Gaming

Martire On Illinois' Unsustainable Lotto Lease

Adam Doster — Mon, 15 Sep 2008 09:49:47 -0700

Last week, the House approved a lottery leasing plan that would privatize the state-run lottery for half a century and net the Illinois $10 billion in revenue intended for statewide school and road construction. House leaders warmed to the idea when it became clear that no other capital plan compromise was going to be reached, even though it's still uncertain if and how the Senate will deal with the legislation.

In Illinois, any bill that gets through the Springfield gridlock is a welcome sign. But Ralph Martire, executive director of the Center for Tax and Budget Accountability, reminds us in a State Journal-Register op-ed that while the state lottery is currently a major source of education revenue in Illinois, it will gradually dwindle under the lease proposal:

Fortunately, the proposed education trust fund will replace most of the school revenue formerly generated by the lottery, at least initially. Under the proposal, schools will get $600 million a year for about 24 years. But there are problems. The funding starts at $30 million less than what the lottery currently produces, and never grows. So, not only will schools lose out on the $15 million increases the lottery has averaged annually since 2000 (that’s a $75 million shortfall in just five years), but after inflation, the trust fund will in real terms represent a declining revenue source. At some point, the trust runs out of money altogether, creating a funding cliff.

Martire also reminds readers that the lottery is essentially a highly regressive form of taxation -- and is only going to become more so in the hands of a private entity. Research shows that "low-income consumers see the lottery as a convenient and otherwise rare opportunity for radically improving their standard of living," even though chances of winning are infinitesimally small. Not surprisingly, more people seek to radically improve their standard of living during economic downturns. Indeed, the New York Times reported on Friday that of the 42 states with lotteries, at least 29 reported increased sales in their most recent fiscal year:

“I was surprised, because I thought with gas prices up and people not leaving the pump to go into the stores, we’d see a greater impact” on the downside, said Jodie Winnett, acting superintendent of the Illinois Lottery, whose sales increased 3 percent in the last fiscal year and are doing even better this year. [...]

John Mikesell, a professor of public finance and policy analysis at Indiana University, published a study in 1994 showing that from 1983 to 1991, lottery sales tended to rise with unemployment rates.

“The findings were that in slump periods, lotteries historically have gotten a little bump upward,” said Professor Mikesell, who has not analyzed recent lottery data. “It’s taking a shot at getting some relief in hard times. It’s usually not a good gamble, but it’s a dollar, and if they happen to accidentally hit it, it may well change their lives.”

Whoever purchases the Illinois Lottery will have a financial incentive to maximize its profits through marketing. Combined with a struggling economy, poor Illinoisans are going to feel the brunt.

Now, more than ever, the state needs comprehensive and equitable reform of our school funding system and tax structure. Leasing the lottery isn't a sustainable solution.

A One-Way Street

Adam Doster — Mon, 21 Jul 2008 13:29:08 -0700

Some Illinois lawmakers just won't give up on gaming.

Although House Democrats nixed Gov. Rod Blagojevich's proposal to fund a capital program through gambling expansion, it's long been a go-to option for Illinois lawmakers looking to generate revenue without increasing taxes. But while our representatives in Springfield repeatedly return to the gaming well, they've forgotten to provide for the problem gamblers who account for at least a third of the receipts. Joseph Ryan at the Daily Herald has the goods:

A Daily Herald review of the state's casino industry reveals that Illinois falls far short compared to other states in helping gambling addicts even though their tremendous losses bolster the state's bank account, allowing lawmakers to avoid unpopular tax hikes.

This has left a safety net riddled with holes for a projected 384,622 adults in Illinois who are problem or pathological gamblers. [...]

Between 1995 and 2007, the state took in a total of $13.5 billion from legalized gambling and spent $7.3 million on treatment or awareness campaigns.

How do other Midwestern states deal with the problem? Indiana, Michigan, and Iowa all set aside between three or four times as much as Illinois for treatment, research, and awareness. In Minnesota, for example, devotes $2.5 million to treatment and research, allowing a problem gambler to receive inpatient treatment free of charge. In Illinois, a similar 90-day treatment program would cost the patient nearly $30,000, which few gambling addicts can afford.

The saddest part of this whole mess is that gaming isn't even a valuable revenue generator, as Ralph Martire, executive director of the Center for Tax and Budget Accountability, explains in his State Journal-Register column today.

A significant gaming expansion would raise new, recurring revenue — but far more expensively than a tax increase. Estimates are folks have to lose $5 gambling for every $1 of tax revenue generated — as opposed to the $1 for $1 cost of a tax increase. Projections of what gambling expansion would generate also may be inflated. Unless there is unlimited demand among Illinois citizens to gamble, the creation of a significant number of new facilities will siphon at least some business away from existing casinos. As for tax fairness, well, it generally isn’t the Rockefeller family hitting the slot machines, it’s low- and middle-income folks. Given that Illinois is already one of the most regressive taxing states, it makes no sense to increase the disproportionate public finance burden poor and middle-income folks already bear.

The Rockefeller Institute buoyed Martire's argument with their report last month showing that the economic benefits of gambling for state governments are diminishing rapidly. Proceeds in May from Illinois' nine casinos were apparently "down 14 percent from May 2007." A similar trend nationwide has led many other states to move away from this unsustainable funding stream.

Chasing Losses: Gambling Proceeds Continue To Fall In Illinois

Josh Kalven — Sat, 21 Jun 2008 15:39:54 -0700

Back in April, Mose noted the contrast between Illinois -- where lawmakers continue efforts to expand gambling -- and numerous other states across the country that have retreated from gaming as a cure-all for their budget woes. Today, the Tribune reports on a new study from the Rockefeller Institute which provides yet more evidence that gambling is waning as a dependable revenue source. Indeed, proceeds last month from Illinois' nine casinos were apparently "down 14 percent from May 2007." The article quotes one of the report's authors singling out Illinois' dependance on gaming revenue, while noting that it's not "a real winner ... in the long term":

Whatever the reason, study authors say states shouldn’t rely on gambling as a growth stream, given their findings.

Illinois counts on gambling for about 4 percent of its state revenue—a figure nearly double the national average of 2.3 percent, according to Robert Ward, deputy director of the Rockefeller Institute and co-author of the study.

“States have become very reliant on gambling revenue, Illinois more so than most,” Ward said. “Adding gambling operations can help solve short-term budgetary needs. It’s not going to be a real winner of a solution in the long term.”

As Illinois Looks To Expand Gambling, Other States Step Back

Mose Buchele — Mon, 14 Apr 2008 15:10:06 -0700

While the Illinois Gaming Board considers allowing riverboats to stay open 24 hours and Rep. Lou Lang (D-Skokie) hints at more casino licenses on the horizon, many states are taking a step back from expanding legalized gambling. In an article in the New York Times Magazine, Christopher Caldwell reports that Massachusetts lawmakers have decided against allowing gambling in their state, and that an effort is underway in the Maryland State Senate to limit gaming there as well.

While criticism of gambling is often morally-based, Caldwell reports that the current skepticism stems from questions over whether state-sponsored casinos actually represent significant revenue sources:

Introduce casinos in Massachusetts, and you will indeed recapture some of the hundreds of millions of dollars that Bay Staters drop in the resorts of Connecticut. But you will also capture a lot of money that people would have spent in local restaurants and movie theaters. The infrastructure required for gambling — from road building to hiring new police — is costly as well. Once you make those adjustments, the economic upside of gambling evaporates. The economist Earl Grinols estimates the ratio of gambling costs to gambling benefits at higher than three to one. Voters sense this. The rule of thumb, according to Grinols, is that pro-gambling interests lose referendum battles whenever they do not outspend their opponents by at least 75 to 1.

It's even harder to offset the economic toll of all the required infrastructure when gambling proceeds are falling in your state, as the latest Illinois Gaming Board Monthly Riverboat Casino Report (PDF) indicates.

(More after the jump ...)

The drop in profits (which prompted the Illinois board to consider 24-hour gambling) is not unique to Illinois. Caldwell reports that casino profits are known to drop as the economy worsens:

Gambling appears a less glamorous habit when the country is digging its way out of mortgage and credit-card debt. In mid-March, the Colorado Division of Gaming announced that revenues at local gambling resorts were down 10 percent. The next day, Moody’s Investors Service reported that casino revenues in January dropped 17 percent in Illinois, 10 percent in Atlantic City and 8 percent in Indiana.

Caldwell's article also provides some striking figures regarding the portion of the "revenue" that comes from compulsive gamblers' losses:

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.