Gambling ‘May Add to Budget Imbalances’

Published October 20, 2009

State and local government revenues from authorized gambling operations declined by 2.8 percent from fiscal year 2008 to 2009, marking the first time those revenues have declined in more than three decades, according to a Rockefeller Institute of Government report.

Data on the decline come as states continue to examine casinos, video-lottery terminals, and other gambling operations as potential sources of new revenue—with more than 25 states considering such proposals in the past year.

Authors of the study—For the First Time, a Smaller Jackpot: Trends in State Revenues From Gambling—said new gambling activities often provide a quick boost to state revenues but generally do not keep pace with traditional tax revenues and government expenditures. 

Adds to Budget Problems

“The historical tendency for revenues from existing gambling operations to grow at a significantly slower pace than other state revenues may hold important lessons for states as policymakers consider further expansion of casinos, racinos, and other gambling activities,” Rockefeller Institute Deputy Director Robert B. Ward and Senior Policy Analyst Lucy Dadayan wrote in the report.

“Expenditures on education and other programs will generally grow more rapidly than gambling revenue over time. Thus, new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, long-term budget imbalances,” they added.

Most states reported declines in gambling revenues over the last two years. The few states that reported increases—including Pennsylvania and North Carolina—have recently authorized new gambling operations.

Lotteries Bring Most Revenue

According to the report, states generate tax revenues from four major types of gambling: state lotteries, casinos, racinos (horse race track-based casinos), and pari-mutuel betting. By far the largest source of state gambling revenues is lottery income, which experienced an overall decline of 2.6 percent between fiscal years 2008 and 2009.

The second-largest source is casinos. During 2008-2009 those revenues declined 8.5 percent. The third-largest source for gambling revenues is the newer racinos. Revenues from those operations increased 6.7 percent, largely because of new racinos opening in Indiana and Pennsylvania.

Pari-mutuel wagering—which generally takes place at horse racing, harness, and dog tracks—makes up a small percentage of revenues from gambling, even though it’s the longest established form of legalized gambling in many states. Preliminary figures in the new report indicate those revenues fell by 14.8 percent from July 2007-March 2008 to July 2007-March 2009[correct as edited?].yes

Small Part of Revenues

The report said gambling tax revenues overall make up about 2.3 percent of states’ “own-source” revenues. Percentages ranged from as high as 13.6 percent for Nevada and 9.2 percent for West Virginia to less than 0.1 percent in Alabama and Wyoming.

Jonathan P. Williams, director of the Tax and Fiscal Policy Task Force of the American Legislative Exchange Council in Washington, DC, said the decline in gambling revenues reflects the general state of the economy and falling tax revenues of all types.

“This year is not an exception,” Williams said. “The next two years could be even worse than this year. For the last four or five fiscal years, states have been living well beyond their means, and then when revenues declined, everything fell off a cliff.”

Some states will be able to cover some of the shortfall in revenues this year and next year with funds from the economic stimulus package, but when that runs out, these states again will be falling off a cliff, according to Williams.

Living Beyond Means

Gambling is unlikely to add to those revenues any time soon, Williams added. And the impact of any new casinos, off-track-betting, or other gaming won’t add much to the revenues because there is so much gambling available across the country now.

Instead, governments will have to “pay the consequences of living on a credit card for the last five to 10 years,” Williams said. “States are going to have to move to a priorities-based budget, prioritizing the things they have to do as a state, and eliminating [lower priority] items.”

Phil Britt ([email protected]) writes from South Holland, Illinois.

Internet Info

“For the First Time, a Smaller Jackpot: Trends in State Revenues from Gambling,” the Rockefeller Institute: