Las Vegas on the Chesapeake

Our view: Expanding gambling now is a mistake, but if the legislature insists on doing so, it must make key changes to the governor's bill

August 13, 2012

The possibility that Gov. Martin O'Malley and House Speaker Michael E. Busch will round up the votes needed to authorize a referendum to expand Maryland's casino program shows just how far attitudes have shifted in the last five years. Lawmakers and their constituents are generally more comfortable with the notion that the state will raise significant revenues from casinos and will embrace table games in addition to slot machines. But the political dynamic surrounding the issue in Annapolis is largely unchanged. The Senate is gung-ho for gambling expansion, the House is reluctant, and Governor O'Malley is once again proposing legislation aimed at keeping both sides happy. That produced a disappointing gambling program the first time around, and it threatens to do so again.

The crucial issue in expanding gambling now is finding appropriate mechanisms to make sure Maryland's existing facilities are not critically weakened by the advent of an additional casino inPrince George's County. Many in the House are couching that concern in terms of holding existing casino operators, particularly Maryland Live, harmless from the new competition, but that should not be the guiding principle. Competition and the possibility of expansion are and always have been part of Maryland's gambling program. Instead, the goal should be to create a taxation and regulatory scheme that maximizes the benefit to the state — not just in direct taxation but also in employment and ancillary benefits — and that means ensuring that all of Maryland's casinos have a chance to thrive.

The primary way to do that is by reducing Maryland's 67 percent tax rate on slot machines. The problem is, given the lack of hard data about the size of the state's gambling market and the effect of the already licensed but unbuilt Baltimore casino on it, we have no way of knowing exactly what adjustment would be appropriate. The governor deals with that by providing the Baltimore and Maryland Live casinos with an automatic five percentage point rate reduction upon the opening of a Prince George's casino and the ability to seek further relief from a new state gambling commission.

But to satisfy reluctant delegates, Mr. O'Malley would require the money from those first five points to be spent on capital improvements and marketing. (Bidders for a Prince George's casino would be allowed to propose paying a tax rate of as low as 62 percent with no strings attached.) Governor O'Malley would limit the additional adjustment to another five points, and he would empower the commission to consider such a shift only one time, before a Prince George's casino came on line.

As the House considers amendments today and tomorrow, it should require that if a bidder for a Prince George's casino license proposes paying less than a 67 percent tax on slots that the money also be dedicated to marketing and capital improvements. And if we are going to create a commission to bring more professionalism and less politics to the state's gambling program, we should give it broader power and flexibility to act in the state's best interests, under legislative oversight. If the commission concludes that an adjustment of greater than five percent in the tax rate would serve the state's best interests, it should be able to make that recommendation. The legislature can always say no. And if the commission decides further adjustments to the tax rates — up or down — are appropriate in future years, it should have the authority to recommend those as well.

The wisest course remains to table consideration of expanded gambling until after the existing program is fully up and running. But if lawmakers are insistent on putting a gambling referendum on this fall's ballot, they need to be honest with themselves about the choice they are making. We can either stick with our current model as a limited, high-tax gambling state, or we can adopt the Las Vegas philosophy that the greater good is served by the profusion of big, glitzy casinos that a lower tax structure enables. But we can't have both. If the General Assembly opts for the latter, it needs to adopt the regulatory structure that makes it possible. Otherwise, we're setting ourselves up for failure again.

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