We?re not finished with this session, but legislators should worry about the next. Specifically, how to pay for their profligate spending.
They raised taxes in the special session. But what happens when legislators “need” more money again?
Will they rely on slots revenue? Think again. The state?s revenue estimates for slots are increasingly looking like a pipe dream ? if the measure passes next November.
The Department of Legislative Services estimates legalizing slots would bring about $87 million to the state treasury by 2010 and nearly $565 million by 2013. We?re not sure how analysts arrived at these numbers, but many factors point to the fact estimates may overstate the state?s potential windfall.
First, gambling is not immune from recession, as many states, including Nevada, saw gambling revenue drop over the last year.
Second, competition from surrounding states and the fact that Maryland does not allow casinos could hamper the attractiveness ? and profitability ? of Maryland?s five potential locations. As industry consultant Eugene Christiansen told The Examiner, “there is all the difference in the world ? orders of magnitude difference ? between a racetrack and the Borgata [Hotel, Casino & Spa in Atlantic City].”
The tax rate also makes a big difference as higher tax rates equal less investment. Another factor that could hamper the success of the bill is the requirement to direct a portion of revenue to the horse racing industry. As William Eadington, the director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno, said in an e-mail, “Legislatively mandated contributions to purses for racing is very much like a deadweight loss; it reduces profitability for the operation and discourages capital outlays from what they otherwise would be, while cross subsidizing racing which is often an inherently unprofitable operation, even with the contributions to purses.”
And what happens if the current credit crisis prevents the slots license winners from building the entertainment centers envisioned to house the machines?
What?s clear is that slots are a big “if” on many fronts. Legislators must not build budgets with the predicted slots revenue factored into them. Even if the referendum passes, there is no guarantee the state will strike it rich.
