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.