Political gambling

Thursday, July 22, 2004

The Wall Street Journal

Pennsylvania passed legislation this month authorizing 61,000 new slot machines, and thus extending the list of states trying to gamble their way to fiscal health. Odds are, it won't work.

Politicians are tempted to see gambling revenues as a cure-all because it allows them to grow government without raising taxes directly. But to the extent that state-sponsored betting obfuscates a chronic spending problem -- and it usually does -- lawmakers aren't doing taxpayers any favors. The additional revenue just gives politicians more money to use irresponsibly.

In Pennsylvania's case, Governor Ed Rendell already raised income taxes and assorted fees by $1.3 billion in January. He borrowed close to another billion in March for "economic development." Now the Democratic Governor is counting on an infusion of one-arm bandits (and willing victims) to generate still more money for government expenditures.

Not that the problem is limited to Pennsylvania or Democrats. Mr. Rendell has acted with the blessing of a Republican-controlled state Legislature. And, of course, this path is paved with the best political intentions. In Maryland, GOP Governor Robert Ehrlich is pushing for slots to help finance education, even though state revenue forecasts have improved. Ohio and Delaware are among the other states looking to jump on the gaming bandwagon. And Republican Arnold Schwarzenegger of California, another financially strapped state, recently signed a pact with five Indian tribes that allows them to add an unlimited number of slots in return for giving the state a share of the take.

Mr. Rendell says the new slots will generate $3 billion annually, enough to fund property-tax rebates of $300 per homeowner beginning in 2006. What he doesn't tell voters is that local school districts can and almost certainly will continue to raise property taxes over the next two years, which will eat up much of that rebate, if not all of it.

The experience of states that have already legalized slots and casinos demonstrates that proponents tend to overestimate the economic benefits of gaming while underestimating the costs and unintended consequences. In his study last year for the Commonwealth Foundation, a free-market think tank in Harrisburg, Matthew Brouillette says "evidence that gambling creates new jobs and spur economic growth is inconclusive at best." A 2002 report by Creighton University economist Ernest Goss found that 24 out of 57 counties in the U.S. experienced job losses as a direct result of casino development. Other studies on the social costs of legalizing betting have found that compulsive gamblers, upon whom casinos rely for 25% to 50% of their revenues, also tend to borrow money and not pay it back, commit credit-card fraud and insurance fraud, kite checks and go bankrupt. It's been estimated that problem gamblers cost the U.S. economy around $80 billion per year.

Government-sponsored gaming is as old as Jamestown, of course, and it isn't going away anytime soon. Forty states and the District of Columbia have a lottery. Eleven states operate commercial casinos, which is up from just two in 1989. Riverboat and tribal casinos continue to proliferate. If Pennsylvania wants to become Pennsyl-Vegas, that's its prerogative.

But Keystone State taxpayers and others might keep in mind that money is fungible. Earmarking state lottery revenue for, say, education does not guarantee a net gain in education spending. It means money that might have gone into the education budget can be spent elsewhere because lottery revenue will fill the gap.

As an economic development tool, gaming also has a poor track record. Proponents play up the impact associated with things like construction and equipment installation, but these tend to be one-time, short-lived gains with diminishing returns. Subsequent taxation is regressive, and money spent gambling is money not spent at the ball park or the movies.

Expanding a state government's gambling empire hardly encourages those in charge of the purse to spend more wisely or thriftily. Which is why, as public policy goes, it's a bad bet.

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