Opinion

Gambling: fool’s gold for politicians

Gov. Cuomo’s bold plan for a $4 billion casino and conference center in Queens has fallen apart, but the prospect of a gusher of “gaming” revenues still beckons state government, which has already expanded video-slot-machines and other legal gambling in recent years. At least other 12 states have expanded gambling over the last three years; Massachusetts became the 16th state to sanction casinos.

But this tactic is misguided: Gambling often disappoints as a revenue-raiser and as an economic-development strategy. Nor should we ignore the documented social costs, including the disturbing fact that a significant part of gambling revenues comes from problem gamblers.

First, the revenues: Stateline, a service of the Pew Center on the States, examined 10 states that had legalized or expanded gambling over the past decade. It found that, in most cases, revenue fell well short of initial projections.

And the shortfalls are greater in the states that adopted gambling earlier — because other states have cut in on the action. Notably, New Jersey’s haul from Atlantic City casinos peaked at $477 million in 2006, the year before the first casino opened in neighboring Pennsylvania; by 2010, it was down to $327 million.

Gambling’s record as an economic-development tool is no better. Supporters often point to the number of people that local casinos or betting parlors employ. But that ignores the jobs lost in other industries because of the introduction of gambling.

The National Gambling Impact Study Commission, created by Congress, noted in a 1999 report that hundreds of restaurants and bars closed in the greater Atlantic City area after casinos began opening, offsetting some of the employment gains. When it visited the city in 1998, the commission found unemployment substantially above the average for the nation and for much of New Jersey.

That situation hasn’t greatly improved with time. A special commission created by Gov. Chris Christie noted in a 2010 report that, after nearly 35 years of legal gambling, Atlantic City suffered from the public perception that it was “unclean and unsafe” and had never been able to give rise to a meetings-and-conventions business. Casinos, the report noted, had failed to spawn “non-gaming amenities” that might attract visitors interested in anything other than gambling.

The numbers underscore the lack of progress. Median family income in Atlantic City in 1980 was $34,800 in 2010 dollars; in 2010, it was $35,500.

Then there’s the social costs. The Tax Foundation argues that state lotteries represent one of the steepest of all taxes, since the government keeps an average of 42 percent of betting proceeds — far higher than any sales tax, if the wagered money had been spent on something else. Numerous studies show that lotteries tend to attract lower-income, less-educated players — cutting significantly into personal income and private-sector spending in poorer neighborhoods.

Another social cost is crime, which studies show rising in most categories after casinos open.

Perhaps the most unsettling is the inordinately large share of gambling revenue that comes from problem gamblers. A 1998 Montana study estimated that problem gamblers accounted for 36 percent of revenue from electronic gambling devices and 18 percent of lottery scratch-ticket sales. A 1999 Louisiana study determined that problem gamblers accounted for 30 percent of spending on riverboat casinos, 42 percent of spending at Indian casinos, and 27 percent of betting on video lottery terminals and other electronic games.

These troubled people can devastate their lives and those of their families through the intensity of their gambling. A National Opinion Research Center survey noted that nearly 20 percent of self-reported pathological gamblers and 11 percent of problem gamblers had filed for bankruptcy at some point in their lives, vs. less than 5 percent of non-gamblers.

Yet states keep expanding gambling. New York is exploring full-fledged casinos; New Jersey politicians are urging the governor to expand casino gambling statewide. Massachusetts’ recent embrace of casinos has prompted politicians in other New England states to push for their own. And as consumers’ interest in traditional lotteries continues to wane, states scramble to add more games, even eyeing sports betting — now legal only in Las Vegas.

It seems politicians, too, are addicted to gambling. Yet their addiction will damage many lives — and utterly fail to help state finances.

Steven Malanga is the senior editor of
City Journal and a senior fellow at the Manhattan Institute. Adapted from the Summer 2012 issue of City Journal.