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Numbers in state legislation to form lottery, legalize casinos not adding up

  • May 21, 2015
  • Jennifer Davis Rash
  • Alabama News, Gambling

Numbers in state legislation to form lottery, legalize casinos not adding up

Legislation that would authorize a state-run lottery and casinos at the four dog tracks moved out of committee May 14 and was awaiting state Senate action at press time. But no matter the details of the bill — sponsored by Sen. Del Marsh, R-Anniston — the numbers supporters are using aren’t adding up when all things are equal. Instead of an estimated nearly $332 million net revenue from a statewide lottery, the state would likely garner $272 million at most.

Even though this year’s state General Fund budget shortfall of nearly $300 million is the driving force behind interest in expanding gambling in the state, any potential lottery revenue would not help because the earliest a statewide election would be held on the matter would be September.

And none of the estimates come close to covering the estimated $702 million needed going forward. Marsh is pushing for a three-pronged gambling solution through Senate Bill 453, which would call for a constitutional amendment to form a state-sponsored lottery and allow casinos at the state’s four dog tracks.

It also would call for a compact (an agreement) with the Poarch Band of Creek Indians (PCI) in exchange for tax revenue on their gambling dollars (see story, page 13).

Revenue from casinos at the dog tracks is estimated at around $60 to $70 million, but potential revenue from PCI facilities was not provided.

The numbers Marsh is using to make his case come from the April 2015 “Assessment of Lottery and Gaming Programs Across the United States,” a study conducted by the Institute for Accountability and Government Efficiency (IAGE) at Auburn University at Montgomery.

Marsh hired the organization to specifically look at revenue generated by lotteries in other states and estimate what Alabama would generate with expanded gambling in the state.

Calculating the numbers

IAGE concluded that Alabama could potentially receive $331,667,963 in net revenue after administrative costs and prize money were deducted.

Researchers came to this number by taking the per capita lottery net revenues from the 43 states with state-run lotteries and calculating it with Alabama’s population. The average annual per capita lottery revenue in the 43 states was $69.11.

So $69.11 multiplied by Alabama’s population of more than 4.8 million comes to the nearly $332 million amount.

Determining calculations based on national averages works if Alabama fell in line with the national average in areas such as per capita income and median house income, but it doesn’t.

Alabama falls 18 percent below the national average in these areas. Calculating the per capita number with the percentage below the national averages drops the net revenue amount by about $60 million.

The IAGE study also used the national average of 33 percent of lottery revenue being used in state programs in its calculation of what Alabama would generate, which means researchers are expecting the state to bring in nearly $1 billion in gross revenue from a lottery.

Reality of revenue expectations

However, of the five states surrounding Alabama with lotteries — Louisiana, Arkansas, Tennessee, Georgia and Florida — Alabama most closely aligns with Louisiana in size and financial statistics.

The IAGE research found that Louisiana, with a population of 4.65 million, generates $447 million in gross lottery revenue.

Alabama has a population of 4.85 million and comes in $762 less in per capita income and $1,621 less in the median household income than Louisiana.

Yet Alabama is expected to generate more than double what Louisiana generates, according to the IAGE study.

Another concern with promoting the proposed revenue potential from expanding gambling in Alabama is that the study did not take into account the costs that come with this industry.

Research in other states with lotteries and/ or casinos has proven that social problems and crime increase, leading to more money needed to pay for expanding law enforcement and social services.

Projections have many times been much lower than what was promoted in the beginning.

For instance, Ohio residents were told in 2009 that four proposed casinos would generate $651 million in annual tax revenue, but a 2014 report showed a total of only $518.6 million paid in more than two years combined, according to The Columbus Dispatch.

John Hill, senior research analyst for the Alabama Policy Institute, said the IAGE study should not be taken seriously in the decision about expanding gambling.

The study does not take into consideration any of the negatives and thus additional costs, he said.

“Alabama is not the only state … having a shortfall with its budget. There are 20 other states (and) our research shows that 19 of those states have lotteries and 16 have casinos,” he said. “So why do we think that bringing in more gambling to our state through casinos or lotteries or both will solve our problem when it hasn’t worked in … other states?”

And experts agree the gambling industry won’t stop with the current legislation. There have already been several failed attempts at establishing a fifth casino location in the Houston County facility where Ronnie Gilley took a stab at setting up a casino in 2009–2010.

Editor’s Note — This article won the Alabama Press Association’s FOI-First Amendment Award in APA’s 2016 Better Newspaper Contest.

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