24 September 2008

Colorado Ballot Issue 50 (Gambling)

There is a website out opposing Colorado Ballot Issue 50 that was brought to my attention in the comments. The official state explanation is here.

Colorado Amendment 50 modifies the part of Colorado's state constitution that sets rules for gambling in Central City, Black Hawk and Cripple Creek (and thus could not have been accomplished through a statutory change), and earmarks increased state revenues, if any, for local governments that are home to casinos and to community colleges.

Many of the provisions of Amendment 50 are good:

* Increasing the betting limit from $5 to $100.
* Authorizing the games of Las Vegas-style roulette and craps in Colorado.
* 24/7 gambling for the first time in Colorado.
* Excluding gambling tax revenues from TABOR spending limits, but include them in the requirement that tax rate increases be approved by voters.
* Requires the industry to bear the burden of increased regulatory costs associate with its increased scope.
* Increases tax revenues from gambling due to increased gambling revenues.

The proposal isn't perfect (which is one of the reasons I generally don't favor law making by citizen initiative). The local governments involved probably make out a bit too richly in their share of increased gambling tax revenues. There is no meaningful mandate to keep some gambling taxes targeted at treating problem gamblers in the state in particular, as opposed to local impacts of gambling in general on the community. And, the choice of community colleges as a funding beneficiary is a poor fit, despite the fact that community colleges do need more money.

Still, overall, the monies from additional gambling taxes would reduce pressure on the state budget general fund, which is currently exceedingly tight, by making reasonable modest liberalizations in the scope of casino gambling in the state. So, in the end, I give Amendment 50 a weak thumbs up. Allow me to explain my reasoning in more detail.

The Conduct of Gambling

The whole point of gambling in Colorado is to have a mini-Las Vegas in Colorado and there is absolutely nothing wrong with that, indeed, it is ecologically sound because it reduces carbon emissions from Colorado residents who might otherwise make the long trip to Las Vegas to gamble.

Betting limits protect the casino, not the gambler, because betting limits make the impact of random chance on the percentage of wagers that go to the casino more reliable. Since the odds in any given game at a casino are always designed favor the house, the mathematically optimal approach to betting and coming out ahead by any given amount of money, is to bet as much as possible in as few bets as possible. Still, a $100 betting limit is still so small, that this impact is likely to be minimal.

Betting limits do little to discourage problem gambling, since the cap in on the amount to be spent in a given bet, not the amount to be spent by a given gambler. Also, limits on gambling of one type simply encourage gambling in some other manner. If one can't make big bets at the slots, one will buy lots of lottery instant winner games. Piecemeal approaches to stopping problem gambling are useless. Any industry level regulation of problem gambling needs to be comprehensive to work.

Even banning gambling all together wouldn't stop problem gambling. It is well established that illegal gambling thrives where it is illegal to gamble, with all the attendant criminality that comes with organized crime. The particularly troubling phenomena of problem gambling also appears to be linked more generally to personality and/or mental health traits that predispose a person to addictive behavior anyway. To the extent that problem gamblers would otherwise be doing drugs or becoming alcoholics, problem gambling may actually be a better vice.

Particularly in Colorado, where legal gambling discourages the development of a thriving illegal gambling industry, regulation of gambling is a more promising option, and the number of casino gambling options is small enough to make barring problem gamblers from casinos and other gambling venues a not entirely unworkable proposition. Certainly, nothing prohibits the state from enacting legislation to address problem gambling, like the development of list of persons prohibited from gambling, and developing treatment programs.

Local governments around the casinos should fund treatment programs, but probably won't to a sufficient degree. Funds to address problem gambling in the state should have been better mandated in the gambling tax revenue stream, but given benefits that gambling taxes have on general revenues in Colorado, spending some state general revenues on gambling treatment programs would still probably hurt general revenues less than the additional funding of community colleges would help a program traditionally funded from general revenues.

There is no reason under the sun that roulette and craps are any less desirable for any reason than slot machines, blackjack and poker. Why are roulette and craps any worse than various Colorado Lotto/Powerball games, or betting on horse and dog racing or bingo and raffles, all of which are also legal in Colorado? All gambling in Colorado is tightly regulated anyway.

There is nothing more moral about gambling during the day time or evening, than gambling between the hours of 2 a.m. and 8 a.m. in the morning. Indeed, forcing people out of bars at 2 a.m. in greater Denver, where violent closing time incidents are common, appears to impair public safety. There is no obvious good served by tossing people out of casinos at 2 a.m. in the morning, an hour at which they may be more likely than at other times to drive drunk, at the very least.

Also, like most vices, most negative impact from gambling is local. The biggest real downside to liberalized gambling under Amendment 50 in which the public has an interest is that longer hours may require police to increase staffing at night, and the additional funding provided to these governments is more than enough to address this concern. This is the genius of authorizing vices like gambling only in designated locations that ask to host them, as we have in Colorado, and as Las Vegas did. When negative impacts are balanced by enough positive public impacts, the places impacted welcome them and provide a forum where activity that is considered bad for the neighborhood, even if it doesn't directly hurt anyone else, can do business while keeping almost everyone happy.

In short, those complaining that Colorado Amendment 50 "would bring high-stakes, 24-hour Las Vegas style gambling to the State of Colorado" are mostly raising silly, indeed histrionic points of opposition. Allowing $100 bets is hardly high stakes gambling. In short, the opponents sound like a bunch of ninnies who think we need an ineffectual nanny state to protect us.

TABOR Implications

TABOR spending limitations are wrong in general, and including gambling taxes which are quiet cyclic in the equation simply makes unnecessary work for revenue estimators at the capitol, in the case of a tax that is a pittance compared to the state's overall revenues and can be easily controlled by people subject to the tax by gambling less.

Also, while the TABOR spending limits are dispensed with, the core of TABOR, which is that any tax increase must be approved by voters is retained.

The state Gaming Commission sets the tax rates on casino income within the parameters in the state constitution. Currently, the constitution sets the highest allowable tax rate at 40 percent. On July 1, 2008, the highest tax rate actually imposed was 20 percent. If voters in any of the gaming towns approve new gaming limits, a gaming tax increase above the July 1, 2008, level must be
approved through a statewide vote.

To the extent that the prior law allowed tax rates to be changed without voter approval, this was a quirk, as almost every state and local tax in Colorado requires voter approval before a rate can be increased (in some circumstances, property taxes designed to collect a sum certain can be adjusted after the fact, but in those cases the actual amount collected is fixed).

More revenue for the public good (and whoever gets the money nominally, money is fungible, so increases to a stated purpose may not work out that way in the long run) from people eager to pay more in taxes is also not a problem.

Distribution of Tax Revenues

As the Blue Book explains:

After paying to enforce gaming laws, approximately one-quarter of the gaming money goes back to the gaming cities and counties, about one-quarter goes to historic preservation and restoration projects across the state, and half of the revenue is allocated to the state legislature to spend on programs. These programs currently include assistance to local governments for gaming impacts, tourism promotion, economic development programs, energy efficiency and renewable energy projects, and highway projects.

Amendment 50 distributes new money from increased gaming activity differently than existing law. First, the money is used to pay to enforce gaming laws related to any changes in the limits. Second, some of the new money provides annual increases to the programs and local governments that currently get gaming money. The rest is distributed as follows:

• 78 percent for financial aid and classroom instruction at Colorado community, junior, and district colleges based on each school's number of students;
• 12 percent to Gilpin and Teller Counties, based on the proportion of the new money raised within each county, to help address the impacts of gaming; and
• 10 percent to Central City, Black Hawk, and Cripple Creek, based on the proportion of the new money raised within each town, to help address the impacts of gaming.

The new tax split is the most problematic part of Amendment 50, and is a rather weak part of the status quo.

As explained below, the share of gambling tax revenues allotted to local governments seems high, and their likelihood of using the money responsibly seems rather low, although surely there will be some additional local impact from gambling that will use some portion new tax revenues. The new revenue reduced by new costs, split three ways, aren't so huge relative to existing tax revenues that this is a cost of grave concern. Even with the new gambling tax revenues (which fluctuate quite a bit), these towns won't be a flush as some of Colorado's ski resorts. But, there is no doubt that the three cities most impacted will have a lot to gain from the proposed changes.

Community colleges are also, on the merits, a poor fit for gambling tax revenues, and have been put in the position of advertising for gambling, which, while not evil, they have no business encouraging. Gambling is a tax on people whose emotions are more powerful than their mathematical literacy, while community colleges are in the business of helping people make smarter choices in their lives.

This isn't the only problem with community colleges as a funding target. Community colleges have the lowest per student costs of any form of higher education in the state, which is paid for with a combination of tuition dollars (generally cheaper than any other higher education alternative), general fund appropriations from the state (some directly and some through "scholarships" to in state students who attend college in Colorado), and in a few exceptional cases, local property taxes. They also receive federal and private grants directly, and benefit from federal subsidies (mostly in the tax code and student loans) for students, indirectly.

The cost of funding community colleges overall greatly exceeds the increased revenues contemplated by Amendment 50. So, it is likely that this will play out more like using lottery funds for schools in Ohio, buying extra frills and whistles while not making a very noticeable overall difference, rather than the Colorado example of using lottery funds for Great Outdoors Colorado (GOCO), a small expenditure item that might not happen at all without lottery funding.

Historic preservation was a better fit for gambling revenues in both scope and in having some relation to the historic nature of the towns where there is gambling (and Colorado's history of gambling in the cowboy era). Historic preservation is also, like GOCO, something of a luxury that might not get funding at all without an earmark, and is like GOCO, not dependent on having a particularly steady stream of income, which gambling revenues are not. But, apparently, the backers of Amendment 50 thought that historic preservation didn't have enough clout to encourage marginal voters to support the measure.

Further, because community colleges are funded from always scarce general funds, unlike K-12 education which has a state constitutional minimum funding mandate and also a state constitutional mandate to provide the service, there is a real risk that community college funding will become less of a priority in the annual food fight at the end of every state legislative session over how general fund revenues are spent. Historically, higher education has born the brunt of hard economic times in the general fund budget, and there is no reason to believe that community colleges won't be particular hard hit in another recession on the theory that they have gambling tax funds coming to them.

Now, all things being equal, the state budget is still easier to balance with more money to pay for line items that have historically been paid for out of general funds, than less. And, one doesn't have a great deal of sympathy for a fool parted from his money in casino gambling, a classic "voluntary tax" because no one must spend money on casino gambling.

Fiscal Impact

The estimated increase in casino gambling tax revenues in Colorado, something that is never more than a guess in any case, is about 50%.

Casinos pay taxes on income from gaming and also pay various fees and fines. Last year, the state collected $112 million from gaming. . . .

State revenue and spending resulting from Amendment 50 will depend upon the extent to which the three gaming towns approve new gaming limits. The following estimates of tax revenue and spending are based on the assumption that all three towns approve the maximum gaming limits.

• Tax revenue will increase by about $300 million over the first five years. . . .

• State regulation costs will increase by $461,000 in budget year 2009 and $1.0 million in budget year 2010. These costs will be paid from gaming revenue. The state will also incur a one-time computer programming cost of $21,000 in budget year 2009 to account for both changes in gaming limits and the approval of roulette and craps by any of the gaming towns. This cost will be paid from other state money. . . .

The local governments serving both the gaming communities and surrounding areas could experience increased costs from new gaming limits, such as higher public safety, traffic, and road maintenance costs. The revenue resulting from new gaming limits could help offset any increased costs. Also, the gaming communities could see increased sales tax revenue from an increase in the number of visitors and more property tax revenue if new casinos are built or existing ones are expanded.

Payment of gambling law enforcement out of gambling tax revenues is the status quo, and not uncommon for narrow taxes like these. Indeed, merchants that collect sales taxes in Colorado are actually entitled to a small portion of the revenue collected themselves, to cover their costs of administering that tax.

The overall revenue estimate is probably optimistic, because it doesn't reflect the likely possibility that people who might have chosen to play bingo or bet at the tracks before, might now choose casino gambling instead, increasing one gambling tax revenue source while reducing another. Still, the overall conclusion that liberalizing casino gambling in the state will increase overall gambling revenues is not unreasonable.

On the other hand, the estimate local impact is very vague. As I understand the numbers from the Blue Book, local governments in the vicinity of Central City, Black Hawk and Cripple Creek get about $28 million a year in gambling taxes, plus some addition state appropriations to mitigate local effects of gambling, and increases sales tax revenues and gasoline tax revenues from associated tourism. The gambling industry also undoubtedly boosts the local property tax base.

The $14 million a year that these cities stand to gain, in addition to increased sales tax revenues, from expanded gambling probably exceeds the additional public costs to these localities from having a somewhat increased number of people bet larger amounts of money in the same casinos for a longer time period, even assuming that some state appropriations to these communities end. This is something of a concern, given that rightly or wrongly, these communities have a reputation from gambling money linked corruption already.

Not Very Important

I've argued that the Democratic party should not take a stance on Amendment 50, because many people disagree with me and think that gambling is evil in general. They are welcome to their opinion and the Democratic party shouldn't make them feel unwelcome. Gambling is not a core issue facing this state or this nation right now. If Amendment 50 fails, people can go to Las Vegas and bet in other ways. If it passes, there is one more option.

On balance, I favor Amendment 50. It will make more public funds available for things that are basically good, while dispensing with archaic limitations on the scope of gambling in the state and not doing any serious harm. But, the ill thought out earmarks in that Amendment 50 makes from gambling tax revenues (from a policy as opposed to a political point of view), leave me as an unenthusiastic supporter of the proposal. Amendment 50 will probably get my vote, but won't get my campaign contributions (something that the gambling industry has been more than willing to provide in any case).


Anonymous said...

Hey, how did you get your Blue Book already? I don't have mine yet!

I haven't been able to make my mind up about the gambling amendment or the two having do to with the oil/gas industry

Andrew Oh-Willeke said...

There is a link at the ballot issues part of the General Assembly web site. It actually gets released piecemeal, and then they put the whole thing together when the ballot is finalized.

I'm still working my way through the list. I have considered 46-50, but have nine more to go, plus the school district bond issue, and probably a couple of City of Denver issues. And, don't forget the judicial retention races, and candidates from RTD director on up.

Anonymous said...

Hey thank you for your post man. Had lot of info. I agree with you even if betting money is reduced game is protected but not the gambler.This is very useful info for all the gambling lovers.And i can also say that gambling should be a hobby but not a habit.

Scott Yates said...

Wow, you wrote a lot of content really quickly! I wish I could write that fast.

Your endorsement is like many of the others we've seen, done while holding your nose.

I disagree with you on a couple of points. You say that there's really no difference between a $5 bet and a $100 bet limit. I think it's the difference between someone losing a paycheck and losing a home.

You also see no reason to toss people out at 2 a.m. I see that as the one way to stop a problem gambler who thinks that if he just sits there long enough his luck will change.

Your TABOR arguments make sense, but I think most people in Colorado don't like the idea that Gambling money will be used to bust through TABOR restrictions for the legislature, but that Big Gambling is at the same time making it impossible to raise the rates on Big Gambling.

I'm surprised that you end up being a yes vote, because what you are essentially saying is that you will let Big Gambling use your vote to do their work for them just because you don't mind other parts of the Amendment too much.

Really, most of your post was about why this Amendment has problems. Why not vote no and let them come back with something not so problematic?

(But thanks for the link to the Vote No on Colorado Amendment 50 site!!!)

Andrew Oh-Willeke said...

I simply don't agree that it is useful or helpful to stop legally stop most people from gambling, nor do I think that it is practical. From that premise, most of the rest follows.

The no argument flows fundamentally from the argument that gambling is basically a bad thing and that any expansion of it is intrinsically worse.

The prohibition on increasing gambling taxes without a vote of the people, is no different from Colorado's prohibition on increasing property taxes, sales taxes, income taxes, or any other taxes without a vote of the people.

Michael Malak said...

I oppose issue 50 because I oppose publicly-funded education, as it is unfair competition to private education. (I happen to own a private school.)

Anonymous said...

Colorado is somewhat unique in terms of its geography, duh... and as a result the general popultaion concentration is insulated from the negative affects gambling establishments will have on immediate communities... if you need evidence, look at Atlantic City, Detroit, St. Louis (on the Indiana side which is visible form the Arch incidentally) and Philadelphia, in that order and drill down on crime and city blight stats. And while I support your views overall (albeit as a six year transplant) introducing gambling at any level ultimately destroys the family values which most communities strive to acheive in which the establishments are located, but if the citizens of said community receive some financial benefit from the proposition and vote accordingly, then who am I to argue...