01:00 AM EDT on Monday, July 12, 2004

THIS WILL COME as a great surprise to many: For a casino to be legal under the Rhode Island Constitution, it must be operated by the State of Rhode Island (through the Lottery Commission or other state entity) -- not by a private entity, such as Harrah's. Thus, the proposed Harrah's casino is unconstitutional.

Before the adoption of the Rhode Island Constitution, in 1843, lotteries were a fairly common method for financing public-works projects. The Constitution, however, forbade any new lotteries: "All lotteries shall hereafter be prohibited in this state, except those already authorized by the general assembly."

In 1962, the state House of Representatives wanted to consider a limited state-run lottery. So it asked the Supreme Court whether a lottery operated exclusively by the state, for its own benefit, would violate the constitutional language. The Supreme Court's answer was as clear as the prohibition itself: "The people of the state by adopting the constitution containing section 12 [now section 15] expressly prohibited thereafter all lotteries. The language that they used is so comprehensive as to admit of no exception.

"This constitutional prohibition is, therefore, unquestionably the supreme law of the state and an act of the General Assembly authorizing any lottery, even one to be conducted exclusively by the state and for its own benefit would, in our opinion, be void."

The total ban on any new Rhode Island lotteries thus remained for 130 years, until 1973. In the words of the Supreme Court: "In that year, the Constitution was amended to lift the ban on state-run lotteries." The amendment created the Article 6, Section 15, that exists today: "All lotteries shall be prohibited in the state except lotteries operated by the state. . . ."

Since the creation, in 1973, of the state Lottery Commission, all lotteries have been operated by the commission for the state pursuant to the constitutional mandate -- that is, until the Harrah's proposal.

The Harrah's proposal would create a New Jersey-style private casino: the very opposite of a state-operated one. Indeed, the proposed ballot question (just vetoed by the governor) itself asks whether a "casino operated by an affiliate of Harrah's Entertainment in association with the Narragansett Indian Tribe" should be built.

The legislation, although providing for regulation by the Lottery Commission, would leave control over the types of lottery games, the number of games, the odds of winning and all revenues in the hands of the private casino operator.

With respect to all other Lottery Commission lotteries other than the casino -- including Keno and video lottery terminals (VLTs) -- such control rests with the state, in accordance with the state constitution.

For example, with respect to VLTs, the state obtains all of the net revenue and then pays its agents, per statutory formula, to house the machines and assist in their operation. The state keeps nearly 60 percent of the net terminal income. There is no tax, only payments to vendors.

With respect to a private casino, Harrah's would control all the revenue, and pay and control its vendors, and be subject to a state tax (at much less than 60 percent) contained in the statute. The legislation would let Harrah's operate its casino just like other private casinos in the United States.

The private operation, however, is exactly what Rhode Islanders rejected in their constitution. They did so with good reason -- state-operated lotteries keep much more lottery revenue for state programs and much less for private parties.

There can also be no question that a casino is a lottery under the state constitution. Indeed, the Supreme Court referred to the casino contemplated by the Narragansett Tribe in 1994 as a "lottery operation and facility." Moreover, the slot machines to be in the casino would be lottery games.

One constitutional provision that has been a focus in the recent debate -- the public-vote requirement of Article 6, Section 22 -- deals with legislative actions expanding the types of gambling, not expanding the types of entities that can lawfully operate an old or new type of gambling. Thus, while a vote of the legislature and the public can expand the types of state-operated lotteries in Rhode Island, it cannot eviscerate the requirement that all such lotteries must be operated by the state, not a private entity.

Indeed, there is nothing in the public-vote amendment (which is an anti-expansion provision) to even suggest such a result.

Whatever the merits of Harrah's pending casino proposal, the safe bet is that this privately operated casino loses a constitutional challenge.

Joseph Larisa Jr. was chief of staff and executive counsel to Gov. Lincoln Almond and an expert on Rhode Island gaming issues. He was co-counsel in successful defense of the constitutionality of VLT terminals in Newport against a challenge of improper delegation of legislative power to the Lottery Commission and GTECH, and the Almond administration's chief strategist and counsel in preventing a Rhode Island casino, new types of gambling, and VLT expansion during the governor's eight years in office.