Scrambling to expand gambling: states are betting on gaming to score a revenue windfall.

Author:Brainerd, Jackson

With state budgets still lagging pre-recession revenue levels, lawmakers hope to score a windfall by expanding legal gaming. Revenues from gambling offer an appealing alternative to the politically unpopular, increasingly undoable and invariably conflict-laden effort to hike taxes. Gambling raised $27.7 billion in fiscal year 2015 for state and local governments. Sounds good. But it represents a relatively small portion of most state budgets, somewhere between 2 and 2.5 percent.

The lure of new revenue has played a role in the legalization and expansion of state gambling for years. Since 2001, casino gambling of some sort has spread from nine to 24 states. In the last eight years alone, six states have legalized casino operations, two have legalized racinos (racetracks with casinos) and two have legalized lotteries.

Several more legislatures considered, but did not pass, legislation to legalize or expand gaming this year. Lawmakers in three of the six states that do not have lotteries--Alabama, Hawaii and Mississippi--considered bills to allow them. And, although initiatives to allow casino gambling failed to make the ballots in Arkansas and Nebraska, initiatives to expand commercial casinos did make the ballots in Massachusetts, New Jersey and Rhode Island. Only Rhode Island's passed, however.

Big Bucks! Quick Bucks!

Gambling certainly has the appearance of a cash cow. Revenue flows in for the first few years of legal gambling, but how long that growth continues is less predictable. Traditional forms of gambling are not doing much to boost state budgets in the long term, according to an April 2016 report by the Rockefeller Institute. Revenue from casinos and racinos increased only 1.1 percent between 2014 and 2015, while lottery revenues declined by 0.7 percent in real terms during that period.

If states are looking to gambling to balance their budgets, they may be rolling the dice themselves. "Future growth in gambling revenue will not keep pace with tax revenue or spending," says Lucy Dadayan of the Rockefeller Institute. "If gambling revenue is intended to support part of the overall budget, gaps may emerge in future years."

An Oxford Economics study found that casinos generated $38 billion in federal, state, local and gaming taxes in 2013. The UNLV Center for Gaming Research has also reported an eye-popping statistic: "In 2014, Americans spent over $70 billion on lottery tickets, more than they spent on music, books, sports tickets, video games and movie tickets combined."

As state gaming tax collections suggest, however, the gambling industry is experiencing some fiscal sluggishness. Overall, commercial casino revenues have grown, though unevenly, every year since 2009. Yet, Caesars Entertainment Corp. is facing bankruptcy, and five casinos in Atlantic City have folded. The Trump Taj Mahal was the latest to close its doors, leaving 3,000 workers without...

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