Counting on Pa. gambling: Is this any way to balance a budget?

(Harrisburg) — Balancing Pennsylvania’s budget by relying on fees from gambling split the vote of the area’s Republican delegation.

They saw the option as unappealing, but some said it was better than raising taxes.

The choice comes with the baggage of social ills and may be a sustainable source of state revenue.

“I get concerned when we look at how we’re going to balance the state budget,” said L. Michael Ross, president of the Franklin County Area Development Corp. “We have a tendency to balance the budget on addictive behavior.  It makes us as gambling friendly as any state in the country.”

Pennsylvania has joined Nevada, New Jersey and Delaware as the only states to allow online gambling. It’s the first state to allow online play for its state lottery and commercial casinos.

Pennsylvania collected a nation-leading $2.7 billion in 2014 on the sin taxes it levies on gambling, tobacco and alcohol, according to Howmuch.net. New York was a close second.

Ross said that he doubts that legislators take into consideration the social costs when banking on gambling revenue.

The legislature’s fiscal notes bear him out. The House Committee on Appropriations attached a fiscal note that does not mention potential costs associated with the expansion of gambling, just details about how the gambling measure would raise $239 billion in the first year. The Senate fiscal note also does not attempt to expense the social cost of compulsive gambling, but mentions that gaming web sites must display information about it.

Researchers have pegged the “hidden social costs” of a single compulsive gambler at more than $10,000 a year. Baylor University economics professor Earl Grinols looked at seven different studies to devise his estimate of $9,393 for April 2011. At the time, it cost every American adult about $274 a year.

Applying his estimate to Pennsylvania’s adult population, the cost comes to nearly $3 billion a year.

Grinols also found that crime also increases near a casino and that 37 percent to 50 percent of casino revenues come from problem gamblers.

Other studies have found similar grim statistics on the social ills of gaming.

Some researchers also have questioned the wisdom of counting on taxes on gambling to pay for state programs. 

“If history is any lesson, gambling is only a short-term solution to state budget gaps,” according to the 2016 State University of New York study “State Revenues from Gambling” by Lucy Dadayan. “Gambling legalization and expansion leads to some revenue gains. However, such gains are short-lived and create longer-term fiscal challenges for the states as revenue growth slows or declines.”

Five years after Pennsylvania’s first casino opened, tax revenue from slot machines and table games leveled off at about $3.1 billion a year, according to the Pennsylvania Gaming Control Board.

“The growth in revenue collections from gambling is not nearly as strong as it once used to be,” she said. “In the wake of the Great Recession, many consumers became more conservative in their spending behavior, particularly when it comes to discretionary spending,” such as gambling.

Neighboring states often compete for the same pool of customers, according to Dadayan. Market saturation and industry cannibalization weakens the growth of gambling revenue. Pennsylvania enjoyed strong growth in revenues from casino and racino (combined race track and casino) operations until the opening of new casinos and racinos in neighboring Maryland, New York City, and Ohio.

“It’s kind of a race to the bottom,” said Rep. Paul Schemel, R-Greencastle.

Some in the gaming industry also claim that Pennsylvania’s high rate of taxation on the latest gaming expansion will hurt the state’s chances of getting its fair share of the take.

This story comes to us through a partnership between WITF and The Chambersburg Public Opinion.