The State Racing and Gaming Commission voted 4-1 this morning against allowing a new casino to be built in downtown Cedar Rapids. Last year Linn County voters approved a casino referendum by a 20-point margin. Even some opponents of the project believed its construction was inevitable, given the political connections of the group hoping to build in Cedar Rapids. However, today’s vote is in line with the precedent of approving gambling licenses only where new casinos would not “cannibalize” from existing ones in Iowa. Four years ago, the Racing and Gaming Commission rejected applications for casino projects in Fort Dodge, Ottumwa and Tama County, despite public approval of all three plans. Multiple studies indicated that the Cedar Rapids casino would draw much of its business from Iowans who now visit casinos in Riverside or Waterloo.

I will update this post as needed with political reaction to today’s vote. Although many Bleeding Heartland readers will be disappointed, I agree with economists who have argued that the “interior casinos” not near Iowa borders do not promote economic development. Meanwhile, new casinos incur significant social costs.

Already I’ve seen several Cedar Rapids residents asking whether the CEO of the Riverside casino will build the waterpark he promised last year, if Linn County voters rejected the casino project. Don’t hold your breath.

UPDATE: In his report for the Cedar Rapids Gazette, Rick Smith noted that Cedar Rapids Mayor Ron Corbett “served in the legislature with three of the five members of the Iowa Racing and Gaming Commission.” Former Iowa House Republican and Iowa Senate Republican Jeff Lamberti both voted no this morning. Dolores Mertz, who used to be the most conservative Iowa House Democrat, was the only commissioner to vote yes.

SECOND UPDATE: Further thoughts and more reaction are after the jump.

Last spring, many central Iowa Democrats assisted efforts to pass a casino referendum in Warren County. I was glad when it failed, but some of my friends were disappointed. I hope they realize that based on what just happened, the Iowa Racing and Gaming Commission never would have granted a casino license for a facility in Warren County. Surely studies would have shown that casino would mostly cannibalize from Prairie Meadows in Altoona (Polk County) and the Lakeside casino in Osceola (Clarke County).

Radio Iowa spoke to the big names on both sides of the Cedar Rapids casino fight. Lead investor Steve Gray was disappointed that his group won’t be able to do “something meaningful for Cedar Rapids and eastern Iowa.”

Dan Kehl operates the Riverside Casino and was pleased to hear the Cedar Rapids developers would not get a casino license. The state gambling studies said the new casino would eat into Riverside’s profits. “We are grateful to have this process behind us and thankful for the commission’s hard work,” Kehl says.

Kehl was asked if this will end attempts to gain a new casino. “There’s one more application pending, we’ll see how the commission reacts to that – but the market is clearly saturated or really near saturation,” Kehl says. “If we want to have first-class casino facilities here in Iowa that are competitive with surrounding states, we need to limit the competition so we can afford to reinvest, because of our high tax rates.”

Linn County Supervisor Brent Oleson, a big advocate of the casino, posted this comment on Facebook April 17:

I’ve had a chance to decompress from 3 years of working for gaming in CR & being turned down. It’s a no. I get it. I’m disappointed. But I will tell you, there was 1 positive I took away from this struggle. The Racing & Gaming Commission couldn’t be manipulated & predicted by powerful interests on either side of the equation. We lost…but fair & square. The gaming industry in Iowa is legit. Not subject to the Governors cronies, not subject to to wealthy power brokers, not controlled by those with access to all the “right” people. They told me NO on the fairest and purest of terms. That’s the positive I take from today…nobody manipulated the outcome, the most powerful had to wait on each side…for the decision of the people. Disappointed, but for this suspicious & jaded soul of the special interests controlling everything, I am proud to know in Iowa that an easily corruptible industry like gaming is uncorrupted by any of the interests and in the hands of 5 people who decide on merit & philosophy (even if I disagree) rather than on who you know or how much money I can promise you.

Other supporters were hoping local charities would get a cut from Cedar Rapids casino revenues:

Keith Rippy, executive director of Area Ambulance Service and president of the non-profit Linn County Gaming Association, said the commission vote caught him by surprise. He said he thought the large community support in Cedar Rapids and Linn County for the project and the quality of the casino proposal would have been enough to secure the state gaming license. The non-profit would have had some $2.5 million from casino revenue to distribute to local programs, and now it won’t, he said.

“From the standpoint of the non-profit, I’m just very disappointed,” Rippy said. “In my mind, we just lost $2.5 million we could have given back to the community.”

It probably won’t make Rippy feel any better, but I suspect the social costs of a new casino in Cedar Rapids (not to mention revenue losses to existing businesses in town) would have far exceeded $2.5 million.

In June, the Racing and Gaming Commission will decide on an application for a new casino in Jefferson (Greene County), where voters approved a referendum last year. Commission chair Jeff Lamberti indicated that no one should jump to conclusions based on the latest vote.

“I think we’re not necessarily looking at an apples-to-apples comparison,” Lamberti says. “Obviously here in Linn County we were looking at a very significant impact on two or three markets.”

Lamberti says they will look at the proposal to build a Greene County casino near Jefferson based on its impact in that area. “So I think what we’re going to do as a commission is start the process that we did in Linn County and go back and look at them on an individual basis, and look at the individual facts,” Lamberti says.