WASHINGTON — Many local governments are not benefiting from gambling tax revenues in what has become an oversaturated market, a panel of state officials and policy analysts said here on Wednesday.
The event, hosted at the National Press Club by the Nelson A. Rockefeller Institute of Government of the State University of New York and The Council of State Governments Eastern Regional Conference, focused on the short-term and long-term implications of gambling expansion on state budgets.
Alan Mallach, a senior fellow for the Center for Community Progress, said that although very few state tax rates are as high as casino tax rates, local governments by and large do not benefit from gambling revenues.
His home state, New Jersey, he said, does not share any of its gambling revenues with local governments. The only state he characterized as "fair" is Michigan, which splits gambling revenues 50/50 with Detroit from casinos located in the city. According to Mallach, two-thirds of states tax casinos at an average rate of 20% or higher.
"No state has a 20% sales tax," Mallach said. "Not even the highest individual income tax brackets are 22%. It's a unique mechanism only made possible because of the quasi-monopolistic characteristic."
He also cited figures that show new casino states are displacing revenues from older casino states while total revenues are not increasing, which he said is "very telling."
"The market is oversaturated, which means that for all practical purposes, every additional casino is basically taking money from other casinos," Mallach said. "It's redistributing an essentially static pot."
Making matters worse, Jackson Brainerd, a policy associate with the National Conference of State Legislatures, said millennials' involvement in gaming is quite low and a shift to interactive table or online gaming has begun to take place.
Despite the warning that the gambling market may be oversaturated, residents in three states voted on general election ballot measures last week to legalize or expand gambling, two of which did not pass.
Rhode Island passed a measure that will authorize the first state-operated commercial casino to be located in Tiverton. Newport Grand Casino, one of the state's two current commercial casinos, will be shut down and its license shifted to the Tiverton facility.
Massachusetts, which legalized commercial casino gambling in 2011, had proposed allowing its Gaming Commission to permit an additional gambling establishment with no table games and no more than 1,250 slot machines, a measure that was defeated.
Another proposal voted down would have allowed two casinos to operate outside Atlantic City in New Jersey, the first time gambling would have been allowed outside of that city.
A license would have only been granted had the applicant invested $1 billion in the state.
Mallach, a New Jersey resident, used New Jersey's failed referendum as an example of a move that would have potentially further saturated the Northeast casino market had it passed.
Several casinos opened in recent years in eastern Pennsylvania to target gamblers who may have previously gone to Atlantic City, a strategic move that Mallach called "fabulously successful." A similar pattern may have developed across the Hudson River in New York had a casino opened in northern New Jersey, he said.
"Ultimately, somebody else would have come in with a casino in Manhattan or elsewhere and things would have settled back down to status quo," he said.
The panel followed a Rockefeller Institute report released earlier this year that said gambling is not a reliable source of revenue for states and should not be seen as a solution to their budgetary problems. Gambling revenues are good in the short-term for revenue shortcomings, the report found, but can often reverse pattern in the long-term.
The report also said that gambling tax and fee revenues, which include lottery, casino, racino, video gaming and Indian casino revenues, was $27.7 trillion in fiscal 2015. But on average, gambling revenue only accounted for between 2% and 2.5% of state own-source general revenues.
The report found that, as of fiscal 2015, 44 states had lotteries, 18 had casinos, 28 had Indian casinos, and 13 had racinos. Rockefeller Institute senior policy analyst Lucy Dadayan, the author of the report and a panel speaker Wednesday, said gaming initiatives oftentimes coincide with poor state fiscal conditions to stimulate economic development and raise revenue.
"The growth of casinos became really popular around the Great Recession era," Dadayan said Wednesday.
John Hicks, executive director of the National Association of State Budget Officers, said what makes gambling revenues unique is that most states "put a little candy in there," with the candy being the dedicated use of money.
"We'll give it to education, to a scholarship program, or we'll share it with local governments," Hicks said. "That doesn't happen with most tax [revenues]."
Although most states dedicate gambling revenues to these targeted funds, some also send them to the state's general fund.
"As state budget officers, we prefer this," Hicks said. "We don't like our governors to have to do something. We prefer them to choose to do something."
