Maryland Slots Referendum

The following was prepared by the Lutheran Office of Public Policy – Maryland, Lee Hudson, Director.  The Maryland Legislature has put a slots referendum on November’s ballot.

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Slots Talk from LOPP/MD-the Policy

The ELCA social statement “Sufficient, Sustainable Livelihood For All” (1999) affirmed an historic commitment by this church and its predecessors to adequate and elastic public revenues, and against state-sponsored gambling.1 To appreciate the ELCA position it is necessary to unpack the hyphenated adjectival “state-sponsored.”

When the state raises revenue from gambling it goes into the business of granting permits for wagering through its regulatory authority. The licenses are contracts between the state and gambling interests to conduct games of chance in return for defined shares of the profits. The state’s share is “revenue.” The gambling industry business model becomes state revenue policy. Revenue will be made dependent on the volume of wagering. That produces two unhappy outcomes.

First, it creates inefficiency-to use a favored economics term-in revenue policy. Rather than revenue being raised directly out of the productive economy an entire industry is created to encourage the wager transaction. In contrast, the sales tax (another levy that wears the label “regressive”) is efficient because it’s in each transaction to which it applies, 6% as revenue. The State’s share of the take in the Maryland gambling plan will be $870 million, but it will only keep $640, about half the plan’s expected $1.3 billion gross receipts. That’s inefficient.

Second, slots will meet the revenue projections if and only if many Marylanders lose a lot of money. It’s estimated that Marylanders now lose about $225 million a year gambling out of state. To achieve revenue estimates from state-sponsored gambling Marylanders will need to lose that $1.3 billion figure. Those losses provide revenue and make Maryland a stakeholder in the business. Maryland must encourage its citizens to frequent slots parlors and lose a lot of money to pay the public bills. That’s poor public policy.

How do slots work? The slots business plan requires customers to stay in the facilities for extended periods; they will be open long hours every day of the year. Slots are profitable because they don’t need attendants: they pay out on a random schedule. The machines no longer use coins. The industry likes credit and bankcards. Typically players stay long enough to win a few times, but over several hours they will lose some too. The business plan has the house make ten cents, on average, from each wagered dollar.

It doesn’t sound like much, but the business plan is about volume. Over the course of an evening you might wager $100. On average you’ll leave with $90. Of the $10 loss, $3.30 goes to the house, $6.70 to the State. If the State expects $870 million…well, you get the point.

Of the revenue raised, $110 million will go to the horse racing industry and about $230 million goes for administrative and public costs, and other subsidies. $640 million will be left as actual “revenue” for the State’s budget.

The slots business model gets married to the State’s public revenue policy, as the State promotes more losses so it can pay its bills. That’s the ELCA objection to state-sponsored gambling.

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One response to “Maryland Slots Referendum

  1. http://www.examiner.com/a-1510164~A_harbinger_of_stolen_funds_if_slots_are_passed.html

    Editorial
    A harbinger of stolen funds if slots are passed

    The Baltimore Examiner Newspaper
    2008-07-29

    BALTIMORE –

    If the state can’t properly handle the minuscule tax receipts generated by the horse racing industry, how will it handle slots taxes?

    A new audit from the Department of Legislative Services shows the Department of Labor, Licensing and Regulation can’t follow basic accounting rules.

    The person logging and preparing receipts for deposit was also the same person responsible for recording the payments in accounting records. Nothing in the audit accuses this person of defrauding the state. But at the very least, it leaves the state vulnerable to fraud. And lax oversight of wire transfers allowed racetracks to send in tax payments sometimes weeks past deadline, forcing the state to lose interest income.

    The state collected $5.1 million in betting taxes and unredeemed winning tickets in 2007. So how does it expect to correctly process the up to $800 million the governor said slots could generate for the state treasury? That amount is likely grossly exaggerated. Tight credit markets and fewer dollars being spent on gambling due to the economy are the culprits. But even $400 million would overwhelm a state government ignorant of basic accounting principles. As the parable of the silver talents illuminates, those who cannot be trusted with small amounts should not be trusted with any amount.

    Voters have not yet spoken on slots. But if the referendum passes in November, the state could be handling millions in new tax revenue by 2010.

    To help slots pass, the governor must assure taxpayers controls will be in place for processing that money before the first coin hits the, uh, slot. It wouldn’t hurt to audit the personal financial records of employees who directly handle that money on a yearly basis too, to ensure compliance to the highest auditing standards. Doing so would have snagged the Washington tax officials caught last year cutting themselves checks for more than $30 million over at least seven years.

    What’s clear is that without an overhaul on how the state collects its gambling money, the question is not if, but when, unscrupulous state employees defraud the taxpayers.
    Examiner

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