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The case for more Minnesota gambling

REUTERS/Vivek Prakash
Connecticut's two casinos pay the state 25 percent of slot machine revenues.

If the framers of Minnesota's Constitution could come back to life to see how well lawmakers today are carrying out their wishes, they would probably be stunned right back to their graves.

Those proposed constitutional amendments on gay marriage and voter photo ID would be startling enough, but what really might shock our forefathers is what's happened with gambling.

They, after all, were pretty clear about the matter in Article XIII, Section 5 of the original Constitution, adopted in 1858: "The legislature shall never authorize any lottery or the sale of lottery tickets."  

These days, the state is awash in gambling.

We have a state lottery with revenues last year of $499 million. Our charitable gambling industry sells nearly $1 billion in pull-tabs, bingo tickets and other games of chance, more than any other state in the nation. Two racetracks offer pari-mutuel betting on live races as well as those simulcast from other parts of the country for a total of about $60 million a year. And 38 tribal casinos rake in an estimated $10 billion annually.

New proposals to expand gambling

And now come proposals to expand gambling still further.

First, there's a scheme to fund the state's share of a new Vikings stadium by allowing charities to offer electronic pull-tabs and bingo to their customers in addition to old-fashioned paper games. That plan, which would supposedly net an extra $88 million in tax revenues (and that's an estimate), has cleared two committees in the House but gone nowhere in the Senate.

Whether or not the stadium stays in the picture, however, the charities are avid to add games that they think will pull in a younger crowd and boost declining revenues — and to win a $36 million tax cut also embedded in the measure. 

Then, only last week, the White Earth Nation, the state's largest and most poverty-stricken Indian tribe, offered to contribute $400 million right off the bat to the stadium project if the state would allow it to build a $700 million casino in the Twin Cities metro area. (Its own Shooting Star casino — located in Mahnomen, in the northwest corner of the state — is, according to a tribal handout, "a low-producing revenue source for the tribe."

Despite some support in the Legislature and interest from the Vikings, the White Earth bid faces stiff opposition from the Minnesota Indian Gaming Association, a consortium of tribal casinos.

But White Earth is not going to give up easily; it is desperate to help the 65 percent of its people whose incomes are below the poverty level. (That compares with 11 percent statewide.)

Also being pushed is a bill that would authorize "racinos" — basically, the addition of slot machines — at Minnesota's two racetracks. The additional revenues, according to Senate Majority Leader David Senjem, R-Rochester, would plump up purses the tracks could offer, which would attract more owners to race there and, in turn, draw more customers.

This is no expansion of gambling, he argues, because the tracks already have card rooms where folks can play poker. (Sorry, forgot to mention those! They take in another $37 million.) And, by the way, the White Earth Nation says that if it gets its Twin Cities casino, it will contribute $12 million to fatten purses at the tracks.

Well! All in all, this is a pretty heavy preoccupation with an activity that, according to St. Augustine, was invented by the devil. And the booming revenues suggest that we do it a lot, and we like it.

But should we let gambling grow?

Yeah, we probably should, advocates would say. Their case: For very practical reasons, we need gambling. The rationales may not be the prettiest around; maybe if we were better people, we'd do things differently. But we have to cope with our own limitations. And so gambling will have to continue onward and upward.

Here's the case for expanding Minnesota’s gambling options.

1. We need the dough.

Players may be tempted by the possibility of winning big, but only the most deluded look on gambling as a steady source of income.

That generalization does not apply to the state government, however. Gambling has become a very reliable source of tax revenue. In the 20 years ending in 2010, Minnesota netted nearly $2 billion from the lottery, in 2010 alone about $122 million. Charitable gambling turns in another $37 million annually in taxes with the possibility of an extra $52 million if electronic gaming is allowed. 

That's not a very big slice of a $36 billion budget. But, just think. Without that money last year, the state would have had to borrow $160 million more from schools or against tobacco settlement proceeds to close its budget gap. That sum would easily make the repairs and renovations necessary to the state Capitol building. And, next year, Management & Budget is predicting another $1 billion deficit. The state needs every dime in extra revenue it can get to keep its head above water.

A couple of racinos wouldn't begin to supply all the money the state needs. And if either the charitable gambling expansion or the White Earth Nation's proposal for a casino is approved, the money would be earmarked for a Vikings stadium — and would do nothing to bulk up the treasury.

So, if we're going to count on gambling to raise revenues, we may as well go big. First, legislators should authorize both Vikings-related gambling proposals. White Earth's $400 million could pay the state's portion of the stadium immediately and help it avoid interest charges. The state could then use the annual $52 million in taxes from charities to help plug its budget deficits.

After that, the state ought to negotiate with tribal casinos for payments in lieu of taxes. Connecticut's two casinos, for example, pay the state 25 percent of slot machine revenues. Since the inception of table gambling in 1992, Foxwoods alone has contributed $3 billion to the state. Mohegan Sun, a newer casino, has anted up another billion or so.

Next, Minnesota — and other state governments — should lobby Congress to allow sports betting. Currently, it's legal only in Nevada and Delaware.

The Minnesota State Lottery's 2011 annual report (PDF) estimates that residents illegally wager $1 billion to $2 billion a year on sports. Five percent of that would add another $50 million or so to state coffers. And Minnesota would also tax players' winnings (usually about 90 to 95 percent of the total) at ordinary income rates, which now top out at 7.85 percent.

It may be true that betting on sports presents other problems; supposedly it encourages gamblers to fix games and matches. But, professional sports have been chronically afflicted with scandal, most recently, steroid use and Bountygate. So it’s not as though we'd be tainting the Boy Scouts.  Anyway, legal or not, people are already betting on sports; so the state may as well capture a piece of the action.

2. Face facts; we don't want to pay taxes.

Critics rightfully point out that gambling is one of the most regressive ways for governments to collect money from citizens. A regressive tax is one in which the effective rate (the tax as a percentage of income) rises as income falls. In other words, the rich pay less, and the poor more. A 2011 study (PDF) of household tax burdens by the Tax Research Division of the Minnesota Department of Revenue found that all state taxes had a "Suits Index" or burden measurement of -0.054, which means that they are mildly regressive. (A measure of zero means that they are perfectly proportional, +1 that the richest people pay all the taxes and -1 that the poorest pay all the taxes.) Taxes on gambling, however, had a Suits Index of -0.489. In other words, they were near halfway to being completely unfair. That means that the money the state gets from gambling comes disproportionately from those least able to live without it.

Progressive income taxes are a much fairer way to pay for government functions. Those who can afford little would pay little; those who can afford more, pay more — each according to his means.

That's the rationale behind proposals by both President Obama and Gov. Mark Dayton to levy a special tax on those with high incomes, focusing particularly on those who take in $1 million annually, a group of only 237,000 households nationwide.

Nevertheless, Americans are not much in favor of raising income taxes, no matter how fair they are (although Minnesotans were happy to accept Dayton’s plan to raise taxes only on “high earners”). A 2009 survey by the Tax Foundation found that 56 percent of U.S. adults felt their taxes were already too high.

On the other hand, 53 percent supported government-run gambling operations to raise revenues. In a similar study conducted in 2011 by the Pew Center on the States and Policy Institute of California of residents of five states with big budget problems (Arizona, California, Florida, Illinois and New York), two-thirds of residents said that state government could spend less and still provide the same level of services. What's more, residents would prefer to lay any tax hikes off on the other guy. High on the list were gamblers.

Even if taxpayers were willing to cough up more — and six in 10 from the Pew study said they would do so to keep from making cuts in K-12 education — many of their elected representatives are adamantly opposed. Twelve of 67 Minnesota senators and 25 of 134 House members have signed the Grover Norquist pledge not to raise taxes under any circumstances. 

As citizens, we want all the stuff that government provides — good public schools, bridges and highways that don't collapse, medical care for the poor and elderly, but we don't want to pay — at least not through taxes. So politicians have had to look for other ways to get the money. Gambling's ability to contribute makes it a moral imperative.

3. We can handle the collateral damage.

Speaking in opposition at practically every legislative hearing on gambling  is Don Weinberger, a recovering compulsive gambler, who delivers pretty much the same speech every time he testifies. Starting with parlay cards, a form of sports betting, in the 1980s and gradually moving on to casino gaming, he says, "Gambling became the focal point of each day."

Eventually, he lost his job, his house and his motor home and filed for bankruptcy. Expanding gambling will only create more addicts, he claims, urging legislators to "look for a revenue source that won't hurt Minnesotans." 

Nobody knows for certain how many people engage in pathological gambling, which, by the way, is considered by the “Diagnostic and Statistical Manual of Mental Disorders” an "impulse control disorder" — like setting fires and pulling out one's hair — and not an addiction (though some scientist are coming to believe that it may have genetic or chemical causes).

One study of studies, published in 1997, which hasn't been challenged much since, asserted that most people who gamble don't get in too deep. Authors estimated that only 1.6 percent of adults could be considered problem gamblers.

In 1994, the Minnesota Department of Human Services made its own calculation and came up with similar results — that about 1.5 percent of adults, or 45,000 people, had a serious gambling disorder. Most (44 percent) did their gambling at casinos, while 24 percent used pull-tabs.

Timothy Fong, co-director of the gambling studies program and associate professor of psychiatry at the University of California, Los Angeles, points out that pathological gambling is a silent disorder: "Gamblers do not 'overdose' and end up in the emergency rooms, nor do they present to doctors specifically asking for help for their gambling problems," he says.

Nor is there a drug screen to test for it. You would think that many would wind up in bankruptcy court, but there's no evidence to prove that there's a connection. Studies by no less than Elizabeth Warren, Harvard law professor, consumer advocate and current Democratic candidate for Senate in Massachusetts, have found that medical expenses are the chief factor in bankruptcy, followed by unemployment and debt. Gambling doesn't even make the list of causes. 

Still, the consequences of a bad gambling habit can destroy families. There's been scant proof that when a state increases opportunities to gamble that more people become "addicted."

But, it stands to reason that someone who has a tendency to gamble compulsively isn't helped by the existence of more gambling outlets. And some types of gambling are more dangerous than others, says Fong: "Lottery games that offer a high reward with high frequency — for example, “scratch” games or video lottery terminals — probably carry a higher chance of harm, he says."

Accepting that an expansion of gambling may be harmful to some, says Tom Prichard, president of the Minnesota Family Council, a conservative church group, puts the state in partnership with an unholy industry.

That may be so, but can't the same be said of liquor? According to the National Institutes of Health, about 8.5 percent of adult Americans are alcoholics. Yet since Prohibition, which didn't seem to diminish problem drinking or even drinking all that much, most jurisdictions have taken to taxing, rather than discouraging, alcohol consumption.

Minnesota benefits mightily. From taxes it levies on wholesalers, manufacturers, bars, restaurants and liquor stores, it collected about $137 million in 2008. So, the state is just as much in partnership with creating alcoholics as gamblers.

Recognizing that compulsive gambling creates some, if not widespread, social problems, the state has acted.  Call it a sop to conscience, but from the very launch of the lottery, the Legislature dedicated a portion of lottery revenues to treating problem gamblers and maintaining a 24-hour help line.

And, in every proposal to expand gambling, legislation has contained a budget allocation to treat troubled gamblers. Is the money sufficient? Maybe, because so few gamblers have come forth asking for treatment. The Governor's 2009 Report on Compulsory Gambling (PDF)  reported that the hot line receives 324 calls a month. Just 774 people went into treatment as outpatients and only 102 in residential facilities. Because of lack of referrals, several providers dropped out, the report concluded.

Perhaps so few people show up for treatment because, according to a study in the American Journal of Psychiatry, most compulsive gamblers may recover naturally. "Pathological gambling may not always follow a chronic and persisting course," wrote the authors. "A substantial portion of individuals with a history of pathological gambling eventually recover, most without formal treatment."

All that seems to mean that we are probably doing enough.

A big caution, though

We don't know until we try how big an appetite the public has for gambling. A recent report (PDF) by the Rockefeller Institute of Government found that during the recent recession, gambling revenues rose only 2 percent in 2010, but still lagged 0.5 percent behind 2008. One state, Pennsylvania, supplied half of the nationwide growth, mostly because it authorized new casinos and table games. Presumably, income will rise further as the economy recovers.

Still, several factors mitigate against gambling's success in any particular state. For one, competition for a possibly static pool of gamblers is grueling. Already, mature casinos in New Jersey and Connecticut have seen a drop-off in business as casinos in nearby states peel away their customers. If Massachusetts opens a casino, Connecticut will no doubt see its gambling business erode further. And, new outlets in Maryland may zap those in Pennsylvania.

Similarly, the four states surrounding Minnesota all have casinos. And, some offer other kinds of gaming as well. And if Internet gambling ever returns, it would command a sizable portion of the gambling dollar from those who prefer to play from their home computers while in their bathrobes.

What's more, there's only so much disposable income to go around.

According to the Rockefeller report, "Some dollars that are spent on lotteries and casinos would otherwise be spent on retail sales, tourism or other activities that generate tax revenues." In other words, the state might be collecting the same overall amount of taxes, but from a different array of sources.

The lure of winning money — of getting something for not much — will always be a big business. But there's no guarantee of success.

If the number of gambling opportunities created turns out to be excessive, some of them will fail. Maybe electronic pull-tabs won't draw in young people who are more accustomed to action-packed video games. Perhaps an insufficient number of customers will turn up at racetracks to make gaming profitable. If casinos proliferate, revenues may drop. One or two could go out of business.

But those are the risks of the marketplace that all businesses must face.

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Comments (13)

It's a Volunteer Tax

Pay me a dollar and pick a number between 1 and 145,000,000....

Since it is a tax on people who are bad at math, they may want to consider a constitutional amendment to ban math instruction in schools.

Racino

In Marlys Harris's lengthy piece on whether our state should authorize additional gambling, she brushes off the proposal to add Racinos at the state's two racing facilities by casually noting that, in her opinion, they wouldn't raise enough revenue. In the process, she completely ignores one of the prime rationales for legalizing Racinos--saving much of Minnesota's $1b horse industry. As studies have made clear, the health of the horse industry is directly related to the size of the purses at Canterbury Park and Running Aces. Adding video lottery terminals (vlt's) to the two tracks would increase purses exponentially and in the process create thousands of jobs in rural Minnesota. Such jobs include growers, feeders, farriers, vets, etc. In fact, best estimates are that the revenue raised at the proposed Racinos would add, at minimum some 25,000 jobs. And that's in addition to the construction and hospitality jobs that Racinos would create. Additionally, the addition of vlt's at the two sites (where several types of state regulated gambling already occurs) would pump some $130m dollars per year into the state coffers. Now that may be considered pocket change to Harris, but it could go a long way towards paying down the school shift with money left over for whatever the legislature chooses to to use it for. The bottom line is that in poll after poll, Minnesotans support the legalization of Racinos at Canterbury Park and Running Aces. They, unlike Harris, understand that adding vlt's would have a tremendous impact on jobs in rural Minnesota at the same time it would provide the state substantial revenue at a time the tribal casinos which rake in billions do not.

those are some rosy numbers there....

25000 jobs just from having bigger purses? I guess I don't buy it. I guess I could see that bigger purses would bring in more out of state horses but I don't buy that you, for instance, double the purse and you double the number of horse ranchers and their related industries.

I think that "poll after poll' shows that people would rather see racinos than have their taxes go up to support the Vikings. I think that is different than unqualified support for more gambling at the race tracks.

I guess I would look at the racino money as being a subsidy to another industry. Seems like that shakopee track hasn't been able to support itself almost since inception. Pumping more gambling money into it seems like throwing good money after bad. Why not build a state gambling palace somewhere else where all of the money would go to paying down taxes.

Jobs

Yes, 25,000 or more throughout the state! It has to do with the breeding industry and the farms spread all over Minnesota. It has to do with all the businesses dependent on the horse farms. It takes 1300 horses on the track to run a meet. It also takes three years from breeding to get a horse to the track to see if can run. Meanwhile, those horses inject money into the economy. So many breeders have left that we are in short supply of state bred horses and purse are so bad that we can not attract enough horses from out of state to run a meet. It has to do with the jobs at the tracks, around 3000 in the season and about 1300 during the off season, and those numbers increasing when Racinos are built. It has to do with jobs in construction and hospitality industries. Indiana's agricultural economy more than doubled with the introduction of Racinos. The same with other racino states- Oklahoma, Ohio, Louisiana, New Mexico. Minnesota's industry is valued at over $1 Billion a year. Yes, with a "B"! Without competitive purses to retain the horsemen and allow them to have a chance at making a living in Minnesota, the businesses are going to close or move to Racino states. When they leave, the state will lose racing, the jobs, the tracks, the income from parimutuel wagering, the card rooms, and a couple premier entertainment facilities in the country. They will close because the gambling at the tracks is predicated on the fact that the tracks must have a minimum number of live races to operate card clubs. There are 155,000 horses registered in Minnesota. There are 33,000 Quarter Horse owners alone not counting the other breeds.That would account for a large number of owners whose interest in seeing racinos in the state is more than just avoiding having "their taxes go up to support the Vikings." And there are many who don't own horses but enjoy the sport and don't want to see it leave because of an unfair monopoly that does not contribute to the state. And whether you believe it or not, year after year the polls showed the same number of supporters, since long before the Viking stadium issue made the scene.

What about White Earth?

Ron- Since we all know the racino plan is about saving the horse industry in this state, will the folks you work for at Canterbury be scrapping their racino proposal in favor of the White Earth plan which will give the track $12 million a year to put toward purses? Seems to me if the tracks don't come out as vocal advocates for the White Earth plan, it will prove what everyone in the state has suspected all along. Racino is not about the horses. It is about enriching the Sampson family, who hold the majority of the shares in Canterbury Park. The Sampsons would shut the track in a heartbeat if they didn't suspect that racino is their only way into the slot machine business. Once they get slots approved, look for all their horses to head to the glue factory, and for the Sampsons to be on the first flight to Vegas to start negotiating the sale of their new casino to the highest bidder.

Well said Joe

In other state the Casinos are kicking out the racing that allowed them in. Racing has had multiple subsidies and it is not going to make it in Minnesota at anything other than the level it's at. A recent article in the New York Times indicated that well over 200 horses were put down at Minnesota tracks. These are unacceptable losses. The industry needs to clean up not be subsidized.

As for White Earth only about 20% of the White Earth members live on the reservation. I suspect that the 60% unemployment figure applies to only those folks not the 80% who don't live there. So the 60% number may be a bit deceptive.

The gaming market is saturated. Unless it is located in down town to take advantage of people who don't have cars and visitors all it is going to be doing is redistributing the existing market if it even does that. For any of you who have been to the Milwaukee Casino it is not someplace anyone over 50 would feel comfortable at in the evening and their security people carry guns. Wahoo.

Check your stats!

Canterbury is one of the safest tracks in the country and is highly regulated. If you'd check the Times article again, you will see that only 34 horses died on the two tracks in the three years observed and that there were 220 drug violations. There were more drug incidents because the testing is more intense. It should be noted that all drugs are not subversive and that many bad tests come from relatively minor infractions- such as the carriers for some therapeutic drugs will produce a bad test and are not listed on the labels properly. Or a kid can share his chocolate cake with a horse and horse will get a bad test from caffeine. Minnesota tracks are very thorough but unfortunately there are drugs out there that do not show in tests. We are pretty clean here in comparison to some states.

As for the White Earth proposal, they have not approached anyone in the racing industry to discuss anything regarding underwriting purses.

Lastly, Canterbury has NEVER been subsidised by anyone or any government. There has never been any cost to the state, only income. The horsemen are not asking for a handout, only a level playing field, and they are supported by over 70% of Minnesotans.

Racino

Canterbury's position has always been, and remains,neutral towards other gambling proposals. As for White Earth, to date no one to my knowledge representing their proposal has spoken with either of the two tracks. But to the extent they, like we, want to benefit the horse industry with increased purses, we welcome the opportunity to meet with them. As for Canterbury, it is a publicly owned company and anyone can buy shares in the company.

Ron Rosenbaum
Canterbury Park Racino spokesperson

Alter Your "Business Plan" Just a Bit

The Canterbury Park Racino spokesperson states “we, want to benefit the horse industry with increased purses” and “Canterbury, it is a publicly owned company.” Aren’t there race tracks that make money without a slot machine subsidy? As a publicly owned company if there is potential profit for the corporation why don’t you go to the capital markets and borrow funds to increase the purses at your racetrack? By growing the purses it seems you are convinced that your profits would also grow. As far as “benefit to the horse industry” in Minnesota, why doesn’t Racino Now PAC finance Minnesota politicians to provide direct subsidies or tax credits to the horse industry which assuming your proposition is true Minnesotans would receive the benefit of a more robust industry through higher tax revenues to offset the upfront taxpayer dollars and the subsidies could cease over time as the industry grows.
Tom Rees

What?

The tracks have NEVER gotten a "subsidy" from the state. Right after Canterbury opened, Little Six opened down the road and severely cut into the betting at Canterbury. Then Canterbury was allowed card clubs and they were a big help to compete with other states to attract horses. 14 other racing states got Racinos and starting attracting racehorses away from our tracks by offering large purses. No one is asking for a subsidy to the tracks. We are asking for a chance to compete with the casino down the road on a level playing field. We don't want to borrow or "Buy" the business incentives. With Racinos in place the industry can do very nicely on it's own merits. And it will be a willing and generous contributor to the state's economy.

As a point of information, the racetracks that are in states without racinos are in trouble. And this includes Kentucky and Texas, with some of the biggest breeding farms in the country. It also includes the Triple Crown racetracks. The horses from those states are also moving to race in racino states.

Stop claiming we are too broke to pay more taxes

just look at the lines of cars trying to get into Mystic Lake on Easter Sunday. Decaying social and physical infrastructure statewide while billions go to no productive use. Pretty sad.

Supporting Government Through Gambling Revenue is Just Tacky

It used to be that when law-makers needed to come up with more revenue that the first consideration was always resorting to "sin taxes." So, taxing smoking and drinking alcohol was something that nobody could object to because they were "sins." But, I'd argue that a line has been crossed when gambling becomes a source of revenue to government. We're no longer just taxing "sin" we're actively promoting it in order to ensure the revenue stream. It's sort of like having major advertisements for smoking, rather than prohibiting them. We'd want to get more people smoking and addicted to smoking to ensure the revenue stream from tobacco taxes.

That's one reason that I object to gambling lotteries that are actively operated by state entities. I'd at least feel better about it if lotteries were licensed and taxed. But, it just isn't right to have the government run the gambling enterprise.

I'm not a prude who wants to prohibit gambling and other human sins. But, I do think that having the government's interest in promoting gambling and other vices is tacky, at best.

I guess I'm an idealist

"The rationales may not be the prettiest around; maybe if we were better people, we'd do things differently. But we have to cope with our own limitations." I would rather aim higher and more responsibly toward public goals. Taxation, or honest self-funding, is the fairest way to achieve the greater good rather than picking the most regressive subsidizing there is. I would rather not encourage us to bow before our limitations.