MEDILL NEWS SERVICE
Slots and the Ponies: Racinos on the Rise
By MORGAN EVANS and BEN HARPER
MEDILL NEWS SERVICE

LAUREL, Md. -- You may not have heard the word "racino" before, but chances are you will soon. States are increasingly looking at these relatively new horse track and casino combinations as a way to solve budget crises.

Since the first racino was approved in Iowa in 1989 five other states have legalized them. Last year alone, eleven more considered them as a way of boosting sagging state budgets and perhaps saving struggling horse racing tracks.

"The big move tends to be looking at racinos," Frank J. Fahrenkopf Jr., president of the American Gaming Association, the casinos' lobbying arm, said in an interview. "There are very few states that are looking at the casino industry to come in and build a Caesar's Palace."

Iowa now has four racinos and the taxes they pay make up three per cent of the state's total budget. "So that's why you have all these other states looking at this concept now," said Fahrenkopf, who pointed out racinos have become so popular that in last year's Pennsylvania gubernatorial election both the Democratic and Republican candidates for governor campaigned in favor of them.

Although none of the 11 states that have considered authorizing racinos has yet legalized them, the issue remains very much alive. All 11 states will have deficits of more than $100 million in 2004, according to the Center on Budget and Policy Priorities.

In fact, almost every state in the country is in financial trouble, and while the long-term effects of racinos are hotly contested, supporters say it's clear that they can add a lot of revenue to state coffers in the short term. This makes them tempting to legislatures desperate for new revenue.

Take Maryland, for instance. The Old Line State faces a $1.2 billion deficit, the largest in state history. Robert Ehrlich, the new Republican governor who campaigned in favor or racinos, proposed adding 11,500 slot machines to horse tracks around the state and said his plan could bring in as much as $700 million for education and bring Maryland's racing industry back to its former glory.

Although House Speaker Mike Busch led an attack that killed the plan, Ehrlich supporters say it will be brought up again in January and they expect it to pass.

Nick J. Schloeder, a longtime activist and behind-the-scenes political power in Maryland, said slots would "sail through" next year in some form.

The Washington Post reported that gambling interests outspent opponents 50 to 1 in lobbying on the issue this year, but Schloeder said that was not the crucial factor in the defeat of Ehrlich's plan.

"I think when you get right down to it, it failed more because of politics than because of any great effort by lobbyists on either side," he said.

Busch, a Democrat who had just been elected and was interested in establishing himself as a strong speaker, found the Ehrlich plan vulnerable after the governor reduced Maryland's cut of the revenues from 64 to 42 per cent, a move widely criticized as too favorable to the race tracks.

Even Minor Carter, an anti-gambling lobbyist with Stop Slots Maryland, said racinos would pass if lawmakers supporting them could agree on a plan.

There are signs that such an agreement may not be far off.

Busch already has proposed his own state-run slots plan at Maryland State Fairgrounds. He said racetracks might be able to receive a cut of the profits by allowing state-owned facilities on their land. A recent study by the Tax Educational Foundation analyzed a variety of slot plans and found that state-run slots could generate as much as $l.7 for Maryland annually.

Ehrlich said the fairgrounds would not be a good place for slots, but he praised Busch for showing a willingness to negotiate.

If Maryland does decide to allow slots at racetracks it will join six states that already have them in place-Delaware, West Virginia, Louisiana, New Mexico and Iowa. New York's legislature approved them in 2001, but controversies over allocation of the revenue and a federal investigation over tax fraud have delayed their opening. Even Canada has gotten into the act, opening an Ontario racino this year.

While each state takes a cut of the slot revenues, how much and where the money goes varies greatly from state to state. New Mexico collects 25 per cent of slots revenue for the general fund and a half percent for the treatment of compulsive gamblers. That nets about $3 million per month for the state, according to the New Mexico Gaming Control Board.

Other states have more unique beneficiaries. Louisiana, for example, reserves a flat $12 million for the state's boll weevil eradication program, along with 18.5 percent for the state police and attorney general, and $1 million to help the blind and visually impaired, with any remainder going to the general fund.

Most states also require a percent of the revenues to be put back in the racetracks to promote the industry. Money is often used to boost purse money in an effort to attract better horses and create more interest in the races.

Unlike many other racino states, Iowa's tracks are owned by nonprofit corporations. After the state collects a 36 per cent tax on the revenues and all the track's expenses are paid for, the remaining funds are returned to charities and the local government.

"Citizens see these as a viable part of the local economy and-there's a lot of ancillary value, all the (horse) feed and people involved in the racing side of things that bring more dollars to the economy," said Wes Ehrecke, president of the Iowa Gaming Commission, an advocacy group for the industry.

Iowa voters appear to agree with that assessment. Every eight years, Iowa law requires citizens in communities where riverboat casinos and slots are located to decide whether to reauthorize gambling. The last time an average of 74 per cent of voters approved of gambling, an overwhelming margin that state Sen. Jeff Lamberti, chairman of the Senate Appropriations Committee, said answers the fundamental question of whether the people want gambling.

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