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In casino expansion, revenue a crap shoot

Published: Friday, Dec. 28, 2012 1:15 a.m. CDT

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COLLEGE PARK, Md. – When Florida’s pro-gambling groups launched a series of advertisements pushing voters to allow slot machines in 2004, they claimed gambling would rake in $500 million for state schools annually.

In reality, those slot machines have generated roughly $600 million in total for the state over six years – only 20 percent of what was promised.

Casinos have expanded across the country in the past two decades, as cash-strapped states have looked for new sources of revenue to plug their budget holes. Before 1989, only two states allowed casinos in the modern era – New Jersey and Nevada.

Since then, lawmakers in 20 other states have approved casinos, betting on the promise of high returns to fund public programs like education or to cut taxes. But in many of those states, the actual payoff has been lower than what supporters initially promised, a Capital News Service review of nationwide casino expansion found.

“The fact is that revenue projections and benefits to the state are widely exaggerated as a PR mechanism,” said John Kindt, a professor at the University of Illinois.

Maryland voters approved Question 7 in November, which allowed casinos to stay open for 24 hours and added table games. It also authorized the construction of Maryland’s sixth casino in Prince George’s County.

Supporters of casino expansion in Maryland billed it as a much-needed boost for the state’s education sector. Some advertisements claimed it would add around $200 million annually to the education fund.

But opponents called these claims misleading as they expected the state to cut other education funds, leaving schools with little to no gain.

“It’s true that all of Maryland gaming revenue is going to education, but it’s also true that states are free to subtract an equal number of tax dollars. So there’s no guarantee that school funding would increase dollar for dollar due to casino expansion,” said Neil Bergsman, a spokesman for the Maryland Budget and Tax Policy Institute.

As Maryland expands its casino industry, the experience of other states offers reasons to be skeptical of the promised boost for education, opponents said.

Gambling critics label casino-funded public programs, like education, as empty promises.

“Funding for education is just a PR move. The actual funding for education in real dollars has gone down in gambling states versus non-gambling states,” Kindt said.

When state economists in Florida released casino revenue estimates in 2004, they said revenues could range anywhere between $200 and $500 million per year. But legislators and pro-gambling groups focused solely on the higher end of the estimates in their promotions. And even the low-end number offered by state economists proved too optimistic.

The single largest annual revenue figure from gambling was $138 million in 2010 – only a third of the projected $500 million.

By the end of the 1980s, only four states had some form of legalized gambling. But the 1990s saw 11 more states bringing casinos to their turf.

In Illinois, legislators promised to use casino revenues for education assistance and to help local governments when gambling was legalized in 1990. State officials said the first 10 casino licenses would be sold for $5 million each, bringing state coffers nearly $50 million in revenue.

Instead, the licenses went for $25,000 a pop to “political insiders,” Kindt said.

In the 2000s, another wave of casino expansion hit the country as seven more states made gambling legal.

Pennsylvania legalized gambling in 2004 with legislators promising that casino expansion would provide major statewide property tax relief. Former Gov. Ed Rendell said casinos would pay the state more than $1 billion in slots revenue annually to offset property taxes.

The numbers tell a different story. Roughly $700 million has been injected into property tax relief each year, even though casino revenues have increased drastically.

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The benefits are also not as widespread as promised, said David Baldinger, president of the Pennsylvania Taxpayers Cyber Coalition. While a few residents have seen up to $400 of tax relief, many have seen none or very little, because of a “complicated state formula” that makes taxes vary greatly from community to community, Baldinger said.

“No, (gambling) hasn’t brought the property tax relief that was promised, not by a long shot. It’s nothing but a smoke screen to pay back gambling interests,” Baldinger said.

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Colorado extended casino hours and added table games through a referendum in 2008 with the promise of using a majority of the revenue — nearly 80 percent — to help community colleges. But the revenues have fallen significantly short of state estimates.

Economists projected casino expansion would bring colleges $22 million in its first year and $38 million this year. Actual revenues for community colleges have amounted to roughly $6 million for the first year and $7 million this year, according to Colorado Joint Budget Committee reports.

Some argue that despite worse-than-expected returns, casinos generate at least a minimal income for public programs.

“Even if they don’t match the estimates, these are new dollars for education programs that would not have survived otherwise,” said Chad Marturano, a spokesperson for the Colorado Department of Higher Education.

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Nearly 200 community leaders weighed in on the social impact of casinos in a study this year by consulting firm VP Communications and pollster Peter D. Hart Research Associates. Most respondents said casinos had delivered on their promises of jobs, growth and tax revenues, and these benefits have been felt throughout the communities.

More than half of the community leaders surveyed said casino revenues helped them avoid cutbacks in public programs and start new community projects.

“Results reveal that those who know the industry best say that the gaming industry has delivered on its promises to bring jobs, economic development, tax revenue, increased tourism and more to casino communities,” American Gaming Association President Frank Fahrenkopf Jr. said in the group’s annual report on the casino industry.

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©2012 McClatchy-Tribune Information Services

Distributed by MCT Information Services

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