Sunday, October 21, 2012

Lucky 7, or unlucky 7?

When it comes to the presidential election, I still don't get the whole "undecided voter" thing.  But I'm having an unusual experience of being an undecided voter myself this year for Maryland's Question 7, which expands commercial gambling (or "gaming").

Some background:  In 2008, Maryland voters passed a constitutional amendment that authorized the state to issue licenses for "video lottery terminals" (i.e. slot machines) to raise revenue for education, limited the number of licenses to five, in five enumerated locations (this was before I was living in the state, so I don't know the process by which these five were chosen), and required that any future expansion of commercial gaming be approved by referendum.  So Question 7 is the first such referendum, which the General Assembly passed in a special session in summer 2012 and sent on to the voters.

There are two major components to Question 7:  allowing for a sixth casino license, in southern Prince George's County (at National Harbor or vicinity), and allowing "table games" (blackjack, roulette, etc.).  There are also some minor pieces, e.g., allowing the casinos to stay open 24 hours (rather than the current restrictions of 8 am - 2 am on weekdays and 8 am - 4 am on weekends).

I've been getting lots of propaganda on both sides of the issue, from glossy mailings to Facebook ads to robocalls.  This is because both sides are well-funded:  "Vote For 7" is funded by the people who want to open the sixth casino, and "Vote Against 7" is funded by casino owners in neighboring states who don't want the competition.  Thus, both sides are sketchy, and neither's motives can be trusted.  As far as I can tell, the two sides aren't aligned with political parties; elected officials from both parties are on both sides of the issue.

To help sort out the competing arguments, I'm listing some of the pro/con arguments that I find convincing, and some arguments that I don't find convincing (and why).  But this categorization into "convincing" and "unconvincing" isn't necessarily stable.  Please continue the discussion in the comments (and help fill in missing information) - my vote is up for grabs, and other readers' votes may be too.

These arguments focus on whether or not to add a sixth casino in Prince George's County.  I don't see any reason to allow slot machines but no table games (and table games lead to marginally more jobs, since they require human dealers), so if table games were the only thing on the ballot, I would definitely vote for it.

Convincing Arguments For 7:
  • Jobs will be created.  At a very minimum, the jobs in constructing the new casino are jobs that wouldn't have otherwise existed.  It's possible that some of the jobs at the casino after it's finished would just be jobs taken away from other casinos (as customers shift to the new one), but I would expect the net to still be positive, since the number of casinos in Maryland hasn't reached its free-market equilibrium (it's been capped by law at 5).  And all of this hiring would be coming from the private sector, without having to use public funds (except to pay for the regulatory mechanism).  Even if the casinos are useless, this seems similar to Keynes's coalmine story, since corporations are sitting on piles of cash right now, and this regulatory change could get them to spend some of it and start hiring.
  • More money for education.  A percentage of the proceeds go into the Education Trust Fund.

Unconvincing Arguments For 7:
  • It keeps jobs and money in Maryland, rather than letting them go to other states.  Regulatory races to the bottom (where states compete to attract corporations by lowering taxes and weakening regulations) are a bad idea.  In the end, everyone loses (except the corporations).  This is only a good idea if it increases the total number of jobs and the total state revenue, not if it merely snatches jobs and tax revenue away from other states (which can then weaken their own regulations and snatch them back).

Convincing Arguments Against 7:
  • Gambling can be addictive, and closer proximity to a casino will be harmful to people with gambling problems.  This is an empirical question, and I'd be interested to know if there is data about how distance to a casino influences recidivism for problem gamblers (e.g. if someone who lives in Prince George's County would go to a casino near home but wouldn't travel to Baltimore).
  • Casinos are detrimental to local communities.  This is also empirical, so I'd be interested in data on the local impacts of new casinos.  If you can point me to information, it would be much appreciated.
(Note that because the anti-7 campaign is funded by other casino owners, these aren't the arguments they're making - they don't want the public to sour on casinos in general.  But if I vote against 7, these will be the reasons why.)

Unconvincing Arguments Against 7:
  • This isn't the most effective way to create jobs; we should do X instead.  Even if that's true (and I don't doubt that there are better things we could be doing), defeating 7 won't guarantee that X will happen, and passing 7 won't prevent doing X at the next opportunity.  Since 7 doesn't involve spending state money, there's not an issue of allocating limited resources.  (I would agree with this argument if state funds were involved.)
  • Money is fungible, so this won't necessarily lead to more money for education - they can just use what they would have spent on education for something else.  That doesn't bother me.  More money for education is good, but if the money is used instead to balance the budget and prevent other valuable state programs from being cut, that's good too.
  • It's a tax on the poor.  It's not like sales tax, where people have to pay an extra amount in taxes on top of the price of whatever they're buying.  Here, the level of taxation is invisible to the consumer -- people bet whatever they bet, and have whatever probability of winning, regardless of whether the casinos are taxed.  For example, in roulette, the house advantage for most bets is 5.3% (=2/38), and taxing the proceeds doesn't mean that casinos will add a 000 to the wheel to increase their cut.  So the taxes are coming out of the casinos' profits, not as an additional amount out of customers' wallets.  That's at least true for table games; I don't know about slot machines - whether the probabilities and payouts are adjusted as a result of taxes, or more generally how those probabilities and payouts are determined (and I suspect that most slots players are not operating with perfect information).
  • It's a tax cut for casinos.  In the law that was passed during the special session, it appears that most of the substantive provisions are split into Section 1 (which went into effect on October 1 and doesn't require a referendum) and Section 2 (which goes into effect iff Question 7 passes), and that the provisions dealing with taxes on the existing casinos are in Section 1. Therefore, if I'm reading it correctly, the tax breaks were a reason for the General Assembly not to pass the gaming law in the first place, but aren't a reason to vote against Question 7. Am I reading it correctly?
 Also, even if Question 7 gets a majority of votes statewide (and therefore table games and other provisions go into effect), the sixth gaming license will only be issued if Question 7 also gets a majority of votes in Prince George's County.  Since I don't live in Prince George's County, part of me wants to vote for 7, just to let the locals decide, particularly because the anti-7 arguments that I find most convincing are the ones about local impact.  (This is my approach to other similarly structured ballot questions regarding counties I don't live in, thanks to an anonymous commenter here.)   Does anyone know whether it is expected to have greater or lesser support in the county, relative to the state?

So that's where I'm at right now:  possible positive economic and fiscal impact vs. possible negative human and local impact.  I'm looking for guidance about the relative impacts and probabilities of each of these factors, and I'm going to avoid using a gambling metaphor in this sentence.


  1. I enjoyed reading your analysis, but I feel like you're omitting a key "Convincing Argument for 7" that is bordering on fundamental:

    Consenting adults should be able to spend their money however they see fit, unless there is a strong and compelling reason otherwise (e.g. enriched uranium or elephant tusks).

    Current Maryland law violates this principle, for historically moralistic reasons (i.e. gambling is sinful activity) rather than practical ones.

  2. I was going to say what Joe said, so call this a "ditto."

    One small thing - I think (although, I may be wrong) you're misreading the "tax on the poor" argument. The point isn't that the government is gaining revenue; the point is that gambling disproportionally affects the poor (i.e. they are the biggest gamblers). The honest version of the argument is "this is bad for the poor," which is just a more specific version of the "government must protect us" argument. For me, it carries a bit more weight when it's more targeted like this, but ultimately I believe that people are free to spend their money as they wish.