GAMBLING ON CASINOS - And Losing

By , Monitor intern Deborah Peck contributed to the research for this article.

When New Jersey's Casino Control Act was passed in 1976, it was hailed as the ''toughest in the nation.''

But a close look at the state's efforts to regulate its gambling industry forces a different conclusion. Important provisions of the law have been ignored and regulations stemming from it repealed in the face of intense political pressures to license casinos and keep them operating.

With many former state officeholders working for casinos in one capacity or another -- and often maintaining close ties to current government officials -- Atlantic City's casinos sometimes seem to be regulating themselves, according to Arnold Wexler, vice-president of the National Council on Compulsive Gambling and a nationally recognized expert on the links between casino gambling and political influence-peddling.

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''The casinos have enough clout to make the legislature go their way,'' Mr. Wexler says.

''That certainly has been the case . . . . They have a great deal of clout,'' agrees New Jersey state Assemblyman Charles Hardwick, who has been in the forefront of a battle to tighten regulatory control over the casinos here.

Financially, New Jersey has a growing stake in casinos. This year's revenue from gambling taxes is expected to be as much as $120 million, up from about $90 million last year. Moreover, legislation has been introduced which would nearly double the state tax on casino revenue. (The industry, however, is fighting this and it's not expected to pass.) To Assemblyman Hardwick, then, the question is no longer whether the state should be involved in casino gambling, but how to regulate gambling in the most ''moral'' way possible.

But local industries exercise political power in most state legislatures. What's the difference between New Jersey's casinos and Texas's oil companies or California's agri-businesses?

Michael Hawkins, an assistant professor in the Department of Urban Planning at Rutgers University, New Jersey's state university, says that ''when you're talking about oil, you're talking about a natural resource that is the underpinning of the entire country's transportation and energy network.'' But gambling, he says, is, in effect, a highly ''negative force'' that was chosen to revive Atlantic City when all other possibilities for ''positive'' development had been exhausted.

Dudley Sarfaty, executive secretary of the New Jersey Council of Churches, points to the casino industry's ''special dangers.'' Among these, he says, are the possibility of an ''influx of organized crime, and the increase of routine crimes - street crime, prostitution, and drug abuse.''

In addition, he says, the introduction of casino gambling can generate a tremendous increase in compulsive gambling. Before the first casino opened in May 1978, New Jersey had 15 chapters of Gamblers Anonymous, a private organization designed to help compulsive gamblers. Today there are 32. ''No other state has had that kind of growth in Gamblers Anonymous,'' says Mr. Wexler.

Such social costs are the best argument for strict regulation of legalized gambling, say casino opponents. But more often, they lament, regulation here, as in Nevada -- the state with the longest history of legalized casinos - is soft and yielding.

When New Jersey's gambling industry was getting started, layers of tough regulations were added to the books. But in a political process that seems almost inexorable, many of these public-interest regulations, as well as local ordinances designed to protect the public, are being diluted, repealed, or thwarted by casino pressure and acquiescent officials.

Here are a few examples:

* As of Feb. 15 of this year, prospective employees of the ''hotel'' portion of any casino hotel will no longer have to undergo a thorough investigation and background check before receiving a permit to work in a hotel. The casinos claimed the regulation was forcing them to lose precious time in hiring new employees. But, according to Assemblyman Hardwick and others, its removal opens the door to all kinds of potential undesirables, including prostitutes, who can now get jobs as barmaids and waitresses. Moreover, with one of the key hotel employee unions in Atlantic City under investigation for alleged ties to organized crime, repeal of the regulation is seen by some as clearing the way for disreputable union officials to get a hold on hotel operations.

* The Atlantic City Zoning Board has granted casino developers some 20 building variances over the last three years. Critics say many of the variances have been inconsistent with the city's own housing goals as stated in its ''master plan.'' Atlantic City occupies a compatively small area, according to Professor Hawkins, and its need for low- and middle-income housing is acute. Assemblyman Hardwick points out that the gambling boom here has had a two-fold effect on the city's longtime residents, particularly its sizable minority and elderly populations. First, many people have been forced to sell their homes because of encroaching casino development; second, many who chose to stay in their homes have been hit by skyrocketing real estate taxes.

* A proposed provision to require a written record of all contacts between state lawmakers and members of the Casino Control Commission (CCC), the main enforcement body set up under the Casino Control Act, was soundly defeated by a lobbying blitz last year. Those favoring the proposal said such a record of contacts would have helped discourage undue political influence on this sensitive regulatory body.

* The Casino Control Commission decided to make optional the so-called ''surrender rule'' in the game of black-jack. This rule permitted players who received bad cards to quit halfway through a game by ''surrendering'' or forfeiting half their bet. The casinos complained they were losing millions of dollars in revenue from the rule. Card players wanted the rule kept intact because it would be fairer to them, the ''consumers.'' The industry enlisted the support of some of the state's most prominent businessmen and politicians in its lobbying effort. One of its most effective spokesmen on the issue was Robert Ferguson, president of the First National Bank of New Jersey, whose bank was reported to have millions of dollars in outstanding loans to casinos.

Last July 22, then Gov. Brendan Byrne concurred with the CCC's declaration that without a change in the rule there would be ''imminent danger to the public health and welfare.''

In this case, as in others, says Professor Hawkins, there was ''no question'' that the CCC ''leaned over backwards to support the industry.'' But such instances of regulatory dilution as repeal of the ''surrender rule'' only hint at the cross fertilization between New Jersey's halls of government and its casino game rooms.

Over the last four years, hundreds of state officials, including some who played key parts in formulating the Casino Control Act, have left public life to go to work for the casinos in one capacity or another. Monitor research on 17 former state officials working for casinos showed that a number of them had played major roles in formulating the original casino legislation and shepherding it through the state Legislature.

Concern about the ethics of ''jumping ship'' grew to the point that legislation was passed last year requiring state officials to wait two years before becoming casino employees. The goal: to help reduce the possibility that government employees who smiled favorably on casinos when they were in office could immediately cash in on their pro-casino actions by taking high-paying casino jobs.

In the several weeks before this new waiting-period law took effect, some 150 officials left state employment to join casinos.

Shannon Bybee, president and chief operating officer of the Golden Nugget casino in Atlantic City and a former member of the Nevada Gaming Commission, takes issue with the idea that casinos jobs are payoffs to helpful politicians. He notes that if casinos wanted to reward a cooperating public official, ''there are a hundred other ways they can do it.'' He and other casino executives say they look upon the hiring of former government officials -- who know how to operate within the regulatory network -- as simply a good business move.

The revolving door between state government and the casinos indicates a close relationship between gaming concerns and those charged with regulating them. But evidence of out-and-out political corruption stemming from that relationship is difficult to come by. Casino-related indictments, arrests, and convictions have been rare.

The most noteworthy case was last year's federal indictment of former New Jersey Casino Control Commission (CCC) member Kenneth McDonald for bribery and extortion in connection with the Federal Bureau of Investigation's Abscam probe. Mr. McDonald was indicted for ''conspiracy to commit fraud by wire and interstate travel to commit bribery and extortion.'' His trial is expected to get under way in April. According to a US Justice Department spokesman, McDonald's indictment was definitely ''in connection with his official duties.''

More gambling-related indictments of politicians could be in the works. Sean McWeeney, head of the US Justice Department's Organized Crime Section, says his agency is currently investigating possible hidden organized crime interests in some Atlantic City casinos. And local political corruption often goes hand-in-hand with gambling, says Mr. McWeeney.

Many critics of New Jersey's casino industry say casino-government relationships often don't involve indictable crimes as much as ethical lapses and breaches of public trust.

To these critics, the clearest case of such a breach of trust was the CCC's approval in 1978 of a license for Resorts International Inc. When the Resorts application for a license first came before the commission, the state's own attorney general and Division of Gaming Enforcement recommended against granting it. They cited the firm's alleged ties to organized crime and its history of bribing Bahamian officials, among other reasons.''

We were out to throw them out of New Jersey,'' says G. Michael Brown, director of the Division of Gaming Enforcement. But while Mr. Brown could prove that the company had past associations with organized crime figures, he could not produce evidence of any current connections. The CCC voted to license Resorts.''

The applicant [Resorts] has demonstrated it's ability to properly operate the casino in conformance with the strict New Jersey regulations,'' CCC chairman Joseph Lordi noted in a 72-page statement issued in February l978. The company, he continued, ''has established by clear and convincing evidence its financial stability, the integrity and responsibility of its financial backers, its good reputation for honesty and integrity, and its business ability.''

Yet reams of testimony seemed to indicate that the company had anything but a reputation for ''honesty and integrity.''

For example, New Jersey's attorney general at the time, John J. Degnan, cited findings that the Mary Carter Paint Company, which later became Resorts International Inc., had engaged in business transactions with ''individuals of unsuitable character and nature'' who had records of convictions or of associations with criminals. His report said further that the company at the time had under contract an individual whose New Jersey real estate license had been suspended and who admitted to a ''close relationship'' with a person alleged to have criminal associations.

Then why did the CCC grant Resorts a license?Current and former state officials, along with organized crime and racketeering experts, cite two basic reasons. First, and most obvious, ''the CCC was petrified that if Resorts wasn't granted a license, the push for casinos in Atlantic City would die,'' as one top state official put it.

The second reason is that the Division of Gaming Enforcement didn't have the kind of hard evidence that would have forced the CCC to turn down Resorts' application. One reason for this, some observers charge, is that certain state officials stepped in and, in effect, squelched a proper investigation of the firm.

John Dombrink, a researcher with the Center of Law and Society at the University of California at Berkeley, has studied the casino licensing process in New Jersey and Nevada in depth. He says word came down from Governor Byrne that the special investigations unit within the Division of Gaming Enforcement be ''rearranged'' at a crucial point in the unit's investigation of Resorts. ''This had the effect,'' says Mr. Dombrink, ''of taking the hottest investigators off the Resorts trail and replacing them with people who had virtually no fraud auditing skills, which had the effect of squelching the investigation.''

Gigi Mahon, an editor at Barron's and the author of a book about Resorts International called ''The Company that Bought the Boardwalk,'' doesn't go this far. She doesn't suggest that Governor Byrne himself ordered a shuffling of investigators to dilute the evidence against Resorts. But her book does note that ''the shuffling of investigators often seemed to make no sense. Men with no accounting background were put on examinations of financial stability. Accountants were made to do wasteful checks on what one called 'companies that supplied rubber bands to Resorts.' '' In the aftermath of this reshuffling, she notes, the chief investigator quit and there was acrimony among those who remained.

In an interview with the Monitor, former Governor Byrne denied that he ever ''interfered'' with the investigation of Resorts International Inc., as Mr. Dombrink charges. Byrne pointed out, as evidence of his administration's unprejudiced stand on licensing Resorts, that his attorney general, John J. Degnan, recommended against licensure.

Professor Skolnick told the Monitor that ''Resorts International has a history of organized crime (associations)'' but that, currently, he could only say that he ''suspects'' the casino company of ties to organized crime. But he has seen no proof that the company still has these ties.

A spokesman for Resorts International categorically denied that the firm has any ties to organized criminals.

To critics of casino gambling, however, the approval of Resorts' license marked a turning point.

''Once Resorts International got a license to operate, that broke the dam,'' says Wilbur Edwards, a New Jersey businessman who has been a leader in the fight to keep organized crime and political corruption out of New Jersey. ''Then it became quite evident that the laws that should apply would not apply . . . . The state's public officials have made a joke out of the Casino Control Law.''

Next: Nevada, where the wheels of power have numbers

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