April 27, 2004
Slotmania!

Slot machines at horse racing tracks are all the rage today.


Seven Texas racetracks, including Grand Prairie's Lone Star Park, could function as around-the-clock gambling casinos open 365 days a year under a multibillion-dollar proposal presented to a legislative panel Monday.

State Rep. Jim Pitts, a Waxahachie Republican, made the presentation to be included in a far-reaching package of legislation that would overhaul the way Texas pays for public education.

Under Pitts' proposal to the House Select Committee on Public School Finance, Lone Star Park and six other racing facilities, along with three Indian reservations, could operate as many as 40,000 video slot machine-style lottery terminals where patrons play for cash prizes.

Pitts and lawyers representing the Texas Lottery Commission and the state attorney general's office said the machines would generate more than $2.6 billion a year, with the state receiving $1.57 billion.

Officials project that Lone Star Park, the 8-year-old racetrack just north of Interstate 30 between Dallas and Arlington, would produce $1.7 billion in annual revenues and pump $701.7 million into the state treasury. That's more than Las Vegas hotels and casinos generate for the state of Nevada, the select committee was told.

"That blows my mind," said state Rep. Kent Grusendorf, R-Arlington, the panel's chairman.


I do not believe these figures. I believe they are pumped up, overly optimistic, and based on flawed assumptions. I believe this is a new version of the bill of goods we were sold on the lottery a decade ago. I need to see some numbers from a truly disinterested party before I'm willing to accept any data as accurate.

The rate of return was based on the provision in the measure that calls for the state to collect 60 cents on every dollar earned by each video slot machine. But the former chairman of Lone Star Park warned that the state's desire to maximize its revenue could sabotage the venture before it is launched.

"You won't be able to develop the facility if the tax rate and all costs on the track are as high as that," said Robert Kaminski, who is now a consultant to Lone Star Park's parent company, Magna Entertainment Corp. "You can't tax it so high on the front end that it reduces the incentive to put the investment in to generate the revenue that the state wants."


There's your first danger sign. We can talk all we want about how slot machine money will be earmarked for education, but once they're a reality there will be a ton of pressure to look out for the interests of the race tracks who own them. I guarantee you that when that happens, those interests will be put ahead of everyone else's. If we want more gambling in Texas, we should be honest about it and drop the fig leaf that it's all about generating money for schools.

I already know the real answer to this question, but is anyone else wondering why there's so much official concern for the well being of race track owners?


During testimony about video lottery terminals, Texas Agriculture Commissioner Susan Combs told the committee that having the terminals would help the state's equine industry. She said money the racetracks would get from the terminals would help fatten their purses, luring owners with better breeds of racehorses to the state.

"If you go to race, and the maximum prize you can get is $5,000 versus $500,000, where are you going to go?" Combs said after her testimony. "You're going to go to the $500,000."


The level of concern for the historically oppressed horse racing industry is touching, isn't it? But why stop there? Why not bring the same joy to other industries? How about slot machines at the gas pump? If you go to fill up your tank and the maximum you can get is a full tank of gas versus a full tank plus a shot at $500,000, where are you going to go?

By the way, why is the Ag Commissioner testifying on this subject?


"I look at it from the aspect of rural economic development," Combs testified before a House committee as legislators entered their second week of a special session.

Oooo-kay, let's move on. Let's go back to the numbers for a second.

Seven horse and dog tracks in Texas, including Lone Star Park at Grand Prairie, would average 4,000 video slot machines. The rest would be on three American Indian reservations.

To put the figures into context: Caesar's Palace on the Las Vegas strip has about 2,000 slot machines. The state of Louisiana has just over 14,000 video slot machines. West Virginia has 10,500.

Nevada has about 210,000 slot and gaming machines, according to the 2003 annual report of International Game Technology, the country's largest manufacturer of slots and gaming devices.


That's a lot of slot machines, which would make for a significant expansion of gambling in Texas, right?

Some state leaders, including Gov. Rick Perry, have said the slot machines wouldn't amount to expansion of gambling in the state because they would be confined to locations where other forms of gambling already are allowed.

"The proposal allows the Texas Lottery Commission to operate a video lottery system consistent with the public policy that strictly limits the expansion of gambling in Texas," Mr. Pitts said. "This amendment will continue to control the proliferation of gambling by only allowing ... [gaming] at horse and dog tracks in Texas and certain Indian lands."


Yeah, that's what I thought.

This all may be an academic exercise, as there exists some strong opposition in the Lege to expanded gambling.


Republican House members Linda Harper-Brown of Irving and Jodie Laubenberg of Parker say they can't support the use gambling to finance education.

Ms. Laubenberg heard about the Pitts proposal from a reporter late Monday.

"Is he serious?" she said. "My position hasn't changed."

Ms. Laubenberg said her opposition to the slot machine idea is "nothing against the governor."

"But this is just one component of the plan I cannot support," she said.

Ms. Harper-Brown said lawmakers who oppose gambling will prevail.

"This does nothing to damage our resolve," she said of the Pitts proposal.


And not just in the House, either.

Sen. Steve Ogden, R-Bryan, chairman of the Senate Finance Committee, said senators waiting for House action will consider slot machines, adding, "My preference is to not do it."

"I've never been a supporter of state-sanctioned gambling," he said.


It's important to remember, though, that the real agenda here isn't gambling, and for that matter isn't really school finance reform. It's an antitax agenda, and the potential consequences aren't getting nearly the public hearing that slot machines are.

[Rep. Kent] Grusendorf, referring to moves to change Perry's proposed restrictions on local governments' ability to raise taxes, said, "It'd be nice to get one hot-button issue off the table."

Advocates for cities and counties, who question the fairness of lawmakers directing local tax decisions, said they are reviewing language reached this weekend by Perry, House Speaker Tom Craddick, R-Midland, and Rep. Fred Hill, R-Richardson. Perry's office said the governor remains committed to his original proposals "at this time."

"We've come as close as we can possibly get to agreement on it," Hill said.

Under the changes, voters would be asked to cap at 5 percent how much a single-family home's valuation can annually increase for tax purposes. Perry has proposed a 3 percent cap.

Perry has sought to require local governments to seek voter approval of tax increases that outpace population growth and inflation. The new language would permit voters to petition for a tax rollback if local governments increase taxes 5 percent or more, not counting tax breaks for economic development.

Currently, voters can petition for a rollback if a local agency raises taxes more than 8 percent above the rate needed to raise what it spends on day-to-day operations. School boards are required to hold ratification elections rather than awaiting a petition.

Voters would be asked to approve or reject such tax increases once 5 percent of voters who cast ballots in the previous presidential election sign a rollback petition easier than the existing requirement that 10 percent of registered voters in a local jurisdiction sign a petition.

Hill said the proposal also would include a proposed constitutional amendment barring future Legislatures from handing down "unfunded mandates" to local agencies, with the attorney general advising whether laws breach the ban.


This is the ball that you really need to keep your eye on. Everything else is just bells and whistles.

UPDATE: Missed this op-ed by Perry himself.


My plan may not be perfect, but it is the best plan I know of to achieve four basic goals: improving funding for education, lowering the school property tax burden, replacing Robin Hood with a more equitable system and sustaining and enhancing the job climate in Texas.

Those who criticize my plan have an obligation to do more than criticize. They need to offer Texans their constructive solutions, too. Let's have a positive debate about ensuring long-term prosperity and opportunity for the people of Texas. If lawmakers and other leaders stay focused on tax relief and better schools, we will succeed. And Texas will be better off for it.


I mostly agree with that last paragraph, though of course I'm way more interested in staying focused on better schools and a more workable tax system. This session is supposed to be about the schools, right? As to "tax relief", I forget where I saw this, but someone recently observed that it's funny how we're a low-tax state when we're trying to lure businesses here, but we're in dire need of tax relief when the Lege is in session. Link via Hope.

And Carlos Guerra reminds us that we've seen this trick before.


This is hardly a new idea. Texas' parimutuel entrepreneurs have pushed for video lottery terminals for years, and not only to benefit Texas schoolchildren.

It began in 1987, after parimutuel tracks won voter approval following a multimillion-dollar ad campaign promised that the "sport of kings" would pump billions into the state treasury, create thousands of new jobs and help Texas dog and horse breeders.

In 1993, after the rosy predictions failed to materialize and several new tracks resorted to bankruptcy protection, the Legislature authorized simulcast betting wagers on out-of-state races to help the struggling ventures survive.

In 1995, $521 million was bet on Texas tracks, with more than half $262 million on live races and the remainder on simulcast contests. But by 2003, these tracks' wagers had grown only $36 million to $557 million, and bets on live races had dropped to $114 million.

And during that time, all the tracks' state taxes on bets dropped from $7,386,299 to $4,676,860.

The tracks' total attendance between 1995 and 2003 dropped from 3,534,208 to 2,862,501.

Now, remind me again: Whom exactly are these slots going to help?


I feel even more certain about my initial skepticism. Via Lasso.

Posted by Charles Kuffner on April 27, 2004 to Budget ballyhoo | TrackBack
Comments

Interesting. I think they don't even have to go for the "it's for education" angle in order to "sell" more sanctioned gambling. There are other angles that are possible, and even in practice where Indian casinos are concerned.

I'm an enrolled member of a federally recognized Indian tribe based in Oklahoma. Through the gaming operations my tribe runs in Oklahoma, they are able to provide no-cost prescription drugs to all enrolled tribal members. (More correctly, if you already have drug coverage, they just pay your copayment and bill your insurance for the rest, but if you're uninsured, they pay for it all.)

Many of these folks are quite poor, especially on and around the rez, and are folks who would otherwise be requiring a fair amount of public health monies (taxes) in order to serve.

Methinks this message needs to be sent to Governor Terminator in my former home state of California, actually.

Posted by: Tim on April 27, 2004 9:21 AM

$2.6 billion is hopelessly optimistic for any gambling venture, never mind one racetrack that adds VLTs. The total handle ( combined amount of money that goes in and out of the VLTs) probably couldn't get that high unless each machine has a $1 minimum and all 4,000 of them were in use at the same time.

If one track can generate $2.6 billion in revenue, and there are 6 other tracks that will average the same number of VLTs, then either Texas has a lot more money than I know about or Jim Pitts is somking some very wacky weed.

Posted by: William Hughes on April 27, 2004 9:29 AM

While I cry every fall when I find out what my property taxes are, I think the proposed cap on appraisals is not the solution.

It is instructive to look at California's experiences under Prop 13 which did essentially the same thing. The net result there was to shift the tax burden to people who built or bought property - the appraised value could only be adjusted at these times. Under 13, you might find equivalent houses with radically different appraisals, one having been sold.

I don't want to think about the alternative where the cap carries over a sale.

The solution is not to limit taxes but to vote out the idiots (Harris County Commisioners Court, for instance) who don't grok the concept of lowering the rate when appraisals go up.

Posted by: Charles M on April 27, 2004 9:50 AM

It is instructive to look at California's experiences under Prop 13 which did essentially the same thing. The net result there was to shift the tax burden to people who built or bought property - the appraised value could only be adjusted at these times. Under 13, you might find equivalent houses with radically different appraisals, one having been sold.

Agreed. I have plenty of first-hand experience with Prop 13. On one hand, the concept of capping the percentage increase on an appraisal is attractive because no one should be "appraisal creeped" out of their house.

However, for one thing, the cap imposed by Prop 13 (2% per year) was ridiculously low. When I was 23, I bought a one-bedroom, 740-square foot condo in San Jose for about $84,000 (this was in 1989). My parents lived in a 4-bedroom, 1800-sf house in nearby Milpitas with a market value of probably $200,000 (at the time). But because of the way Prop 13 worked, I paid twice as much in property tax -- despite having less than half the home, about half the income and almost four times the mortgage payment.

Prop 13 led to massively regressive property taxation because it was disproportionately the new homeowners (often young and struggling) paying the tax while more established folks, often with higher incomes and much smaller mortgage payments (if any mortgage payments at all), pay far less on more home.

But it works to our advantage, too. The house we bought in California nearly doubled in value from 1997 to 2003, but our assessed value rose only a little more than 10% in that time. When we sold the house, it will be reassessed -- probably about 70-80% higher than where Prop 13 capped it for us.

I don't think allowing an appraisal to rise 10% per year is acceptable -- but neither is an unreasonably low cap. Maybe something like 5% or the increase in CPI (whichever is higher) could work, but not a single number. If inflation rages with a low cap, that would devastate state and local government.

In summary, I don't think there's an easy answer. We have to balance the concern of being taxed out of your home by appraisal creep and the concern about massively regressive property taxes.

Posted by: Tim on April 27, 2004 10:11 AM

Susan Combs seems pretty dead set in getting in on the money train that comes from the new GOP-led push to increase gambling in Texas ... or at least paying off old debts to said money train.

Posted by: Greg Wythe on April 27, 2004 10:29 AM

Charles M: There's already a 10% cap in Texas, so we're not talking about imposing a new cap. We're talking about adjusting the cap that exists downward. Furthermore, there's nothing in what is being proposed to stop voters from approving bigger increases locally. Much confusion on this topic.

Posted by: kevin whited on April 27, 2004 11:48 AM

Totally off topic, but when I read this:

By the way, why is the Ag Commissioner testifying on this subject?

I wondered, "When did we get a Commisioner of Silver?"

Seriously. I need a vacation.

Posted by: elizabeth on April 27, 2004 11:52 AM

There's already a 10% cap in Texas...

The cap is on year to year increases in the tax rate. There is no cap on appraisal increases.

Posted by: Charles M on April 28, 2004 12:41 AM