Budget Woes Prompt a Fresh Look at Gambling

Start with a budget shortfall and a Legislature that doesn't want to raise taxes or make dramatic cuts, then dangle budget-balancing money from "volunteers" — better known as gamblers. With that strategy, promoters think they've got their best opportunity in years to legalize slot machines and rescue failing race tracks and a sickly horse industry while adding $1 billion a year to state revenues.

"The Legislature usually only acts in a crisis situation, and that's what I would call what we're going to be in," says Rep. Edmund Kuempel, R-Seguin. Kuempel has sponsored gaming bills in past sessions and heads the House committee that oversees gambling issues. The pitch has been similar each time lawmakers have liberalized gambling laws: a promise of billions in new revenue, sans taxes, from "voluntary" payers (no one is forced to gamble) — and a tried-and-true political dodge, dusted off last week by Kuempel. "They're just voting to let the people of the state of Texas decide," he says, pointing out that legislators wouldn't actually be voting to legalize new wagering. "The tougher the budget situation is, the easier it is to let the public vote for it."

Any change to the state's gaming laws would require a change to the Texas Constitution, and two-thirds of the Legislature must vote to put an amendment on the ballot. Recent polling indicates voters are receptive to the idea (only 10 percent in a recent University of Texas/Texas Tribune Poll said they want to outlaw gambling in the state, and most favored casinos in some form). Gambling opponents, meanwhile, argue that the industry’s rosy previous forecasts for boosting state revenue have since proved overstated — leaving few to benefit but the gambling operators themselves.

Pot o’ gold

Two years ago, Texas budgeteers staring at a sizable difference between projected revenues and projected costs lucked out — Congress, like a leprechaun with a pot o' gold, bestowed upon the states billions in federal stimulus funds. Legislators here used most of the $17 billion windfall to balance the current budget and a sizable chunk to balance the previous budget, which was running into the red.

That did the trick, but the leprechaun is gone and the shortfall is back. Sales tax revenues — the largest source of state money — fell with the economy and still lag well behind last year's numbers. The state based its budget on Comptroller Susan Combs' projections of how much would come in, but she was way off; now budget writers will have to find a way to close that gap. It's not all the economy's fault. State leaders looking for a way to lower local school property taxes agreed in 2006 to spend more state money on education and passed a new business franchise tax to pay for it. But the new spending would exceed the tax revenue  — something they knew when they passed it, by the way — and the resulting "structural deficit" has to be figured into new budgets every two years.

The actual numbers haven't gelled, but most experts believe lawmakers who convene next January will face a shortfall of $11 billion to $18 billion. They'll have around $9 billion in the state's Rainy Day Fund, but many lawmakers have said they don't want to use all of that money to balance the next budget (spending any of it likewise requires approval from two-thirds of the Legislature). Barring a seismic political change, legislators and the governor are unlikely to propose major increases in taxes or fees. And cuts are easier for lawmakers to talk about on the stump, where cost-conscious voters cheer promises of shrinking government, than when they're in office voting to cut specific programs — roads, education, health, prisons, welfare, etc. — with powerful constituencies.

That's just the setup that produced the gaming that's legal in Texas now, from bingo to pari-mutuel wagering on dogs and horses to the lottery. Promoters of gambling have been trying to get everything from slot machines to casinos legalized in Texas for years, but they were brushed aside last year after the stimulus money relieved the budgeteers of many hard choices. Now, the gambling side says, the continuing recession improves their odds, and they've managed, for now, to keep all of their own constituencies from squabbling.

"They're all getting along and singing from the same hymnal," says Mike Lavigne, who's working for Texans for Economic Development, a group of track owners, horsemen and others who want the state to OK expanding gambling at tracks. They've got a website — winfortexas.com — and have lobbyists and others strategizing in advance of the 2011 legislative session.

That group wants lawmakers to allow video lottery terminals, or VLTs, at the state's horse and dog tracks and on reservations of the state's three Indian tribes: the Tiguas, the Kickapoos and the Alabama Coushattas. They say those "racinos," a combination race track and casino, would bring $1 billion into state coffers each year (twice that for a two-year state budget) once they're up and running and would be an economic boon to their communities and to the horse business in Texas.

"Eventually, they'll be facing taxes, or fees, or something else," Lavigne says. "This is the lowest-hanging fruit. If you need $2 billion fast, call us."

Historically, the most common proposals are for slot machines or to open the state to full-scale casino gaming, which would include slots, poker, roulette and everything else you can do in such places as Atlantic City, Las Vegas and, increasingly, at Indian reservations and other venues nationwide.

Track operators want lawmakers to allow slot machines "within the existing footprint of gambling," which is to say: at their tracks. Gov. Rick Perry has been vaguely receptive to the idea, saying he's against any expansion of gaming beyond the existing footprint — all the better for existing players, who can lock other competitors out of the game.

Puritan streak

Lobbyists for the gaming industry will have to overcome a puritan streak in the Texas Legislature, one that has prevailed since the lottery was approved in 1991. That was oversold as a solution to the state's public education funding problems — it only covers a small percentage of the cost — and lawmakers haven't approved a major gambling bill since. "You have some who are philosophically opposed," says one lobbyist. "And you have some who are just nervous about a vote on gambling." Kuempel says they're not keeping anyone from betting, though: "They can gamble online. ... They can drive from any major city in the state and be gambling [in another state] in a matter of hours."

Rob Kohler, who's been lobbying against legalized gambling for years, doesn't buy the budgetary justifications. "The difference between now and when we did horses and the lottery is that, then, we didn't have a lot of data," he says. "Now we have the data. This isn't a viable revenue mechanism." Horse and dog tracks never produced any more than a trickle of revenue for the state in spite of flagrantly optimistic economic forecasts at the time lawmakers were asked to legalize it (at the start in 1986, proponents forecast the state would net $110 million annually; the revenues have never been more than a small fraction of that amount, and the costs of regulation have negated any fiscal benefit to the state treasury). The lottery has produced more or less as predicted but didn't become the public school funding panacea sold to voters, he says. "The perception is that they were sold a bill of goods," he says.

Slot machines, Kohler says, would bring the dangers of expanded gambling without much benefit. Racinos, he says, would add little to the state's annual budget, which is approaching the $200 billion mark. "Take 200 pennies. Throw them in a bag. Throw in one more penny. That's what you're getting," he says.

While he doesn't believe the legislative outlook for gaming has changed, Kohler sees the promoters marshaling their forces. They played less in this year's primary elections than previously, but they've been adding lobbyists and trying to get their members, as Lavigne notes, on the same page. "There's been a lot of effort to try to resurrect this pony," Kohler says. "But it's just a handful of folks — not a groundswell."

But some of the more formidable obstacles come from inside the gambling industry itself, says Lavigne. Casinos are a big obstacle to the racinos, because they bring larger-scale gambling — and a bigger leap from the status quo — are are thus easier to oppose in the Legislature ("That's just been a great strategy to keep killing this," he says). Proposals to allow destination gambling resorts in Texas at a dozen different locations have proved too much for legislators to swallow in the past. His coalition is pushing for VLTs only — partly because it's good for them and partly because it's a more incremental step they hope will be more palatable to nervous politicians. There's more opposition, too. Casino operators outside of Texas, he says, aren't keen on the idea of Texans having gambling closer to home. "The biggest obstacle against us is from out-of-state enterprises" in Louisiana, Oklahoma, Mississippi and Nevada.

The racinos wouldn't produce money immediately. Kuempel and others say the state will need the money in subsequent budgets and argue that the earlier the gaming is allowed, the quicker the money will come in. One proposal would let the state sell licenses for the VLTs — that would bring in money up front — but the track operators say they can’t afford the licenses until the gaming parlors start generating cash. And they say the Legislature isn't ready to approve full-blown resort casinos, either. "We're not talking about opening up new casinos all over the state," Lavigne says. "These things don't happen overnight."

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