Maryland faces millions in costs after paying more for slot devices than expected

When Maryland voted to legalize slot machines, officials opted to acquire the games of chance themselves so that the state would be responsible for the integrity of the gambling.

It’s not looking like a winning bet.

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Maryland, one of only a few states where slot machines are not purchased by casino owners, is facing tens of millions of dollars in unanticipated costs that are expected to eat into state proceeds for years to come.

The state is paying an average of about $10,000 a slot machine per year to fill Maryland’s first three casinos, according to a Washington Post analysis. That’s more than double what officials estimated would be spent per machine in the coming year when lawmakers launched Maryland’s slots program in 2007.

At the current rate, the state could spend $50 million a year more than projected by the time all five privately owned casinos are open with nearly 12,000 machines.

With Maryland projecting budget shortfalls into the future, a less profitable slots program is certain to contribute to more difficult decisions on tax increases and spending cuts. Maryland’s experience highlights the difficulties in calculating the start-up costs of government-sanctioned gaming and forecasting the promised payoff.

As Maryland’s third — and largest — casino prepares to debut in June in Anne Arundel County, some lawmakers are pushing to expand the program. The House of Delegates will hold a hearing Friday on whether to authorize a sixth casino, in a swath of western Prince George’s County, and to allow Las Vegas-style table games.

Critics of the program say the higher machine price tag is just the latest in a string of broken promises about how much money slots would yield. Program officials acknowledge the added cost but say Maryland’s budget will still be considerably bolstered by the state’s embrace of casino-style gambling.

Gov. Martin O’Malley (D) and other proponents have acknowledged that the program has yet to generate as much revenue as advertised, in large part because of the economic downturn.

According to legislative staff, the five planned casinos are now expected to generate about $150 million a year less for education than the $660 million originally promoted — and to take at least a year longer than expected to reach that point.

But lost in that accounting is what’s happening on the other side of the ledger: how much more the machines are costing — and will continue to cost.

To entice customers with the latest games, casinos typically swap out machines every few years, creating a recurring expense for the life of the facility.

According to the Maryland State Lottery Agency, $71.5 million a year, including some maintenance costs, is being spent to provide machines for the three casinos in Cecil, Worcester and Anne Arundel counties. That’s $10 million more than the original projected leasing costs to fill all five casinos in the coming year.

The difference is being made up by increasingly larger appropriations to the budget of the lottery agency, which administers Maryland’s slots program.