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Our friend the stimulus package

Jason Embry tells us just how much Texas relied on the stimulus package this year.

A new report from the National Conference of State Legislatures shows that federal stimulus dollars played a large role in allowing Texas lawmakers to balance their budget this year without tapping Rainy Day Funds.

The national group asked states to say how they closed their budget gaps for the 2010 budget year, and 35 states responded. Of those, 25 said they used federal stimulus dollars to close budget gaps, and Texas reported that it relied most heavily on stimulus dollars, using those dollars to provide 96.7 percent of the gap-closing solution. Nebraska was next at 88 percent.

At least 11 states (not Texas) raised taxes to close their gaps. At least eight states (not Texas) tapped their rainy day funds. Montana and West Virginia (not Texas) relied entirely on spending cuts.

Texas was one of the few states to avoid a budget shortfall in the current year. But the report also projects a budget gap of $4 billion to $5 billion a year starting in the 2012 budget year. This is all worth pointing out because state leaders rarely mention the $12 billion in stimulus dollars they received when they discuss what great work they did to balance the budget, and because Gov. Rick Perry was one of the country’s most dogged critics of the stimulus dollars.

Which is one reason why I mention it every chance I get. Even by Rick Perry standards, the level of hypocrisy here is stunning. The irony is that were it not for the stimulus money, the legislative session we had would have been much more contentious, and when that happens Perry’s approval rating usually takes a dive. You could argue that the main reason – perhaps the only reason – he’s gone from being conventionally considered a dead duck versus KBH in next year’s primary to leading in all the polls against her is precisely because of the stimulus, which not only made for a smoother session in the Lege but gave him a juicy issue to flog for his dead-ender base. He really leads a charmed political life, doesn’t he?

Meanwhile, Perry is defending his decision to reject the stimulus money for unemployment insurance, and (God help us) threatening to resist health care reform on “states rights” grounds. If you’re unemployed or uninsured, Rick Perry wants you to stay that way and quit pestering him about it. I will say that the fact that his rejection of the stimulus money for unemployment insurance hasn’t been a negative for him – polls have consistently shown a plurality agreeing with him on this – is a failure of Democratic messaging. If we can’t make that into a millstone for him, we’re not doing our job.

UPDATE: Of course, Rick Perry isn’t the only shameless hypocrite on the stimulus package. He may net even be the worst among GOP governors, hard as that may be to believe.

How much money would expanded gambling generate?

Throughout this session, every time the subject of expanded gambling in Texas comes up, along with it comes some kind of projection of how much revenue it might generate. Those estimates always come from the proponent of that form of expanded gambling, and as expected are wildly optimistic. For example:

Texas Insider, February 13:

“Our breadth of support cuts across all lines of gender, race and party,” said Tommy Azapardi, Executive Director of Texans for Economic Development. “In these economic times, voters are very motivated by the 53,000 new jobs and the billion dollars a year for state coffers racinos could generate for the state.”

Texas Politics, February 23:

Proponents say casinos in Texas could generate anywhere from $3 to $4.5 billion per year.

Houston Chronicle, February 25:

Backers of Joint Resolution 31 and Senate Bill 1084, the broad gambling legislation, said their proposal would bring in at least $3 billion a year in new state and local revenue.

So how realistic is any of this? Well, consider this.

During 2008-09, the [Economic Forum] expects gaming taxes to drop from $804 million to $715 million, an 11 percent decline. Gaming revenues will increase by 3.3 percent to $739 million in 2009-10, and by 3.9 percent to $767 million in 2010-11, according to the forum.

That’s from Nevada, a state which has more gambling than we do or would even if HJR 31 passes. The $715 million in gaming revenue comes from a gross gaming revenue tax of 6.75% (it’s actually slightly less than that, but this is close enough), which in turn implies statewide gambling revenues of about $10.5 billion. If you assume the casinos’ margin is seven percent – that is to say, a total 93 percent payout on all bets – that means gamblers dropped a total of about $150 billion at Nevada casinos.

So the question is, do we think Texas casinos will generate more than Nevada’s? HJR 31 sets the revenue tax at 15%, so we could generate as much tax revenue on less than half the amount – about $4.8 billion, or $68 billion in bets at the same payout rate. To get all the way to $3 billion, though, you’d have to have the casinos take in $20 billion, which in turn is about $270 billion in bets. I don’t think that’s going to happen.

By the way, a little further Googling led me to this article, which suggests that gross casino revenue in Louisiana is about $2.5 billion. That strikes me as a better comparison to Texas – note that Louisiana has 13 riverboat casinos and one land-based casino, while HJR 31 would call for 12 casinos in Texas – and would generate $375 million in gambling taxes at 15 percent.

Now of course, the casinos have other ways to make money for themselves (food, drink, hotel occupancy, entertainment, etc) and for the state (sales taxes, hotel taxes, alcohol and cigarette taxes (assuming smoking would be legal in the casinos, which I’m guessing would not be the case), property taxes, business margins taxes, etc). I don’t know what the components are to that $3 billion figure for the casinos, or the $1 billion figure for the “racinos” (I still hate that word). It’s entirely possible – likely, really – that I’m not comparing apples to apples. But at least you can see where my numbers are coming from. It would be nice if the gambling industry could do some of the same kind of calculation, and show their work, so that a proper comparison, as well as a judgment of their projections, can be made.

Full disclosure: The two Nevada links came to me from Teresa Kelly of Texans Against Gambling, after she commented via email about an earlier post of mine. That was the inspiration for this post, though the rest of the research is mine. I’ll be more than happy to do a similar exercise for someone on the pro-gambling side of things if they want to as well.

Two stories about gambling

The Chron’s David Barron talks to some experts about putting slot machines at horse tracks, which is one of several major proposals to expand gambling in Texas this legislative session.

William Eadington, an economics professor at the University of Nevada and director of the university’s Institute for the Study of Gambling and Commercial Gaming, questions the accepted wisdom in racing circles that video slots are a magic bullet for racing.

“The official argument is that this is a way to save racing and increase purses, which will attract better horses,” Eadington said. “The only thing wrong with that is that it hasn’t really held up.

“Racing continues to be in decline. If you look at handle and on-track attendance and net revenue after payment of purses — any of the standard measures — it has been stagnant for 20 years.”

While track operators stand to benefit financially from state licenses for video slots, granting such licenses during an economic downturn and limiting the field to racetrack owners cuts into potential state tax benefits by eliminating the large casino operators as competing bidders, Eadington said.

“Most of the major companies, with a couple of exceptions, are in no position to be bidding on casino licenses. They have no money for capital commitments,” Eadington said. “In that sense, this is not a great time to be putting things out for bid. You foreclose the option of doing something better if and when the economy gets going again.”

Difficult times for the resort casino industry, of course, make this a perfect time for racetracks to seek state legislation that would grandfather them in as video slot operators.

“It’s all political,” the economist said. “What (the tracks) would like is an environment that preserves the possibility of long-term excess profits. If they can have exclusivity in slots in urban areas, they are potentially very profitable.”

Nice to hear a little balance to all the rah-rah stuff the gambling industry puts out every time we go through this. I feel like it should have run on the front page, rather than the front page of the sports section, but I’ll take what I can get.

Meanwhile, John Nova Lomax has a cover story in the Press about the history of casino gambling in Galveston and the debate today about bringing it back as a means to revitalize the place post-Ike. I think this is the key bit:

You can see arguments for and against casinos before your eyes. Both major Lake Charles casinos sport huge parking lots — which begs the question of where they could fit in Galveston.

Those lots are also jam-packed with cars with Texas license plates. When you couple that with all the signs touting the many shuttles offering dirt cheap transport from nine pickup points in Houston to the casinos, you realize the magnitude of the cash drain over the Sabine.

Both the Isle of Capri and L’Auberge du Lac are vast complexes that rise mirage-like out of acres of concrete in the middle of nowhere. Each offers in-house restaurants, shops, clubs and lodging, and that underscores one of [gambling opponent Harris] Kempner’s main anti-casino contentions — that [Allen] Flores and the Strand merchants are fooling themselves if they think casinos will bring them customers. Even in the old days, he says, the Balinese Room knew well how to lock down the junket trade. “When the casinos wanted to attract banquets, they undercut,” he says. “They could afford to do that because they can make food, drink, shelter and entertainment a loss leader, and they will do it again.”

That’s been the Atlantic City experience, and I tend to think it would be Galveston’s, or any other place’s that got casinos, as well. Lomax does a good job of presenting multiple perspectives on the issue, so check it out.