Efforts are once again underway in the legislature to bring casino-style gambling to Texas. It’s an idea that has failed in recent legislative sessions, but backers are hoping they’ve found the right formula for success in 2009. There are many appealing arguments on the side of pro-gambling groups. Keeping gambling money that is now going to Louisiana and Oklahoma in Texas is one popular idea. Reviving the state’s horse-raising industry by allowing slot machines at racetracks is another. Some advocates want to help struggling Indian tribes develop their economies through gambling.
Opponents generally cite moral grounds for their hostility to gambling legislation. There are, however, many fiscal arguments against gambling as well. Although gambling proponents always promise large tax revenues from gambling, a statewide survey shows that such promises are almost never fulfilled. For example, gambling proponents are currently claiming that introducing gambling to Texas can bring in $2 billion in tax revenue to the state. However, the entire State of Nevada only receives $1 billion in revenue each year.
Another argument against gambling is the reduced power of the state to control gambling – particularly Indian gambling – proliferation once it is legalized (this will be discussed in Part III of our series). Many opponents also point to statistics which appear to show increases in unemployment, crime and the use of public welfare programs related to gambling. Ultimately, gambling is a complex – and risky – business, and while a libertarian, open approach may sound appealing to many Texans at first, a closer look at laws and little-known facts about gambling make it a very complicated issue that few Texans understand.
The Background Gambling in America was limited until 20 years ago to only a few locations, notably Los Vegas, Nevada and Atlantic City, New Jersey. Spurred by the growth of Indian Gaming (see Part III of our series), gambling exploded in the last 20 years. Today, there are casinos in about 20 U. S. States. Federal Court rulings in the 1980s expanded gambling operations for Indian Tribes. As sovereign dependent nations, Indian Tribes are not bound by state law, only federal law. Beginning in California, tribes began to assert these powers by offering gambling.
As a response, the federal government passed legislation restricting tribes’ abilities to gamble in each state. This law, the Indian Gaming Regulatory Act of 1988 is complex, but has a simple principle behind it: If a type of gambling is legal in the state, it is legal for Indian tribes. If it is not legal in the state, Indian tribes cannot gamble. This law is non-negotiable, and states which have attempted to bring in gambling on a limited basis have often found themselves getting more than they bargained for due to IGRA.
With the passage of the Texas State Lottery in the early 1990s, Indian tribes in Texas began operating small casinos under the principle that the passage of the lottery triggered IGRA’s provisions allowing them to gamble. Then Attorney-General John Cornyn disagreed, and shut down the casinos, which the exception of a small operation of the Texas Kickapoo tribe, which conducts bingo. Since then, every attempt to bring gambling up in the Texas legislature has met defeat, although often by narrow margins.
A 2007 bill that would have allowed limited Indian gaming was defeated by a tie vote, 66-66, in the Texas House of Representatives. Had it survived, several members of the Texas Senate would have likely filibustered the bill. The Texas Constitution officially bans gambling, so any outright casino gaming legislation would likely require a 2/3 vote in the House and Senate. However, legislators have been creative in finding work-arounds which they believe can implement some gambling without a 2/3 vote, hence the 2007 bill.
Gambling Legislation Revived This legislative session, there are a number of gambling bills up for consideration. Their stated aims vary greatly, from full-blown casinos to simple legalized poker games. However, as this series will show, complex federal laws, innocuous-sounding amendments by special-interest lobby groups and crafty lawyers often makes gambling an all-or-nothing proposition. Additionally, this session is the first for new Texas House of Representatives Speaker Joe Straus, who has family ties to the horse-raising industry.
This creates a potential conflict of interest should any bills related to casinos at horse racing tracks come before the House. To deflect criticism, Straus has peremptorily recused himself from any role in considering such legislation. However, Straus created the committees which will oversee gambling issues, assigned members to them and selected which bills are referred to which committees. So far, most of the gambling legislation filed in the Texas House has been referred to committee. That filed in the Texas Senate, where Lt. Gov.
David Dewhurst presides, has not been referred. To his credit, Straus did not pack any of the committees dealing with gambling. The Licensing and Administration Committee, through which most gambling goes, retains roughly the same percentage of members for and against gambling as the previous committee under Speaker Tom Craddick. In both cases, the committee leaned slightly toward expanding gambling. Current Legislation. Full-blown Casinos: House Bill 1724 by Jose Menendez (R-San Antonio) and Jim Pitts (R-Waxahachie), as well as its Senate version by Sen.
Rodney Ellis (D-Houston) would establish full-blown casino gambling in the State of Texas, including the establishment of the Texas Gaming Commission. This legislation also requires a constitutional amendment, and the appropriate Joint Resolutions have been filed. Indian Casinos only: House Bill 1308 by Rep. Norma Chavez (D-El Paso) is essentially the same bill that failed on a tie last session, and would allow Indian gambling only. Rather than making gambling legal, it creates a “defense to prosecution” which basically would prevent officials from enforcing the law against an activity which is illegal under the state constitution.
Unlike most traditional gambling legislation, which goes through the Licensing and Administrative Procedures Committee, this bill was referred to the House Criminal Jurisprudence Committee. “Grey Area” Bills: HB 357 by Rep. Chente Quintanilla (D-El Paso) would allow the sale of lottery tickets at establishments which sell alcohol. This bill is rumored to be a “vehicle” to which electronic lottery tickets or Keno games could be introduced, which could open up a loophole for video slot machines.
HB 2325 by Rep. Richard Raymond (D-Laredo) would allow local option elections to determine the legal status of 8-liners, a type of gambling machine which the Texas Attorney General’s office has declared to be illegal gambling. Additionally, gambling proponents may target a variety of bills to slip in legislation to get a “nose under the tent” according to Rob Kohler, a consultant to the Baptist General Convention’s Christian Life Commission, which is tracking the issue. One of the things I’ve learned in this business is that there a lot of smart guys and girls on the other side,” he said, noting such innovative ideas as “pull-tab bingo” which is an electronic variant of bingo which is very little different in actuality from a slot machine. Twenty-two years ago, the Texas Legislature signaled the return of gambling to Texas in a limited form by legalizing pari-mutuel horse racing in Texas. It was an innocuous entry into the world of gambling: horse racing is ultimately a game partly of skill, not just chance like slot machines or roulette tables.
But now Texas thoroughbreds are carrying more than just jockeys on their backs – they carry the hopes and dreams of the gambling lobby to bring the holy grail of gambling to Texas. An unlikely partnership of supporters, including horse breeders and the generally conservative Texas Farm Bureau, has stepped up to the plate to support an initiative that would bring video lottery terminals, or VLTs, to Texas tracks. VLTs are virtually indistinguishable from casino slot machines, and more importantly, are treated as such in federal law – with rather large implications for Texas.
Indeed, the introduction of VLTs to Texas horse tracks would create a domino scenario that most of the legislation’s supporters appear to not have considered. Instead of reviving the declining stakes of the Texas horse raising industry, VLTs and their consequences would likely start an explosion of gambling beyond the ability of the race tracks – or the State of Texas – to control. The Argument First there are the general arguments for gambling. Proponents say it will bring in large tax revenue to the state, as well as economic development (These issues will be discussed in Part IV of our series).
But there are also arguments specific to racetrack gambling. Texas Horse Breeders say they’re hurting, and argue that the only way to rejuvenate their industry is through the passage of legislation establishing “horse incentives” to grow the industry. This can only be done, they claim, by increasing the purses at thoroughbred racing venues like Sam Houston Park in Houston and Retama Park in San Antonio. And the only way to get those payouts, they assert, is through the introduction of slot machines at racetracks.
To get their message across, the Texas Thoroughbred Association has even hired noted Texas songwriter Lyle Lovett as their spokesman. In a video on their website, Lovett makes the Association’s case, and pushes for passage of the “Texas Horse Prevention Preservation Act. ” “It’s a bill that would benefit virtually every aspect of the horse industry in Texas and would allow video lottery terminals or VLTs to be installed at existing licensed racetracks,” Lovett said. It would provide a way to supplement purses and breeding programs for racehorses, equine research, breed retirement and adoption programs. ” Regardless of the merits of what is essentially a bailout for the Texas horse-raising industry, the “Texas Horse Prevention Preservation Act” is somewhat misleadingly named. The subsidy amounts – which are unknown, but would likely be in the tens of millions – would likely be dwarfed by the actual slot machine revenue, which supporters say will likely be in the tens of billions of dollars.
It is the equivalent of a mouse hitching a ride on an elephant and painting his own name on the side. Farm Bureau Support One of the big wins for the racetrack casino lobby prior to the opening of the 81st Legislature was the winning of an endorsement of the project by the Texas Farm Bureau. Steve Pringle, the bureau’s legislative director, said the issue came up from members in the horse raising industry, who argued that slot machines at racetracks would revive their business. “The horse industry in Texas has been suffering in the last five years,” Pringle said. We support these incentives and support VLTs as a funding mechanism to support that industry. ” Pringle said that the bureau doesn’t take a position on gambling, and said that if there was an alternative funding mechanism for the incentives, the group would support that. As of today, however, VLTs are it. Battling Polls Texans for Economic Development (TED) – a group which promotes racetrack casinos, or racinos as they are sometimes called – commissioned a poll by Baselice and Associates, which shows strong support in Texas for the proposed race track casinos.
The poll (linked via Newspaper Tree, an online El Paso newspaper) found 63 percent of Texans support the idea and 36 percent oppose. However, the poll was paid for by TED. A similar poll from only two years ago, conducted by an a separate gambling group favoring “resort” casinos, found only 45 percent of Texans supported racinos. That poll was also conducted by Baselice and Associates. The dueling polls is a legacy of past discord. Historically, disunity has been the gambling lobby’s worst nightmare, and the biggest boon for opponents of the idea. This ession, such groups have put up a front of unity, although it remains unclear how strong that remains. Right now, gambling proponents are supporting HB 1724, which technically includes both resort casinos and racinos, although it did not escape notice among the capitol crowd that a recent press conference touting the bill did not have any representatives from the horse racing industry present. Word in the halls also suggests that many members of the Farm Bureau may be getting cold feet, although Pringle says the group continues to support the idea.
A Monopoly or the Big Tent? Currently, horse racing tracks have a near monopoly on gambling in Texas, and a big-tent approach would end that. It would also make legislation a harder sell. In the past, legislators have been somewhat moved by the idea of gambling that has a “small footprint. ” For this reason, racetracks have generally advocated for the exclusive right to gamble, limiting casinos to existing tracks. This is actually an impossibility, given the impacts of the federal Indian Gaming Regulatory Act (which will be discussed in Part III of our series).
Will The Revenue Projections Turn Out? Historically, gambling revenues have underperformed expectations. The Texas Lottery was sold as a cure-all for the state’s school finance system, but failed dramatically (though this was partly a result of skyrocketing school costs which the lottery could not have met anyway). But is the current economic environment the right time to launch a major gambling operation? In a March 5, 2009 Houston Chronicle story a Nevada economist and gambling expert said no.
William Eadington, an economics professor at the University of Nevada and director of the university’s Institute for the Study of Gambling and Commercial Gaming, pointed out that two states are currently facing the prospect of having to pass tax breaks to bail out the very casinos that were pitched to legislators as a way to bail the states out. Even Texas tracks have been touched. On the same day the Chronicle story appeared, Magna Entertainment Corp, the parent company of Grand Prairie’s Lone Star Park, filed for Chapter 11 bankruptcy.
Lone Star Park’spress release is quick to point out that its operation is not part of the filing. Magna Entertainment is the largest horsetrack operator in America; after its colossal collapse after 7 years of failing to make a profit, the company was officially de-listed from the Nasdaq Exchange on Monday. The loss of revenue is not restricted to racetrack operations, but is a trend generally true of all casino operations. Casinos in New Jersey posted a 20 percent drop in income last month – the largest decline in the 30-year history of gambling in that state.
Famed casino developer Donald Trump – who made a name for himself turning everything he touched into gold – couldn’t even make it work. About the only positive casino developers can take from recent developments, in fact, is the argument that gambling may not be as addictive as some say. Given the choice between paying the bills or playing the slots, it seems, people just aren’t gambling as much. Yet the premise behind the argument – that the two items compete at all – is hardly something gambling proponents want to admit to.
Opening the Door for an Explosion of Gambling? Last week was National Pathologicial Gambling Week. Indeed, the social costs of gambling are widely known, and are tacitly admitted to by the fact that virtually every gambling bill proposed includes funds for treating compulsive gamblers (These issues will be discussed in Part IV of our series). Given this fact, gambling is recognized by all as a cost/benefit ratio. Benefits are maximized – and costs reduced – by limiting the footprint of gambling.
Destination casinos are likely just as addictive as any others, but they are generally less accessible and require sufficient expense, premeditation and planning to visit, unlike hometown casinos. For the horse racing industry, furthermore, there is additional reason to keep the footprint low. As alluded to above, the business model of a racino includes slot machines which make sufficient revenue to offset the loss – or insufficient gain – of the actual horse racing operation. The more casinos there are – racinos or others – the more diffused the potential revenue base.
More casinos chasing a limited number of gamblers means fewer returns. A model of business based on a handful of casinos will simply not work if the casinos proliferate wildly. This does not even consider the draconian – and uneven – tax rates levied on gambling operations. This then, is the ultimate mirage of racetrack casinos: proponents believe they can prevent the expansion of gambling. But a closer look at the law – and experiences from around the country – prove this is a very dubious proposition. Casino gambling can’t be tamed, because it isn’t a thoroughbred, it’s a mustang.
That’s because another group of people who once lived and died by the horse hold all the cards now. Indian Tribes bring a whole new dimension to the dynamics of gambling. They have the power to expand – indeed they virtually guarantee it by their presence – the footprint of gambling wherever they exist – or could potentially exist. Indeed, when the dimensions of Indian gambling are considered, all bets are off, and all the dreams of horse racing enthusiasts – and state budget writers – could likely be dashed. For that reason, we turn next to the most controversial and vital piece of the gambling puzzle: Indian Gaming.
When one speaks of casino gambling, one is increasingly speaking of Indian casino gambling. That’s because Indian tribes have led the way in the dramatic explosion of casino development across the country. Although Indian tribes are no more nefarious than non-Indian casino developers, the special laws and rights that they enjoy place them in a powerful position which has in the past been exploited to expand gambling’s footprint exponentially and undermine many of the tax benefits states expected to receive when they approved casinos in the first place.
Any legislation that would expand gambling to Texas will expand Indian gambling. There are five ironclad rules of Indian casino gambling in America today: 1) If anyone can gamble, Indians can gamble and states can’t prevent it. 2) If you build it, they will come 3) Indian tribes are above state law 4) Indian tribes cannot be taxed, except voluntarily 5) Indian tribes have potentially vast leverage over the state and individual citizens which will be exploited to expand gambling further and to evade taxes when possible. If Anyone Can Gamble, Indians Can Gamble
In the early 1980s, The State of California sought to shut down a tribal casino which had opened up for business despite a clear statewide ban on gambling. The state had just passed its new state lottery, but found itself losing revenue to a small casino operated by a tribe of just 25 members which was conducting high-stakes bingo operations on tribal land. The state sued, and soon learned a lesson in diminished sovereignty that states across America have been learning all too well in the following 20 years. In the case, California v.
Cabazon Band of Mission Indians , California received a stunning and humiliating defeat. As Richard Wilson of the Public Law Research Institute explains: “The Court rejected (the state’s) argument. Since California allowed bingo, card clubs, and the state lottery, it had clearly indicated that there was no per se public policy against gambling and the state simply regulated gambling. The court implied that once a state permitted any games in a class of gambling, the conduct was regulated and Indian tribes could offer those games free of state interference. ” The decision was a bombshell.
Suddenly, a federal court was telling states that they could pass all the laws they wanted on gambling, but they just didn’t apply to Indians . In the immediate aftermath of Cabazon , the number of tribal casinos in California began exploding, and the phenomenon soon spread to other states. The logic of the court’s ruling is simple: the U. S. Constitution grants Congressthe exclusive right to regulate and deal with Native American tribes. Thus no state interference is legal at all. Because of this constitutional provision – and in the face of strong opposition from Indian groups – congress was unable to overturn Cabazon .
Instead, Washington decided to bring order to the emerging chaos of Indian gambling. In 1988, they passed the Indian Gaming Regulatory Act (IGRA). IGRA provided a legal framework, by stating that tribes cannot gamble in states where gambling is prohibited outright. However, if any type of gambling (defined in three distinct classes) is allowed to any group within the state, that type of gambling is allowed to Indian tribes. Future court rulings have exempted state lotteries from this, but only insofar as they are state-runoperations, not private. If You Build It, They Will Come
There are currently a staggering 562 federally recognized Indian tribes in the entire United States of America. Texas, however, only has three . What is the reason for the vast discrepancy? Texas is the second largest state by size and by population, so it should logically have more. Nor is this because Texas did not historically have Indian tribes. It’s because Texas doesn’t have gambling. The number of tribes in America has ballooned since the 1980s. Laws granting sovereignty to tribes have been one reason, but clearly, gambling is an important factor.
In California, after Cabazon and IGRA, many small or defunct tribes began applying for federal recognition, either reviving old claims, or in some cases, making new ones. It is difficult for the ordinary American to imagine “new” tribes, and many would consider that there are a set number of tribes available based on historical experience. However, this is not the case, as the number of potential new tribes is practically infinite. That’s because even small bands like the Cabazons – essentially splinter groups of existing tribes – can apply for recognition on their own.
If a tribal council refuses to join the rush to gamble, it could cause a schism within the tribe. The minority, seeking to establish a casino, would apply for its own, separate status, using any argument available as to why they should represent a distinct tribe. Tribal recognition is the prerogative of the Bureau of Indian Affairs. In the early 1990s, with little oversight and no vested interest in denying claims, the Bureau began approving such new claims liberally. Many of the new “tribes” were clearly not autonomous entities. A few were outright frauds.
In one case, a tribe was recognized with only one member. In California alone, more than 60 new tribes were approved which had never applied or pressed their claims until gambling opportunities were opened to Indians . As the National Review Online’s Rich Lowry put it: “Indian gambling is an ill-disguised scam. Some so-called tribes have 30 people or less. They basically rent their names to Las Vegas casinos that run their gambling operations for as much as a 40 percent cut of the take. ” After an initial period of chaos, the Bureau of Indian Affairs was reined in and became more judicious about approving claims.
But the damage was done in California and other states. And not even all Indians were the winners. The largest tribe in America, the Navajo of Arizona, refuses to gamble for religious reasons, so many of their members languish in poverty. In contrast, the Foxwoods Casino in Connecticut – the largest in America – is run by a tribe that, prior to gambling, consisted of one mostly Anglo man and his family who had never lived as an Indian or spoken the tribal language before “rediscovering” his Indian roots around the time that gambling came to Connecticut.
Texas currently has only three recognized tribes, the Alabama-Coushatta of East Texas, the Kickapoo of Eagle Pass and the Tiguas of El Paso. If any gambling expansion is passed, these tribes will gain access to gambling. (Technically, the Kickapoo have larger rights because the other two tribes are covered under a unique law called the Restoration Act ). But more important to this discussion is the ability of tribes to proliferate, as they did in California and other states. There are two ways for this to happen: new tribes and border jumping. The former was the greatest cause for the California meltdown.
Since the tightening of federal recognition standards, the latter is the more likely scenario for Texas, although new tribes remain a possibility, with eight existing applications for Texas tribal status. The possibility of tribes that “border jump” is a very real, and likely possibility. The process has happened in other states, with tribes pressing long-dormant land claims. In many cases, tribes have sued for vast areas of land impacting thousands of landowners, but agreed to settle such extravagant claims for a few small acres… and a casino.
This is a real possibility for Texas, and one such land claim is already in the courts. Furthermore, of the existing Texas tribes living in Oklahoma and New Mexico, several already have casinos. (For more on the potential for tribal expansion, see Gambling Could Re-Open Book on Tribal Claims Originally published in The Lone Star Report, April 30, 2004). Indian Tribes Are Above State Law As “sovereign dependent nations” Indians are not bound by state law. If any crime, from murder to racketeering occurs on federally-recognized tribal land, the state is limited in its power to investigate or arrest without Indian approval.
Nor can any state law apply on Indian land except that which is enforced through a relationship with the federal government, such as IGRA. Thus, states are hamstrung in their efforts to deal with Indian tribes. The biggest state concerns relative to tribal gaming are corruption and taxes. Corruption has historically followed gambling, regardless of whether the operators were Indian tribes or not. In Indian gaming, specifically, corruption and gambling-related abuses were sufficiently common for the FBI and the NIGC to create a special organization – the Indian Gaming Working Group – to investigate violations in Indian Gaming.
Indian Tribes Cannot Be Taxed, Except Voluntarily Because Indians are not subject to state taxes, their casinos are not subject to them either, unless Indians agree to pay the tax. This is not as absurd as it first sounds, because generally Indians start off in a relation with the state with no gambling present. A state under this scenario is considering allowing gambling, or upgrading the class of gambling it has in the state. The state then negotiates a compact with the tribe under IGRA rules, in which the tribe agrees to pay the tax or the state does not approve gambling. Tribes agree, because they can’t gamble until they do.
That’s how it’s supposed to work, but that is not generally the experiences of states dealing with tribal gambling, because IGRA puts another card into the hands of the Indians, which they can hold over the state. If the state refuses to negotiate, or negotiates in a manner that a court decides is in bad faith, then the federal government can force a state to accept a compact even if it doesn’t want to. And because the state has almost no control over who becomes an Indian tribe – whether it’s through border jumping, tribal schism or new tribes – the very real possibility exists that tribes can enter the game after the fact .
With gambling on the books, the state has no leverage against such tribes. They can hold out for favorably low taxes or simply open up without paying taxes, and the state will have to give them a compact or face federal sanctions for not doing so. The Indians can sue for the state acting in bad faith , but the State has no power to return the favor. This has the potential to undermine not just the tax structure for the state, but also the existing business models of all the existing casinos, Indian and non-Indian alike.
Indian Tribes Have Potentially Vast Leverage Over the State and Individual Citizens As noted above, Indian tribes have potentially vast legal claims on Texas soil. Virtually any piece of land is subject to Indian claims. In some states, tribes have even sued for land that the state capitol sits on. In others, tribes have tied up millions of acres in land and mineral rights in lawsuits that cloud the titles of the current owners and prevent them from selling. Often, the only way to clear the lawsuits – which often have legitimate historical foundations – is to settle. And that means more casinos. In 2004, the Cheyenne-Arapahoe Tribes of Oklahoma, in a case of border-jumping, filed a 27 million acre land claim which included all of the City of Denver, Colorado, as well as Colorado Springs. The tribe offered to drop the suit in exchange for approval of a casino near the Denver Airport. •In 2005, the Mowhawk Tribes of New York agreed to drop all their existing land claims. The price? $100 million and 14,000 acres on which the tribe could build a casino. •In 2005, the Menominees Tribe of Wisconsin filed a tribal land claim in order to get access to the casino markets of Chicago and Milwaukee.
Whether or not these lawsuits have merit or are judged frivolous, the chaos they create becomes a form of leverage. And tribes have been fairly successful in using whatever leverage they can find. Indeed, of the 408 Indian casinos currently operating in the United States, 36 are currently operating on land that was not Indian land prior to the passage of IGRA in 1988. Such suits aren’t simply a fairy-tale possibility in Texas. They’ve happened, and the Indians have won them . In 2002, the Alabama-Coushatta tribe won a claim in the U. S. Court of Federal Claims, in which they successfully argued that the tribe still holds the aboriginal title to 5. 5 million acres in the following East Texas counties: •• Montgomery • Walker • Trinity • San Jacinto • Liberty • Polk • Hardin • Tyler • Jasper • Newton • Orange In this case, the land likely won’t be taken, but the court has recommended that Congress award the tribe $270. 6 million in revenue that the State of Texas has gained from oil and gas production, timber harvesting and other sources.
The Alabama-Coushatta tribe already has a reservation in Texas, but due to its particular status as mentioned above, has limitations on its gambling abilities which most tribes to not have. This claim and other potential claims are a key issue in the gambling puzzle and will likely proliferate if casino gambling comes to Texas. Tribes can’t legally settle for a casino while gambling remains illegal in Texas, but legalizing it would legalize the settlements, encourage new lawsuits and expand gambling – possibly untaxed – to areas the legislature has never even considered for casino development.
Casino gambling is a compelling issue, because it crosses political boundaries. While many conservatives oppose it, many of the more libertarian ones argue for it. While many liberals support it, many of the most ardent advocates for the poor are strongly opposed. In this series, we have looked at two of the biggest issues related to proposed casino gambling in Texas; now it’s time to turn back to the question overall and weigh some of the issues surrounding it, since gambling is an inherent trade off of promised riches versus social costs.
These are the arguments for bringing casino gambling to Texas: 1) Economic Development. In addition to the horse industry issue (discussed in Part II), proponents claim it will bring new jobs to Texas and stop the drain of the millions of dollars from our state to neighbors like Louisiana and Oklahoma. 2) Casino gambling will bring much needed tax revenue to the State of Texas, which can be invested in education or other priorities. 3) If the people of Texas want to gamble, let them gamble. Government has no business enforcing morality against the wishes of the voters. Let’s take a look at each in turn:
Economic Development The parking lots of casinos in Louisiana and other neighboring states are frequently jam-packed with cars, and many of those are the cars of Texans. A recent study by Texans for Economic Development (TED) – a pro-gambling lobby group – claims that Texans wagered $2. 4 billion in seven states: Nevada, Mississippi, Louisiana, New Mexico, Oklahoma, Colorado and Arizona. Bringing gambling dollars home, TED argues, would recapture $1. 8 billion of that money for Texas. It would also generate an additional $1. 5 billion in new business revenue and create jobs at the casinos.
The gambling proposal by Senators Rodney Ellis (D-Houston) and John Carona (R-Dallas) would authorize two casinos in Dallas and Harris Counties, one in Bexar County and one in Travis County. SB 1084 would also authorize gambling for each of the three existing Texas Indian tribes, as well as at the states’ five horse-racing tracks and two dog-racing tracks, for a total of 16 casinos across the State of Texas. Overall, supporters believe it will bring an economic benefit of $50 billion a year and create 300,000 new jobs, a spokesman for Sen. Ellis told the Dallas Morning News.
Tax Revenue That same spokesman also pegged the potential revenue to the State of Texas at $3. 25 billion to $4. 5 billion. This is a significant increase from past estimates – roughly double – from previous legislative sessions. That’s because the “footprint” of casinos in the Ellis-Carona bill is larger than in any previous legislative session. Where are these numbers coming from? Authors of the bill presumably studied gambling in other states, considered the size and population of Texas, and weighed the money leaving the state currently. So, are these numbers feasible?
Let’s look at Nevada – the home of the very kind of “destination casinos” that supporters of the legislation want to bring to Texas. The entire state of Nevada – whose economy evolves around little else – earns about $1 billion in tax revenue a year in good years. And gambling, apparently, is not recession-proof. Nevada has seen its tax revenues plummet in recent months and the cash-strapped Nevada legislature has seized half of its sales tax reimbursements to businesses. Texas is much larger than Nevada, but it is inconceivable that the state could market itself as a destination for gambling to rival that state.
For Texas to come anywhere near the projected revenues, the vast majority of gambling revenue must come from within. What does it take to put in to get $3-4 billion out? Gambling taxes don’t work like other taxes. In fact, most states soak their casinos with draconian, near 50 percent taxes on slot machine revenues – which make roughly 70-90 percent of casino income. The Texas bill would place a 35 percent tax on slot machines and 15 percent on other gaming operations. The taxable value of gambling the state would need to have to generate that proposed tax return would have to be around $12-15 billion.
But people don’t go to casinos just to lose. They go to win, and if they don’t win frequently – in fact, very frequently – they won’t come back. So most casinos have to invest a large portion of the money spent back into the prize pool – 80 to 90 percent in most cases. So the actual amount wagered can be dramatically higher. Pro-gambling groups often use this higher number – the Baptist General Convention estimated $51-200 billion from earlier versions of the bill. This number is shocking, but it does not necessarily represent the funds taken out of the economy, because many of he funds are repaid in prizes and theoretically go back into it. However, this is only true for the gamblers as a group, and is rarely true of the average gambler. A few big winners obscure the fact that the majority of people go home with nothing. For this study, since it is both the source of the tax income and any potential drain on the economy and therefore social services, we will focus on the money lost, not the money wagered. This represents funds taken directly out of Texans pockets. We will use this number – $12-15 billion in evaluating the social costs and the state’s “gaming capacity” later.
If the People of Texas Want to Gamble, Let Them Gamble A recent poll by Bacelice and Associates that basically tested the Texas pulse for the provisions of the Ellis-Carona bill found 63 percent of respondents supported the idea. Yet every one of the questions asked by the pollsters was about a positive effect of the legislation, and it did not include any information skeptical of those claims or presenting the many negativeeffects of gaming. In politics, this is called a push-poll: one which asks misleading questions in order to gain a pre-planned result.
Arguments Against Legalized Gambling SB 1084 and its House companion, HB 1724 promise $3-4. 5 billion in revenues to the State of Texas, and as we have seen, the majority of this revenue is expected to come from people who are not currently gambling today. Put up against the $1 billion that Nevada earns by taxing slot machines, and it doesn’t seem likely. But the numbers become more of a fairy tale when you look at nationwide numbers: the entire U. S. tax revenue from commercial casinos is only $5. 79 billion, according to the pro-gambling American Gaming Association. (See chart below)
This number does not include racetrack casinos ($2. 2 billion) or Indian casinos. Indian casino tax revenue amounts to around 2/3 of the commercial taxes, roughly $4 billion a year. This gives a total of tax revenue from gambling in the U. S. at just over $12 billion. For Texas – which has less than 10 percent of the population of the U. S. – to achieve 30 percent of the nation’s tax revenue from gambling is just not feasible, especially when one considers the trends in gambling revenue nationwide. Early on, a few casinos hit it big, and the states that taxed them did so as well.
But as gambling becomes more common, the winning and their tax revenue thins out. For Texas to save its $1 billion annually from going to Louisiana, one must assume Louisiana will lose at least the majority of that tax revenue. But some gamblers will continue to go out of state. Texas may open a casino in Harris County, but is it really likely Texans will cancel their honeymoons in Vegas to go to Houston instead? Texas currently has a lottery, whose proceeds – far below the rosy predictions of the early 1990s – go to education.
Evidence from other states shows clearly that the introduction of gambling takes money away from the state’s lottery. Estimates for Texas put the number as high as $1 billion, which cuts the overall increased revenue from gaming by 1/3. The Danger of Gambling Expansion Is Real Part III of our series shows clearly that when it comes to Indian gaming, Texas is betting on an inside straight: the idea that something that has happened in dozens of other states will not happen here. This is unlikely. The law is weighted on the side of Indians and casino developers who back them.
Gambling will expand, and chances are, it will expand untaxed. That has been the experience of California, which sees billions of dollars taken from the pockets of its citizens and reaps hardly anything in taxes. This, in fact, is one of the key reasons for California’s massive budget shortfall. It pays the costs of gambling, but doesn’t get the benefits of it. The Costs of Gambling Many who subscribe to a strict libertarian philosophy argue that citizens should have the right to gamble, because if they lose, it’s their own fault.
This may be so, but the cost of that fault is borne by all of the taxpayers, whether they gamble or not. The social costs, from crime, economic distress and family issues that result from gambling are admitted by all. The only question is how big are they, and whether or not they outweigh the supposed benefits of gambling. According to a 2005 study by two economics professors, one from the University of Illinois and one from the University of Georgia, the cost is around $13,500 a year per pathological gambler.
Spread out to the whole of society (pathological gamblers are estimated at a conservative 1. 5 percent) that would amount to $200 per Texan. If this number were used, the costs of state resources to treat gambling would wipe out the proposed tax revenue. Some of the costs that researchers Earl Grinols and David Mustard found: •• Apprehension and increased crime costs • Adjudication (criminal and civil costs) • Incarceration • Lost productivity on the job • Lost time and unemployment • Bankruptcy • Suicide • Illness • Therapy/Treatment Costs Unemployment, Medicaid, food stamps and other entitlements. • Family costs (Divorce and separation) Other researchers dispute the size of the cost, but there is general agreement that the costs are real, and this realization crosses party lines. In Texas, the leading conservative think tanks such as the Texas Public Policy Foundation (TPPF) and the leading liberal ones, such as the Center for Public Policy Priorities (CPPP), agree that gambling is a bad bet from a cost-to-the-state view.
“Gambling has high social costs,” wrote Dick Lavine, the director of the CPPP in a recent policy paper. Gambling can cause addictive and destructive behavior much like alcohol and drugs. ” Furthermore, Lavine asserts that taxing gambling is regressive: it hits the poor hardest. In Texas, there is a direct correlation between per capita income and per capita lottery sales. The five Texas House districts with the lowest income spend 2-3 percent on average on lottery tickets. The top five House districts in terms of income, spend about 0. 3-0. 5 percent. And for all the supposed economic benefits of gambling, not all Texas business leaders agree.
Greg Gallaspy, the Executive Director of the Paseo del Rio Association (The San Antonio Riverwalk), said gambling would have a huge negative impact on the state’s existing tourism, including the Riverwalk, the United States’ Number One tourist destination. “We have over 100 hotels, restaurants and bars that will be directly impacted,” Gallaspy said. “We already are a destination, we do have resorts. ” Gambling revenue, he argues, isn’t just created out of thin air, and a lot of it will come from poaching off existing businesses and industries.
The Last Word… Gambling is addictive, but it is not the players who are the poster children for this new craze, but the states who embrace it. In the last two decades, 20 states have embraced casino gambling, and have bet their futures on it. Slot machines – the generator of the overwhelming majority of casino income – are not just addictive, they are specifically designed to be addictive. Modern slot machines are not simple games of chances like the old machines of the past which randomly stopped a rolling cylinder.
They are advanced computers with highly complex algorithms which can actually change the odds on the fly as players play. In fact, as a May, 2005 U. S. News and World Report expose (“Secrets of the Casinos”) pointed out, casinos often employ other tactics – such as keeping rooms intentionally dark and piping in certain scents – which directly target the brain in order to encourage gamblers to play longer – and lose more. Slot machines and casinos are not addictive by accident, they are addictive by design.
For the State of Texas, which once successfully sued cigarette manufacturers for merely marketing an addictive product, the establishment of such casinos would be the ultimate in hypocrisy. And if it’s all marketed to the voters for a hypothetical tax revenue windfall that is clearly over-optimistic at best, and downright disingenuous at worst, Texans will have good cause to wonder if the return on the investment will really be worth all the costs. After all, this is one bet that the State of Texas really can’t afford to lose.