Study: Iowa casino would drain SD money

By Jonathan Ellis
Sioux Falls, South Dakota (AP) 8-09

South Dakota residents will spend $55 million a year on gaming and other activities if a casino and resort is built in Lyon County, Iowa , an independent report concludes.

Almost all of that money will come from the Sioux Falls area. In addition, the state will lose $18 million a year in video lottery revenues, half of which is used for property tax relief, according to the report commissioned by the Flandreau Santee Sioux Tribe in a study by KlasRobinson QED, a Minneapolis-based hospitality-consulting firm.

The report finds that a Lyon County casino would be good for Iowa. South Dakota residents would generate $13.5 million a year in gaming-related taxes for Iowa, and resident South Dakotans employed by the operation would pay $800,000 to $1.1 million a year in Iowa income taxes.

A second study is under way to gauge the casino’s effect on the tribe’s own gaming operation, the Royal River Casino , about 40 miles north of Sioux Falls.

The Sioux Falls market is promising for Iowa’s gambling industry because of its proximity to a healthy population and because a new casino in Lyon County would have minimal effects on that state’s existing operations, the report concludes. That’s similar to the findings of two separate studies done for the Iowa Racing and Gaming Commission earlier this year.

It’s good news for Iowa. And it confirms the suspicions of officials on the South Dakota side of the border who see the project as an economic threat. At $55 million a year in revenues, the resort would generate more income than the second-penny sales tax in Sioux Falls.

“Clearly, it’s an economic development tool for the state of Iowa, and they’re trying to maximize that,” said Slater Barr, president of the Sioux Falls Development Foundation. “I can’t blame them for that. We can’t be blamed for looking out for our interests, too.”

Good for northwest Iowa and Sioux Falls, supporters say

Backers of the Lyon County proposal argue that what’s good for Lyon County is good for the entire region.

“You will find that we are going to be working with the business community not only in Iowa but in South Dakota, because it’s going to be beneficial to the entire area,” said Sharon Haselhoff, a spokeswoman for Kehl Management, the project’s sponsor. Kehl owns and operates the Riverside Casino and Golf Resort in Riverside, Iowa.

During July, the Iowa Racing and Gaming Commission agreed to accept new applications for casinos. Lyon County backers expect to have their application in by Oct. 1.

Jeff Gallagher, president of the Lyon County Riverboat Association, the nonprofit group that will be submitting the application, said a casino/resort would help the region prosper.

“I think anything that enhances the greater Sioux Empire – and we consider ourselves part of the Sioux Empire – is going to be good for everyone,” he said. “I hope the people of Sioux Falls see it as an opportunity to bring in a couple of million people a year into the area.”

Gallagher, a small-businessman in Larchwood, said Lyon County residents always have spent money in Sioux Falls, and increased earnings for Lyon County residents will be recycled into greater Sioux Falls.

“Everybody that lives in Lyon County comes over and pours a lot of money into Sioux Falls,” he said.

Study: South Dakotans more likely to visit casinos across border


Flandreau tribal officials say the report supports their contention that the state needs a bigger gambling presence in eastern South Dakota. The tribe has fought to fill that niche, but a dispute with the state over renegotiating its gaming compact has spilled into federal court. The tribe wants to increase its allotment of slot machines, which the compact caps at 250. The tribe contends the state has not negotiated in good faith.

Gov. Mike Rounds declined to comment on the issue because of the ongoing litigation between the tribe and state.

A 2004 analysis of the South Dakota gaming industry commissioned by the state concluded that residents in the Sioux Falls area spend more money at casinos in Minnesota and Iowa than they spend in South Dakota casinos, such as those in Flandreau and Deadwood. “Some of this outflow could be recaptured with more, larger, or better facilities in South Dakota,” the 2004 report concluded.

Joshua Weston, Flandreau’s tribal president, said the tribe wanted to build that facility, either by expanding its operation or by working in a join venture on a facility closer to Sioux Falls.

Ninety-percent of the tribe’s revenue is spent outside the reservation in South Dakota either directly or indirectly, he said.

Weston said state lawmakers were shortsighted earlier this year when they voted down a measure allowing new casinos in South Dakota to counteract proposals in neighboring states. Had lawmakers passed the measure, it would have gone to a statewide vote of the public.

The KlasRobinson study, Weston said, “deals with fact rather than opinion.”

“We don’t believe the Legislature fully understood the financial threat that was looming from Larchwood,” Weston said.

Lyon County casino would draw from Sioux Falls for workers

The study notes that a casino in Lyon County will generate plenty of positive economic benefits. But few of those benefits will go to communities outside Iowa.

The operation would create 755 full-time positions, the study concludes. Given demographics of the 11-county region in South Dakota, Iowa and Minnesota, 68 percent of the work force would come from the greater Sioux Falls area.

But because the area already has low unemployment, the study contends the Lyon County proposal would “stress” the existing labor supply.

“Rather than creating new jobs,” the study says, “the planned Lyon County Casino and Golf Resort will have to attract persons already employed at jobs throughout the region, probably resulting in an increase in wages by area employers attempting to retain these employees.”

Barr of the Sioux Falls Development Foundation argues it’s simplistic to focus on the number of jobs created. The real question, he said, is whether the operation “shifts” jobs that already exist.

“It’s just not as cut and dried as 600 new jobs,” Barr said.

The Lyon County operation probably would spend $17 million annually on goods and services, the study found. But less than $1.5 million of that would be spent on businesses outside of Iowa, thanks to that state’s Buy Iowa First Program.

The Iowa Racing and Gaming Commission oversees the program.

“There are not dollar amounts established, but it’s required by code that they try to use Iowa first,” said Julie Herrick, assistant to the commission.

Both Iowa state law and the gaming commission’s administrative rules establish guidelines that encourage operations to use materials and services from Iowa. The commission reviews contracts in excess of $100,000 or that exceed three years in length to ensure that operations are complying with the guidelines.

“We look at contracts every meeting,” Herrick said.

The Buy Iowa First Program has been a success for that state. In 2008, gambling operations purchased 92 percent of the eligible goods and services from Iowa companies, according to the state. That totaled $293 million in purchases.

Barr said he’s not an advocate of using gambling for economic development. But, given the circumstances, he said South Dakota has one option to safeguard its interests.

“The only option that I see is to have a bigger or better or just closer casino that is in South Dakota and that would serve this market,” he said. “We have to ask ourselves: Does it make sense to do it ourselves?”