Monday, October 27, 2008
Md. slots unlikely to hit budget figures
ANNAPOLIS | The odds are that slot machines in Maryland will have difficulty generating the millions of dollars projected by gambling supporters, based on national trends and experiences in other states that have long used gambling to supplement spending.
Officials from states that legalized slot machines more than a decade ago said they found that revenue decreases unless more machines are added and hours of operation are extended, which presents a problem in Maryland because the slots plan caps the number of machines at 15,000 and assumes they operate 365 days a year.
A study released weeks before Marylanders will vote in a Nov. 4 referendum on whether to approve slot-machine gambling shows that the state's plan to collect $660 million is based on "optimistic" assumptions, including one that residents who have been playing slots in Delaware, Pennsylvania and West Virginia will start gambling exclusively in Maryland, slots critics say.
In addition, analysts say, the Mid-Atlantic region, like some Midwestern states, may reach market saturation if the pool of new gamblers stops expanding and states are left fighting over existing players.
"This could all be a wash," said state Comptroller Peter Franchot, who is among the state's most vocal slots opponents.
West Virginia and Delaware - two Maryland neighbors that slots supporters say have long siphoned Marylanders' money - for the first time in more than a decade recently posted decreases in gambling revenue.
As Gov. Martin O'Malley, a Democrat, campaigns for the slots as the only way to pay for mandated increases in education spending, the referendum easily could become the goose that lays a lead egg for Maryland.
Hundreds of seniors daily board buses leaving Baltimore and Prince George's County for racetracks in Delaware and West Virginia and casinos in Atlantic City, N.J.
Mr. O'Malley, his budget team and legislative analysts acknowledge that, to plug the state's budget gap, every passenger would have to stop playing out of state and return to Maryland with their money.
But the owners of local tour bus companies say such a change is unlikely.
"You're still going to have that crowd," said Hornett Pullen, owner of Pullen's Tours. "They want to get out of town."
State lawmakers approved the slots plan last year, then sent the measure to voters. Though slots supporters say the plan could generate as much as $660 million a year, critics think the state will recapture just $230 million from Marylanders who play slots at Delaware's racetracks.
Delaware is predicting that Maryland will recapture $85 million to $100 million.
The "recapture" message has been central for slots supporters throughout the past decade, and Mr. O'Malley attempted to formalize it last year when he asked his labor secretary to study the issue.
The report - released a few months before the governor called lawmakers back to Annapolislast summer to place slots on the November ballot - stated that Marylanders spend $400 million on gambling outside the state, infusing other states with $150 million annually in new taxes.
Mr. O'Malley's pro-slots campaign has used the findings throughout the year in television ads and endorsements.
"We believe that the best solution for our state is to pass [slots] - keeping slots money that is already being spent in other states here in Maryland, and investing those funds in our children´s education," said Jimmy Dulay, president of the State Law Enforcement Officers Labor Alliance.
The argument is popular in the Mid-Atlantic. State leaders in Pennsylvania campaigned to legalize slot machines by saying that a large number of cars parked in Atlantic City had Pennsylvania license plates. Lawmakers there are now considering legalizing table gaming, such as blackjack, in part because West Virginia recently opened two casinos near its border.
"One thing that really drives gambling is that the state next door has gambling," said Ian Pulsipher, policy associate for the National Conference of State Legislatures. "It's a good political sell."
When Delaware lawmakers legalized slot machines in 1994, they were expecting only a few million dollars annually to supplement the state's horse-racing industry. By this year, they were raking in $620 million annually.
Delaware's experience offers insight into whether slots will be a reliable budget fix in Maryland.
They will at first generate a massive amount of cash for the state, then plateau or decline, depending on how the national economy performs and how much a gallon of gas costs, said Thomas J. Cook, Delaware's deputy finance secretary.
He said that once slots are up and running, the only way to generate more revenue is to install more machines or expand the hours.
"I think if you just leave it alone, you're actually going to see it drop," he said.
When Pennsylvania began operating slot machines in January, Delaware expected to lose $32 million. So Delaware lawmakers expanded the hours that slots parlors could operate to 24 hours, all year, with the exception of Christmas and Easter, and mailed coupons giving residents free gambling credits to the state's three parlors.
Still, gambling proceeds do not offer not a solid way to pay for ongoing expenses, such as schooling, because of its instability, Mr. Cook said.
To counter that instability, states are trying to one-up one another, competing to attract tax dollars by expanding and improving their gambling operations, said the Rev. Richard C. McGowan, an researcher on gambling and addiction at Boston College.
"Societies always talk about 'Can we get more?'" Mr. McGowan said. "And I have to chuckle. They're just not satisfied. States are aware that if they up the ante in their own state, then the other states are going to react."
Lawmakers in Indiana first approved riverboat casinos in 1997 but required that the boats sail the river. The state's gambling revenues increased from $83 million to $132 million a year. In 2002, after Illinois legalized riverboat casinos and allowed them to dock, Indiana lawmakers followed suit and the state's gambling revenues went from $595 million to $717 million.
Indiana lawmakers are banking on more money, after they licensed two racetracks to install up to 2,000 slot machines each this year.
But those who have long relied on gambling revenue face another problem: market saturation.
If Maryland comes on line with slots, the Mid-Atlantic likely will be saturated, too, Mr. Cook said.
At a recent Maryland Board of Public Works meeting, talk about $345 million in cuts that Mr. O'Malley made to the state budget quickly devolved from a budget matter into a slots debate.
When Mr. Franchot began questioning Budget Secretary T. Eloise Foster about the cuts, the governor walked out of the room.
As Mr. Franchot pressed Mrs. Foster on the future budget shortfalls created by relying on slots revenue, she stumbled for an answer. Mr. O'Malley quickly ran back into the room and delivered his key campaign message: "I think we can all agree we would be better off with slots revenue than without it."
The exchange displays a central truth in political arguments - both sides can be factually correct. Legalizing slot machines would raise a lot of new money for the state, but it also would create budget shortfalls unless lawmakers cut spending or increase taxes in the coming years.
Mr. O'Malley has sold slots as the final piece of his plan to fix an ongoing $1.5 billion budget deficit.
While slots revenue could pay for education spending increases for a few years, it will be unable to cover the growing cost permanently. Slot machines also will do little to negate increased taxes or spending reductions necessitated by the state's current budget crisis.
"Gambling is really a niche revenue source," Mr. Pulsipher said. "It's probably not going to fix large budget problems. Of course, it is a revenue generator. But I don't think there are many states that look to gambling to fix all of their problems."