Another State Looks at Gambling to Solve Budget

April 17th, 2008 at 12:32pm Andrea Zimmermann

Sunday’s New York Times Magazine had an interesting piece on Massachusetts’ bid to become the latest state to use gambling to plug its budget hole.

In sum, the article weighs the negatives and positives to state-owned gambling operations.

First the background:

The plan [proposed by Gov. Deval Patrick] was for Massachusetts to sell three 10-year licenses for at least $200 million apiece and then tax the casinos’ takings at 27 percent, raking in $400 million a year. That, went the reckoning, would cover a $1.3 billion budget shortfall.

The Times’ story went on to say that of the more than 500 casinos in the U.S., most of them were established over the past 20 years, and “they account more than half of the almost $100 billion that Americans wager every year.” Illinois, which in 1991 became the second state to legalize riverboat gambling, is part of that group.

And the attraction?

[Casinos] create money out of thin air.

It’s easy to see why lawmakers in any state would want to use gambling revenues to backfill budget shortfalls. Expanding gambling is easier than raising taxes, but it does come with its share of social ills:

Casinos are marketed to voters the same way they are marketed to patrons — by accentuating moments of exhilaration and playing down the way the business is designed to take in more money than it pays out. The image of the gambler that casinos want to convey is of someone wild, free, savvy, like a rogue in a cologne ad or a John Ford movie. He knows when to hold ’em, knows when to fold ’em. This image is meant not only to flatter the gambler but also to legitimize the casino.Mister Free Spirit wouldn’t play a rigged game.

There is a catch, though. The most important segment of gamblers is not free. And those gamblers are important because they are not free. Compulsive and problem gamblers make up only 2.4 percent of gamblers, according to the National Gambling Impact Study Commission, but they account for a third of receipts, or more. A 1995 Minnesota study found that 1 percent of patrons made half the wagers. Where you have saturation gambling, as in Las Vegas, about two-thirds of residents at least try it — and 2.4 percent of that two-thirds is a ton of problem gamblers. It translates into rises in suicide, embezzlement and bankruptcy that have real social costs.

Riverboat casinos have been legal in Illinois since the early 1990s, and perennially, legislators craft bills to expand gambling even further. The current gaming expansion debate, which began last year and has bled into the present legislative session, aims to generate revenue through new gambling money to fund a capital construction plan.

Anyone driving on Illinois’ roads knows how bad the state needs a capital plan. Folks in Rockford know this all too well. The Legislature has not passed a capital plan since 1999.

Among the options to fund such a massive construction plan, expanding gambling seems to be the only viable option that any of the four leaders are willing to consider.

The Senate passed a gambling expansion plan in September. The plan would call for the state to issue the remaining 10th riverboat casino license, create three land-based casinos and increase the number of games at the nine current casinos. The vote was 37-15, with Sen. Dave Syverson, R-Rockford, voting yes, and Sen. Brad Burzynski, R-Clare, voting against it.

Critics of expanding gambling include the usual suspects: church and gambling addiction groups and Lt. Gov. Pat Quinn, who has said the Senate’s plan would make Illinois the “Las Vegas of the Midwest,” and that gambling is akin to a regressive tax on the state’s low-income population. Quinn has called for lawmakers to put the expanded gambling question on the ballot, and a January poll backed up his demand.

In the House, the future of gambling expansion is more complicated. First, the Senate’s bill, which moved onto the House after approval, has been referred to the Rules Committee, commonly known as the place bills go to die. House Speaker Michael Madigan, D-Chicago, introduced his own gaming package last December. That legislation received a hearing in the House in early January, but now sits with the Senate’s bill in the Rules Committee.

As the Times’ piece points out, relying on gambling as a consistent moneymaker can be shaky at best. Gambling is a leisure activity for most people, and when budgets get tight, one of the first parts of a person’s budget to get cut is the entertainment budget. Gambling revenue in Las Vegas in January dipped for the first time in more than five years. In Illinois, revenues dropped by 13 percent. Industry officials blame the new statewide smoking ban, but the Times’ story explains that money streams are lower everywhere, including Atlantic City with a 10 percent drop. As a way to make up for the lost revenue, officials are exploring the possibility of 24-7 gaming.

The state’s Commission on Government Forecasting and Accountability in March examined the casinos’ sliding revenue numbers. You can read the full report here. (Start on page 9.)

Several factors are likely contributing to this turnaround in riverboat figures. The struggling econmy along with the higher motor fuel prices are likely lowering the amount of income that consumers feel that they can afford to spend on gambling. In addition, the 2007-2008 winter season has been particularly harsh, producing several weekend storms that likely prevented gaming during normally busy weekend periods. However, it appears that the biggest factor that may be affecting Illinois casinos is the statewide smoking ban that went into effect on January 1, 2008.

As two high-profile former lawmakers join forces to ensure Illinois legislators agree on a capital plan this year, it is more and more likely that gambling, and all of its ups and downs, will become the plan’s sole funding source.

So stay tuned, this issue isn’t dead yet.

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