Dueling Revenue Estimates Stoke Slots Debate in Md.

By John Wagner
Washington Post Staff Writer
Wednesday, October 15, 2008

In the closing weeks of Maryland's campaign on slot machine gambling, supporters are betting heavily that voters will be swayed by the lure of new state revenue.

Their television ads promise an annual infusion of $660 million for education. But slots opponents insist that the figure is illusory and would be offset by costs from increased traffic, crime and other gambling-related social ills.

The truth is, no one really knows how much slots would yield for Maryland.

The figure cited by supporters comes from an analysis by nonpartisan staff of the Maryland General Assembly, drawn heavily from the experiences of surrounding states that have legalized slots. The ad refers to estimates for more than three years from now.

Legislative analysts say that, if anything, their numbers are conservative, meaning Maryland eventually stands to reap even more than projected if voters approve a plan to legalize as many as 15,000 machines at sites in Allegany, Anne Arundel, Cecil and Worcester counties and the city of Baltimore.

A study released yesterday by an institute at the University of Maryland-Baltimore County questioned that assertion. The study, commissioned by a national anti-gambling group, suggests that figures from the Maryland Department of Legislative Services are at the high end of reasonable estimates.

"There's a lot of uncertainty," said Judith Shinogle, lead researcher on the study by the Maryland Institute for Policy Analysis and Research, which questions the degree to which Marylanders playing slots in other states will adjust their habits. "It's very difficult to estimate something like slot machine gambling that's new to a state."

UMBC officials said the group that paid for the study, StopPredatoryGambling.org, had no influence over its findings.

Although legislative analysts stand by their numbers, they readily acknowledge that estimates of slots proceeds are based on many variables, including some that policymakers in Maryland do not fully control, if at all.

The strength of the economy two years from now, when slot machines would begin operating in Maryland, would undoubtedly factor into residents' decisions about how often to gamble.

Passage of slots in Maryland would almost certainly affect gaming policies in West Virginia, Delaware and Pennsylvania as casinos in those states try to keep their Maryland customers, but exactly how is anyone's guess.

And local zoning battles could delay or possibly scuttle the opening of one or more of the Maryland locations, significantly affecting overall proceeds. Politicians in Anne Arundel County, where the largest site is envisioned, are gearing up for what they say will be a second fight over slots if the measure passes.

Moreover, it is clear that slots would affect Maryland's budget in other ways that are hard to predict.

Based on the experiences of other states, legislative analysts anticipate a 10 percent decrease in lottery sales -- eventually a decline of more than $50 million annually -- as some players substitute one form of gambling for another.

Analysts also anticipate that Marylanders who gamble could spend less money than they would otherwise on other forms of entertainment that the government taxes. If less money is spent on those activities, state and local governments will collect less in taxes, though there are no firm estimates as to how much less.

On the flip side, slots supporters point out that the construction of gambling venues can create jobs and spur other development in the area, increasing government tax collections. Maryland's plan would require slots operators to collectively invest $750 million in their facilities, a figure roughly comparable to the cost of two or three professional sports arenas.

In estimating slots revenue, legislative analysts begin with the assumption that machines in Maryland facilities will generate a "win per day" rate that is similar to machines at comparable facilities around the region. The win per day refers to the amount of revenue each machine yields after winnings are paid out to its players.

In an August memo to legislative leaders, Warren Descheneaux, the legislature's chief fiscal analyst, said his office had factored in "reasonable and, if anything, conservative" win-per-day numbers at potential Maryland sites.

July revenue at facilities in the Philadelphia and Pittsburgh areas, for example, was higher than what Maryland analysts estimate for facilities in Anne Arundel and Baltimore, the two most comparable sites in Maryland.

Under the analysts' scenario, two of the five Maryland slots facilities would begin operating by February 2011, with the remaining three opening the following August.

If that schedule holds, analysts estimate that total slots proceeds would reach almost $1.4 billion by fiscal 2013, the first full year in which all 15,000 machines would be generating revenue. It is possible, analysts says, that some venues could open sooner than forecast, perhaps placing slot machines in temporary locations until buildings are constructed.

Under Maryland's plan, about half of total proceeds would go to education. Other shares of the proceeds are earmarked for the operators of the slots parlors, the horse-racing industry and the local governments where the facilities are.

Fred Puddester, chairman of the pro-slots group and a former Maryland state budget secretary, said he is confident about the revenue estimates. "I think they're actually conservative, based on my 20 years of doing revenue estimates for the state," Puddester said.

Comptroller Peter Franchot (D), a leading slots opponent, told reporters yesterday that he considers estimates by legislative analysts to be "fantasy-land figures."

The current economic climate has added to debate over how realistic the revenue figures are. Traditionally, the industry has been somewhat insulated from downturns, but there have been some signs in Las Vegas and at slots venues in states surrounding Maryland that that may no longer be true.

Still, Maryland analysts say they have been impressed with the performance of Pennsylvania slots parlors in particular and stress that the economy could be in much better shape in two years as machines begin operating in Maryland.

Several other factors are built into legislative analysts' estimates, including the assumption that slots will not be authorized in Virginia or the District in coming years. That could sap an expected customer base for Maryland sites.

Perhaps more significantly, the Maryland estimates assume that West Virginia and Delaware would not expand their slots operations or add casino-style gambling and that Pennsylvania would not expand its gambling facilities beyond what has been authorized.

In an interview, Descheneaux acknowledged that his office has no way to predict what other states would do in response to competition from Maryland. "We will be subject to all the vicissitudes of any competitive business enterprise," Descheneaux said.

The UMBC study, among other things, questions whether Maryland analysts are too optimistic about Marylanders who play slots out of state switching to in-state facilities once they open.

Under Maryland's plan, operators would be allowed to keep 33 percent of proceeds, while the shares in West Virginia, Delaware and Pennsylvania are above 40 percent. That could limit the ability of Maryland operators to upgrade their facilities and undercut their ability to compete for players, the study suggests.

Zoning battles could also affect revenue generated by slots. A provision in a bill last year makes explicit that slots facilities must comply with local zoning laws. Of the five potential locations in the Maryland plan, Anne Arundel seems ripest for a fight over zoning. County Executive John R. Leopold (R) is a slots opponent, and the issue has divided the County Council.

Anne Arundel is also envisioned as the largest slots site, with as many as 4,750 machines authorized at the Laurel Park racetrack or another venue near Route 295. Legislative analysts project that $546 million of the almost $1.4 billion generated by slots in fiscal 2013 would come from the Anne Arundel site. That is about 40 percent of the anticipated revenue.

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