Gambling Expansion In U.S. Dips

The predicted proliferation of gaming is proving dead on arrival as legislative sessions wrap up across the country. Voters' concerns and elected officials' doubts have dashed hopes for expanded gambling as a solution to fiscal crises, even as state budget deficits mount.

Last year, pro-gaming candidates for governor were elected in 23 states, and industry insiders and Wall Street analysts said the expansion of gaming options was more likely than at any time in the past decade because of mounting fiscal deficits.

But while deficits have continued to mount, the proliferation of gaming has been routed. In the 20 states that have most seriously considered expanding slot machines at race tracks and new casinos as potential solutions to fiscal crises, aggregate estimates of budget deficits have ballooned to $85.6 billion in 2003.

In 14 of the states, however, proposals to expand gaming have already been crushed in the state Legislatures, said gaming critic Tom Grey, executive director the National Coalition Against Legalized Gambling. Lotteries were considered and defeated in another 10 states. Gaming proposals are still in play in the remaining states but unlikely to pass this year, he said.

In Illinois in particular, with a projected $5 billion deficit, Gov. Rod Blagojevich and the state Legislature have agreed to increase the top tax rate to 70 percent from the current 50 percent.

At the same time, they have decided to stall any increase in the number of slot machines or gambling tables at riverboats, the auctioning of the license for a 10th riverboat casino, and a land-based casino in Chicago.

Fulcrum Global Partners, an independent Wall Street investment research firm, estimated the Illinois tax increase will cost a combined $82 million a year in higher taxes.

Gary Loveman, chief executive officer of Harrah's, whose tax tab would top the list at $44 million, said Illinois has been very important to his company, but the tax policy "induces you to look at New Jersey, Nevada and Louisiana" for expansion opportunities, rather than heading into new territory.

Other industry insiders and analysts said such treatment has taken the wind out of support for expansion and may be a key reason proliferation has dipped. Similarly, in Pennsylvania, facing a $1.2 billion deficit, Gov. Ed Rendell has had his bill to increase slot machines at race tracks stopped in the state legislature.

Grey said that besides Illinois and Pennsylvania, where the chances of added slots at tracks or casinos were considered highest, plans to expand gaming have been shredded in Alabama, Arkansas, California, Florida, Indiana, Kansas, Kentucky, Louisiana, Maryland, Michigan, Missouri, Montana, Nebraska, New Jersey, North Dakota, Ohio, Rhode Island and Texas.

And "most significantly, in the '90s, casinos promised economic development. In 2003, there's no such pretext. 'We need the money.' That's all there is to it, and the addiction stories have made it much harder to sell," Grey said.

Deutsche Bank analyst Eric Hausler said the unraveling of proliferation is like losing a short-term battle in a long-term war. Voters and their representatives, in the early stages of any new programs, insist on including their own particular favorite proposals.

But when voters see legislators willing to kill bills when that happens, support tends to build for consensus positions over several Legislative sessions. Hausler and other analysts, therefore, are predicting that more battles are still to come.

Deutsche Bank analyst Andrew Zarnett said the collapse of proliferation points to the difficulty in getting states to embrace gambling.