WASHINGTON – Gambling is not a reliable and sustainable source of revenue for states or a solution to their budgetary problems, according to a recent report from the Rockefeller Institute of Government.
The report, presented at the Eastern Regional Conference of the Council of State Governments in Quebec City last month, found that gambling revenue only accounts for between 2% and 2.5% of state own-source general revenues on average.
State and local government gambling revenues have "softened significantly" in recent years due to an oversaturation of the gambling market after the rapid casino and gaming expansion following the Great Recession, the report found. While gambling revenues may be a good short-term fix for revenue shortcomings, long-term growth is uncertain and oftentimes reverses into a decline, it found.
Lucy Dadayan, the author of the report and a senior policy analyst with the Rockefeller Institute, told The Bond Buyer Thursday that states should take into account long-term trends when expanding lotteries, casinos, racinos – combined racetrack-casinos -- or video gaming facilities. The reasons behind revenue trends vary, she said.
"It's a mixed bag," Dadayan said. "It's the changing behavior of consumers spending much less than they used to historically, but it's also oversaturation, especially in the northeastern region of the U.S."
"Wherever you see growth, you see growth at the cost of other states," she added.
States typically legalize and expand gambling to raise revenue during times of poor state fiscal conditions as well as to stimulate economic development, Dadayan said in the report. Gambling is also implemented to keep gambling residents and tax dollars in-state and counteract interstate competition for gambling revenue.
Between fiscal 2008 and fiscal 2015, inflation-adjusted tax and fee revenues from commercial casinos grew by more than $1.3 billion in states with newly authorized casinos, but declined by $1.4 billion in states with established ones. This marked a net decline of 1.5% percent on a national scale, according to the report.
In fiscal 2015, gambling tax and fee revenues - which combine lottery, casino, racino, video gaming and Indian casino revenues -- was $27.7 trillion, while other sources of government taxes such as personal income tax, sales tax, corporate income tax, motor fuel tax and property tax was $912 trillion, the report found.
As of fiscal 2015, 44 states had lotteries, 18 had casinos, 28 had Indian casinos, and 13 had racinos. Since the recession, two states created lotteries, four established casinos and two set up racinos.
Lotteries, at 66%, accounted for the biggest share of gambling revenues in fiscal 2015, followed by casinos at 19%, racinos at 12% and video gaming at 2%. Lotteries had $18.2 trillion in in revenues, casinos had $5.4 trillion, racinos had $3.3 trillion, video gaming had $672 billion and Indian tribal casinos had $135 billion, the Institute said in the report.
Accounting for inflation, lottery revenue declined by 0.7% in fiscal 2015, with 27 states experiencing declines.
South Dakota, at 74%, had the highest percentage of lottery contributions transferred to general funds in fiscal 2015. A total of 34 states had transfers of between 20% and 30% during the same period.
Three states have implemented lotteries in the past decade: North Carolina in 2006; Arkansas in 2009; and most recently, Wyoming in 2014.
The New England, Plains, mid-Atlantic, Great Lakes, and Rocky Mountain regions all saw decreased compound annual growth rates in lottery revenue between fiscal 2008 and fiscal 2015, while only the Southwest and Southeast regions saw positive growth rates. The U.S. lottery revenue growth rates as a whole remained flat for that time period.
The report said future growth in gambling revenue will not keep pace with tax revenue or spending, and if gambling revenue is intended to support part of an overall budget, gaps may emerge.
"Gambling expansion is understandably appealing to officials wishing to raise revenue without raising taxes, but the long-term revenue is uncertain and potential economic and social costs require careful consideration," the Institute said in the report.
The Rockefeller report said that the expansion of state-sanctioned commercial casinos could reduce the yields of Indian tribal casinos, which have existed since 1988. The sheer number of new gaming facilities as a whole outpaces the number of new gamblers, Dadayan said. This could mean short-term yields and long-term deterioration.
"They are ultimately competing for the same pool of gamblers," Dadayan said. "There are not many new gamblers to each casino."
This notion was shared by Thomas Gais, director of the Rockefeller Institute.
"New gambling activities may generate short-run increases in public revenues, but these increases are getting smaller and their duration shorter, perhaps as more and more states compete for a limited pool of gambling dollars," Gais said in the report.
Going forward, Dadayan anticipated a shift in traditional gambling to newer, more electronic-based forms of gaming.
"Based on what I see, I believe some forms of gambling are not sustainable over the coming years," Dadayan said. "There may be more emphasis on daily fantasy sports and [interactive] gaming and expansion of new types of gambling."
As the public policy research arm of the State University of New York, the Rockefeller Institute regularly produces reports on the management and finances of state and local governments. The report presented last month was originally produced by Dadayan in April.
