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The Nation | Ronald Brownstein / WASHINGTON OUTLOOK

Lure of Easy Money May Push Cash-Strapped States to Roll the Dice

January 27, 2003|Ronald Brownstein

Thomas Baker is betting the next few years will be good for his business. The odds are he's right, which is a troubling prospect for anyone concerned about the health of America's families.

Baker is president and chief executive of International Game Technology, the nation's largest manufacturer of slot machines. At an industry conference earlier this month, he predicted a 15% increase in earnings per share, not only this year but also for the next few years.

When so many industries are hurting, why is Baker's outlook so rosy? Because the picture is so grim for state budgets. With states from coast to coast straining under the largest budget deficits since World War II, governors in both parties are looking to raise money by expanding legalized gambling. At the conference, Baker predicted a state a year will legalize gambling for the next decade. He might be right.

To paraphrase P.T. Barnum, no one ever went broke underestimating the cowardice of America's political leaders. The gambling industry and its lobbyists thrive in hard times because they promise easy money for governors and legislators fearful of raising taxes or cutting services. Gambling seems to offer states money without cost. But, as any gambler can testify, the bill always comes due.

For The Record
Los Angeles Times Thursday January 30, 2003 Home Edition Main News Part A Page 2 National Desk 16 inches; 604 words Type of Material: Correction
State budgets -- An article Monday in Section A on gambling and state budgets incorrectly credited P.T. Barnum with the line: "No one ever went broke underestimating the cowardice of America's political leaders." That paraphrase should have been attributed to H.L. Mencken.

"Typically, what you hear is you put in these new games and we will have so many hundreds of millions of dollars in new revenue to pay for whatever," said Robert Goodman, a professor at Hampshire College and author of "The Luck Business." "You will hardly ever see a study that accurately looks at ... the cost of getting there."

Opposition to the seemingly inexorable spread of legalized gambling has grown over the last decade, not only from religious leaders concerned about social costs, but also from business groups worried that gambling will cannibalize spending that would otherwise have gone to restaurants or shops. But the gambling industry gains the edge -- the house's advantage -- when states' finances are weak.

The modern gambling industry took root in the Depression, when Nevada became the first state to re-legalize casinos after almost all states had banned gambling in the first quarter of the 20th century. The industry's last great leap forward came in the recession of the early 1990s, when states from Iowa to Illinois to Mississippi authorized riverboat gambling, and Oregon, Louisiana, West Virginia and Rhode Island approved video poker.

As the economy boomed through the rest of the 1990s, filling state treasuries, the industry made little progress (apart from approval for casinos in perpetually depressed Detroit). Now the gambling forces are resurfacing in state capitals.

The new Republican governor in Maryland and the new Democratic governor in Pennsylvania are pushing hard to authorize slot machines at racetracks. In California, Gov. Gray Davis says he might allow Indian tribes to build more casinos if they will give the state a bigger cut. State legislators in Florida -- a state that emphatically rejected casino gambling in a 1994 referendum -- are pushing to install slot machines at racetracks.

That's not all. The new Democratic governor in Oklahoma, a state at the very buckle of the Bible Belt, ran on a promise to provide more money for schools through a lottery. Arizona voters narrowly approved an expansion of Indian casino gambling in a referendum last fall after proponents spent more than $21 million promoting it.

Other financially strapped states considering more gambling include Kentucky, Ohio, Illinois, Maine and Massachusetts. Industry observers say those efforts have little prospect of success this year, but that could change.

Politically, gambling has functioned as a form of contagion. Once a state approves gambling, neighboring states also feel pressure to authorize it also to "recapture" the revenue from residents who cross state lines to wager. Robert Ehrlich Jr., the new Maryland governor, for instance, says the state should install slot machines at racetracks in part to recapture gambling dollars spent over the state line in West Virginia.

But if Maryland and Pennsylvania -- where the industry believes it has its best chances this year -- approve slot machines for their tracks, some experts expect West Virginia to up the ante by authorizing table games at its racetracks. New slots in Pennsylvania and Maryland also could increase the pressure to legalize slots in Ohio, which has so far resisted.

A similar dynamic is unfolding in the Northeast. After New York Gov. George Pataki approved six new Indian casinos and racetrack slots in 2001, New Jersey is studying whether to allow slots at racetracks. Proposals for casino gambling are also bubbling in Massachusetts.

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