Why More States Are Turning to Gambling as a Source of Revenues
Introduction
Political and budget pressures leave state governments with no choice but to investigate new revenue sources. Non-tax and non-traditional revenue sources seem to be one of the most desirable sources of new money. For most state governments, gambling, it seems, is the most viable option for raising funds to help close revenue gaps, expand services, or reduce school property taxes.
Gambling has come a long way in the United States. In 1910 to 1931, gambling was illegal in any part of the US (Pennsylvania Economy League, 2004). But after the Great Depression, Nevada broke the system and became the first state to legalize gambling. Now, gambling has turned into a $65 billion-a-year industry, extending from the west to the east coast, enjoying vast government support, and maintains widespread acceptance among Americans. Results of a survey done by the Peter Hart Research Associates and Lutz Research Companies among 1000 people indicate that almost 85 percent of Americans say gambling is “an acceptable entertainment option for themselves or others” (Pennsylvania Economy League, 2004).
To date, several forms of legalized gambling exist in 48 states, varying from state-sponsored lotteries to casinos, and the increasingly popular racinos. In many states, gambling revenues, from casinos, video lottery terminals and slot machines, are used to fund programs, including education and transportation, and to reduce property tax burdens. Gaming venues also provide job growth and draw tourists. Pennsylvania, for instance, Pennsylvania is among 20 states considering expanded gambling to help close revenue gaps, while in Rhode Island, gambling is such a bursting industry, its revenue has surpassed the corporate income tax to become the state’s third largest source of revenue after personal income and sales tax according to the New York Times (Council of State Governments, 2005).
However, while gaming is becoming one of the top options to finance programs and balance budgets, statistics show that the added revenue comes with a price. A national study, by the SMR Research Corporation, found that counties having at least one gambling establishment averaged 18% more bankruptcies than those counties without gambling. If the county had five or more gambling facilities, the increased rate was 35% higher (Council of State Governments, 2005). This report intends to tackle the issues that surround gambling and would like to answer the question: Does adverse social impacts of gambling outweigh its economic benefits?” This report will look into reports and data from state gaming commissions and gaming studies to evaluate the hypothesis.
Discussion
The gambling industry: a look at a billion dollar industry
As gaming expands in the region, states are intensely competing with each other to draw visitors from neighboring states to gamble. Studies by the American Gaming Association show that if gambling facilities can not draw outside dollars into the community, they are unlikely to be lucrative for the state. While slot parlors are a popular draw in a number of ERC states, freestanding casino resorts lure tourists and visitors for longer stays. The casino industry consists of two major parties – Indian tribes and publicly traded private corporations such as Harrah’s Entertainment and Trump Hotels and Casino Resorts. The Indian Gaming Regulatory Act, passed in 1988, allows Indian tribes to own and operate casinos on their reservations. The law specifies that states may not tax tribal gaming revenues. Corporate casinos tend to be the greater revenue boosters since they are taxed and regulated by the state.
Tribal casinos took in $18.6 billion in 2004, the National Indian Gaming Association (NIGA) reported in a new study. The figure represents a 10 percent increase over the $16.7 billion in revenues for 2003. NIGA said tribal casinos and their related businesses generated $1.8 billion for states in the form of state income taxes, sales and excise taxes and other payments. Tribes also contribute $100 million a year to local governments, the report said.
Twenty-one states have entered into Tribal-state compacts for Class III, casino style gaming. Indian Tribes in seven other states operate Class II, bingo-style gaming. Indian Tribes in two states operate gaming pursuant to specific Tribal settlement acts. Overall, they employ 553,000 people. Seven states require tribes to share a portion of their revenues with the state. These include large markets like Connecticut, New York and California, where some tribes have agreed to pay 25 percent of their slot machine gross revenues to the state. In Connecticut alone, this amounts to over $400 million a year (Council of State Governments, 2005).
In 2002, casinos paid $4 billion in tax revenues to state and local municipalities, $400 million more than in 2001. Lotteries made $13.7 billion for the states in 2002, up 17 percent from 2001, according to the North American Association of State and Provincial Lotteries. Connecticut receives 25 percent of the slot machine revenue from its two Indian casinos, Foxwoods and Mohegan Sun. That amounted to $387 million in 2003, up from $30 million a decade earlier. And in South Dakota, nearly 15 percent of the entire state budget comes from gambling taxes. Some states have become so dependent on gambling taxes that they are protective of an industry politician once shunned (Cantor and Hummel, 2001).
How an average gambler spends
The average amount wagered per visitor varies. In Illinois, visitors wager an average $1,377 per trip. In Iowa, the average is $723 per trip. Each visitor loses an average of $97 in Illinois and $51 in Iowa. To reach a tax revenue goal of $830 million in Pennsylvania, assuming an estimated 9.6 million trips to Pennsylvania slot parlors, visitors would need to wager an average $2,542 per trip and lose an average $254. At an average loss of $75 per trip, in keeping with national experience, gamblers would need to make more than 30 million trips. (Pennsylvania Economy League, 2004)
The gambling “market,” number of machines, distribution of slots parlor locations throughout the state, tax rate, and distribution of revenues also are important aspects of any initiative to expand gaming most states. (Pennsylvania Economy League, 2004).
For all the benefits of resort-style gambling, many impact studies commissioned did cite evidence of the ill effects the anti-gambling faction has complained about for years. Recent estimates put the rate of lifetime pathological gambling at between .8 and 1.6 percent of the adult population, meaning that more than 3 million people may fit in this category. This number is relatively small when compared with the problem and “at risk” categories wagering (Pennsylvania Economy League, 2004).
Many lobbyists say that more than the economic benefits of gambling, social problems are lurking in its shadows. A study by the National Gambling Impact Study Commission in 1997 raised warning flags about a host of issues, including the personal and societal impact of compulsive gambling, rising demands for government services, uneven government supervision, and the tendency of lotteries and other forms of so-called “convenience” wagering to prey on the poor (Cantor and Hummel, 2001).
Given the high prevalence of drug and alcohol addictions among people with gambling habits, it is difficult to isolate the relationship between gambling and social problems such as divorce and spousal abuse. Despite numerous studies on the subject, the findings remain remarkably inconsistent. Moreover, the Pennsylvania Economy League cited that some of the economic effects on addicted gamblers and their families are clear, credit card theft, escalating debt, and lost productivity of workers with gambling problems. While the problems persist, it is tough to attach hard numbers to them without the additional research the commission called for but has not happened.
Studies on the effect of gambling on crime rate in cities with legalized gambling generally were inconsistent, even while many analysts point out that many of them never looked at illegal gambling, which industry executives say means it never got to the root causes of social ills.
With 46 states slogging through budget crises, halting expansion of legal gambling-regardless of social costs-seems as likely as members of Congress voting to lower their salaries. Tennessee just passed a law establishing a state lottery, and 11 states have been considering turning racetracks into “racinos” with slot machines (Cantor and Hummel, 2001).
Conclusion
Gambling is here to stay, no doubt about it. All but two states – Hawaii and Utah – have some form of legalized gambling, such as a lottery. Of the remaining 48 states, 32 have gaming other than the lottery, including Indian, riverboat and other casinos; racetracks with slot machines or video gaming; and other non-casino, non-track gaming such as card rooms – you name it. Nowadays, it serves not only as a form of amusement, entertainment, and even a form of sport to some people, but is also an emerging solution to the country’s revenue problems. No doubt there are social problems that come along with it. Some experts point out increase in bankruptcy prevalence, domestic violence, or addiction even – but these still remain to be proven on a consistent basis. In contrast to these inconsistencies, the significant contributions of gambling to state revenues have been proven time and again. At a time when the US economy and state governments are running out of options to create new money to fill in revenue gaps, gambling revenues seem to be the most plausible answer.
References
American Gaming Association, www.americangaming.org/
Cantor, D. and M. Hummel. 2001. Gambling’s Rise from Las Vegas Isolation to Revenue Source for 48 States . Retrieved on
December 12, 2005 from http://www.medillnewsdc.com/gambling/gambling%20_%20overview.shtml
The Council of State Governments. 2005. Gaming Provides Solid Revenue Stream for State Government. Retrieved on December 12, 2005 from http://www.csgeast.org/page.asp?id=weeklynewsbulletin63
Medill News Service. 2001. http://www.medillnewsdc.com/gambling/gambling%20_%20overview.shtml
Pennsylvania Economy League. 2004. Gambling Toward Tax Reform? Part IV – Gambling in Other States. Retrieved on December 12, 2005 from http://www.issuespa.net/articles/4292/
National Indian Gaming Association (NIGA), www.indiangaming.org/
State Gaming Commissions and other government agencies
