States eye gambling to close budget gaps

Nevada is not alone. A recent study by the Washington, D.C.-based Center on Budget and Policy Priorities found that 41 states have faced or are facing budget shortfalls this year or next.

Some states, like Nevada, cut spending or used reserves to shore up the rest of the fiscal year. Other states raised revenues (i.e., taxes).

The center predicted the $48 billion in budget gaps would likely grow because of the unsettled economy.

Gaming expansion, either legalizing casino gambling or increasing existing gaming taxes, could solve budget problems for some state lawmakers in 2009.

"States may choose to add or in some cases increase sin taxes, such as gaming taxes, which is far more politically palatable to politicos than increasing sales, property or corporate taxes," Deutsche Bank analyst Andrew Zarnett said after reading the study.

Zarnett pointed to history. In the early 1990s, several states had large budget deficits. Midwestern and Southern states legalized riverboat casinos and slot machine parlors, using gaming taxes to reduce the shortfalls. A similar scenario could take shape next year.

In November, voters in Colorado and Missouri approved gaming and rolled back some gambling restrictions. In exchange, casinos agreed to gaming-tax increases. Maryland voters paved the way for 15,000 slot machines at five locations statewide. The center said all three states face budget shortfalls.

Voters in two states rejected casino initiatives, but they are likely to resurface. Zarnett thought Kentucky, Ohio and Massachusetts would re-explore legalizing casinos. New Jersey's racetracks may want to add slot machines to compete with racinos in neighboring Pennsylvania.

"Politicians continue to see gaming as a convenient source of funds to plug budget caps," Zarnett said.

Slot machine makers love the talk of gaming expansion. Visions of increased sales and profits dance around company board rooms. The Association of Gaming Equipment Manufacturers gave $100,000 to help fund the pro-slot machine effort in Maryland.

Casino operators, however, are less hesitant to enter the fray. The dried-up credit and lending market has all but killed gaming expansion. Planned projects in some of the industry's top revenue-producing jurisdictions, including Las Vegas, Atlantic City and Biloxi, Miss., have been put on indefinite hold.

Kansas, which enacted pro-casino laws in 2007, is learning that gaming expansion doesn't always go as planned.

Most of the major casino companies, including MGM Mirage, Las Vegas Sands Corp. and Penn National Gaming, withdrew proposed Kansas development plans for varying reasons. Harrah's Entertainment and Cordish Gaming dropped out because of the current economic climate.

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz @reviewjournal.com or call 702-477-3871.