For the First Time, a Smaller Jackpot: Trends in State Revenues from Gambling

Revenue from legally sanctioned gambling plays an important, if relatively small, role in states’ overall revenues. From 1998 through 2007, such revenue represented a remarkably consistent 2.1 to 2.5 percent of states’ own-source revenues. While such an amount may seem almost inconsequential at first glance, governors and legislators often face politically difficult choices in closing budget gaps that are much smaller.

States generally expand gambling operations when tax revenues are depressed by a weak economy, or to pay for new spending programs. Such policy choices implicitly treat revenues as similar to those from general tax revenues. Income from lotteries, casinos, and other gaming activities does not tend to grow over time as rapidly as general tax revenue, however. From 1998 through 2008, states’ overall tax revenues rose by 65 percent, according to Census data. As shown in Table 11, gambling revenue rose by 60 percent, with much of that increase driven by new casinos, racinos, and lottery activities. After accounting for such expansion, revenue from previously existing operations was likely in the range of 40 percent or less. (The recent recession has brought a notable difference: The decline in state tax collections in fiscal 2009 was much larger than the 2.5 percent drop in gambling revenues.)