www.baltimoresun.com/news/opinion/bal-id.slots22jun22,0,696861.story

baltimoresun.com

Numbers game

The state's November referendum on slot machines could come down to whose math voters believe

By Laura Smitherman

Sun reporter

June 22, 2008

Advertisement

Maryland voters listening to the debate over legalizing slot-machine gambling in the state might be feeling a bit of deja vu - from the 2000 presidential race.

Back then, George W. Bush and Al Gore frequently lobbed accusations of "fuzzy math" when attacking each other's proposals for health care, taxes and Social Security. Now, as voters prepare to head to the polls for the November slots referendum, the pro- and anti-slots camps are having a similar dispute over the amount of money slot machines would generate.

The current debate over numbers is as mind-numbing as it was eight years ago, but just as critical to understanding the issue. Gov. Martin O'Malley, a Democrat, has said that slots would generate about $600 million or more annually to plug the state's structural budget deficit. Opponents say those estimates are hugely inflated for political reasons and conveniently ignore social and other costs.

"It's like playing a slot machine; you never know what revenue figure you're going to come up with," said Maryland Comptroller Peter Franchot, a leading figure in the fight against slots.

Proponents say their estimates come from the Department of Legislative Services, a well-respected agency in Annapolis that reviews legislation and provides other services to the General Assembly. To be precise, the department estimated that slots would bring $564,665,200 to the state by 2013.

Frederick W. Puddester, who was hand-picked by the governor to lead the pro-slots campaign, called Franchot's assertion about changing revenue estimates "ironic," considering that the department also advises the comptroller, the state's chief tax collector. "I guess they do brilliant work with the comptroller on income and sales taxes but not when it comes to slots," said Puddester, who was state budget secretary under Gov. Parris N. Glendening.

In the November referendum, voters will decide whether to amend the Maryland Constitution to authorize 15,000 slot machines in five localities: one each in Baltimore City and Anne Arundel, Baltimore, Cecil and Worcester counties.

By law, the slot machines must pay out an average of at least 87 percent of what gamblers put in each year. Of the remaining revenue, no more than a third would go to the slots parlor operator and about half to the state's education trust fund. The rest would go to augment horse racing purses, to local governments where the facilities are located, and to other programs. A separate fee would be paid by slots licensees to a fund to help problem gamblers.

Digging into the numbers, there is much that can muddy the waters.

Consider the revenue estimates for slot machines. Legislative analysts said the daily take would average $250 per machine. That is on par with figures from neighboring states with slot machines, including Delaware, Pennsylvania and West Virginia.

But Aaron Meisner, the leader of the grass-roots group StopSlots Maryland, disputes that figure. He notes that a legislative commission headed by Puddester in 2002 found that the daily take would only be $217 per machine, and that was before Pennsylvania authorized tens of thousands of slot machines. Meisner also notes that some of the current proposed locations, including one by Rocky Gap State Park, are not considered the most lucrative in the state.

"This math simply cannot possibly work," Meisner said. "It simply defies logic."

Puddester suggests that inflation may explain the difference. "Why is gas $4 now when it was $1.39 a while ago?" he said.

Then there's the so-called substitution effect. That is potential tax revenue lost from people deciding to gamble instead of, say, attend an Orioles game. If they don't buy a ticket at Camden Yards, they won't pay the amusement tax.

While the total cost of the substitution effect is difficult to pin down, legislative analysts did take into account the expected loss from lower lottery sales ($56.8 million by 2013) as people play the slots instead.

Legislative analysts also accounted for the spending by localities to improve streets and hire more police if slots were approved for their areas. But other impacts, including job creation and the effect on property values, could not be estimated.

Polls have shown an electorate divided over slots, and many voters may see the issue as a simple matter of personal preference. Some might have a fondness for gambling fun; others a moral aversion to the one-armed bandits. (A Sun survey in January found that 56 percent of likely voters favor expanding gambling and 37 percent oppose slots.)

But many of the arguments on both sides of the debate come down to money.

Proponents emphasize that slots money would be put to good use, and could prevent the need for further tax cuts or painful spending reductions. The revenues would come on top of other budget-balancing measures signed into law by O'Malley, including $1.3 billion in tax increases and hundreds of millions in spending cuts.

Opponents contend that slots would bring increased crime and gambling addiction, and lead to more personal bankruptcies and higher unemployment - problems that all come with a price tag. They point to research by Earl L. Grinols, author of Gambling in America: Costs and Benefits, who found that the state can expect $3 in costs for each $1 in benefits.

To be sure, any mathematical forecast comes with limitations. Such calculations depend on modeling that could turn out to be imprecise and use certain assumptions.

After all, who knows what will happen? An estimated 28,000 households, some of which are sure to include gamblers, are expected to come to Maryland as a result of a national military base realignment by the time the first slots would be operational. But by that time all consumers might be spending less on entertainment, including gambling, if gas prices continue to skyrocket and the national economy continues to slump.

And, according to Franchot, slots might not even be needed down the road. Franchot said the governor's recent proposal to spend $1.1 billion over the next decade to bolster the biotechnology industry and life sciences research would generate enough tax revenue to take the place of slots.

He points to a report from the Sage Policy Group, a Baltimore economic research consulting firm, that found the industry now generates hundreds of millions of dollars in tax revenue. More state spending to spur the industry, which O'Malley's administration estimates would leverage an additional $6.3 billion in private and federal investment, would presumably lead to higher tax collections to fill the budget gap.

Even reports from credit rating agencies, usually the last word in financial analysis on Wall Street, are interpreted differently by those on either side of the slots divide. Slots foes have seized on a Moody's Investors Service report in February that said it "may be overly optimistic" to assume slots would bring in $600 million. Slots supporters point to different sections of the report where the company gave Maryland a gold-star AAA bond rating and predicted that "the state will soon stabilize its finances."

As in any election season, the one certainty is that the debate will continue.

laura.smitherman@baltsun.com

Online
More on slots in Maryland at baltimoresun.com/slots