Tuesday, March 29, 2011

Gambling Revenue

Minnesota has a long and complicated history with gambling. The original state constitution specifically forbade gambling, saying “[t]he legislature shall never authorize any lottery or the sale of lottery tickets."
This prohibition stayed largely intact until the legislature legalized pull-tabs (1981) and state voters approved a series of constitutional amendments in the 1980s allowing pari-mutuel betting (1982) and a state lottery (1988)."

Since the early 2000s, the legislature has considered a number of gambling options to improve state revenue. The most prominent of these suggestions include racinos -- that is, some form of gambling at race tracks -- and/or allowing bars to operate video lottery terminals (VLTs).


In 1994, Iowa became the first state to legalize reel-style slot machines at its race tracks, and the Prairie Meadows racino in Altoona became the envy of the gaming world. After just one year of operation, it “[paid] off the $27 million bond issue that paid for the clubhouse casino conversion…and retire[d] the track's initial $38.8 million bond issue 17 years early."

The Minnesota legislature has seen a bill allowing the state’s two horse tracks – Canterbury Park and Running Aces Harness Park – to convert to racinos since at least 2003.
In 2010 the House Research Department estimated total potential net revenues from racinos at between $146 and $328.5 million per year. In the eight states currently operating slot-based racinos, state tax rates on racino net revenues range from 28.2 (Iowa) to 55 (Pennsylvania) percent. Under these circumstances, Minnesota could see between $41 million and $180.6 million in state revenue – with racino advocates claiming revenue of around $125 million.


The legislature has on several occasions considered a bill to allow bars to operate some form of video lottery terminal (VLT), most recently failing to pass a bill in 1994
. The House Research Department estimated potential net revenues between $245.3 million and $446.8 million. Assuming a 30 percent tax rate, the state could see between $73.6 million and $134 million annually.


The argument for an infusion of gambling dollars into state coffers as a cure to current fiscal woes is unpersuasive for many. Assuming even the rosiest estimates noted above, the state would see only approximately $250 million a year in revenues – which would constitute only a 1.6 percent increase of Minnesota’s annual revenue of approximately $15.3 billion (though a more impressive 9.9 percent of the estimated $2.5 billion annual deficit for the 2012-13 biennium).

This year the racino bill is also being touted as an economic development tool, with bill author Senator Dave Senjem (R-Rochester) having created a special fund for gambling revenues, the “Minnesota Future Fund,” which “would help new and existing business expand and create jobs.” While this suggestion might excite some racino fence sitters, a special fund would erase the potential boon to the state’s general fund deficit.

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