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Gambling bug bites many needy states

A growing number of states are turning to gambling to ease staggering budget deficits and to spur other economic activity and jobs.
New York took the lead. After the Sept. 11 terrorist attacks, the state quickly joined a multistate lottery and allowed casino gambling at five racetracks to generate more tax revenue. It approved new Indian casinos at Niagara Falls and in the Catskill Mountains to try to revive those resort areas.

Already this year, Washington state and Pennsylvania have joined multistate lotteries, and Illinois and Indiana have raised taxes on receipts from riverboat casinos. Four other states — Arizona, Idaho, Nebraska and Tennessee — will ask voters Nov. 5 whether to expand gambling or to start new types of games. In Iowa, voters in 10 counties will be asked whether to keep riverboat gambling and casino games at racetracks. In North Dakota, voters may be asked whether they want to join a multistate lottery.

And with projections that budget deficits will continue to soar, 2003 is shaping up as a possible watershed year in which experts predict all but a handful of states will consider expanding legal gambling or boosting taxes on it.

With 46 states having faced revenue shortfalls of $40 billion during the past year, no state expects increased lottery receipts or taxes on legal betting to cure its financial ills. In most states, income from gambling provides less than 5 percent of tax revenue, says Keon Chi, editor of “The Book of the States” that is published by the Council of State Governments in Lexington, Ky.

But for states that already have cut spending, depleted emergency “rainy-day” funds and raised “sin taxes” on liquor and tobacco, lottery money and taxes on winnings and gambling operations provide some relief.

“When there’s a recession and the alternatives are raising taxes or cutting services, gaming looks pretty attractive,” says former Republican national chairman Frank Fahrenkopf, president of the American Gaming Association, which represents casinos and the gambling industry.

It’s no wonder that states eye gambling for cash. Betting is big business, as state lawmakers already know. All but three states — Tennessee, Hawaii and Utah — have some form of legal gambling. Forty-six states allow charitable gambling, 41 allow betting at racetracks, and 38 states and the District of Columbia operate lotteries. Native American casinos are permitted in 23 states; commercial casino are allowed in 11. Six states allow electronic gambling devices such as slot machines at racetracks.

Merrill Lynch financial analyst David Anders, who follows the gambling industry, estimates revenue from all forms of gambling will total $41 billion this year, up from $39 billion in 2001.

Taxes aren’t the only reason gambling has an appeal for states. Casinos and riverboat gambling, for instance, create jobs and often spur hotel construction and retail development. The American Gaming Association estimates that every $1 million in casino revenue creates 13 jobs at an average annual wage of $26,000.

Perhaps no state points up as well as Tennessee why gambling looks like easy money. Last month, lawmakers ended a budget impasse that had shut down most of government for three days by approving the largest tax increase in state history. They increased the sales tax a penny and imposed higher taxes on businesses, alcohol and tobacco to raise $933 million.

A statewide poll this summer showed wide support for a proposal on the ballot in November that would drop a constitutional ban and allow a state lottery. The proceeds would go mostly to scholarships for Tennessee residents at in-state colleges and universities.

If gambling looked attractive this year in many statehouses, experts predict it will appear more so next year.

“I think legislators and governors gave it a first look in 2002. In year two of their fiscal crisis, I think you’ll see some real movement in legalizing gambling,” Anders says.

Chuck Brooke, a lobbyist for International Gaming Technology, a leading slot-machine maker, agrees. “Expansion of legalized gambling is definitely going to be an issue next year in every state except Utah,” he says.

But because lotteries, horse racing and casinos already are fixtures in so many states, lawmakers will have to look to adding new games or allowing them in more places if they hope to increase revenue. That means more slot machines and casinos in more places in the country; increasing the limits on how much people can bet; permitting more casino-style gambling at racetracks, and raising the tax rate on gambling proceeds.

Putting casinos at racetracks is the fastest-growing and most popular form of gambling expansion. “It produces a lot of revenue, it takes place where gambling is already accepted, and it permits the gambling to be up and running quickly,” Anders says.

But the prospect of more state-sanctioned gambling isn’t a pretty one for some people.

“What they sell is an addictive product,” says Tom Grey, a Methodist minister who travels 200 days year as executive director of the National Coalition Against Legalized Gambling. “The job of government is to protect and serve people — not to addict and rob them.

“Most people in this country feel we already have enough gambling,” Gray says.

The push to expand gambling comes despite recommendations from the National Gambling Impact Study Commission that states go slowly.

“Without a pause and reflection, the future does indeed look worrisome,” the commission, which was created by Congress, said in 1999. Otherwise, “a likely scenario would be for gambling to continue to become more and more common, ultimately omnipresent in our lives and those of our children, with consequences no one can profess to know,” it warned.

But nearly everyone, including Grey, agrees that the push will continue as long as states are hard-pressed to overcome deficits.

He says gambling expansion was stalled in many states because it is an election year. State lawmakers and gubernatorial candidates don’t want to endorse more gambling when they are up for election, as most are in most states this year.

Next year is a different story. Then, it will be politically easier to vote for expanded gambling or more taxes on gambling than it will be to increase sales or income taxes.