Will the state turn to a gambling fix?

The bar and restaurant industry is eager to expand gambling to its venues, promising billions of revenue to the hard-pressed state budget. The tribes will fight the expansion, along with many other doubters of this kind of budgetary fix.

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Non-tribal gambling offers a tempting taxation source

The bar and restaurant industry is eager to expand gambling to its venues, promising billions of revenue to the hard-pressed state budget. The tribes will fight the expansion, along with many other doubters of this kind of budgetary fix.

When state budgets go bad, and they often do because the forces that shape them and the people who manage them are unreliable, thoughts of relief often turn to vices, because they are so reliable. Alcohol, sugar, tobacco, and gasoline all help or have helped pay the state’s bills at one time or another. But gambling has not, at least not directly. That may be about to change.

The limited forms of gambling allowed in the state outside of tribal casinos — games like bingo, pull tabs, card rooms, raffles, horse racing, and the lottery — are taxed only by counties and municipalities. That keeps the state officially out of organized gambling, although it does collect a nominal business and occupation tax from gambling licensees.

Over the past decade or so, at least two initiatives to expand non-tribal gambling have been voted down by the state legislature by an overwhelming majority. Now, with the state in the grip of one of its worst budget crises — Gov. Gregoire told reporters she hated her proposed budget so much, “in some places, I don't even think it's moral” — the scent of gambling is once again in the air.

“It's a perennial issue whenever there's a budget crunch,” said Anthony Anton, president and CEO of the Washington Restaurant Association, which represents the state's hospitality industry. “More and more people can go online to gamble but you can't do it at a restaurant where it could be taxed. More and more people are asking, ‘so exactly why is it illegal?’”

In the meantime large casinos run by federally recognized tribes, like the recently revamped Tulalip Resort Casino north of Everett, operated by the 4,000-member Tulalip tribe, have thrived even through the recent recession. Their big advantage is offering a full, Las-Vegas style experience. Twenty-two tribes operate 28 casinos in Washington state, two in King County (Muckleshoot and Snoqualmie). They generated an estimated $1.75 billion in net revenue in fiscal year 2010. By comparison, card rooms and the lottery generated about $200 million each in the same period, according to the Washington State Gambling Commission.

“I haven't seen any proposal by anyone yet,” Anton said. “I haven't seen a coalition come together; I haven't seen any legislator try to get anything organized, but the issue is out there. If we did what Oregon did, we would generate billions [in tax revenue]. Doesn't that say, ‘hey we ought to give it a try.’ No proposal has been brought to us, but everyone out there is wondering what you’re going to do with a six-billion-dollar hole.”

The governor used $3 billion in cuts to her 2011-2013 budget to help make up an estimated $4.6 billion deficit. Oregon allows and taxes various forms of video gambling, like poker and slots, in bars. That generates about $1 billion in state tax revenue every two years said Anton’s counterpart in Oregon, Steve McCoid, president of the Oregon Restaurant and Lodging Association.

“We were one of first states to jump in on it [about 20 years ago],” McCoid said. “There are a significant number of people who don't like it that the state's in gambling, and think it's not the best way to fund public services. Practically speaking, from a dollars and cents perspective, you have to wonder why you don't do it.

“To some degree, it's a discussion on the social impact of the state getting involved. Faith-based groups, and the drug and addiction folks are not going to like it. But if you look at the revenue here to fund things like education, that's a pretty significant discussion, Maybe this is the time for this argument to be had, or at least that conversation.”

Like Washington, Oregon also has casinos run by federally recognized tribes, although Oregon has a third as many. In 1988, states were given the authority (or the obligation) by the federal government to allow gambling on tribal land. The federal Indian Gaming Regulatory Act “requires the state to negotiate in good faith with Indian tribes” to create casino-style gambling. In Washington, slot machines are illegal everywhere, but the state allowed a modified version in tribal casinos, whose mechanisms are similar to those of the state lottery.

The most popular form of non-tribal gaming is the house-banked card room. Before 1997, card rooms could offer only games where gamblers played against themselves. The room itself could have no stake in the games. In 1997, the state authorized card rooms to offer house-banked games like blackjack, capping the number of tables at 15 and the amount of wagers at $300. The number of card rooms rose to 96 in 2006 but has since fallen to 64, said Susan Arland, spokeswoman for the Gambling Commission. The lure of nearby tribal casinos and the ban on smoking probably contributed to the decline.

Adding more forms of gambling to bars and restaurants is one of several issues in constant orbit at the Washington Restaurant Association, Anton said, along with amendments to the minimum wage and adjustments in the regulatory and tax culture of the state.

"We have a list of several issues that would help small business in Washington,” Anton said. “This is on that list. We would love to have a conversation about how to do some of these things. Gambling has been a boon to Oregon; I don't see anyone trying to repeal the Oregon model.”

Oregon's McCoid said about 2,500 establishments — they are all bars so that minors do not have access to gambling — offer some form of gambling. A bar can have up to six machines. Video slots were added about four years ago, boosting play by 25 percent in places that had them. The state collects 75 percent of the net proceeds from gambling; the business owners keep 25 percent (they used to keep 35 percent). The state competes only with tribes for gambling revenue. Its advantage is that it can locate gambling anywhere, while tribes are limited to their land.

The morality of gambling aside — clearly it can both enrich and ruin lives — the interests of the tribes in Washington are also a huge consideration in the gambling debate.

“The tribes are a major political entity in the state,” Anton said. “I'm not begrudging that fact. I understand they want to protect that. The tribes' reluctance to give up their monopoly is a barrier [to expand state-run gambling]. I'm not sure the right proposal has been put together yet in Washington, a way to balance everyone's interests. It takes the right year, the right coalition and the right leaders.”

The constant push to expand gambling outside of reservations comes from the beleaguered card rooms, said state Rep. John McCoy of the 38th District, which encompasses Everett, Marysville, and the Tulalip reservation. He called it a constant “drumbeat.” “The private card rooms are always trying some angle,” he said. “They try every year.” There's another complication: “In order for the state to try to enter into a revenue-sharing agreement with the tribe,” McCoy said, “they [the tribes] have to have exclusive gaming, which the state does not have.”

In states where the government shares the revenue generated by tribal casinos, all gambling in the state is restricted to those tribal casinos. In Connecticut, for example, people have to go to either the tribal-run Foxwoods or Mohegan Sun casinos to gamble (apart from the lottery and off-track betting). In turn the two casinos pump billions into the state economy. Mohegan Sun is the second largest casino in the country.

Gambling is the most important if not the only meaningful economic resource available to Washington tribes, who are protective of the industry that feeds them, McCoy said. In 1994, the Tulalip tribe suffered from 65 percent unemployment; the tribe itself employed only 225 people. That number is now up to 3,000, McCoy said. “Today, any Indian within 50 miles of the reservation who wants a job can have a job,” McCoy said. “We don't pay minimum wage. All the jobs are family-wage jobs… We have changed the complexion of the economic base of Snohomish County to the positive.”

Adding gambling revenue to the state's budget seldom solves its problems. Connecticut and Oregon are hardly models of budgetary integrity. This month the website TopRetirements.com released its list of the 10 worst states in which to retire based on climate, fiscal health, and taxation. Connecticut was No. 9; Nevada, the Mecca of gambling, was No. 10; and Oregon earned mention as a "problem state."

Gambling does not tend to make a state flush. Extractive industries do, which is why states like Alaska, Montana, and North Dakota were among the few states that did not experience a budget shortfall this year, according to Center on Budget and Policy Priorities. None of those states, despite their harsh climates, made the TopRetirements.com worst-states list.

Despite the billions of dollars it can generate, McCoy said, “gambling is not a silver bullet.”


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About the Authors & Contributors

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Hugo Kugiya

A former national correspondent for The Associated Press and Newsday, freelance writer Hugo Kugiya has written about the Northwest for the Puget Sound Business Journal, The Seattle Times, the Los Angeles Times, and The New York Times. His book, 58 Degrees North, about the sinking of the Arctic Rose fishing vessel, was a finalist for the 2006 Washington State Book Award. You can reach him at hugo.kugiya@gmail.com.