States may be addicted to gambling

DOVER, Del. — Gambling revenues, once a mere trickle, have become a critical stream of income in a number of states, in some cases surpassing traditional sources like the corporate income tax and helping states lower personal income or property taxes.

The sums are so alluring that some officials are concerned that their states are becoming as addicted as problem gamblers. "We're drunk on gambling revenue," said Wayne Smith, the Republican who is House majority leader in the Delaware Legislature. "Gambling revenues are like free money."

In Rhode Island, South Dakota, Louisiana and Oregon, not to mention Nevada, taxes from casinos, slot machines at racetracks and lotteries make up more than 10 percent of overall revenue, according to a new report. In five other states — Delaware, West Virginia, Indiana, Iowa and Mississippi — gambling revenues are fast approaching 10 percent.

So vital has the money become that in Rhode Island, gambling revenue has now surpassed the corporate income tax to become the state's third largest source of income, after the personal income and sales tax. It has enabled the state to avoid raising its income tax for 10 years.

Because of gambling, South Dakota officials a decade ago were able to push through a 20 percent reduction in property taxes by increasing the state's share of gambling revenues from video lottery terminals to 50 percent, up from 37 percent.

A property tax reduction was also the main argument in Pennsylvania for legalizing gambling when the Legislature last year authorized slot machines at racetracks and casinos after years of intense opposition.

But most states that have come to rely on gambling revenue, now face a danger — competition from nearby states for the same dollars.

Some 70 percent of gambling revenue in Delaware's three "racinos" (racetracks with video slot machines), comes from visitors from Pennsylvania and Maryland, according to the Delaware Department of Finance. But Pennsylvania legalized slot machines last year, and the Maryland Legislature is debating a bill to legalize gambling there.

If Pennsylvania and Maryland install all the slot machines they are considering, Delaware could lose $120 million annually, almost 5 percent of total state revenues, said Tom Cook, a spokesman for the Department of Finance.

Similar dilemmas are cropping up around the country now that 48 states, with the exception of Utah and Hawaii, have legalized some form of gambling.

There is concern in Rhode Island that Massachusetts, the source of many customers at Rhode Island's racinos, will legalize slot machines at its own racetracks, and within an hour's drive of Providence, the large American Indian-owned casinos in Connecticut are expanding.