Alabama: Don’t bet on it

Business As Usual: Stable gaming revenue? Don’t bet on it
by John Fleming
Star Editor at large Anniston Star
Oct 11, 2010
In the wake of the utter mess we saw go down last week — state senators, lobbyists and casino operators being hauled off to be arraigned, the sickening details in the federal indictment, the big ol’ black eye the great state of Alabama got in the process and so on — it’s hard to bring up the subject of gaming without getting a little queasy.

Yet, let’s take a gander at it anyway, simply in terms of economics. Take away your emotions, put aside your loathing of the one-armed bandit, puppy tracks, video poker and the clientele who traffic in such things, and look at the money end of this.

The bill that passed in the state Senate last April (supported by three senators who were arrested last week, incidentally) but stalled in the House, would have legalized electronic bingo.

Had that bill passed, the state could have realized something in the neighborhood of $160 million for the first five years and about $172 million for every year after that, according to Kelly Butler of the Legislative Fiscal Office.

That figure was based on the operator winning an estimated $150 from every machine per day. Several thousand machines would have been in play on any given day and the state’s share would have been about 20 percent, based on the initial bill introduced in the state Senate.

These estimates, however, said Butler, did not take into consideration any legal gaming already going on in the state.

Don’t forget, Alabama already has gambling operations.

But just how much revenue does the state get every year from legalized gambling? Now there’s a tough question to answer. There are no figures on bingo operations that were operating in years past, and there are no figures on taxes on merchandise sold at gaming establishments. Also, the state does not collect taxes from any Indian casinos.

The only thing you’ll see in the state budget is one line item labeled “Pari-Mutuel Pool.”

A spokeswoman for the state Department of Revenue said the language the state tax law uses to define the pari-mutuel pool reads, “a privilege tax on every person [or operator] engaged in the business of operating a dog race track in the state.”

So what’s the effect on the state’s coffers from all the action at the puppy tracks?

In August, the latest month for which figures are available, it was just shy of $200,000. That was down from about $211,000 last year, or about a 5 percent drop from August 2008. For the whole year, the pari-mutuel pool was down from $2.2 million to $1.96 million, or about 11 percent.

Meanwhile, the revenues collected from taxes on scrap tires for the year, another line item in the August abstract of the state Department of Revenue, was up about 2.4 percent, to close to $3.5 million dollars.

Well, with a general fund under perpetual distress, it is hard to turn down any earmarked funding, such as the pari-mutuel pool, but if you are making more off of scrap tires than dog tracks, well ...

But back to gaming revenues.

The fall-off in the paltry pari-mutuel pool revenue is consistent with what other states are experiencing during the Great Recession, according to a study by the Rockefeller Institute, a think-tank that does a lot of work on state and local issues.

Last year, the report found that gambling revenue fell nationwide by some 2.6 percent, the first decline in 30 years.

Still, in 2009, revenue from commercial casinos alone generated nearly $5 billion for state and local governments, according to the Rockefeller Institute.

That kind of money and the strains brought on by the recession is what has prompted 25 states (including Alabama, until the House put the brakes on the measure) to explore expanding gambling. For many states, it is simply a way to fill a budget deficit.

Every state except Utah and Hawaii, by the way, has some form of gambling, whether it is casinos, or horse or dog tracks, or lotteries.

The Christian Science Monitor recently did a spread on states expanding gambling operations. It found that most states tax gambling proceeds anywhere from 20 percent to 50 percent and that most states get about 2 percent to 3 percent of their revenue from gaming. The exception is Nevada (big surprise) where some 13 percent of that state’s revenue is generated from gambling.

The Rockefeller study also looked at the long-term effect on state budgets from gambling. One thing it discovered is that revenue from gambling tended to grow at a slower pace than expenditures for essential state services, such as public education. This reliance on gambling for sorely needed tax dollars, the study found, could actually lead to deeper deficits.

But the impact on the broader economy is the real worry for some economists. Legal gaming as an industry is in the neighborhood of $90 billion a year, according to some estimates.

What would happen, some economists ask, if people spent that $90 billion on cars, washing machines or houses, instead of feeding it into a one-armed bandit and playing 21?

Anniston Star Editor at large John Fleming explores issues related to the area’s economy and businesses in this weekly news column. Send topic suggestions to jfleming@annistonstar.com



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