than the state and national rates.

As figure II. 8 shows, after Oregon introduced convenience gambling in 1992,
both Oregon and Salem's drug abuse arrests per 10, 000 population generally
increased over pre- 1992 levels.

Figure II. 7: Drug Abuse Violation Arrest Rates in the United States, South
Carolina, and Charleston, SC, 1980- 1998

Appendix II Social Effects of Convenience Gambling on Communities

Page 58 GAO- 01- 108 Convenience Gambling

Source: GAO analysis of data obtained from the FBI's UCR and the Bureau of
the Census.

A Salem law enforcement official said the increase in Salem occurred because
of a concentrated effort directed toward narcotics violations, following the
Police Department's creation of a street unit to pursue drug abuse
violations, and Salem's arrests had an impact on Oregon's number of arrests.

According to state officials, problem gambling studies had not been
conducted in any of the three states prior to the legalization of
convenience gambling. Thus, we were not able to show pathological gambling
prevalence rates in the three communities before and after the legalization
of convenience gambling, but we did obtain data on recent prevalence rates
for Oregon and Montana. The only study we identified for

Figure II. 8: Drug Abuse Violation Arrest Rates in the United States,
Oregon, and Salem, OR, 1980- 1998

Estimated Prevalence of Pathological Gambling in the Three Communities

Appendix II Social Effects of Convenience Gambling on Communities

Page 59 GAO- 01- 108 Convenience Gambling

South Carolina covered a limited population-- adults receiving alcohol and
drug treatment-- thus, we could not compare South Carolina results to the
other rates.

Oregon and Montana's recent pathological gambling prevalence rates fell
within the range of prevalence rates in other states but were higher than
the national average. In its 1999 report, NGISC reported that problem and
pathological gambling estimates in 17 states ranged from 1.7 to 7.3 percent
of adults and that the national rate of U. S. adults classified as
pathological gamblers ranged from 1.2 to 1.6 percent. 9 Researchers looking
at the prevalence of pathological gambling in Montana estimated that past
year probable pathological gamblers represented about 1.6 percent of
Montana's 1997 adult population, and lifetime probable pathological gamblers
represented about 2.8 percent of the 1997 adult population. 10 Researchers
also estimated that past year (or current) probable pathological gamblers
represented about 1.4 percent of Oregon's adult population in 1997, and
lifetime probable pathological gamblers represented about 1.8 percent of
Oregon's 1997 adult population.

The American Psychiatric Association (APA) defines pathological gambling as
a “persistent and recurrent maladaptive gambling behavior that
disrupts personal, family, or vocational pursuits.” APA includes
pathological gambling in its Diagnostic and Statistical Manual of Mental
Disorders (DSM- IV). Some researchers have classified individuals with
gambling problems who do not meet the psychiatric criteria for a gambling
disorder but who appear to experience substantial difficulties related to
gambling as either problem or potential pathological gamblers.

9 NGISC noted in its 1999 report that researchers have different opinions on
the definition and prevalence of pathological gambling and reported the
results of four prevalence studies- three recent and one published over 20
years ago.

10 Researchers estimate the prevalence of pathological gambling by
conducting surveys among populations or within clinical settings and using
screening instruments to identify individuals with gambling disorders.
According to the 1998 Montana study, Montana's problem gamblers were
identified using the South Oaks Gambling Screen (SOGS) and the Diagnostic
and Statistical Manual 4 th Edition (DSM- IV) screen. Each screen assigns
points based on answers to gambling- related questions, and individuals with
scores exceeding predetermined levels are assigned to various problem
gambling categories. For example, individuals who score 3 or 4 points on the
SOGS screen are classified as “problem gamblers.” Those who
score 5 or more points are classified as “probable pathological
gamblers.” As noted by NGISC, prevalence rates are stated in terms of
timeframes, either “lifetime” (prevalence rate of individuals
who have at some time met the criteria for a gambling disorder category) or
“past- year” (prevalence rate of individuals who met the
criteria for a gambling disorder category in the past year).

Appendix II Social Effects of Convenience Gambling on Communities

Page 60 GAO- 01- 108 Convenience Gambling

A 1998 Montana gambling study was the most recent report containing
estimated prevalence rates of pathological gambling in Montana. 11 Montana
legalized convenience gambling in 1985. The 1998 report stated that

ï¿½ past- year probable pathological gamblers accounted for about 1.6 percent
of Montana's 1997 adult population, up from 0.7 percent reported in the 1992
study,

ï¿½ past- year problem gamblers were about 2.0 percent of Montana's adult
population in 1997,

ï¿½ lifetime probable pathological gamblers rose from 1.3 percent to 2. 8
percent of Montana's adult population between 1992 and 1997, and

ï¿½ lifetime problem gamblers were 2. 9 percent of Montana's adult population
in 1997.

The 1998 Montana problem gambling report indicated that playing video
gambling machines and the lottery may be associated more with problem
gambling than other games. The report stated that Montana problem gamblers
play video gambling machines and lottery games (including scratch tickets)
most often and stated that the preference for rapid play cycle and immediate
replay opportunities these games offer has been reported in studies of
problem gamblers. The report further stated that a larger portion of
individuals who play video gambling machines and scratch lottery scored as
problem or pathological gamblers compared to those who played other lottery
products. For example, the report stated that about 9 percent of Montana's
gamblers play video gambling machines on a weekly basis and about 20 percent
of them score as past- year problem and pathological gamblers, 2 percent
purchase instant lottery tickets once a week or more and 30 percent of them
score as past year problem or pathological gamblers, and 8 percent purchase
other lottery products (such as the multi- state lottery Powerball) and 13
percent of them score as past- year problem or pathological gamblers. The
report stated that about 48 percent of Montana's past- year problem and
probable pathological gamblers reported that they played video gambling
machines on a weekly basis, while only 8 percent of the nonproblem gamblers
gave a similar response.

11 The 1998 Montana Gambling Study: A Report to the Governor and the 56 th
Legislature by the Gambling Study Commission, Montana Legislative Council,
and Montana Legislative Services Division, Helena, MT, Final Report,
November 1998.

Appendix II Social Effects of Convenience Gambling on Communities

Page 61 GAO- 01- 108 Convenience Gambling

A 1997 report on the prevalence of problem gambling in Oregon conducted for
the Oregon Gambling Addiction Treatment Foundation concluded the following:
12

ï¿½ lifetime problem gamblers represented 3.1 percent of Oregon's adult
population,

ï¿½ lifetime probable pathological gamblers represented 1.8 percent of
Oregon's adult population,

ï¿½ current (or past year) problem gamblers represented 1. 9 percent of
Oregon's adult population, and

ï¿½ current (or past year) probable pathological gamblers represented 1.4
percent of Oregon's adult population.

The report noted that among legal types of gambling, prevalence rates were
highest among respondents who have ever played video poker, card games, and
non- Indian bingo and that lifetime prevalence is highest among those who
have ever wagered legally on video poker and illegally on games of skill.
The report further stated that problem gamblers in Oregon are more likely to
gamble weekly on legal forms of gambling in the state, including the
lottery, video poker, and Indian Gaming Centers.

The 1996 gambling report conducted by Oregon's Governor's task force on
gambling stated that statistics and testimony from treatment providers
indicated that video gambling devices may be more problematic in terms of
gambling disorders than other games, perhaps because of the rapid and
regular reinforcement from the machines. A problem gambling treatment
provider in South Carolina agreed and said that video gambling machines are
considered the “crack cocaine” of gambling. However, the 1996
Oregon report noted that there was only limited data in Oregon to support
sweeping conclusions about the impact of convenience gambling. The report
further noted that an estimate of the number of problem/ pathological
gamblers should have been established before the legalization of convenience
gambling to demonstrate whether more individuals encountered gambling
problems as a result of convenience gambling, but that this was not done.

A survey of 4,163 adults receiving alcohol or drug treatment services in
South Carolina between July and October 1999 revealed that

12 Gambling and Problem Gambling in Oregon: A Report to the Oregon Gambling
Addiction Treatment Foundation, August 26, 1997. This study also used the
SOGS and the Diagnostic and Statistical Manual 4 th Edition (DSM) screen to
identify Oregon's problem gamblers.

Appendix II Social Effects of Convenience Gambling on Communities

Page 62 GAO- 01- 108 Convenience Gambling

ï¿½ 37 percent reported some level of gambling during the 12 months prior to
the survey,

ï¿½ 10 percent were "at- risk" for becoming problem gamblers, and

ï¿½ 6 percent were problem/ pathological gamblers. The report concluded that
the estimated prevalence of gambling problems among alcohol and drug
treatment clients was greater than the estimated prevalence level of
gambling among the general public. The study only covered a limited
population of the state– adults receiving alcohol and drug
treatment– thus, its results cannot be representative of problem or
pathological gambling in the state and cannot be compared to the rates of
other states.

As table II. 7 shows, more of the officials we interviewed said that the
costs of convenience gambling in their communities outweighed the benefits
than those who said that the benefits outweighed the costs.

Officials' opinions Number of agencies/ organizations

Benefits outweigh costs to great extent 4 Benefits outweigh costs to some
extent 5

Subtotal 9

Costs outweigh benefits to great extent 16 Costs outweigh benefits to some
extent 3

Subtotal 19

No basis to judge/ unable to determine 12 No response 2

Total 42

Source: GAO's analysis of responses to interview questions by officials in
South Carolina, Montana, and Oregon.

Officials in South Carolina who said that the costs of convenience gambling
outweighed the benefits said the reasons for their responses were that
crimes increase anywhere gambling is involved; convenience gambling casts a
negative visual impact on commercial activities; and the convenience
gambling industry offered no benefits while costing the state in social
costs.

Most of the Montana officials who commented about the costs versus the
benefits of convenience gambling said they see many repercussions from
Overall Costs of

Convenience Gambling Versus Benefits of Convenience Gambling

Table II. 7: Responses From Officials in South Carolina, Montana, and Oregon
to Question on Whether the Costs of Convenience Gambling Outweigh the
Benefits

Appendix II Social Effects of Convenience Gambling on Communities

Page 63 GAO- 01- 108 Convenience Gambling

convenience gambling and very little good from it. One official commented
that cities in the state have become quite dependent on gambling revenue;
however, the social costs, such as social disruption to families, more
people going to bars simply for the gambling, and reduced parental attention
to children, are also significant. They further stated that the stigma of
convenience gambling hurts the business climate and that an exchange for
increased jobs has been an increase in the use of alcohol, drunk driving,
and financial problems for a small percentage of those who gamble. However,
one Montana official said that while the pluses of convenience gambling are
concrete, the negatives are alleged.

Two Oregon officials said that convenience gambling increased benefits to
workers and economic development in the restaurant industry. Another said
that although quantification of data may show some extent of benefits, the
belief that one can win something for nothing reduces interest in working
for a living. Another Oregon official said that he had no basis to judge
costs versus benefits derived from convenience gambling because no good cost
studies had been conducted.

Appendix III Objectives, Scope, and Methodology

Page 64 GAO- 01- 108 Convenience Gambling

Our objectives were to determine the social and economic effects of
convenience gambling on three communities focusing on the

ï¿½ economic effects of convenience gambling, particularly on employment, tax
revenues and community investment, and bankruptcy and

ï¿½ social effects of convenience gambling, including the prevalence of
pathological gambling.

To accomplish the objectives, we selected Charleston, South Carolina; Great
Falls, Montana; and Salem, Oregon, for our case studies. These communities
were located in three of the eight states that were noted in the 1999
National Gambling Impact Study Commission (NGISC) report as having legalized
convenience gambling. 1 We selected the three states primarily because they
did not have destination gambling casino resorts. We did not select the
other five states because

ï¿½ Nevada had destination resort gambling; California had numerous Native
American casinos; and Louisiana had many forms of legalized gambling,
including land- based and riverboat casinos. Their legalized gambling
operations might have diffused any potential effects specifically related to
convenience gambling.

ï¿½ New Mexico had recently legalized convenience gambling in 1997, which
would not have provided the time periods that the three selected states
presented for looking at postlegalization effects of convenience gambling- 8
to 14 years.

ï¿½ South Dakota operated convenience gambling as part of the state's lottery,
and we only wanted to look at one example of this scenario. We selected
Oregon because, of the states that had incorporated convenience gambling
into their state lottery, Oregon had the greatest number of video gambling
machines and the reported highest amount of convenience gambling net
proceeds (the amount remaining after gambling prizes had been awarded).

The specific communities in the three states were selected on the basis of
two criteria. First, we selected communities that did not border other
states. Border communities attract gamblers from both inside and outside of
the community, thus diffusing some of the potential effects of convenience
gambling upon the community. Second, we identified communities with a large
number of video gambling machines as well as large amounts of revenues from
video gambling relative to other nonborder communities in each state.

1 National Gambling Impact Study Commission Final Report, June 1999. NGISC
listed five other states with legalized convenience gambling- California,
Louisiana, New Mexico, Nevada, and South Dakota.

Appendix III Objectives, Scope, and Methodology

Page 65 GAO- 01- 108 Convenience Gambling

In conducting the case studies, we interviewed officials in local and state
government agencies and community and private industry organizations.
Initially, we sent data collection instruments to the officials and then
followed up with either face- to- face or telephone interviews. Our data
collection instrument built on and refined a previous survey used to examine
casino gambling in Atlantic City in 1999. 2 We also reviewed pertinent
legislation in all three states relative to convenience gambling and
examined court cases that affected convenience gambling in South Carolina.

For our interviews, we selected the state and local government and community
agencies/ organizations whose missions seemed to involve the social and
economic issues we studied. We interviewed officials from 10 agencies/
organizations in South Carolina, 17 in Montana, and 15 in Oregon. We
attempted to interview about the same number of officials in each state, but
some officials declined our interview requests.

We interviewed state and local officials involved in regulatory, law
enforcement, social, economic, and revenue collection efforts. We asked
officials about (1) their perception of a relationship between video
gambling and social factors, such as crime and incidents of domestic
violence, divorce, and increased problem gambling and (2) the impact of
video gambling on economic factors, such as job creation and increased wage
rates and employee benefits.

We contacted the following government agencies and community and private
industry organizations in Montana, Oregon, and South Carolina:

ï¿½ City of Charleston, SC;

ï¿½ Charleston, SC, Police Department;

ï¿½ City of Charleston, SC, Department of Planning & Urban Development;

ï¿½ South Carolina Law Enforcement Division, Columbia, SC;

ï¿½ 9th Circuit Solicitor's Office, Charleston, SC;

ï¿½ Medical University of SC-- Center for Drugs and Alcohol, Charleston, SC;

ï¿½ Charleston County Department of Alcohol & Other Drug Services, Charleston,
SC;

ï¿½ Charleston/ Dorchester Community Mental Health Center, Charleston, SC;

ï¿½ South Carolina Department of Revenue, Columbia, SC;

ï¿½ South Carolina Chamber of Commerce, Columbia, SC;

ï¿½ Montana Association of Counties, Helena, MT; 2 Impact of Gambling:
Economic Effects More Measurable Than Social Effects (GAO/ GGD- 00- 78, Apr.
27, 2000).

Appendix III Objectives, Scope, and Methodology

Page 66 GAO- 01- 108 Convenience Gambling

ï¿½ City of Great Falls, MT;

ï¿½ Great Falls, MT, City/ County Planning Board;

ï¿½ Great Falls, MT, Department of Community Development;

ï¿½ Great Falls, MT, Office of Budget;

ï¿½ Great Falls, MT, Office of the City Attorney;

ï¿½ Great Falls, MT, Job Service Workforce Center;

ï¿½ Gateway Recovery Center, Great Falls, MT;

ï¿½ Boys & Girls Club of Cascade County, MT, Great Falls, MT;

ï¿½ Great Falls Rescue Mission;

ï¿½ Golden Triangle Community Mental Health Center, Great Falls, MT;

ï¿½ Montana State Department of Health & Human Service, Helena, MT;

ï¿½ Montana Tavern Association, Helena, MT;

ï¿½ Great Falls Police Department;

ï¿½ U. S. Attorney's Office, District of Montana, Great Falls, MT;

ï¿½ Montana Department of Public Health and Human Services, Addictive & Mental
Disorders Division, Helena, MT;

ï¿½ Montana Gaming Industry Association, Helena, MT;

ï¿½ Oregon's Department of Economic & Community Development, Salem, OR;

ï¿½ Oregon Department of Human Resources, Office of Alcohol & Drug Abuse
Programs, Salem, OR;

ï¿½ Marion County, OR, Department of Health, Salem, OR;

ï¿½ Oregon Senate, Salem, OR;

ï¿½ U. S. Attorney's Office, District of Oregon, Portland, OR;

ï¿½ Oregon State Lottery Commission, Salem, OR;

ï¿½ Oregon Legislature Policy, Research & Committee Services, Salem, OR;

ï¿½ Oregon Legislature, Salem, OR;

ï¿½ Oregon Restaurant Association, Wilsonville, OR;

ï¿½ Marion County Department of Planning, Salem, OR;

ï¿½ Oregon State Treasury, Salem, OR;

ï¿½ Oregon's Department of Justice, Salem, OR;

ï¿½ City of Salem, OR, Department of Community Services;

ï¿½ City of Salem, OR, Police Department; and

ï¿½ Herbert & Louis Associates (Private Behavior Health Care Firm),
Wilsonville, OR.

We also analyzed social and economic statistics from federal agencies, such
as crime data from the FBI, bankruptcy data from the Administrative Office
of the U. S. Courts, and unemployment statistics from the Department of
Labor's Bureau of Labor Statistics. We obtained additional statistics, such
as incidents of domestic violence and child abuse, from state and county
agencies. For the three states and the three communities,

Appendix III Objectives, Scope, and Methodology

Page 67 GAO- 01- 108 Convenience Gambling

we determined the trends from 1980 to 1999, where data were available. This
enabled us to analyze economic and social indicators both pre- and
postlegalization of convenience gambling. We then compared the state and
local trends with U. S. trends for the same time period. In some cases, data
were not available at the city level and we used available data from
Charleston County, SC; Cascade County, MT; and Marion County, OR. The cities
we selected were in these counties and were either the largest or second
largest city in the county. Also, while historical data were available on a
yearly basis for most of the social indicators we reviewed, some data were
available for census years only- 1980 and 1990. In those cases, we analyzed
data for only those years. Since South Carolina and Oregon legalized
convenience gambling after 1990, when we used census data to show trends
before and after legalization of convenience gambling, we could only show
the results for Montana, which legalized convenience gambling in 1985.

We also reviewed various reports on gambling, including a 1996 report
prepared by the Oregon Governor's Task Force on Gaming; Problem Gambling in
Oregon, a 1997 report to the Oregon Gambling Addiction Treatment Foundation;
a 1998 Montana Gambling Study; and a 1999 report on Gambling Behaviors Among
Alcohol and Drug Treatment Clients in South Carolina.

For widely used data, such as data from the U. S. Bureau of the Census, we
did not trace data back to original source documents. However, when
questions arose regarding data from any source, such as multiple years of
missing UCR data for Montana and Great Falls, we interviewed officials to
understand the reasons for apparent discrepancies or missing data. In
addition, for all of the data used in the report, we interviewed state and
local officials regarding variable definitions, methods of data collection,
data indicating increases or decreases that were inconsistent with
variations for other years in the study period, and data that showed state
and/ or local rates that varied greatly from national rates. We also
interviewed officials regarding the methodologies used and outcomes produced
by the state gambling impact and prevalence reports, but did not replicate
their analyses. On the basis of our review and discussions with officials in
the public (local, state, and national levels of government), private, and
nonprofit sectors, we believe that the data used in this report are
sufficiently reliable to support our conclusions.

As noted by NGISC in its 1999 report, the amount of quality and relevant
research on the social effects of gambling is extremely limited. Our work on
the social effects of video gambling relied heavily on testimonial

Appendix III Objectives, Scope, and Methodology

Page 68 GAO- 01- 108 Convenience Gambling

evidence. Added to the lack of information was the fact that individuals who
suffer from pathological gambling tend to suffer from other addictive
disorders, and this situation, called comorbidity, further complicates the
process of attributing negative effects to any one cause. The attempt to
isolate the effects of any particular type of gambling, such as video
gambling, further increases the complexity of establishing a cause- effect
relationship.

We did our review between December 1999 and August 2000 in accordance with
generally accepted government auditing standards. We did our work in
Charleston and Columbia, SC; Great Falls and Helena, MT; Salem and Portland,
OR; and Washington, D. C. We went to Columbia and Helena because they were
state capitals and the gambling regulatory agencies and other state agencies
we visited were located there.

Appendix IV Comments From the Chair of the Former National Gambling Impact
Study Commission

Page 69 GAO- 01- 108 Convenience Gambling

Appendix IV Comments From the Chair of the Former National Gambling Impact
Study Commission

Page 70 GAO- 01- 108 Convenience Gambling

Appendix IV Comments From the Chair of the Former National Gambling Impact
Study Commission

Page 71 GAO- 01- 108 Convenience Gambling

Appendix V GAO Contacts and Staff Acknowledgments

Page 72 GAO- 01- 108 Convenience Gambling

Bernard Ungar, (202) 512- 8387 John Baldwin, (202) 512- 8387 In addition to
those named above, Bradly Dubbs, V. Bruce Goddard, Lucy Hall, Michael
Horton, Abraham Logan, Yesook Merrill, and Michelle Sager made key
contributions to this report. GAO Contacts

Acknowledgments

Page 73 GAO- 01- 108 Convenience Gambling

Page 74 GAO- 01- 108 Convenience Gambling

Page 75 GAO- 01- 108 Convenience Gambling

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