The best bet for SE Wisconsin may not be a casino

By MICHAEL FLAHERTY | May 29, 2014

It’s hard to find anyone in Kenosha or Racine counties these days who doesn’t support the construction of an $808 million Hard Rock casino on the site of the now-defunct Dairyland Greyhound Park dog track on Kenosha’s far west side.

Virtually every elected official in the two counties — Republican, Democrat and non-partisan mayors and board members — has lined up to praise the proposal by the Menominee Nation, which has promised to create 3,300 new jobs with a $150 million payroll and to indirectly create another 1,800 full- and part-time jobs. The promoters of this massive entertainment venue promise 3,100 slot machines, a 400-room hotel and a Hard Rock partner with the clout to attract world-class entertainers.

On top of that, the tribe has signed an intergovernmental agreement with Kenosha County and the city of Kenosha to pay them $19 million a year in lieu of property taxes (3 to 4% of the “win”), to donate $1.5 million a year to Kenosha’s public schools, and to make a one-time $5 million donation for a trust fund to support charitable and cultural organizations in Kenosha. Under the agreement, the tax-exempt Menominee Nation would become Wisconsin’s single largest taxpayer — sort of.

It’s hard to argue that’s not a beguiling deal. But as Gov. Scott Walker ponders approving the project for which he is seeking consensus from the state’s 11 tribes, he should ask another question: Is the casino the best long-term bet for the future of the region — and for the state of Wisconsin?

 The answer is: It’s a gamble. As attractive as the tribe’s offer is, the real estate market points to another profitable solution.

The southeast corner of Wisconsin is a hotbed of commercial and industrial development along the I-94 corridor that connects Milwaukee and Chicago. New plants and warehouse distribution centers are springing up, many of them crossing the border from Illinois to take advantage of Kenosha’s “greenfield” development sites, lower land costs and lower property and corporate taxes.

Kenosha’s location is primo. Companies that want to launch or grow in the upper Midwest are looking seriously at Kenosha for its easy access to a mighty transportation corridor and to the huge markets it serves. And while there is other farmland available in Kenosha County, the Dairyland Greyhound Park is an ideal location in an ideal part of the state for development. Real estate investment companies from as far away as California are expressing serious interest in the area. And Kenosha’s mayor recently expressed concern that the city may actually face a shortage of new sites for industrial and commercial growth.

Dairyland’s 221-acre site sits just south of the Kenosha Regional Airport and is an easy drive from Milwaukee’s Mitchell International Airport to the north and Chicago’s O’Hare to the south. I-94 runs just west of the site, a mile from a full-access interchange at Highway 158. To its east is the 238-acre Business Park of Kenosha, which is nearly full and could easily and fairly quickly be expanded to include Dairyland.

One developer suggested that at current growth rates, it would take seven years or so to fill up the expanded park. But as Amazon demonstrated by its recent announcement to build a $155 million distribution center in Kenosha employing 1,250 workers, all it would take is a large one-and-done deal to fill the entire site very quickly.            

Still, the Menominee Nation proposal is so popular that the only organized opposition appears to be Potawatomi and Ho Chunk tribal officials, who argue that the Hard Rock casino’s new jobs will come from taking customers — and jobs — away from their highly profitable casinos in Milwaukee, Madison and Wisconsin Dells.

Casino supporters counter that if the Menominee Nation wants to spend $40 million to acquire the site and spend as much as $1 billion to build it, critics should step aside and let the facility rise and fall on its own merits. That’s a fair argument.

But it’s also reasonable to ask whether the Menominee Nation will be able to deliver on its promises for the life of the casino’s existence. It’s also smart to ask whether pursuing traditional industrial and commercial development might be a more solid strategy.

Granted, a new office park may lack the sizzle and dazzle of a Hard Rock gambling and entertainment complex. Nor would it generate the kind of outsized money the casino is promising the Kenosha area, which some estimates put at as much as $54 million in total payments, new jobs and indirect economic impacts.

But casinos aren’t a sure bet by any means.

Competition for gamblers is fierce. In addition to the Wisconsin Indian gaming casinos already fighting for market share, three more casinos are on drawing boards in Beloit, Schullsburg and Sheboygan. Across the border, the Illinois Legislature is considering a proposal to build a state-owned, 10,000 “position” gambling casino in Chicago that would be the nation’s largest gaming operation.

The Illinois Legislature is also considering an alternative proposal to build four casinos in Cook, Lake, Winnebago and Vermillion counties, the Chicago Tribune reports. All would compete with a new Kenosha casino.

Recall as well that Dairyland opened with great promises and early success. Gamblers flocked to the new park, wagering $210.6 million in 1990. In 1989, Wisconsin had approved five dog-racing tracks, all early hits, drawing 3.5 million visitors in 1991, according to the Milwaukee Journal Sentinel.

Kenosha knows well the sad end of dog racing in Wisconsin. In 1991, a federal judge ruled that because Wisconsin allows pari-mutuel betting on dog races and runs a statewide lottery, it also had to allow Indian tribes to get into the casino business. Since then, Wisconsin tribes have built 22 casinos and bingo halls. Every resident of Wisconsin today is within a two-hour drive of an Indian gaming facility.

The gaming market quickly got crowded — and, as WPRI reported last year — possibly saturated. The dog tracks were the first victims.

By the time they started closing, attendance had dwindled by more than 90% to 233,217 and betting to $46 million. When Dairyland closed in December 2009, it was the state’s last dog track. Gone were the promised tax revenue and economic development from dog tracks that the state and county envisioned.

The last year of dog tracks in Wisconsin, in fact, the state spent almost as much to regulate the tracks as it received in payments, the Milwaukee Journal Sentinel reported. Kenosha still collects property taxes from the Dairyland site, but lost out on the bigger tax base and new jobs that a more productive use of the property would have created.

In short, the state and Kenosha gambled on gambling and lost.

The case for pursuing an alternative strategy for the dog track is strong.

Amazon’s decision to build a $155 million distribution center in Kenosha (on a site smaller than the Dairyland site) may pay only $5 million a year or so in property taxes and create fewer than half the new jobs promised by the casino. But the Amazon distribution center will also generate $30 million in new sales tax revenue for the state, while Indian casino “sales” are tax-exempt.

Amazon announcements don’t happen every day, of course. But even with incremental lease-by-lease commercial development growth on the Dairyland site, Kenosha would do well.

Using the standard development formula, the 221-acre Dairyland site would yield about 190 acres of developable land, with the rest devoted to streets, water retention areas and other site considerations. Roughly estimated, the site would provide room for 2.5 million square feet of new business space that could sprout in the form of 25 to 30 new industries or distribution facilities over the rest of the decade. Or as Amazon demonstrated, it could quickly be filled with one or two large commercial or industrial one-and-done deals.

How many jobs the development would create would depend on the type of development. A helpful comparison is data provided by the 1,266-acre LakeView Corporate Park in nearby Pleasant Prairie, which has put its economic impact online. (wispark.com). While LakeView is six times the size of the Dairyland site and is nearly a quarter of a century old, the comparison is still useful.

LakeView’s 80 businesses (nearly half moved from Illinois between 2000 and 2012, by the way) employ 8,336 workers. Office buildings created the most jobs on the least amount of land — 1,081 employees working in 144,153 square feet of space on only 57 acres. Retail and business services were next, using 788,729 square feet on 88 acres to employ 1,563 workers. Manufacturers employ 2,867 workers in 3.2 million square feet of industrial plants sitting on 374 acres of land. Warehouses and distribution centers use twice as much land and square feet of space to employ almost the same number of workers.

LakeView’s data help show how job creation would vary by sector on a 190-acre site such as Dairyland’s. Had LakeView hypothetically devoted 190 acres strictly to offices, for example, those buildings today would employ 3,600 workers, most of them white-collar jobs. That compares favorably to the projected employment of the proposed casino.

If that same 190 acres were developed only as warehousing and distribution businesses, that would project to 730 workers today — only a sixth of the jobs proposed by casino developers. As all developers know, it’s impossible to predict who their future customers might be, making job predictions for development alternatives to a casino difficult to make.

Property tax revenues would also be very rough estimates, but useful for comparison purposes: Dairyland’s 190 acres are in an area where space leases for $35 to $45 per square foot or about $100 million in new property value if commercially developed. That would generate about $3 million in new property tax revenue for the Kenosha area. That’s not insignificant, but it’s obviously a fraction of what the Menominee Nation is promising to pay Kenosha County and the city.

At the same time, developers of business parks have a better history of success. Given Kenosha’s projected future growth as an industrial, distribution and commerce hub for the I-94 corridor’s enormous regional marketplace, it is safe to say that a commercially developed Dairyland would be a safe long-term bet.

And, depending on the businesses it would attract, the development might generated more total tax revenue than the tax-exempt Menominee Nation would provide in promised payments.               

The now-defunct Dairyland Greyhound Park looms as dark testimony to the fact that gambling operations aren’t guaranteed job creators, nor are they guaranteed future sources of permanent revenues for government operations.

In a saturated gambling market, the Ho Chunk and Potawatomi may have a point: The Kenosha casino may not create new jobs as much as it will redistribute them from existing casinos. That may be good for Kenosha, at least short term, but may not be a great bet for the state of Wisconsin.

Thus, Gov. Walker faces a true fork-in-the-road policy decision. If the governor approves the proposal to convert the Dairyland Greyhound Park into an entertainment venue, that decision will lock up one of the area’s most developable sites for decades. It will forgo traditional and profitable economic development on a site that has already lost once on gambling’s promises.

Michael Flaherty is head of Flaherty & Associates, a public policy communications firm based in Madison.

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