Legislature May Give Away $1.6 Billion ‘Racino’ Windfall

For Immediate Release

The state subsidizes winning purses for certain horse racing categories. Schmoopy, shown here, was the 2000 Michigan Thoroughbred of the Year after winning 7 races at Great Lakes downs, one of Michigan's 7 existing horsetracks.

Gambling license auction could wipe out entire budget deficit

MIDLAND — At the same time state lawmakers grapple with a $1.3 billion budget deficit, they are planning to give away assets that could be sold instead for as much as $1.6 billion, according to the Mackinac Center for Public Policy.

Legislation to expand gambling in Michigan (HB 4610) would effectively give away licenses to for-profit operators of newly allowed "racinos," which are video lottery terminals at horse racing tracks. Similar gambling licenses have sold elsewhere for hundreds of millions of dollars, according to Mackinac Center Director of Fiscal Policy Michael LaFaive.

"Selling racino licenses could wipe out the expected 2005 budget deficit without raising any taxes, with about $300 million left over for the rainy day fund or other spending," said LaFaive. "Experience in Michigan and elsewhere shows that private investors are willing to pay for the right to operate gambling machines," he said.

Under the legislation, racinos could be permitted at Michigan’s seven existing and four proposed race tracks. An additional racino at the state fairgrounds could be permitted as well.

Jeff Hooke, a Maryland-based investment banker and author of several studies on the value of gambling licenses, reports that in 2000 a Michigan Indian tribe paid $265 million for a 40 percent interest in a Detroit casino license. Last month, the state of Illinois auctioned a casino license for more than $500 million. LaFaive and Hooke estimate that licenses to run video lottery terminals at 12 Michigan tracks could be worth as much as $1.6 billion if auctioned off to the highest bidders. Their figure factors in the effect of future gambling taxes paid by the operators.

"Gambling is no substitute for genuine economic development. But if the state insists on being in the gambling business, it shouldn’t give away assets for free, especially when job-destroying tax increases are on the table," LaFaive said. LaFaive added that lawmakers have not eliminated all unnecessary spending from the state budget.

The Mackinac Center is a nonprofit, nonpartisan research and educational institute based in Midland. The racino legislation can be tracked at http://www.michiganvotes.org

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