Stateline Story

States Cash in on Americas' Love Affair with Gambling

Even wholesome, conservative Middle America is a mecca for slots and poker fanatics. Forty riverboat and dockside casinos lure gamblers to gangplanks in Illinois, Iowa, Indiana and Missouri. More than 400 Native American-run casinos operate in 23 states, from Connecticut to California. And lotteries, once an oddity found in just seven states, are now the norm in 41 states, with Oklahoma the latest to catch Lotto fever.

Cash-strapped states are pulling in billions of dollars in revenue from all the gambling and state-sponsored lotteries.

States made $14 billion in profits on the $45 billion in lottery tickets they sold in fiscal 2003, according to the North American Association of State & Provincial Lotteries, a trade group that represents state lotteries. Non-Indian casinos pulled in $26.5 billion in revenues and paid more than $4.3 billion in taxes in 2003 to the 11 states and localities that allow them to operate. Indian-owned casinos in 29 states brought in $16.7 billion in revenues in 2003 and made $759 million in payments to state and local governments.

These days, the hottest craze is to bring slot or video-poker machines to dog and horse racetracks. The country's 23 "racinos" already draw crowds in seven states and more are on the drawing board for Maine and Pennsylvania. Racinos forked over $776 million in taxes in a half-dozen states.

Wary of raising taxes on voters, states increasingly are turning to games of chance for big payouts. All but two states -- Hawaii and Utah -- rely on gambling to help pay for schools, health care and other basic services, and states show no signs of kicking the habit anytime soon.

States are addicted to gambling because it seems a painless way to boost revenue without drawing taxpayers' ire. In fact, some voters like the idea that their lottery tickets help pay for schools or that proceeds from slot machines keep down property taxes. Fifty-three million Americans -- 1 in 4 adults -- ventured into casinos in 2003. That's almost three times the number of visits to professional baseball games, according to the gambling industry.

So it's no wonder that nearly 30 states considered gaming proposals in 2004 that ranged from putting slot machines in bowling alleys and on ferries to forcing racetrack owners to hand over unclaimed winnings to the state.

"Whether it's video lotteries, casinos, horse racing or lotteries ... every aspect of gambling has been expanded. States really need this extra revenue," said Sujit M. CanagaRetna, a tax and budget expert at the Council of State Governments, a nonpartisan, nonprofit organization that tracks issues affecting the state legislative, judicial and executive branches.

Only eight states -- Alabama, Arkansas, Louisiana, Maine, New Jersey, New York, Rhode Island and Virginia -- resorted to raising taxes in 2004, with most relying instead on gambling, higher fees and creative bookkeeping to balance their ledgers.

Here's a sampling of how states tapped into America's gambling fervor in 2004: 

  • Pennsylvania is counting on adding $1 billion to its coffers by bringing 61,000 slot machines to the Keystone State, a development that set off alarm bells for neighbors that likewise vie for gamblers' dollars.
  • California Gov. Arnold Schwarzenegger (R) struck a deal with five California Indian tribes to pay the state $1 billion in exchange for allowing the tribes to maintain their monopoly on slots.
  • Kansas kicked off what it calls the "world's first interactive Internet lottery game." The new online "e-Scratch" lottery game is expected to garner more than $500,000 in revenue the first year.
  • Iowans gave the green light to blackjack and other card games at race tracks and gave the state authority to issue an unlimited number of casino licenses.

Tennessee began a lottery and, along with North Dakota and Maine, joined Powerball, the twice-a-week game that now has spread across 27 states, the District of Columbia and the U.S. Virgin Islands. Despite the astronomical odds against hitting the jackpot 120 million-to-1 Americans snapped up $2.2 billion in tickets in fiscal 2004, and Powerball returned $660 million to state coffers.

By far, the most common gaming proposal in 2004 involved racinos. Forty-one states already sanction pari-mutuel betting at horse and dog tracks or jai alai frontons. Putting one-armed bandits and video games in such venues is an easier sell than trying to convince a state or local community to allow in legalized gambling for the first time. It's also faster and more economical for the gaming companies, and the sooner the new action starts, the sooner the state gets its cut.

For the occasional, recreational Texas Hold'em player, this may be just an amusement, but racinos are serious business for states. Delaware, for example, collected $565 million in 2001 from three racinos, about 8 percent of the state's budget.

Republican Maryland Gov. Robert L. Ehrlich Jr. has been feverishly trying to bring slots to the Free State since he was elected in 2002. After the Pennsylvania Legislature approved slots last June, Ehrlich lamented, "For too long, Marylanders have paid for teachers and textbooks in West Virginia, New Jersey and Delaware at the expense of Maryland's school children. Now Pennsylvanians will benefit. ... The question is not whether Marylanders will play slots. The question is where they will play and who will benefit."

But gambling is not without controversy. The North Carolina Republican platform, for example, opposed state-sanctioned gambling, saying that, "A state lottery turns government into a bookie." North Carolina is one of only nine states without a lottery. And in Idaho, a charter school turned down nearly $10,000 from the Idaho State Lottery, saying it couldn't in "good conscience" spend the money.

In Pittsburgh, the Pirates, the Steelers and the mayor all weighed in against putting a slots casino near downtown, kicking off a skirmish over where to put the new, state-approved slot parlors in Pennsylvania.

Gambling proponents also took it on the chin in the November elections. Voters in California, Nebraska and Washington rejected ballot measures to expand gambling while Michigan voters decided to give themselves veto power over any new gaming.

Statehouses' gambling fever will continue unabated in 2005 despite what appears to be a rebounding U.S. economy. Even with tax revenues on the upswing, the financial situation remains precarious for some states.

"No one expected a marathon, which this [downturn] turned into, year after year of more-of-the-same budget cuts," said Arturo Perez of the National Conference of State Legislatures. States now believe the three-year marathon of budget cuts is over, but they remain anxious. "Is it a finish line followed by another race? It's still to be seen," said Perez.

The preceding article was excerpted from Stateline.org's "State of the States 2005" report, which was published this month. For your free copy of this annual 60-page reference book, send your name, mailing address and occupation to editor@stateline.org.

Tags: Gambling