The State Gambling Addiction: Politicians are bleeding problem gamblers to fix their budgets—and it isn’t working.
September 20, 2012
In January, New York governor Andrew Cuomo announced a bold plan to bring a $4 billion casino and conference center to Queens. But the plan fell apart within months, thanks to the reluctance of the state’s prospective partner, the Malaysian gambling company Genting, to undertake the massive investment without a guarantee that it would have the exclusive right to operate casinos in New York City.
New York is one of several states that don’t want to be left behind as their neighbors institute more and more varieties of gambling. At least 12 states, facing downturn-depleted coffers, have already expanded gambling efforts over the last three years—including Massachusetts, which became the 16th state to sanction casinos. But this approach is utterly misguided, since gambling has often disappointed as a fiscal tool and as an economic-development strategy. As legal gambling has spread, competition for limited dollars has intensified, and the new gambling enterprises seem merely to be siphoning money from elsewhere in the economy instead of generating new economic activity. “This is not an industry that creates wealth,” says Les Bernal, head of the Stop Predatory Gambling Foundation. “It’s an industry that transfers wealth.” And that’s before taking into account the documented social costs, including the disturbing fact that a significant part of gambling revenues comes from problem gamblers.
Gambling has been part of the American experience since the Founding. In the eighteenth and early nineteenth centuries, privately run lotteries, authorized by states, helped raise funds for everything from religious institutions to colleges. Harvard and Yale, for example, financed some new construction with lotteries. But as the practice grew more popular, fraud and other abuses increased, leading to a backlash. From the 1830s on, states began banning lotteries. The last state-sanctioned one ended in 1894, and the following year, Congress prohibited the interstate promotion of lotteries, making it tough to launch new ones.
For the next seven decades, gambling supporters proposed new lotteries, with little success. The landscape changed in 1963, however, after backers in New Hampshire began to promote a lottery as a way to increase school funding while keeping taxes low. The pitch worked, and voters approved a government-run sweepstakes. In 1964, its first year, New Hampshire sold $5.7 million in lottery tickets.
A majority of New Hampshire’s ticket buyers, it turned out, were from surrounding states. That discovery spawned a wave of similar lottery bills along the East Coast—starting with New York and New Jersey in the late sixties—as other governments hurried to grab a piece of the action. As in New Hampshire, the lotteries were promoted as a way to keep taxes down while financing worthy causes, from education to services for senior citizens. By the close of the seventies, nine states had lotteries; by 1989, another 20 states had added them; today, 43 states have lotteries, most of them run by the states themselves. Collectively, the lotteries net about $18 billion a year for the states.
A second form of gambling, casinos, began to spread in the late seventies, pitched as both a budget fix and as an economic-development tool. Atlantic City was the first to go this route. Once, illegal gambling parlors had thrived there; then the U.S. Army, which billeted thousands of troops in the city during World War II, put a stop to them, and the once-popular resort began a precipitous decline. In 1974, backers got a referendum on the state ballot to legalize gambling in Atlantic City, claiming that it would revitalize the area, but voters, seeing no benefit for the state as a whole, shot it down. It wasn’t until 1976 that a referendum successfully legalized gambling—this time because supporters claimed that it would generate 21,000 jobs within five years. The argument did little to sway religious leaders or the editorial boards of prominent New Jersey papers, but it did convince enough voters so that the casinos got approved. In the Jersey model, private companies owned and operated the casinos, but the state controlled them tightly, dictating everything from operating hours to the kinds of games allowed.
At the close of the eighties, the casino craze really took off. At first, states on or near the Mississippi River—Iowa, Illinois, Indiana, Louisiana, Mississippi—licensed riverboat casinos, thinking that they would boost the sagging fortunes of older cities without creating unattractive gambling strips on land. But eventually, land-based casinos proliferated as well. At the moment, 15 states license casinos, the taxes and fees on which bring in about $4.5 billion in annual government revenue, according to the Rockefeller Institute. Twelve states permit racetracks to install gambling devices, such as slot machines and video lottery terminals, sending governments another $2.9 billion a year. Finally, Native American tribes, authorized by Congress, operate casinos in 28 states. Though states don’t have the power to regulate these casinos, some have revenue-sharing deals with the tribes, which generate about $1.4 billion in annual revenue, the Rockefeller Institute estimates.
In short, states have steadily dropped prohibitions on gambling ever since New Hampshire’s 1964 lottery. Today, every state but two (Hawaii and Utah) counts on revenues from some kind of legal betting. Taken together, all forms of legal gambling, including horse racing, bring in around $24 billion yearly for states and municipalities. That might sound like a substantial sum, but it constitutes only about 1 percent of combined state and local revenue. Property taxes, by contrast, account for $433 billion annually in state and local funds, and income taxes account for another $270 billion…