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Texans for Economic Development

Gambling industry support

The DMN has an interesting story about gambling industry players making large campaign finance contributions, but there’s some context missing.

A review by The Dallas Morning News of contributions since last July shows horse track interests have poured more than $4.2 million into campaigns and special committees.

That would average about $23,000 per lawmaker in the House and Senate, with the traditional surge of donations closer to the November election yet to come.

The News identified 33 horse track investors and those who have applied to become owners as substantial givers. They cover the political spectrum and are pushing other agendas before the Legislature in addition to gambling.

Included in this amount is Steve Mostyn and the $1.4 million it says he’s contributed so far. I’m wondering what the DMN’s parameters for this search was, since I know Mostyn contributed to a number of Harris County judicial candidates in the primary. Mostyn says in the article that his primary concern is getting Democrats elected, and I take him at his word on that, but even if you don’t a lot of his money is not going to legislative campaigns, or is going to general interest PACs. I ran a TEC query on Mostyn’s name, with a range of July 1, 2009 to June 30, 2010. Initially, I found $1.47 million in contributions. Taking out money he gave to the Coalition of Harris County Democratic Elected Officials and judicial candidates such as Amy Clark Meachum leaves $1.2 million. He’s also given significant amounts to Texans for Insurance Reform ($170K), the HDCC ($100K), and the Texas Forward Committee ($30K), all of which will be supporting candidates who may or may not ultimately vote for a gambling bill. There’s the Back to Basics PAC, to which he’s given over $300K. A few thousand more has gone to Bill White, and to people who are on their way out of the Lege, such as Norma Chavez and Eliot Shapleigh. If I add up his total contributions to current legislators and legislative candidates, it comes out to just short of $400K. That’s a lot of money, to be sure, but a whole lot less than $1.4 million. As such, that $4.2 million figure cited above is overstated by at least a million dollars, and maybe quite a bit more.

Duane Galligher, spokesman for the Texas Gaming Association, said that group is pushing for legislation that would allow destination resort casinos in Texas, not just slots at existing tracks. It also supports gambling rights for the state’s three recognized American Indian tribes.

[…]

Despite financial hardships for tracks and the lagging economy, early donations show horse track owners have upped the ante compared with the entire 2004 election cycle.

A study by Texans for Public Justices, a nonprofit campaign watchdog, showed track owners gave $3.6 million in 2004 elections, compared with this year’s $4.2 million.

Galligher’s group has a political committee, but so far has raised little money and made only a handful of contributions.

But two years ago, the Texas Gaming Association made large contributions closer to the general election.

“By and large, I’m not at liberty to state what our plans are, but we do intend to participate in the political process,” he said.

I presume the $3.6 million for 2004 represented the entire cycle, and not just the period ending June 30. Even if you don’t discount that $4.2 million as I just did, the final total would need to be considerably higher than $3.6 million – I’m thinking at least $6 million – just to keep up with the inflation rate for legislative campaigns. So again, while we are talking about a lot of money, it’s not as much as it first appears. Having said that, adding in whatever the Texas Gaming Association does could easily change that.

Another question to ask is are these interests giving to their usual supporters, or are they reaching out to those that have voted against them in the past? In addition, how much are they giving to candidates who are running against known gambling opponents, and how much are they giving to candidates who are seeking to fill open seats? I mean, if all they’re doing is writing bigger checks to the people who are already on their side of this issue, how much does that really matter?

Poll says people prefer slots to taxes

I don’t think that’s a great revelation – I’d think many people would claim to prefer a bout of the flu to having their taxes raised – but for obvious reasons, this is a noteworthy finding.

A new poll conducted for horse track owners indicates that Texans would rather legalize slot machines at race tracks than pay higher taxes to offset a projected $18 billion revenue shortfall in the next state budget. The poll of 801 registered voters in Texas, conducted by Austin-based Perception Insight, showed the preference for slot machines across the political spectrum – Democrats, Republicans and independents.

Results of the poll mirrored earlier surveys that found Texans generally would rather see new revenue raised in ways other than through increasing taxes. The new poll, conducted from June 8-13, was paid for by Texans for Economic Development, which represents horse and dog track owners in the state. Efforts to expand gambling in Texas have picked up steam as projections for the state’s revenue shortfall next year have continued to grow.

According to the poll, 57 percent of voters favor slot machines over higher taxes when given a choice, while 22 percent would rather raise taxes.

You can see the poll memo here. There’s a lot of context missing – these were a couple of questions from a larger poll, about which we have not been told anything, and there’s no crosstab data – so don’t read too much into it. In particular, I think any time you ask the question “Would you prefer for the state to raise taxes or do X”, I think “do X” is going to win handily most of the time. Not to put too fine a point on it, but even the most optimistic estimate of potential gambling revenue for the state is far short of the structural deficit caused by the ginormous unaffordable property tax cut of 2006, let alone the actual shortfall for this biennium. In other words, this isn’t an either-or choice, even if we assumed there were no other possible options. I understand there’s only so much you can do in a poll, but that means there’s only so much you can take from it, too.

To me, the more interesting finding is that there is no apparent downside for a politician who supports expanded gambling. That’s not going to stop hardliners like Empower Texans, who have been peddling the misleading claim that gambling expansion is a Democratic issue – someone should tell that to Rep. Ed Kuempel, as he was the lead author of the joint resolution and its enabling legislation to expand gambling last session – from trying to scare Republicans about it. It wouldn’t be any fun if it weren’t for stuff like that. Whether this changes anyone’s position or not, I couldn’t say, but it’s not likely to make anyone shy away from supporting more gambling.

Finally, note that the questions only asked about slots at horse racing tracks, not about casinos. As we know, those two interests are competitive and not cooperative, so there’s no guarantee that even if we do see some kind of gambling expansion move forward that it will take this specific form. Maybe casinos would be less popular than slots, I don’t know. Just something to keep in mind.

The pitch from the gambling industry

We know that the gambling industry, which never sleeps, has been busy preparing for the next legislative session. The Trib gives us an overview of their pitch, about which I’m sure you’ll be hearing plenty more in the coming months. Most of this is familiar territory, so let me just zoom in on two points. One has to do with the numbers:

Promoters of gambling have been trying to get everything from slot machines to casinos legalized in Texas for years, but they were brushed aside last year after the stimulus money relieved the budgeteers of many hard choices. Now, the gambling side says, the continuing recession improves their odds, and they’ve managed, for now, to keep all of their own constituencies from squabbling.

“They’re all getting along and singing from the same hymnal,” says Mike Lavigne, who’s working for Texans for Economic Development, a group of track owners, horsemen and others who want the state to okay expanding gambling at tracks. They’ve got a web site — winfortexas.com — and have lobbyists and others strategizing in advance of the 2011 legislative session.

That group wants lawmakers to allow video lottery terminals, or VLTs, at the state’s horse and dog tracks and on reservations of the state’s three Indian tribes: the Tiguas, the Kickapoos, and the Alabama Coushattas. They say those “racinos,” (a combination race track and casino, would bring $1 billion into state coffers each year (twice that for a two-year state budget) once they’re up and running and would be an economic boon to their communities and to the horse business in Texas.

“Eventually, they’ll be facing taxes, or fees, or something else,” Lavigne says. “This is the lowest-hanging fruit. If you need $2 billion fast, call us.”

[…]

Rob Kohler, who’s been lobbying against legalized gambling for years, doesn’t buy the budgetary justifications. “The difference between now and when we did horses and the lottery is that, then, we didn’t have a lot of data,” he says. “Now we have the data. This isn’t a viable revenue mechanism.” Horse and dog tracks never produced any more than a trickle of revenue for the state in spite of flagrantly optimistic economic forecasts at the time lawmakers were asked to legalize it (at the start in 1986, proponents forecast the state would net $110 million annually; the revenues have never been more than a small fraction of that amount, and the costs of regulation have negated any fiscal benefit to the state treasury). The lottery has produced more or less as predicted, but didn’t become the public school funding panacea sold to voters, he says. “The perception is that they were sold a bill of goods,” he says.

Slot machines, Kohler says, would bring the dangers of expanded gambling without much benefit. Racinos, he says, would add little to the state’s annual budget, which is approaching the $200 billion mark. “Take 200 pennies. Throw them in a bag. Throw in one more penny. That’s what you’re getting,” he says.

Kohler’s point about the relative size of gambling revenue to the overall budget is correct, but not particularly responsive. What matters now is the size of the deficit and how it can be shrunk, and even a small new revenue source still contributes to that. Note that one reason we’re having the conversation about gambling as a source of revenue is because all of the more sensible sources are for a variety of reasons politically untenable, and even in Texas most people recognize that cuts only get you so far. If we could have an adult conversation about the state’s tax structure, there would be less attention being paid to casinos and video lottery terminals.

Of course, as we’ve discussed before, even if the gambling industry got everything it wanted in the next session, the revenues they promise would not materialize right away. That’s the second point, the timeline:

The racinos wouldn’t produce money immediately. [State Rep. Ed] Kuempel and others say the state will need the money in subsequent budgets and argue that the earlier the gaming is allowed, the quicker the money will come in. One proposal would let the state sell licenses for the VLTs — that would bring in money up front — but the track operators say they can’t afford the licenses until the gaming parlors start generating cash. And they say the Legislature isn’t ready to approve full-blown resort casinos, either. “We’re not talking about opening up new casinos all over the state,” Lavigne says. “These things don’t happen overnight.”

However we answer the question about gambling this session, the questions about the budget shortfall will have to be answered separately. Expanded gambling will not do anything to affect this biennium.

Response from the racetracks

When I wrote my earlier post about how much revenue expanded gambling would generate for Texas, I said I’d be more than happy to do a similar exercise for someone on the pro-gambling side of things. Sure enough, I got an email from Mike Lavigne on behalf of Texans for Economic Development, who sent me a copy of a study done by TXP that examined the question for the horse racing interests. I’ve uploaded it here (PDF) for your perusal. The main thrust of the argument is as follows:

Texans are already gaming at a high level. Based on data from a variety of sources, including state gaming commissions, convention and visitors bureaus (CVBs), and other academic studies, TXP has estimated the current gaming revenue in a seven-state region that is attributable to Texans at approximately $2.3 billion during 2007, the equivalent of about 3.8 percent of the national total. This is the assumed universe of current Texan gaming; while there undoubtedly are individual instances of Texans gaming elsewhere in the country, it does not appear to be significant.

The Innovation Group was engaged by Texans for Economic Development to estimate the size of Texas’ gaming market. A summary of their results follows. As the table indicates, the total Texas market approaches $4.2 billion in gaming revenue at full implementation. However, there is still leakage out of state, as some Texans will continue to game elsewhere.

A significant share of the revenue that would occur in Texas with the implementation of racinos would be recaptured from other states where Texans currently game. Measurement of the volume of this spending is done through subtracting the leakage out-of-state ($840.2 million) from the $2.4 billion figure, yielding recaptured spending of approximately $1.8 billion.

They estimate a total of about $3.4 billion in gambling revenue, which when taxed at 30% (the rate for racetracks is higher than what has been proposed for casinos) yields about $1 billion a year for the state. They make other claims as well about related economic activity and employment, which I’ll leave to you to examine.

I remain basically skeptical of the claims made here – I think some of these projections are optimistic, especially the ones made separately about the economic benefits for other businesses that flow from expanded gambling. I also think it’s foolish to rely on gambling revenue for anything other than “found money” – the Texas Lottery should be an object lesson there. Finally, there is a moral case to be made against expanded gambling, and I think we greatly underestimate the social costs associated with it, which the state does precious little to mitigate. I’ve got a future post planned for that, since it’s outside the scope of this one. Having said all that, I can at least see where the racetracks’ numbers are coming from, and while I think they’re sunny, they’re comprehensible and reasonable. We can argue over these numbers because they’re here to be argued over, which remains more than I can say for the casino interests, whose claim that they would generate $3 billion for the state looks even more ludicrous to me based on this.

I also asked Lavigne in an email exchange after he sent this to me about the bleak picture the racetracks have painted for their industry today, and why they would be a better vehicle for capturing the “leakage” than regular casinos. Here’s what he said, reproduced with permission:

The Racing Commission did indeed paint a glum picture. There is no denying the shape the industry is in right now. The primary reason is that purses in Texas are so low, there is no incentive for breeders to breed in Texas. If they take the same horse and breed it in Louisiana, NM or OK they will be eligible for much larger prizes. A large chunk of the money made in this bill will go toward growing purses here that will be competitive with not only with our neighbors, but with the eastern seaboard, where racing has had a lot more success. This model is the reason our industry in Texas has fared so poorly. When parimutuel wagering was legalized in Texas, there were very few (if any) racinos in our bordering states.

We don’t oppose the proposal for regular casinos on its face, but we do object to the disparate tax rates. That would surely kill any chance racinos would have to be successful.

As to why we think racinos would better capture the money than casinos? I think that is the wrong question. Both would be able to get at that money. We do have to look at political reality though. What is more palatable to the legislature? Full on casino gambling overnight? Or a smaller expansion at existing sites with legal wagering already taking place.

The Governor and many Republicans have repeatedly said that they do not want to expand the footprint of gambling. We believe our proposal is a more modest one.

The most important thing to remember about these figures is that the Comptroller will ultimately make the decision as to how much money these proposals would raise. She will do her own math.

So there you have it, the case for racinos. My thanks to Mike Lavigne for engaging me on this. If someone with the casino interests wants to show me their numbers, I’ll be more than happy to do this for them as well.

Finally, on a related note, whatever reservations I have about casino and/or racetrack gambling, I do support an expansion of legalized poker in Texas. HB222, introduced by Rep. Jose Menendez as the Poker Gaming Act of 2009, would establish poker as a “game of skill and not a lottery or gift enterprise prohibited by the Texas Constitution” and would thus allow for the creation and regulation of legalized games. In particular, it would allow establishments that hold a license to serve alcoholic beverages issued by TABC or a license issued by the Racing Commission to have the ability to host the game of poker. There was a hearing for this bill yesterday in the House before the Licensing and Administrative Procedures committee. I have no issues with this bill and support its passage.

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.

Expanded gambling: It isn’t just for race tracks any more

Here’s an update to the story about the big expanded gambling bill that was filed yesterday.

Slot machines also would be allowed at the state’s existing race tracks under the proposal by Sen. Rodney Ellis, D-Houston; Sen. John Carona, R-Dallas; Rep. Jose Menendez, D-San Antonio, and House Appropriations Committee Chairman Jim Pitts, R-Waxahachie. In addition, the three federally recognized Indian tribes could operate a casino on their tribal lands.

“Texans already are voting with their feet and going out of state” to gamble, Ellis said. Menendez noted that Texas is “surrounded by gaming.”

Opposition immediately arose from conservative and Christian groups and a racetrack group pushing more narrowly for slot machines at tracks. 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.

The legislation calls for $1 billion to be funneled to a trust fund for college scholarships and another $1 billion to transportation. Casino proponents also said their proposal would create 90,000 to 120,000 jobs.

I don’t believe any of those economic projections. Then again, I never believed the projections that the horse racing interests gave about their slots-at-racetracks proposals. I think there will be a net benefit to the state, at least in terms of revenues taken in – the bulk of the social costs will not be borne by the state, so the books will looks good – but $3 billion a year and 100,000 jobs is just crazy talk, as far as I’m concerned.

The way this is being done, as an alternative to slots-at-racetracks, will make for a fascinating dynamic in the sausagemaking process. I see it as lobbyist versus lobbyist, with some folks like the religious conservatives taking potshots from the sidelines. There’d be a hell of a reality TV show in there if someone had seen this coming early enough.

The legislation calls for $1 billion to be funneled to a trust fund for college scholarships and another $1 billion to transportation. Casino proponents also said their proposal would create 90,000 to 120,000 jobs.

Up to 12 casinos would be allowed statewide, with designated areas for nine of them: Galveston, South Padre Island, Bexar County, Tarrant County, Travis County and two each in Dallas and Harris counties.

A plan critic, Tommy Azopardi, of Texans for Economic Development, said the legislation would create a “widely disparate tax rate” between casinos and tracks (15 percent versus 35 percent), wouldn’t allow tracks to have the same games as casinos and would greatly expand “the footprint of gambling in the state.”

Casino backers said tracks could apply for one of the casino licenses but would have to go through the same process as other applicants.

I got a press release from Azopardi, not coincidentally sent by the same guy who sent me the earlier poll information, which I’ve reproduced beneath the fold. It’s going to be a bear trying to sort out the objective facts from the spin on this one, that’s all I know. Maybe I’ll get lucky and the CPPP or someone like that will weigh in. In the meantime, keep your hip-waders handy.

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