By John Hill, Ph.D.| November 18, 2014
With spiraling mandatory spending and reduced tax revenues threatening to send one or both of the state’s budgets into proration, the options of raising additional income by establishing a compact with the Poarch Creek Indians or legalizing a state-sponsored lottery are on the minds of Alabama’s legislators. Using the refrain of “let the people decide”–the same one used by former Governor Don Siegelman 15 years ago in an attempt to legalize a Georgia-style education lottery–elected officials from Goat Hill and the Governor’s Mansion who have historically been either neutral or opposed to such possibilities now see them as a way to generate revenue for the state.
Montgomery will need plenty of revenue to keep its essential services going in 2015 given that the gap in the state’s General Fund could be as large as $200 million. In addition to the possibility of gambling revenues helping close that gap, there is a patriotic attractiveness that comes with the idea of “keeping Alabama gambling dollars in Alabama.” Likewise, gambling supporters suggest there is a sense of rightness that would come from extracting an annual toll from the Poarch Creeks in exchange for allowing them to expand their gambling operations in the state. Sanctioning either of these ideas, though, may not produce the long-term, stable economic benefits legislators are counting on.
First, gambling is not a “fix” for any state’s economy. Despite the liberal use of “millions” (and even “billions” in some larger states) by gambling supporters to describe the monetary benefits of legalizing casinos or a lottery, the amount of tax revenue that legalized gambling provides to states is relatively small. According to a 2010 report by the Rockefeller Institute, gambling-related revenues accounted for only 2.1% to 2.5% of total revenues between 1998 and 2009 for states with large-scale gambling.
Alabama should expect nothing different if it legalizes casinos or a lottery. If a compact was established with the Poarch Creeks that gave the state 10% of the tribe’s casino revenues–which totaled $600 million in 2012–the $60 million that would be generated would pay for only 3.2% of the state’s $1.8 billion General Fund budget. If the money was earmarked for schools, it would amount to only one percent of the state’s Education Trust Fund, just enough to pay for 3.7 days of public education.
In the same way, lotteries add very little to the bottom line of most states. According to the annual financial reports of lotteries in 2012, revenues from the average lottery covered about 3.6% of total state government expenditures. The actual benefit of lottery revenues offsetting essential state spending is even smaller than this, as several states earmark large amounts of lottery revenues to college scholarship programs and other beneficiaries not otherwise covered by their General Fund.
Second, gambling is not a stable source of revenue for states, as neither lotteries nor casinos are recession-proof. From the beginning of the Great Recession in 2008 to 2012, the typical lottery state saw the amount of lottery-generated revenues transferred to the state decline for an average of two years, with sixteen states reporting declines for three or more years. Similar losses in gambling-related tax revenue occurred in the same five-year period in the twenty states with either land-based, riverboat, or racetrack casinos, with seven states having yet to recover to their 2008 tax revenue levels. Moreover, because Alabama’s per-capita income is lower than the national average, fewer dollars could be expected to be played at gambling venues.
Even the Poarch Creeks admit they cannot expect to live off of gambling revenues forever. In the words of Tim Martin, the President/CEO of the Creek Indian Enterprises Development Authority, “We work with the philosophy that gaming is going away–a little bit every day.” If the most adamant supporters of casino gambling in Alabama are diversifying in anticipation of the day that gambling revenue will end, why should the Legislature believe that legalized gambling will provide a steady source of income?
Finally, the market for large-scale gambling in the United States is already swamped. With 95% of Americans already living in lottery states, and most living within a few hours’ drive of one or more of the 979 casinos scattered across the country, there is no reason tourists would come to Alabama to gamble. Only local income will be captured. Moreover, if casinos or a lottery were legalized to prevent Alabamians from gambling at venues in neighboring states, it would be an admission that it is Alabamians the gambling interests want to prey upon.
Advertising expanded gambling or a statewide lottery as a short-term solution for Alabama’s budget woes is disingenuous. Any gambling revenues realized by the state would constitute only a fraction of what is needed to close the gap in next year’s budget, and then only if the economy continued to improve. The conservative leadership in Montgomery which was solidly reelected only a few days ago should reject this attempt at a quick fix and consider other measures that both reign in spending and cut unnecessary costs over the long term.
John Hill, Ph.D., is senior policy analyst for the Alabama Policy Institute (API), an independent non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families. If you would like to speak with the author, please call (205) 870-9900 or email her at john@alabamapolicy.org.
