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Gambling may be unstable bet for schools Other states find education windfall tends to be brief


If there's any such thing as a sure bet, it's that casino-style gambling would raise a pile of money for Maryland's schools if the state decided to earmark the resulting tax revenues for education.

In the short run.

Over the long term, it is far less certain that casinos -- full-scale or slot machines only -- would provide the stable source of school funding that Mayor Kurt L. Schmoke and Gov. Parris N. Glendening are so desperate to find.

The experience of other states that have adopted gambling as solution to education funding problems suggests that schools would enjoy a brief windfall, but that budget writers would gradually divert nongambling tax revenue from education to meet other pressing needs.

In effect, all the money tends to end up in one big pot regardless of any legal earmarking.

"In the long run, all money is green," said Elizabeth Davis, an analyst at the Center for the Study of the States in Albany, N.Y. "The earmarked target may get more funding, but that's because more money is around for everybody."

That fact alone can be a powerful argument for increased legal gambling, however. The experience of states that have legalized casinos in recent years shows there is indeed a pot of gold at the end of the gambling rainbow.

Thus, it is not surprising that a beleaguered Baltimore mayor would switch his previous stand against expanded gambling, now contending that it's the only way to provide money for the city's cash-strapped schools.

Nor is it any wonder that a Maryland governor facing a projected $200 million budget shortfall and a clamor from business leaders for an income tax cut would signal an increased willingness to consider slot machines.

What Glendening says he needs to endorse allowing slot machines at Maryland racetracks is proof that the state's horse-racing industry is imperiled by slots at Delaware tracks.

'A big mix'

He could find some evidence in Illinois, where racetracks have indeed suffered since the state opened the door to riverboat gambling four years ago.

He would also find some tantalizing numbers -- and some red flags.

Bill Hall, director of the Illinois Economic and Fiscal Commission, said the casinos provided about $200 million in tax revenue during the last fiscal year -- three-quarters of it earmarked for education.

However, Hall said that in practice the money goes into "a big mix" -- much as Davis suggested.

Hall also noted that unlike sales taxes, gambling tax revenues will not indefinitely keep pace with the growth of education costs. He said gambling tax revenues eventually taper off as the market becomes saturated.

Hall cited the experience of the Illinois Lottery, which has leveled off at about $560 million to $600 million in revenue each year for the past decade.

"We think that it is perhaps likely that our riverboat revenue will stabilize around $200 million in the absence of new riverboats," he said. Adding new boats could be difficult because anti-gambling forces are gaining strength in Illinois, Hall said.

Illinois' move into riverboat gambling helped push Missouri into the floating casino business a little more than a year ago, in much the same way slots at Delaware racetracks are putting pressure on Maryland to follow suit.

The riverboats in Missouri -- which earmarks 100 percent of the resulting tax revenues to education -- generated $700 million for capital improvements to its schools and $96 million for general education costs during their first full fiscal year.

Much of that $96 million went to alleviate the same type of funding inequalities that now trouble Baltimore and other

low-income Maryland jurisdictions, said Mark Ward, the state's budget director.

Gambling opponents contend that a reliance on gambling revenue to bankroll schools undermines the public's willingness to support them through traditional means.

"In Illinois, people say, 'Why do we have to raise taxes for education, I thought the lottery would take care of that,' " said Anita Bedell, executive director of ILCAP, an anti-gambling group in that state.

Missouri's Ward said that so far, the windfall from riverboat taxes has not diminished the state's support of education from other sources. With gambling revenue and increased funds from general revenues, Missouri has been able to ante up an additional $110 in spending per pupil, he added.

But the experience of the nation's 37 state and District of Columbia lotteries suggests it will be hard for Missouri to maintain that level of generosity.

A survey by Money magazine in May concluded that states with lotteries actually spend a smaller proportion of their budgets on education than do states without lotteries -- although 18 states specifically earmark lottery revenues for education.

Money reported that in 1994, lottery states devoted 49 percent of their total spending to education, down from 50.1 percent in 1990. Meanwhile, nonlottery states increased their school spending from 58.2 percent to 58.9 percent during the same period, the magazine said.

Unpredictable returns

Casino revenue can also be unpredictable because of competition from other states. In Illinois, two riverboats ran into financial distress because of competition from Iowa boats that were permitted to offer gambling without leaving the dock. Meanwhile, the success of a riverboat in East St. Louis, Ill., helped spur Missouri's move into casino gambling.

And some of the gains from gambling can be illusory because casinos "cannibalize" the revenues earned and taxes paid by existing businesses, said Terry Brunner, executive director of Chicago's independent Better Government Association.

"They've blown out all the restaurants and bars in downtown Elgin," he said, citing the location of one of the state's most successful riverboats.

Even proponents of legal gambling admit some people will be hurt by its expansion, though they contend anti-gambling crusaders wildly exaggerate the downside.

Donald Hunter, an Annapolis-based economist who consults for business groups and governments on gambling issues, said the industry is correct on two counts but not on another.

Hunter, who said he does not do work for casino companies, said claims that legalized gambling leads to organized-crime involvement and significantly increased street crime are not supported by evidence. But the objection that wider legalized gaming leads to increased gambling addiction is "the Achilles' heel of the business," he said.

"I think it is a bigger problem than most people realize," he said.

Opponents say that before states turn to casinos as a revenue source, they should realize that gambling can be addictive to governments as well. Illinois' Hall admits it would be tough to kick the habit now.

"If you were to wipe out gambling overnight here, education would be short by over $500 million," he said.

Pub Date: 8/12/96

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