FEIGENBAUM: State not coming to grips with slide in gambling taxes

February 18, 2012

Billions of dollars used to be considered an eye-popping amount of money for state or federal budgets, but now such huge sums seem to draw yawns. Even so, Indiana did reach a milestone in January that should raise eyebrows.

You might be surprised to learn that Indiana’s casinos have passed the $10 billion mark in wagering and admissions taxes paid to the state and their respective host cities.

Since the inception of casino gambling in December 1995 through December 2011, Indiana’s casinos have paid more than $8.7 billion in wagering taxes and $1.3 billion in admission taxes, for a total of $10,013,437,962.

The casino contribution to state and local coffers continues to grow by almost $800 million per year, subsidizing property and auto excise taxes, shoring up local government budgets through statewide revenue-sharing, and helping to finance ongoing state general fund priorities—from public safety to public education.

Not only do those numbers not include corporate income taxes, sales taxes and property taxes, but they also exclude the local spending impact of the casinos themselves, as well as that for their 13,000 gambling employees.

So why do we dredge up these lofty riverboat numbers?

Because the statewide gambling gravy train is quietly approaching a screeching halt of sorts.

Until just a few years ago, gambling revenue was presumed to be acyclical, not subject to revenue declines when the economy swooned. We saw that nationally in the early 1980s and early 1990s, and even in Indiana during the recession at the turn of the century—our first experience with gambling outside of an economic growth spurt.

While the Hoosier Lottery’s sales (based on residents parting with an occasional dollar or two) seem impervious to higher gas prices and economic downturns, the recession that struck in 2007 took its toll on gambling nationally and continues its strangling grip on gambling in Indiana.

Indiana gambling revenue has slipped on a year-over-year basis for the past two years (four years, if you exclude the contributions of the two racinos that opened in 2008), and attendance also has fallen.

As the economy sours, people find their discretionary income severely limited. Choices are no longer between going to a high school basketball game or visiting a casino on Friday night. Decisions are increasingly limited to making a mortgage payment or putting food on the table or buying clothes for the kids.

But the bad news only gets worse.

A few years back, Ohio voters approved four big-city, land-based casinos for that state, with the first set to open later this year. Legislative Services Agency estimates suggest those casinos might cut attendance at the southeastern Indiana casinos almost 40 percent, with an annual reduction in Indiana tax revenue of almost $100 million. Other Hoosier gambling markets also may be affected by the Ohio properties.

Kentucky already is expanding gambling at its racetracks and may soon approve a full-fledged casino law. Illinois is readying a comprehensive expansion that could hurt the riverboat casinos in northwestern Indiana, French Lick and Evansville. One new casino near O’Hare airport that opened last summer already is draining millions monthly from northwestern Indiana.

The total coming hit to gambling taxes could easily top $200 million annually, not including the employment impact and reduced additional capital expenditures—or additional negative impact from higher gas prices and further weakened economic conditions.

Lawmakers had an opportunity to strengthen Indiana’s competitive position a few years back, warned by Indiana Gaming Commission Executive Director Ernie Yelton and a veritable handful of lawmakers who understood what was coming.

But there was a lack of gambling industry consensus over the key responses (largely, the terms for allowing full-fledged land-based casinos and geographically shifting one or more licenses). Other proposals mostly tinkered at the margins, such as helping casinos or racinos with their tax bills.

While the 2011 session saw a loosening of restrictions on so-called Type II gambling, allowing bars to directly profit, the 2012 session likely will see the “charitable” gambling industry gain major concessions. (Charity gambling—initially intended to be a fundraising boost for small volunteer fire departments, humane societies and some churches—now is a $500 million annual industry of its own).

Meanwhile, no changes are likely for casinos, meaning the next biennial budget may be a few hundred million dollars short on the revenue side of the ledger.•


Feigenbaum publishes Indiana Legislative Insight. His column appears weekly when the General Assembly is in session. He can be reached at ef@ingrouponline.com.


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