There is nothing promoters of legal video lottery games can say that will convince Missouri Senate President Pro Tem Cindy O’Laughlin that promised new revenue offsets the social damage of expanded gambling, she told The Independent last week.
That opposition, she said, doesn’t mean Capitol hallway rumors that the Senate Select Committee on Gaming — the committee she put herself in charge of — will be the graveyard for a bill legalizing the gambling devices that narrowly passed the Missouri House last month.
The bill would give the Missouri Lottery authority to license video games for installation in retail locations across the state. The licensed machines would have to pay out at least 80% of the money wagered as prizes and about one-third of the profits would be dedicated to state education programs.
Lawmakers take their one-week mid-session break next week.
“I absolutely will hold a hearing after Spring Break,” O’Laughlin said. “I have not set a date yet. There will be a vote.”
O’Laughlin has assigned all the bills dealing with gambling issues to the five-member committee she established last month. Along with the House bill there are five Senate bills to legalize and regulate video lottery games.
Companies anxious to tap Missouri’s gambling market have been pushing for legal video lottery games for several years. Opposition from casinos and effective lobbying by owners of lucrative unregulated slot machines, coupled with morals-based reluctance to expand gambling, has always killed the bill.
The casino opposition hasn’t gone away, but this year the main player in the unregulated market, Torch Electronics of Wildwood, is not opposing the bill. The legislation, if passed, would provide a year window for the unregulated games to be replaced by licensed and taxed machines.
Two outside influences on the legislative debate have been added to the mix. The need for state revenue is helping the bill as deficit spending depletes accumulated reserves in the short term and Republicans push to eliminate the state income tax.
The other outside influence is the escalating enforcement actions targeting unregulated games. Within the last month, Attorney General Catherine Hanaway announced a cooperative investigation with federal agencies and a federal judge ruled that machines owned by Torch fit the statutory definition of an illegal gambling device. Last week, Hanaway and St. Louis County Prosecutor Melissa Price Smith announced a joint enforcement operation and gave retailers until June 1 to remove the games or face prosecution.
In response to a submitted question about enforcement actions, O’Laughlin wrote: “I am not law enforcement, but I think simple official notification the machines need to be removed by a certain date would suffice.”
Anyone willing to make a wager in Missouri can bet on just about any sporting event in the world except a horse race.
There are 13 casinos filled with slot machines and table games, where $18.2 billion was wagered in the most recent fiscal year. So far, taxes on casino revenues are up about 6% this fiscal year, meaning the amounts being lost are going up.
Since Dec. 1, everyone over 21 with a smart phone can make bets on sporting events. In the first two months, $928 million was wagered.
The lottery offers the lure of fabulous wealth for just a few dollars and in the year ending June 30, it sold $1.6 billion worth of dreams. The lottery’s transfers to an education fund are also up in the current fiscal year so far, by 2%.
Charitable bingo games handled $68 million for the fiscal year.
Together, taxes on gambling provide more than $700 million a year for state needs, with most going to education programs.
The only existing gambling activity that does not have a special tax — or any regulation that the games are fair or pay out a reasonable amount of wagered money — are the machines in retail locations like gas stations.
The main sales pitch from lobbyists pushing legal video lottery games is the potential to realize revenue from activity already occurring.
O’Laughlin’s promise to hold a hearing will be the chance to make that pitch, said Andy Arnold, one of 22 lobbyists working for J&J Ventures, an Illinois company hoping to move into the Missouri slot machine market if the bill passes. Arnold was the first lobbyist the company hired; it added 13 in the past two years.
“It gives us an opportunity to basically make our case that these aren’t going away, and that the current law regarding criminal activity on gambling is seriously flawed and needs to be updated,” Arnold said.
The fiscal note estimating the net gain from legal video lottery projects would be about $300 million for education needs, with about $12 million from terminal fees to a variety of programs including community support for adults with developmental disabilities.
“The state is missing out on several hundred million dollars in revenues that nobody’s willing to make up,” Arnold said.
The state revenue picture is darkening from an anticipated decline in tax receipts and the depletion of accumulated surpluses.
After several years of lavishing money on earmarked projects and setting aside massive sums for highways, expanding the Capitol Building and shoring up the state pension fund, a surplus that once stood at $5.7 billion is expected to dwindle to $265 million on June 30, 2027.
Gov. Mike Kehoe and Republican leaders in the Legislature — including O’Laughlin — are making elimination of the income tax their top priority for the year. The key is passage of a ballot measure asking voters to allow the income tax to be replaced with a sales tax that could be expanded to cover any transaction involving goods or services.
Speaking to reporters last month, O’Laughlin discounted the extra revenue from video lottery as a cure for current money needs or as a partial replacement for the income tax.
“In the short time that I’ve been here, it just seems like we have talked about so many marijuana and gambling bills, and we’re going to tax those, and they’re going to pay for veterans and education and do all of these great things,” O’Laughlin said. “But no one talks about the societal cost of it and what it does to people and their families, and that’s kind of my concern.”
O’Laughlin had a shorter answer when asked last week if the need for revenue for income tax replacement outweighed the social ills.
“No,” she said.
The select committee, O’Laughlin said, “takes pressure off other (committee) chairmen” and members “will give the bills adequate consideration.”
State Sen. Stephen Webber, a Columbia Democrat named to the select committee, said he doesn’t see it as stacked against legalizing video lottery.
“I don’t like the idea of completely unregulated machines out there,” Webber said.
The enforcement actions are changing the debate, Webber said. In past years, the question was whether there would be regulated or unregulated machines, he said.
Hanaway’s actions are making life more uncertain for the unregulated game owners.
O’Laughlin’s opposition is well-known, Webber said, but he wants to hear the bill.
“I suspect since she’s the chair of the committee, it’s probably not looking good,” Webber said, “but I’m going to give it a hearing and hear what everybody is saying.”
O’Laughlin and 10 other members of the 34-seat Senate will be gone next year. Arnold said he’s playing for long-term gains.
If casino opposition ceased, Arnold said, a deal could be made this year.
“If they continue to say no, OK,” Arnold said. “We’ll be back next year, and the Senate will be entirely different, because there’s 11 seats up.”
