EAST ST. LOUIS PLACES ITS BET

FOR DECADES EAST ST. LOUIS HAS BEEN MIRED IN MISERY. Its 1992 murder rate was the highest in the nation, while the property-tax rate was one of the highest in Illinois. Six years ago, it achieved national notoriety when, crippled by debt, it gave up the city hall to settle a lawsuit. Garbage lay uncollected in the streets. Businesses fled. Today half the 40,000 residents, in a town that used to be integrated but is now 98% black, qualify for public assistance. Drugs are rampant. Where better than this slum on the Mississippi River to build a glittering $45 million floating casino?

The question is not ironic. For if most investors would hesitate to bet on a basket case, the five businessmen who launched the Casino Queen in June 1993 recouped their money in six months--and have been raking in profits ever since. Meanwhile, taxes on the riverboat's $150 million annual revenues have doubled the city's budget to $12 million, allowing East St. Louis to reduce property levies 30%, slash its debt, double the number of police officers and patrol cars, and thus cut the murder rate by a third. The boat, with 1,250 workers, is now the city's largest employer. Says Mayor Gordon Bush: "It is bringing about the city's renaissance."

In the past seven years communities across the nation have embraced gambling as an economic savior. But for all its glitter, gambling's gold is, in many cases, more mirage than miracle, because in addition to the obvious fiscal benefits there are many less obvious economic and social costs. For one, notes Robert Goodman, author of The Luck Business, a critic of the industry, "casinos are an extremely regressive means of financing government" since many gamblers are low income-retirees on Social Security, blue-collar workers, even welfare recipients.

The cities that benefit most from casinos are those that can attract enough out-of-towners so that the regressive losses, and attendant social problems, fall less heavily on their own citizens. In Las Vegas, Southern California tourists bear the burden, while the riverboat in Council Bluffs, Iowa, lives off bettors from Omaha, Nebraska. And although most Illinois casinos attract few out-of-staters, East St. Louis is an exception. On two recent nights some 70% of the Casino Queen's patrons were white, many of them from across the river in Missouri. "Casino gambling is a shell game," explains Earl Grinols, a University of Illinois economics professor, "attracting dollars from one person's pocket to another and from one region to another."

That helps explain why the casinos' record on spurring nongambling economic growth is so spotty. Local restaurants are often squeezed out by cheap in-house casino eateries. Atlantic City, New Jersey, lost about a third of its retail businesses after casinos moved in and former customers gambled away their discretionary dollars. In South Dakota, when slot machines were legalized to revive the Black Hills resort of Deadwood, the three car dealerships, the hardware store, the clothing shop and the local Taco Bell all converted into mini-casinos--a more lucrative business, gutting the town's retail base.