When the Texas Lottery was founded in 1992 it was touted as a ‘fix-all’ for education funding in Texas. Proponents said the money brought in would not only cover education costs for the state, but there would be additional money that could fund other portions of the state budget. With a new legislative session comes a new proposition from the gambling community in Texas. Current proposals seek to allow video lottery terminals (VLTs), essentially slot machines, in race tracks across the state, with the same promise from lottery proponents from over a decade ago that tax proceeds will cover the cost of education in Texas.
Under current law, the Lottery gives 30 cents of every dollar generated from ticket sales to education funding, and proposed legislation would put four cents of every VLT dollar toward education spending. In 2003, the education portion of the Texas state budget amounted to nearly $16 billion. That same year the Lottery generated $3.1 billion dollars in ticket sales yielding only $882 million in tax revenue; so much for covering state-wide education costs. At 13% of the Lottery’s tax rate, VLTs would have to generate $21 billion dollars in wagers just to match the $882 million in tax contributions, still falling billions of dollars short.
So, why take a cue from the Texas Lottery to give foresight about potential VLT tax revenues and not the racetracks where they would be placed? Because the horse and dog racing industry in Texas has seen a steady decline in both total revenues and the number of live racing days at tracks. In fact, over the last 10 years roughly half of Texan thoroughbreds and quarter horses have left in search of larger purses. The racing industry in Texas is in trouble. If VLT legislation passes, a state-wide vote in November seems unnecessary; Texans are already spending their hard-earned dollars on other forms of entertainment.
To further highlight the shortcomings of tax revenue generated by gambling and the promises of gambling supporters, take into account tax income in other states from gaming. For the most part, one of two forms of taxation is utilized. The first is a tax on the net amount gambled, referred to as “adjusted gross receipts (AGR ).” AGR taxes the gross gambling receipts, minus any payout for prizes. The second form generally employed by states is an admission tax on riverboat gambling. Texas uses the former, AGR.
Most other states also use AGR to calculate gaming taxes, relying on a progressive tax bracket, or some variation on it. Legislation for VLTs in Texas proposes a flat tax at 4% of wagers made minus payouts, which stands below the lowest bracket of taxes in many other states. Both Illinois and Indiana tax 15% on the first $25 million generated. Michigan levied an 18% tax across all gross adjusted receipts until 2004, when it increased the tax by an additional percent. And New Jersey, home to Atlantic City, set its AGR rate at 8%. Even if VLTs generate the same amount in wagers as the Lottery does in ticket sales, and that the AGR rate in Texas is raised to meet that of other states, VLTs would not come close to funding education in Texas.
Finally, if demographic analysis of Lottery ticket sales is any indication of who will patronize video lottery terminals, then the state education costs will fall predominantly on the backs of the Texans least capable of giving. According to numbers reported by The Texas Lottery in its 2005 “Demographic Study of Texas Lottery Players,” each dollar the Lottery receives is three times as likely to come from a person earning less than $29,000 per year as it is from someone earning over $60,000. Also, lottery earnings are four times as likely to come from someone with less than a high school diploma as from someone holding a college degree. Is Texas prepared to exploit those with the lowest income and least amount of education? What are Texans really gambling away when it comes to the education of our children?
Please contact me with any questions or concerns at (972) 401-8825 or by e-mail at linda.harper_brown@house.state.tx.us.
