States Turn to Gambling to Fix Budget Woes


Gambling, once considered a major vice, is today's savior for many states that are rolling the dice and hoping lotteries, slot machines and casinos will create income, jobs and healthier budgets.

Loath to raise taxes, particularly in an election year, state policy-makers in at least 24 states have looked at gaming proposals this year to boost revenues and help pay for education, health care and other basic necessities that states provide, according to Ian Pulsipher, a fiscal expert who tracks gambling developments at the National Conference of State Legislatures.

Iowa, Maine, New York and Oklahoma already have expanded gambling this year, and voters in at least four states California, Nebraska, Ohio and Oklahoma may get to decide this November whether they want more games.

Fifteen years ago, gamblers had to go to Atlantic City, N.J., or Nevada to find legalized casino gambling. Today, 11 states allow commercial casinos; six have riverboat or dockside casinos; and 23 states have within their borders casinos that are owned and operated by American Indian tribes. Thirty years ago, lotteries were found in only seven states; now 40 states have caught Lotto fever and North Carolina and Oklahoma may be next this year. Forty-one states have horse racing, dog racing or jai-alai.

Only two states Hawaii and Utah are without any legalized gambling.

Gambling is not without controversy, and the question of whether to bring in or expand gambling is dividing statehouses across the country. Proponents say lotteries, slots and other games of chance are fun entertainment and create jobs and wealth for localities and states. Opponents counter that any form of gambling begets crime, gambling addictions and other social ills, which can end up costing the states more in the long run.

But many states are starved for cash and see gambling as a way to offset revenue lost to the changing U.S. economy. U.S. workers produce fewer goods, such as cars and appliances, which are taxed by most states, and more services, which most states do not tax.

"Whether it's video lotteries, casinos, horse racing or lotteries ... every aspect of gambling has been expanded. States really need this extra revenue," said Sujit M. CanagaRetna, a tax and budget expert at the Council of State Governments.

The revenue gambling can bring to state coffers depends on the kind of games a state offers and varies widely.

It may come as a surprise, but wholesome Middle America has become a hotbed for gamblers. Some 40 riverboat and dockside casinos already operate in Illinois, Iowa, Indiana and Missouri, and it's a good bet more are in the offing. Iowa this year passed a comprehensive gambling law that allows the gaming commission to issue an unlimited number of casino licenses. Gaming proposals currently are being hotly debated in Illinois.

But Kansas Gov. Kathleen Sebelius (D) failed in her bid to bring a combination of casinos and slot machines to draw tourists to the Sunflower State. While the Kansas Legislature already has adjourned, gaming may come up again as lawmakers face a court deadline to reconfigure how to fund schools.

States such as Kansas see residents crossing state lines to play the games they lack. "It's a lot harder to argue against gambling when so many of your state residents are already doing it; they're just doing it in a neighboring state . ... There's an insidious spread to [gambling]," said Nick Johnson, a state budget expert at the Center on Budget and Policy Priorities, a Washington, D.C., group that focuses on policies affecting the poor.

But gaming ventures may not yield the reliable payoff states expect, Johnson said. Once most states hop on the gambling bandwagon, they end up competing for the same players, Johnson said. Kentucky, for example, estimates the state lost more than $1.8 million in the recent $213 million Powerball drawing because Tennessee residents now have their own lottery and didn't bother coming to Kentucky to buy tickets.

By far, the most common gaming proposal this year is to bring slot machines or video lottery terminals to racetracks, commonly known as racinos. At least 14 states have racino proposals. Politicians often see racinos as an easier sell to voters than casinos because the proposals generally don't involve building new facilities, but simply adding video games and slot machines to tracks or other venues where gambling already is taking place.

"Slots don't have the baggage of casinos," said Sugit of the Council of State Governments. Casinos, for some people, bring to mind bright lights, loud crowds and organized crime. Adding slots to racetracks also is pitched to voters as a way to help bolster a state's own racing industry, NCSL's Pulsipher said.

Seven states already have racinos Delaware, Iowa, Louisiana, New Mexico, New York, Rhode Island and West Virginia and two more states Maine and Oklahoma -- will join the fold. In Maine, voters last November rejected a casino referendum but approved slot machines at commercial tracks, and the Legislature this year set that in motion by creating a Gambling Control Board. Oklahoma this year passed legislation allowing electronic bingo terminals at three racetracks.

How much a state can count on from racinos varies, but it can be a healthy chunk of change. Delaware, for example, in 2001 collected $565 million from three racinos, or 8 percent of the state's budget, and 10 percent of West Virginia's budget came from its four racinos in 2001, according to Courtney Reiter, a spokeswoman for the American Gaming Association, a trade group that represents commercial casinos.

Other racino proposals this year include:

  • Illinois has a proposal that would bring 3,200 slot machines to each of the state's five horse racetracks, and allow bars and social clubs to get three machines each. 
  • Indiana, which ended its session in March, considered but didn't pass a bill that would have allowed 1,000 electronic pull-tab machines at each of the state's horse tracks and 1,500 betting parlors.
  • Kentucky and Minnesota both ended their sessions without approving bids to bring slots to racetracks. 
  • New York brought video lottery machines to at least two racetracks and more may be on the way.
  • Ohio voters in November would get to decide whether to allow more than 2,000 video lottery machines at each of Ohio's seven racetracks under a proposal pending in the Legislature.
  • Republican Gov. Robert Taft opposes the idea.Maryland's General Assembly rejected a bid from Gov. Robert Ehrlich (R) to put more than 15,000 slot machines at racetracks to pay for education. Some state lawmakers are pushing to put the slots proposal before Maryland voters this November, but Ehrlich opposes the idea.
  • Pennsylvania Gov. Ed Rendell (D) figures the state can add $1 billion to its coffers by bringing 36,000 slot machines to 12 venues in the Keystone State, including eight racetracks. The Legislature is considering the measure.

Commercial casino proposals are not as numerous as slots, but they dominate most statehouses that consider them, notably Iowa, which passed a gambling bill, and Kansas, which did not. Casinos also are a big topic in Illinois where lawmakers are battling with Gov. Rod Blagojevich (D) over whether to expand gambling to balance the budget. Blagojevich already has ruled out video poker terminals or a city-run casino in Chicago. Nebraska, which already has horse racing and lotteries, will let voters determine this November whether to allow two casinos in the state.

The 11 states that allow commercial casinos are: Colorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri, Nevada, New Jersey and South Dakota. Casinos brought $4 billion in tax revenue to these 11 states and local governments in 2002, according to the American Gaming Association.

In Rhode Island, "Jobs! Jobs! Jobs!" was the mantra of demonstrators outside the capitol earlier this month as lawmakers considered whether to allow an Indian casino in Providence that could bring the state $125 million a year.

The big difference between commercial and Indian-run casinos is that state law, generally, does not apply to Indian-run casinos and so states can't collect taxes. However, federal law requires an Indian tribe to negotiate a voluntary "compact" with the state that covers "the conduct of gaming activities," and here is where states are putting more pressure to cut deals. California Gov. Arnold Schwarzenegger (R) is negotiating new casino pacts with tribes with hopes of getting a healthy percentage of the Indian casino profits.

In the meantime, petitioners have gathered enough signatures to put two questions to California voters this November. One would require Indian tribes to share 9 percent of their revenue with the state. The other would force tribal casinos to share 25 percent of their revenue with the state; tribes that refuse would lose their monopoly on slot machines in California and have to allow private businesses to operate 30,000 slot machines.

Voters in Oklahoma will face a different question this November: whether to become the 41st state to have a lottery. Most states already have tapped lotteries as an easy way to generate more cash. Tennessee and North Dakota are the most recent to join the fold, and North Carolina may be next.

North Carolina Gov. Mike Easley (D) wants a lottery and has made it a major campaign issue as he tries to get reelected. The General Assembly went into session May 10 and is expected to turn to the issue.

These popular games of chance are often an easy sell to voters because states tout that the lottery proceeds go to education. At least 22 states earmark proceeds for education, according to the Education Commission of the States, a Denver-based group of state education experts that tracks education financing and lotteries.

Lotteries' payout for education may be less than many think. The Illinois lottery, which mandates that all lottery profits be used to support education, is a case in point. Though lottery sales amounted to $1.59 billion in fiscal 2003, education got $540 million, after taking into account winnings and overhead, according to the state. That represents about 7 percent of the state's contribution to public education. When Illinois education funds from all sources are taken into consideration -- federal, state and local -- it's about 3 percent of the $19.5 billion spent each year.

In addition to North Carolina and Oklahoma, the other states without lotteries are: Alaska, Alabama, Arkansas, Hawaii, Mississippi, Nevada, Utah and Wyoming. 


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