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Column: Gambling has stranglehold on state budget

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INDIANAPOLIS — When lawmakers first headed down the path of state-authorized gambling in the late 1980s and early 1990s, they seemed cognizant that the tax revenues that would follow were a lucrative and yet unstable source of revenue.

The state didn’t establish the Hoosier Lottery to directly benefit education, as many states have done. Lawmakers put restrictions on the use of local casino tax revenue to try to prevent those communities from building the dollars into the budgets used for everyday expenses.

And the General Assembly set aside big chunks of gambling dollars to use for local projects, essentially one-time expenses that would provide immediate benefits without increasing ongoing budgets.

But along the way, many of those protections against the instability of gambling taxes eroded. Now, the state is paying for those changes as tax revenue from gambling decreases and threatens to fall further.

During tougher economic times, gambling dollars aimed at one-time costs were just too tempting for lawmakers to resist. It seemed a decade ago that casino revenues were one of the state’s most stable sources of cash, so stable that when lawmakers needed a little more money, they turned to gambling to get it.

Good-government types also grew critical of the Build Indiana Fund, through which local lawmakers designated gambling dollars for local projects. Hoosiers started thinking of that program as a slush fund of sorts through which lawmakers could bolster their re-election efforts.

So that money essentially was moved into the budget to help pay ongoing costs.

Now, gambling revenues make up the fourth-largest source of revenue for the state’s general fund, the main checking account used to fund schools, Medicaid and general government. For the next two-year state budget, gambling taxes earmarked for the general fund are projected to total more than $1 billion.

For years, that seemed OK. After all, gambling taxes don’t come directly from the paychecks of Hoosiers like income taxes do. They come from people choosing to wager their money for entertainment, and lots of those people were coming from other states.

But times have changed.

Ohio is opening new gambling operations near enough to the Indiana border to win away significant numbers of Indiana casino customers. A casino in southern Michigan is taking business from an Indiana casino in Michigan City. And increasing competition from Illinois is hurting casinos in Lake County, where the state has four casinos.

There’s also a potential threat from Kentucky, where casino gambling is a constant legislative debate. The state is expected to eventually approve gambling to help support its horse racing industry. That’s a problem for five Indiana casinos on the Ohio River.

This would not be such a big problem had Indiana resisted integrating gambling tax revenue into its budget as an ongoing revenue source. Had the state used gambling revenue only for local projects, to pay for university construction in cash or to fund other one-time expenses — even an automatic taxpayer refund — decreases in gambling taxes would be unfortunate but not something to panic about.

But over time, gambling revenue seems to have become too integral to state and local spending for lawmakers to ignore the threats to the casino industry.

That’s why the Senate is poised to vote on legislation to give the casinos tax breaks to encourage them to expand and upgrade to fight the competition. The bill also will let horse track casinos, which were supposed to be slot-only facilities, add table games with live dealers. And it’s why the legislation reduces gambling tax revenues earmarked for local communities.

Senate Appropriations Chairman Luke Kenley, R-Noblesville, said that all Indiana entities that benefit from the casinos, including local governments and state governments, need to participate in the effort to save the industry. The idea is that a little reduction in gambling tax revenue now will lead to more gambling tax revenue later.

What the legislation doesn’t do is start to wean Indiana away from using casino taxes to fund key programs. It doesn’t use the state’s cash surplus, which totals more than $2 billion, to start moving gambling taxes out of the general fund and earmarking at least some of the money for one-time uses again.

If lawmakers could find a way to make the state less dependent on gambling tax, these changes in the casino industry wouldn’t be so concerning. And with web-based gambling a growing part of the way people wager, that could be important to Indiana’s future.

Lesley Weidenbener is managing editor of, a news website powered by Franklin College journalism students.

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