Sports bets are unlikely to fix state budget woes
Many economists say pinch may be felt in ’20
A Supreme Court decision Monday that could lead many states to legalize sports betting may provide some pocket change for those governments but not enough to help head off looming budget crises, experts say.
About 20 states are considering legislation to allow sports betting, according to Pew Trusts, including Indiana, Minnesota, Rhode Island and West Virginia. “I don’t think that for any state it’s going to make a huge difference,” says Lucy Dadayan, senior policy analyst for the Rockefeller Institute of Government.
In Nevada, where gambling is legal, sports gambling made up 2.2% of total casino revenue last year, says David Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas. The revenue stream is growing, increasing 11.3% to
$215 million last year, he says. Yet that yields just $15 million in state taxes under the 7% rate, a fraction of the state’s
$725 million in sales tax revenue. Total tax revenue from gambling makes up only about 10% of all of Nevada’s revenue, Dadayan says.
What’s more, “The question is whether (sports betting) is going to take away from the lottery,” in other states, Schwartz says. That could temper the overall positive effects on states’ revenue. Plus, he says, additional fees that casinos or other legal sports betting operations impose could drive some activity to illegal gambling enterprises.
Meanwhile, states are in relatively good financial shape. In fiscal 2017, 22 states faced budget shortfalls they had to close by raising taxes, cutting services or drawing from reserves, says Dan White, an economist for Moody’s Analytics. This year, only about a halfdozen states are squeezed, including Alaska, Connecticut, Louisiana and Wyoming, says White and John Hicks, CEO of the National Association of State Budget Officers. The strong economy has increased sales tax revenue, and many residents paid state income taxes early to take advantage of higher deductions on property taxes before federal tax law changes take effect, White and Hicks say.
The big pinch is expected in 2020, when many economists forecast a recession in the U.S., White says. At the same time, costs for Medicaid, which provides health care to low-income people, are rising as Baby Boomers age. And many states are struggling to meet pension obligations for retired employees because there aren’t enough younger workers taking their place and paying into the system, he says. Many states will be forced to cut Medicaid services, he says.
To survive the crunch, he says, the average state will need to have 10.5% of revenue in a reserve fund, but only
16 states currently meet that criteria.