Articles

(July 2003) Budget pressures are forcing state governments to investigate new revenue sources. Political pressures make non-traditional, non-tax revenue sources preferable. One favored source of new money - gambling. Pennsylvania is among 20 states considering expanded gambling to help close revenue gaps, expand services or, in Pennsylvania’s case, reduce school property taxes. What have other states done? IssuesPA found out.

What states have gambling?

Gambling is widespread. All but two states - Hawaii and Utah - have some form of legalized gambling, such as a lottery. Of the remaining 48 states, 32 have gaming other than the lottery, including Indian, riverboat and other casinos; racetracks with slot machines or video gaming; and other non-casino, non-track gaming such as card rooms.

State-by-State Comparison of Current Gaming Activities

*table games only; no slots
Source: National Council of State Legislatures

Because Pennsylvania doesn’t have casino or slots gambling, an estimated 2 million Pennsylvania gamblers go elsewhere. According to gaming industry sources, the 2 million annually make 9.6 million trips outside Pennsylvania to gamble. Most of these trips - about 76 percent - are to Atlantic City.

Destinations for Pennsylvania’s Gamblers

Source: 2002 Profile of the American Casino Gambler, Harrah’s

How many slot machines? How much do they produce?

Excluding Indian casinos, the number of slot machines or electronic gaming devices at each gambling establishment varies from an average of 362 per location in Colorado to more than 6,000 in Connecticut. Most locations operate 1,500 to 2,000 machines. Proposals in Pennsylvania recommend 1,500 to 3,000 per location to start, with the possibility of expanding to 5,000. Three thousand machines at each of the four existing tracks would put Pennsylvania in the middle of the national pack for total machines. With 3,000 machines at each of 11 locations, Pennsylvania would essentially tie New Jersey for second. At 5,000 machines a location, Pennsylvania would be second only to Nevada.

"Gross terminal revenue" is the amount wagered minus the amount paid in prizes. Gross terminal revenue per machine varies from state to state - from more than $160,000 per machine annually in Illinois, which has less than 10,000 machines and a population equal to Pennsylvania, to $46,298 in Colorado, which has 15,500 machines and a population one-third the size of Pennsylvania. Many states establish a payback range, and calibrate machines to pay 87-93% of wagers in prizes.

Gross Terminal Revenue Per Machine - By State
 

Source: State Gaming Commissions and other government agencies (see Related Links)

How much gambling tax revenues do states receive?

State and local governments generally levy a tax on gross terminal revenue. How the tax is assessed varies. Some states have a scaled rate, so venues with small revenues are taxed at a lower rate than those with larger revenues. For instance, tax rates range from 15 to 50% in Illinois. The effective tax rate is about 34%.

Many states provide a share of their gross terminal tax to "host" city or county governments. A number of states also allocate predetermined revenue amounts from gaming for special uses such as gambling addiction or other government programs.

Pennsylvania state tax revenues of anything over $725 million from gambling initiatives would, if realized, make Pennsylvania’s the highest gambling tax "take" in the nation.

Legislated and Effective State Gaming Tax Rates

*percent of net terminal revenue, after administrative costs are taken out
** excludes admission fees
Source: State Gaming Commissions and other State Government Sources (see Related Links)

Some states charge an admission tax of $2 or $3 for every visitor to a casino or racing facility. This additional revenue goes directly to the state. The Pennsylvania proposals don’t assess an admission tax. In some states, the admission tax generates significant revenues - for example, $107 million in Indiana.

States With Admission Taxes

*Illinois rate changed from $2 to $3 mid-year
Source: State Gaming Commissions and other State Government Sources (see Related Links)

What do individuals spend per visit?

The average amount wagered per visitor varies. In Illinois, visitors wager an average $1,377 per trip. In Iowa, the average is $723 per trip. Each visitor loses an average of $97 in Illinois and $51 in Iowa. To reach a tax revenue goal of $830 million in Pennsylvania, assuming an estimated 9.6 million trips to Pennsylvania slot parlors, visitors would need to wager an average $2,542 per trip and lose an average $254. At an average loss of $75 per trip, in keeping with national experience, gamblers would need to make more than 30 million trips.

Per Visitor Wager and Loss Amounts

Source: State Gaming Commissions and other State Government Sources (see Related Links)

The gambling "market," number of machines, distribution of slots parlor locations throughout the state, tax rate, and distribution of revenues also are important aspects of any initiative to expand gaming in Pennsylvania. Although numbers vary considerably, other states’ experiences can provide real perspective on what Pennsylvania can and - realistically - can’t expect from expanded wagering.

So what does all this mean?

There are many ways to expand gambling in Pennsylvania. There are just as many ways to spend revenues derived from expanded gambling. Stay tuned.