States bet on gambling for revenue - Tuesday 12th of April 2005

Gambling revenues, once a mere trickle, have become a critical stream of income in a number of states, in some cases surpassing traditional sources such as the corporate income tax and helping states lower personal income or property taxes.

The sums are so alluring that some officials are concerned that their states are becoming as addicted as problem gamblers. "We're drunk on gambling revenue," said Wayne Smith, a Republican who is House majority leader in the Delaware Legislature. "Gambling revenues are like free money."

In Rhode Island, South Dakota, Louisiana and Oregon, not to mention Nevada, taxes from casinos, slot machines at racetracks and lotteries make up more than 10 percent of overall revenue, according to a new report. In five other states - Delaware, West Virginia, Indiana, Iowa and Mississippi - gambling revenues are fast approaching 10 percent.

So vital has the money become that in Rhode Island, gambling revenue has surpassed the corporate income tax to become the state's third-largest source of income, after the personal income and sales tax. It has enabled the state to avoid raising its income tax for 10 years.

Because of gambling, South Dakota officials a decade ago were able to push through a 20 percent reduction in property taxes by increasing the state's share of gambling revenues from video lottery terminals to 50 percent, up from 37 percent.

A property tax reduction was the main argument in Pennsylvania for legalizing gambling when the Legislature last year authorized slot machines at racetracks and casinos after years of intense opposition.

In Delaware, where video slot machines were legalized in 1994 as a way to revive the state's ailing horse racing and horse farming industries, racetracks are thriving, horse farms have been preserved and the Legislature, unexpectedly, has been able to cut the top personal income tax rate over several years during the late 1990s to 5.9 percent, down from 8.4 percent, a reduction of nearly one-third.

The scenes that fuel Delaware's success take place every night. On a recent cold, rainy weeknight, many of the 2,500 video slot machines at Dover Downs were clinking steadily, as customers from as far away as Baltimore, Washington and Richmond, Va., pressed the play button every three seconds, as fast as the electronic terminals can spin.

That was good news for the state, since Dover Downs, a combination harness racetrack, Las Vegas-style hotel, slot machine emporium and NASCAR track, pumped $102 million from its slot machines alone into the state's budget last year. Delaware overall got $222 million from gambling, or 8.1 percent of its $2.72 billion in state revenues.

But Delaware, like most states that have come to rely on gambling revenue, now faces a danger - competition from nearby states for the same dollars.

About 70 percent of gambling revenue in Delaware's three "racinos" (racetracks with video slot machines) comes from visitors from Pennsylvania and Maryland, according to the Delaware Department of Finance. But Pennsylvania legalized slot machines last year, and the Maryland Legislature is debating a bill to legalize gambling there.

If Pennsylvania and Maryland install all the slot machines they are considering, Delaware could lose $120 million annually, almost 5 percent of total state revenues, said Tom Cook, a spokesman for the Department of Finance.

In Dover, the looming battle with Pennsylvania and Maryland has touched off a debate pitting the governor, Ruth Ann Minner, against many legislators.

"We have legislators every day who propose opening new venues, like a big casino on the waterfront in Wilmington or a floating barge in the Delaware River," said Minner, a Democrat. "But there are only so many dollars that are going to be spent on gambling, and I don't want to build that into the base of my budget and then find Pennsylvania and Maryland leaving a $120 million hole in it."

So Minner has decided, in her words, "to draw a line in the sand." She has allowed longer hours at the state's three racinos and encouraged them to modernize to attract out-of-state bettors. But she is saying no to stand-alone casinos or other proposed forms of gambling such as blackjack tables and sports betting.

Similar dilemmas are cropping up around the country now that 48 states, with the exception of Utah and Hawaii, have legalized some form of gambling.

South Dakota first legalized gambling for a limited purpose - allowing casinos in the decaying frontier town of Deadwood to try to preserve it.

But South Dakota now gets $112.8 million a year from gambling, most of it from video slot machines in bars all over the state operated by the state lottery. Gambling accounts for 13.2 percent of South Dakota's revenue, according to state figures.

David Knudson, a Republican state senator from Sioux Falls, concedes that gambling has brought some benefits. In 1995, he was chief of staff to the governor, Bill Janklow, when gambling allowed South Dakota to reduce the property tax by 20 percent.

"But that only increased our dependence on gambling," Knudson said. He noted that gambling opponents often cite the danger of addiction for individual gamblers, but "the biggest addict turns out to be the state government that becomes dependent on it."

Iowa, which pioneered modern riverboat gambling in 1989 when it legalized gambling as long as the boats were cruising on a river, strives to keep ahead of neighboring states. When Illinois and Missouri passed similar laws, the Iowa Legislature voted to add slot machines at racetracks. It also negotiated with Indian tribes for casinos.

Last year, facing a $140 million budget shortfall that threatened education programs, Iowa added table games at racetracks, dropped a moratorium on new gambling licenses and allowed gambling on riverboats when they were tied ashore.

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