The Hotel/Resort Proposal for Pohnpei

Casino gambling is an old issue in Micronesia. The idea has been tossed around many times before, as in 1983 when investors proposed the idea of offshore gambling on Pohnpei. The latest incarnation of gambling appeared nearly a year ago when Rancho Verde, a British and Australian investment group, offered to establish a hotel/resort complex in Lukop, Madolenihmw. The proposal included a five-star luxury hotel with 200 rooms, a golf course and a casino, as well as 200 executive condominiums. The proposed complex would cover 350 acres of public land in a sparsely settled area of the eastern side of the island. The proposal carried the rider that this resort was to hold exclusive gaming rights on the island.

The investors were to receive the land almost gratis: the proposed lease payment was only $1,000 a year. The economic benefits for Pohnpei were to come in other forms. The investors promised to complete the paving of the road to the resort site and offered a gift of $1 million to the island schools. An additional inducement was the 270 jobs that were to be made available to local people in the resort.

Meanwhile, a second group of investors, a Korean group acting through E. M. Chen, made a similar proposal through a local businessman. They have already been approved by the Foreign investment Board but have no land for their project.

The New Legislation

These recent signs of interest in establishing a gambling industry on the island drew a quick reaction from the Pohnpei Legislature. If investors were knocking at the door to set up casino hotels at a time when the state was looking for viable industry and a means of support for the post-Compact future, Pohnpei should be prepared to take advantage of the windfall. The Legislature, then, passed a law (3L-97-95) officially earmarking the land in Lukop as the location of the resort complex and setting up a process for screening proposals for resort hotels like the two that had already been submitted.

With the Rancho Verde project as its focus, the new law set up a commission of seven members to discuss these and future proposals and to get feedback from local people. The commission was to include three representatives from Madolenihmw as well as three more from the government and someone from the Chamber of Commerce. The commission was not only expected to educate the public about these proposals, but was also given the duty of setting up standards for evaluating the same proposals.

This new piece of legislation, while opening the door to a second resort complex or more, deftly avoided any mention of the gambling issue. Pohnpei law currently makes gambling on the island illegal. Legislators, looking to the elections in November, seemed to want to avoid any public discussion of repealing this law until later in the year. Instead, the new legislation stipulates greater benefits from resort hotels like the one proposed for Lukop. They must be five-star luxury hotels of at least 200 rooms, and investors must be willing to provide the equivalent of $4 million for infrastructural development, $1 million for social program support, and 20 percent ownership for the state with a guaranteed income of 2.5 percent of the gross receipts.

How will proposals for these resort hotels be screened? The Pohnpei Legislature has invited other hotels to submit proposals so that there is as large a pool of competitors as possible. The commission will, after reviewing the proposals, select the two or three best and present them to the Foreign Investment Board for final approval. Local people are to be consulted by the commission during this process.

The Lure of Gambling

Although the new law does not directly address the matter of gambling, the investors obviously anticipate opening a casino at the resort on Lukop. The casino is the drawing card for the affluent foreigners who will patronize the hotel, and it is seen as the big money-maker for the investors.

Gambling is a particularly attractive option for a small island with a struggling economy because it attracts a wealthy, high-end clientele. Even a rather small tourist industry can be very lucrative when the tourists all have lots of money to spend. Christmas Island is one example of an island that has been doing a profitable business in gambling. Rich tourists are flown by charter flight to the island to spend a few days in its casino. The Northern Marianas has recently approved casino gambling, although none of the casinos has yet been built, and Guam has been toying with the idea for some time now.

What guarantee do we have that the proposed casino will bring the economic benefits that the investors promise? The figures cited in the proposal come from those backing the resort and no independent cost-benefit analysis has been done. Nor has a background check yet been done on the investors to establish their credentials and financial soundness. One participant wondered whether the promise of hundreds of jobs for Pohnpeians might prove an empty one, inasmuch as most of the resorts on Guam and Saipan depend on Asian workers rather than Micronesians. Another participant pointed out in rejoinder that other businesses on the island, including one of the major fishing operations, employ a local work force. In the end, even those most favorable to the proposed casino admitted that its economic benefits are still speculative.

To some, the gambling industry is one of the few bright stars in an otherwise dark economic future. It offers the hope of a rich return on someone else's investment after so many failures in the past Compact years. Its appeal to countries like FSM is very much like its appeal to the people who crowd around the gaming tables: a lucky throw of the dice or a draw of the cards can bring a fortune. Or perhaps lose it. One of the participants asked a challenging question: Why must we always think big when it comes to development schemes? Why can't we have the patience to develop the economy bit by bit? "Without streams there are no rivers," one person ventured.

The Issues

The most hotly debated issues surrounding the proposed gambling casino have to do with its environmental and social impact on the community. The environmental consequences of building a large casino resort covering 350 acres are enormous, but they have nothing to do with gambling as such. The social impact of the casino is the real issue here, and it can be seen on two different planes.

Would a casino attract local clientele and promote irresponsible gambling among Pohnpeians? "People don't spend their money on what they should nowadays, and gambling would only make it worse," one person commented. Some participants recalled the problems slot machines caused among Saipanese in the early 1970s. Men and women would spend hours at a time playing the slots, neglecting their children and spending money they could not afford to lose. Within a few months, people were selling their land to pay off debts, defaults on bank loans were multiplying and family turmoil was on the rise. Similar effects have been observed on US Indian reservations, where gambling is allowed.

There are ways to forestall this, of course. Laws can be passed to limit gambling to within limited areas and to discourage local people from patronizing the casinos. In some places passports or tax receipts are required before one can enter a gaming house, or entry fees are imposed to screen out the non-affluent.

Even if gambling itself does not spill over into the local populace, there is another, less immediate level of social impact on the community. Prostitution and drugs almost always seem to accompany casinos, and gambling often attracts a criminal element, it is said. The Bishop of Reno-Las Vegas, in a letter describing the effects of casino gambling, commented on the "materialistic and hedonistic atmosphere" found in communities that cater to the gaming industry. No one denied that a large gambling resort would make radical changes in the social environment, although not everyone was willing to concede that the changes would be as poisonous as they were sometimes described. One person observed that there is just as much dislocation to be seen on Guam, which allows no gambling, as there is in Las Vegas or Reno, the two gaming meccas of western US. It may not be casinos that do the damage, but the large tourist hotels and the air of revelry that large-scale tourism brings. Guam and Las Vegas are both "party towns," he suggested. Perhaps the most serious difficulty with casinos is really the tourism that it brings with it.

Who Decides?

The reaction of local interests to the casino proposal is mixed. Some of the leadership in Madolenihmw seems to be in favor of it, but there are others in the community strongly opposed. The legislature is playing its cards close to the vest before the elections, but many expect it to pass a law overturning the gambling ban after November. The churches on the island have not yet taken a stand one way or the other. A representative of the Pohnpei Catholic Church said the church's position is still neutral on the issue; it is working to present the facts to people so that they can make an informed decision of their own. Bishop Amando noted that when the gambling issue came to the fore in Chuuk last year, the churches there maintained a strong and solid front against casinos.

Who should make the final decision on the casino? Those local residents to Madolenihmw who would be most affected by the large complex, or the government leaders responsible for development planning? The process established in the new legislation creates a commission to listen to the people, but the commission retains much of the power to decide. Some participants felt that the authority of the legislature and the commission are too great. No popular referendum is mandated, and so people are left at the mercy of their lawmakers. As one person said, the right to choose should be in the hands of the people, not just the legislature.

Whether the Rancho Verde casino is ever built or not, the gambling issue will remain a crucial one in the years ahead. In its search for viable economic development, Pohnpei will be looking for a high-gain new industry to bring in the dollars it needs to replace declining US subsidies. The state once moved precipitously into high-cost fishing projects that proved unsuccessful. As one participant put it near the end of the discussion, "We don't want Pohnpei to make a second mistake: first fisheries, and then casino gambling."