It's not a miracle, it's a mirage.

• Author: Gold, Steven D.
• Position: Legalization of gambling

As more and more states legalize gambling, its benefits as a revenue source become more and more dubious.

Casino mania is sweeping the country. Until a few years ago, the only places where intrepid gamblers could legally try their luck at blackjack or slot machines were Nevada and New Jersey. Now at least 10 states (not counting Indian reservations) authorize casinos, and all signs point to a rapid proliferation of gambling palaces from coast to coast.

New forms of state-sponsored gambling--like video poker machines and keno--are popping up. And 37 states offer lotteries.

One of the main reasons for the popularity of legalizing new forms of gambling is the lure of easy money. With legislators struggling to balance state budgets and citizens resisting tax increases, gambling looks like a bonanza--a way to raise revenue painlessly and at the same time spur economic development. Unfortunately, expectations about the benefits of gambling are wildly inflated because:

* It is unrealistic to expect gambling to generate enough revenue for states to significantly reduce reliance on taxes.

* As casinos open in ever more states, their potential for producing state revenue and stimulating economic development diminishes. Casinos are most beneficial when they attract many residents from outside states. As more states have casinos, more competition will exist among them, and fewer out-of-state residents will be attracted to any particular state.

People often are confused about the role of gambling in state finances for three reasons:

* Failure to distinguish between gross and net revenue: For example, in 1991 state lottery sales were $19.2 billion. But $10.4 billion was paid out in prizes and $1.2 billion went for administration, leaving $7.6 billion for state coffers. In other words, only 40 percent of lottery sales were available for state programs after paying out prizes and covering administrative costs.

* Not understanding relative magnitudes: $7.6 billion sounds like a lot of money, and it is from many perspectives. But total state tax revenue in 1991 was $311 billion. Lotteries produced less than 2.5 percent as much as taxes; excluding the states that did not have lotteries, the proportion rises to 3.2 percent. Lottery revenue looks like small change compared to the revenue from sales and income taxes.

* Counting revenue gains from newly initiated lotteries: State lottery revenue increased nearly sevenfold between 1980 and 1991. Some of this increase came from expansion of the 13 lotteries that existed at that time. But most of the growth is attributable to new lotteries, which sprang up in 19 additional states.

Composition of Gambling Revenue

The biggest contributor to gambling revenue in most states is the lottery. In 1991 lotteries generated $7.6 billion in net revenue. By 1993, this had risen to approximately $9.3 billion.

These figures include not only traditional lotteries (scratch cards, lotto games, etc.) but also so-called video lotteries, which are often nothing more than video poker games. Although these games are essentially a form of the slot...