Editors Note: This is the latest installment of an ongoing series, “Rolling the Dice,” which is taking a deeper look at the perennial question of whether gambling should be legalized in Hawaii.
Hawaii has considered many gambling proposals over the last three decades, ranging from a lottery to floating casinos in Honolulu Harbor. The Legislature also weighed legalizing gambling on cruise ships and betting on horses at a 20,000 seat racetrack.
All came with the promise of lucrative revenues for their operators and a windfall of cash for the state.
The Legislature has ordered studies on all those forms of gambling. The state Department of Business, Economic Development and Tourism in 1995 estimated that shipboard gaming could generate between $47 million and $104 million in tax revenues for the state.
For horse racing, the department extolled the immediate benefits for the construction industry should Hawaii decide to build a racetrack.
A follow-up study on casino entertainment found that six “cruising” casinos could generate $569 million in visitor spending totaling $105 million in state revenues if the casinos were taxed at a rate of 15%.
Ultimately, all the proposals failed and Hawaii remains one of two states that prohibit all forms of gambling. But supporters are keeping the issue on life support, hoping to chip away at the resistance by persuading people that heavily regulated gambling can be a healthy source of revenue.
This year, several lawmakers are back with measures to allow a single casino in Waikiki, to regulate online sports betting and online fantasy sports games, and to legalize a state-run lottery.
House Vice Speaker John Mizuno, who is proposing the Waikiki casino, said gambling measures are unlikely to pass since 2022 is an election year that sees all 76 seats in the Legislature up for reelection.
“I just don’t feel the Legislature is ready to go all out and pass a casino bill,” Mizuno said.
However, he hopes that House Bill 1820 will generate discussion around the issue of casinos.
“A lot of our people are concerned about the social ills that can be attached to gaming,” Mizuno said. “A lot of that fear can be taken out by saying this casino is for people that are actually staying in a Waikiki hotel or any hotel on Oahu.”
Most of the early legislative reports focused on the economic impacts but did not address the social costs or how to actually implement regulated gambling.
Experts have held up Nevada as a model for states to follow in structuring a government agency to regulate gambling – specifically casinos.
But that doesn’t mean every state, including Hawaii, should try to imitate Las Vegas in all respects.
“Nevada is the gold standard in terms of a regulatory model, but it’s not the gold standard in terms of a business model,” said Ray Cho, a research associate at the Center for Gambling Studies, a research hub at Rutgers University that focuses on problem gambling and gaming policy.
Cho added that a gambling industry in Hawaii wouldn’t need to brand itself as a Disneyland for adults.
“Just because we are trying to be more like Vegas from a regulatory standpoint doesn’t mean we’re turning Hawaii into the Strip,” Cho said.
Nevada allows an unlimited number of regulated gaming licenses in the state. In recent legislative sessions, proposals for casinos in Hawaii have only contemplated having one licensed casino in the islands.
Mizuno said that could help to keep regulation costs low. HB 1820 would clear the way for one casino to operate anywhere in Waikiki so long as it’s not in a hotel. The owner would handle development costs.
The bill would establish a commission tasked with overseeing the casino and vetting applicants, who would be required to have experience in establishing licensed casinos in other states.
Mizuno said that measure would align Hawaii more closely with states like Maine or Rhode Island, which only allow two licensed casinos to operate.
In Maine, casino gambling is limited to the 107-room Oxford Casino Hotel and the more expansive Hollywood Casino Hotel in Bangor.
In 2019, those two casinos brought the state $58.9 million in tax revenue, according to an annual report. Maine’s regulatory scheme also cost $2.8 million that year.
Maine imposes different tax rates on its two casinos. The Hollywood Casino pays a 39% tax rate on electronic gaming devices, while the Oxford Casino pays a 46% tax rate on its machines. Both casinos pay a 16% tax rate on house winnings from table games.
Massachusetts, which legalized casinos in 2011, also bifurcates its tax rates. Owners of two resort-casinos pay a 25% tax on electronic and table games in exchange for the investments they made in developing the resort property.
HB 1820 doesn’t specify tax rates for a Waikiki casino, but Mizuno said he hopes Hawaii would levy some of the heftiest gaming taxes in the United States.
Rhode Island currently has the highest gambling tax rates at up to 74% on electronic games and up to 19% on table games, according to the American Gaming Association. In 2019, the smallest U.S. state reported record high tax collections from gambling at $337.5 million on gross gaming revenues of $693.1 million.
Mizuno’s casino proposal comes with a catch: only those who have proof of an Oahu hotel reservation and pay a $20 entry fee can play.
The bill cites casinos in Singapore, which charge residents hefty fees to enter. While the aim in Hawaii would be to deter residents from gambling too much and encourage tourists staying at hotels to spend their money at the casino, experts said the barriers to entry could have the unintended effect of causing problem gamblers to spend more.
Kahlil Philander, an economics professor at Washington State University, has theorized that entry fees may deter casual gamers, but problem gamblers, who could be less sensitive to price, may persist.
“On top of whatever losses they incur at the casino, they have this entry fee they need to pay that they could see as a loss, and they need to get even,” Philander said.
The placement of a casino may have more bearing on who decides to go there. Philander said that while more people might go to a casino just to see it when it’s new, that novelty effect will wear off over time.
“One of the bigger determinants of casino patrons, like all retail establishments, is access convenience,” he said.
So, both tourists and area residents are more likely to visit a casino that’s easily accessible.
Hawaii would have options to minimize any negative effects that come with the introduction of a casino.
“One, you leverage the opening of the casino to create more public and social awareness around the significance of gambling problems,” Philander said. “That alone has a big affect on people managing risk.”
Philander said states and casino operators should also funnel a portion of profits into addiction treatment programs and find ways to ensure that casinos are capturing the market of local residents who would otherwise frequent illegal game rooms.
Last year, the state Department of Hawaiian Home Lands proposed a resort-casino development in Kapolei with amenities aimed at targeting visitors. It argued the revenues would help build more houses to whittle down the waitlist of more than 28,000 Native Hawaiians, some of whom have died waiting for homes.
The department estimates it could take 182 years to build enough homes given its current level of state funding.
Last year, lawmakers struck down the casino proposal. This year, the Legislature plans to give DHHL a $600 million lump sum to help fund housing initiatives.
But Mizuno is concerned about what will happen when that money eventually runs out. He hopes a portion of tax revenues from any casino in Hawaii would go to help DHHL build more homes. He points to successful Native American tribal gambling operations on the mainland and wonders why Hawaii can’t do the same for its Indigenous people.
Tribal casinos on the mainland are located on reservations or other sovereign tribal lands, but are regulated by federal laws.
Katherine Spilde, a professor at San Diego State University who studies tribal gambling, drew parallels between the tribal casinos on the mainland and the DHHL proposal.
Tribal gambling has worked so well in most places, Spilde said, because casino initiatives came from the tribes themselves, and all the revenue generated by those ventures goes back to the tribe.
A study of 20-years of tribal gaming in California that Spilde co-authored found that unemployment and family poverty rates declined since the 1990s while funding for infrastructure increased. The authors tied the positive gains to the tribes’ ability to make investments from gambling revenues.
“In the same way, DHHL is using this casino to meet the needs of their beneficiaries,” Spilde said.
A separate study within the same time period from the National Bureau of Economic Research, a nonprofit research organization, had similar findings but also concluded that bankruptcy rates, violent crime and auto thefts increased 10% in the years following the introduction of a casino. However, researchers attributed those crime increases to an influx of visitors to a county that has a casino.
This year, DHHL is asking the Legislature to authorize a study on potential revenue that could be generated by a resort-casino on Hawaiian homelands as well as impacts on public health and safety that a casino might have.
Though Gov. David Ige declined to include that bill as part of his administrative package, Sen. Jarrett Keohokalole and Rep. Dan Holt are introducing the DHHL proposal via Senate Bill 2608 and House Bill 1962. The measures would give DHHL $500,000 to conduct the study, which would be due before the 2023 legislative session.
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