The Week Ahead

Legislators will return to Annapolis Thursday in a second special session. On the table will be adding a sixth gambling location in Prince George's County, allowing table games and internet gambling, and possibly liability issues for pet owners. The outcome of this special session is less predictable than the first, but there are some indications that whatever happens will take about a week.

One news item of note that we neglected to highlight when it happened last week was the state bond sale. On Wednesday the state sold more than $700 million in general obligation bonds at very favorable rates. The low interest rates were possible because of the actions taken by the governor and legislature to protect Maryland's AAA bond rating by drawing down the structural deficit over the last several years and responsibly balancing the budget.
 
Tuesday, August 7th

• Maryland Nonprofits offers Harnessing the Power of LinkedIn for Outreach, Networking, and Prospecting. This is a Maryland Nonprofits training; go to their website for more information or to register.

Wednesday, August 8th

• Maryland Nonprofits offers an introductory webinar about the Standards for Excellence program. This is a Maryland Nonprofits training; go to their website for more information or to register.
• Maryland Nonprofits offers Board Orientations and Handbooks. This is a Maryland Nonprofits training; go to their website for more information or to register.

Thursday, August 9th

• Senate Budget and Taxation Committee meets to discuss gaming authorization and regulation. 1pm in 3 West, Senate Office Building, Annapolis.
• Senate Finance Committee holds a briefing on interim policies proposed by the Maryland Health Benefit Exchange. 9am in 3 East, Senate Office Building, Annapolis.
• Maryland Economic Development Commission holds a board meeting. 10am to noon, Medifast Inc., 11445 Cronhill Drive, Owings Mills. 
• Maryland Nonprofits offers Special Events That Rock. This is a Maryland Nonprofits training; go to their website for more information or to register.

Friday, August 10th

• Even though the special session starts on Thursday, the House of Delegates will not convene until Friday.

Wild Cards in the Special Session on Gambling

Governor Martin O’Malley has called the state legislature into special session beginning August 9 to deal with gambling issues. The administration will propose legislation to authorize an additional gambling location in the National Harbor development in Prince George’s County, and to allow table games (like blackjack, roulette and craps) at all of the casino sites in Maryland.

The proposal would then go to the voters for consideration at the November election.

The Governor indicated that the proposal would produce $100 million for education. He indicated further that it would include measures to hold harmless the jurisdictions that are already authorized for casino sites – including Anne Arundel County and Baltimore City.

Several considerations remain to be disclosed – of maybe they remain to be decided. That is to say, there are some wild cards in this game.

Will there actually be more money for schools? Up until now, the linkage between gambling money and schools has been nebulous. I described it in the Gazette newspapers as “financial sleight of hand.” You see, the bulk of the gambling revenues go into a “Education Trust Fund.” The trust fund money goes towards state aid to public school systems.

But the law that set up the trust fund did not change the funding formulas to increase the amount of funding for public schools. So what happened is that the slot machine money replaced other money from the state’s general fund.

The state is forecast to have a $400-to-$500 million revenue shortfall for next year. In the eyes of state budget-makers, the money from expanded gambling is just the first $100 million or so towards solving that problem. There might not be any extra money for schools. It may all go to help fill the projected revenue shortfall. (Of course, the state has to balance its budget somehow, so the alternative could be other cuts that would be just as bad).

Finally, while the voters are needed to expand gambling (because the approved type and locations for gambling is in the state Constitution), the legislature can adjust the tax rate on the casinos any time (because that's just a regular law).

There is a lot of suspicion that once the expansion is in place, the gambling interests will ramp up pressure to cut back on their tax rate.

Their “tax rate” IS where the money for schools comes from. If the legislature is going to let the casinos keep more of the profits, that will mean less money for schools, or more budget cuts somewhere else.

So, there are wild cards in this gambling game. If the state is going to expand gambling, it should assure that the schools come out ahead, and that future education funding is protected.

Gambling workgroup falters

The Workgroup to Consider Gaming Expansion failed to reach a consensus yesterday, as the likelihood of a second special session retreated.  The sticking point appears to be whether to keep the 67 percent tax rate on casinos or reduce it. Members representing the House of Delegates were willing to support a sixth casino, if it delayed opening until 2016 and if the tax rate remained the same.  While supporters of a casino at National Harbor were willing to delay its opening, they argued that it only made business sense if the tax rate were lowered.

However, there was significant agreement on other issues, including:

• Allowing table games such as blackjack and poker.  This could net the state an additional $51 million, and create 1,900 jobs.
• Transferring ownership of slots machines from the state to the operators. This would save Maryland about $80 million annually.
  
• Establishing an independent gambling commission to oversee casino operations, separate from the lottery commission.
• Ending restrictions on casinos' hours of operation.

The consensus suggests some or all of these issues could be addressed in the 2013 regular legislative session. The 2013 legislature could act on the recommendations regarding ownership of the machines, the organization of the regulatory commission, and hours of operation. Of course, those are not the big issues. The legislature could also act to adjust the tax rate on gaming proceeds, which is one of the big issues.

However, any expansion of gaming - either to a new location or for table games, requires approval by the voters in a referendum. If there is indeed no special session prior to the November election, those issues will need to wait for the next statewide general election in November 2014.

Room for gambling expansion

That was the conclusion drawn by the Department of Legislative Services and its consultant, PricewaterhouseCoopers, in a report today to the General Assembly's Workgroup to Consider Gaming Expansion.

The report concluded that adding a casino at National Harbor and allowing table games would raise an additional $160 million for the state. That could go a significant way toward solving the roughly $400 million structural deficit. Even if the report proves somewhat optimistic, another $100 million in income would be welcome relief for legislators facing another year of difficult decisions.

Opponents of gaming expansion, particularly the current casino operators, were undoubtedly disappointed.  Others making moral arguments against gambling expansion-such as Dan Rodricks in a recent column-will likely be undaunted.  Yet it seems to us that the difference in moral hazard between five and six casinos is negligible. The larger difference might be in allowing live table games; there are some interesting questions about the income stratification of who plays what games. Allowing live table games might be the more progressive move.

This report makes it more likely that legislators will return in July for a special session to expand gambling.  How much more remains to be seen, however.  And of course any expansion would have to be put to Maryland voters in November.

MBTPI wrote a guide to the original slots referendum in 2008.  If the issue is put to referendum in November be sure to look for our update to that guide.