Rhode Island's Slots Subsidy

Government bailouts are unpopular. Government bailouts of big banks are definitely unpopular. So what about a government bailout of a slots parlor owned by big banks? That, critics contend, is what Rhode Island did earlier this year.

While it might sound like the result of a political suicide pact, officials in Rhode Island defend the concession package for the Twin River Casino as a sensible fiscal choice. The owners of Twin River, located in Lincoln, fell into bankruptcy after they overextended financially. But the facility still brings in more than $250 million per year for a government with a general fund of only $3 billion. "It's the third-largest source of revenue after the sales tax and income tax," says Amy Kempe, a spokesman for Gov. Don Carcieri. "It's clear we have an obligation to protect that revenue."

Protecting that revenue was the Legislature's goal when, at Carcieri's urging, it approved $3.7 million per year in marketing subsidies for Twin River earlier this year. The legislation also reduced the number of workers Twin River was required to employ and lifted the requirement that it host dog races. The hope is that these moves will keep Twin River in business and that the marketing money will more than pay for itself in expanded receipts.

In the past, marketing costs always were paid by the facility's owners. During bankruptcy, ownership switched to Twin River's creditors, including Bank of America. "This was a big bailout for the banks," says State Rep. Charlene Lima, who, along with State Treasurer Frank Caprio, was a leading critic of the package. "For us to be giving them taxpayer dollars so they can increase their profits is appalling."

Lawmakers were willing to weather these sorts of criticism because, in a state that is deeply financially troubled, the revenue from Twin River increasingly is under threat. Massachusetts is contemplating a dramatic gambling expansion that could lure Twin River patrons across the border. The prospect drove legislators to pass a bill to ask voters to allow Twin River and the state's smaller gambling facility in Newport to become full-scale casinos -- currently they aren't allowed to have table games. Carcieri vetoed the legislation, saying it lacked key specifics.

Carcieri's veto likely will push the issue off until next year, when there will be a new governor and some new legislators. But the state seems likely to remain heavily involved in defending the casino on which it is financially dependent. "The open question," says Caprio, who is the leading Democratic candidate for governor, "is who will be the operator and what is their short-, medium- and long-term marketing plan for the facility, with the market getting much too competitive."