LAST YEAR, THE STATE OF MAINE GAVE THE OWNER OF A PRIVATE BUSINESS
A $160,000 HANDOUT - NO STRINGS ATTACHED

WHY? AND WHERE DID THE MONEY GO? NO ONE KNOWS

By Lee Burnett
Oct. 27, 2007

If the state of Maine taxed anything the way it taxes slot machines, imagine the political uproar.

Take cigarettes. Both cigarette smoking and playing slot machines are personal lifestyle choices that if done heavily over time cause significant personal and social harm. Cigarettes cause cancer and lung disease, which are a burden on the entire health care industry. Slot machines contribute to increased rates of divorce, bankruptcy, certain kinds of crime, domestic violence and suicide.

Cigarettes are heavily taxed to pay for a wide array of health initiatives including anti-smoking ads, expansion of health care access, and low-cost prescription drugs. But if cigarette taxes instead followed the allocation formula used to dole out the tax revenue collected from the Hollywood Slots casino in Bangor, here’s what we’d get:

• The bulk of cigarette taxes collected by the state would be redirected straight into the pockets of business interests that are pro-smoking. Cigar makers, pipe tobacco purveyors, tobacco farmers – they would all receive large subsidies, no strings attached, from state accounts with names like, “A Fund to Encourage Cigar Smoking,” and “A Fund to Stabilize Cigarette Manufacturers.”

• The remaining proceeds would be sprinkled among a smattering of politically popular programs - perhaps the Little League, YMCAs and scout groups - that would enable cigarette manufacturers to run ads touting cigarette companies’ valuable contributions to children's health.

• There would be no money for the state’s ambitious anti-smoking campaign, beyond token smoking cessation classes. Gone would be the aggressive media campaign, smoke-free public places and public health educational efforts.

Obviously, Maine is far too savvy toward the cigarette industry to allow this sham. But that begs a question: when it comes to the gambling industry, just how gullible are we?

Pretty gullible it seems. Last year, the state collected $12.4 million as its share of the revenues from Hollywood Slots in Bangor and allocated it according to a specific formula devised by the gambling industry itself following the 2003 racino referendum. Almost two thirds of the money - $7.9 million - was funneled straight to a handful of gambling-related businesses. The lion's share went to Scarborough Downs and Bangor Raceway, the state's two remaining commercial harness racing tracks. Along with $4 million to pump up the track’s prize money (purses), they split more than $1.2 million from the “Fund to Encourage Racing at Maine’s Commercial Tracks,” one of 10 state funds that receive slots revenue.

Also receiving shares were the state’s Gambling Control Board (for oversight and regulation of the slot machines), harness racing tracks at county fairs, and the state’s four off-track betting parlors in Lewiston, Brunswick, Sanford and Waterville.

Much smaller sums were given to all those worthy causes the casino industry likes to tout. The University of Maine Scholarship Fund got $640,000 from the slots revenues. Maine’s Community Colleges fared only half as well as the state’s OTB’s, receiving just $320,000, the same amount that was allocated to the City of Bangor for hosting Hollywood Slots. Only the Fund for A Healthy Maine got a respectable share, $3.1 million, but it still wasn’t as much as the owners of horse tracks received. (Penn National Gaming, the owner of Hollywood Slots, was the real winner, earning nearly $40 million in gross revenues.)

While the public entities were required to account for every dollar of slots revenue it received to ensure that it was spent for its intended purpose, the private businesses that received their slots handout had to meet no such requirement. They got the money with no questions asked and no strings attached.

What was the money used for? Did it in any way help Maine’s harness racing industry? Did it create a single job? Or did it just line the pockets of the racetrack and OTB owners? Nobody knows. There’s nothing in the law authorizing the state to even ask the question.

“I can't explain it,” says Henry Jackson, executive director of Maine Harness Racing Commission, which regulates tracks and OTBs. “I've been pressed many times as to why OTBs and commercial tracks receive money (from the slots) without any strings attached. The comment I’ve always made is that we were not allowed at the table during the negotiations. The industry made a decision that all would participate in any revenue generated to offset any losses that would occur from the racino: the agricultural fairs, the tracks, the OTBs, the horsemen.”

Now the gambling industry is asking for more money. Maine is set to vote Nov. 6 on a referendum that would allow construction of the state's second racetrack casino, this one in Calais with 1,500 slot machines. The casino would potentially generate up to $13 million a year with $5.3 million of net revenues allocated according to a formula only slightly different than the one used for Hollywood Slots. Instead of distributing 39% of net revenue, as the Bangor casino does, the Calais casino would distribute 41% of net revenues. The allocation formulas vary slightly, but the gambling interests are in for their full allotment.

You'd never guess from the Yes on 1 campaign ads how the lopsided formula favors the gambling industry.

“A downeast Maine racino will pour millions of dollars into the Washington County region to improve schools, hospitals, police, fire and other public services,” reads the Yes on 1 newspaper ad.

It’s a message hammered home in TV ads.

“Over forty percent of the revenue will be going to the educational part for the community college system, the agricultural fairs, the harness racing, public safety,” Passamaquoddy Gov. William Nichols says in a television ad.

“The Washington County racino will help the Fund for Healthy Maine,” Rep. Anne Perry declares in the same television ad.

In fact, of the potential net revenues of $5.3 million, gambling interests would receive 61 percent or $3.2 million; health care would get 24 percent, or $1.3 million; education would receive just 10 percent, a little over half a million dollars. And the host community would receive $260,000 – barely enough to cover the cost of having the facility in the neighborhood.

If there were any rationality in the allocation formula, wouldn't compensation for gambling’s social costs be the first priority of the fund, like it is for cigarette smoking? Wouldn't the obvious recipients be decent gambling addiction services, credit counseling programs, a distressed mortgage relief fund, increased support for domestic violence programs, perhaps even an embezzlement relief fund for local businesses victimized by their light-fingered employees?

But that’s not where the slots profits go. Last year, a mere $100,000 went to gambling addiction programs - an amount worked out between the Gambling Control Board and Maine’s Office of Substance Abuse, according to Robert Welch, director of the control board. That's 0.8% of the revenue. No other money was earmarked for anything resembling a social cost.

A 0.8% allocation for addiction services is nothing more than a public relations gesture to burnish the image of Penn National Gaming as a responsible, caring business, says Doug Muir, head of the anti-slot machine group No Slots for ME!

“It [0.8 percent] is a response to a problem in a political sense, but it is not a response in any economic sense,” said Muir. “To me it's not very much different than putting up a sign that says, ‘please play responsibly.’ They view it as a PR issue not a public health issue. They want to be seen as sensitive to the concerns but they don't want to try to stop people from becoming addicted because half their profits come from these people.”

Muir noted a Canadian study that attributed six percent of suicides in New Brunswick to the easy accessibility of gambling outlets, mostly slot machines. The Canada Safety Council has called addictive gambling “a public health crisis,” saying it accounts for up to 360 suicides a year – almost one a day – in Canada.

Of course, if the state were to get serious about gambling as a public health issue, it would have to study gambling impacts in Maine. National studies say the incidence of divorce, suicide, bankruptcy and crime increase with proliferation and proximity of gambling outlets. The percentage of gambling addiction doubles within 50 miles of a casino, according to one study.

Maine has commissioned no study and has not even undertaken a study of the prevalence problem gambling in Maine. Whenever someone suggests doing such a study, the response is always the same: no money.

“The legislature has been totally mute on the subject of impacts," said Muir.

Not that there aren't some clues.

The crime rate in Bangor shot up 22 percent in the year following the opening of Hollywood Slots, the highest increase of any city in Maine. There may well be many reasons for this. But it coincides with a new staple of Maine newspapers - gambling related crime. One celebrated case concerned an Ellsworth man who embezzled over $20,000 from his employer and lost it all at Hollywood Slots.

In addition, Maine has seen a sharp increase in the number of calls to the emergency hotline staffed by the National Council on Problem Gambling. Calls had been running less than 20 per month then started climbing just before Hollywood Slots opened. Since January 2006, calls have been running between 80-100 a month and occasionally spiking as high as 140 calls, according to Maine's Office of Substance Abuse. Acting Director Guy Cousins said it's impossible to say why the calls are increasing, though it's probably the easily availability of all kinds of gambling.

Growing addiction is obvious at Hollywood Slots too. The casino keeps a “self-exclusion list,” the names of people who have voluntarily given the casino permission to kick them out if their addiction is so strong that they can’t restrain themselves from gambling. And they still show up, too, in wigs and disguises. Since Hollywood Slots opened in late 2005, the self-exclusion list has grown to nearly 100 names, some of them are on it for life and will never be removed regardless of how much counseling they receive. That’s how powerful the addiction to slots can be.

But if ever an industry deserved scrutiny it is Maine's off-track betting industry, although “industry” is perhaps a misleading term for four businesses that employ maybe 30 people. An OTB is basically a restaurant side-room filed with banks of TV screens where Maine gamblers can place bets on horse tracks in Maine and throughout the country. OTBs attract betters because the purses and payouts are bigger at the big-name tracks in Florida, Pennsylvania and California. A portion of OTB money subsidizes harness racing in Maine.

As the cross subsidy to tracks suggests, Maine's gambling industry is famously interconnected. Sharon Terry, co-owner of the OTB Facilitators in Sanford, also owns Scarborough Downs. Scientific Games, which holds a $2.6-million contract to monitor and report to state regulators the cash flowing through Hollywood Slots, also owns, through its wholly owned subsidiary Autotote Enterprises, John Martin's Manor in Waterville, site of the Turf Club OTB, according to The Portland Phoenix. That dual role as a watchdog and recipient of racino money raised no objections from Maine Attorney General's office.

Since Hollywood Slots opened, the OTBs have split more than $1 million from the slots proceeds. That's about $250,000 for each of the four OTBs. The closest anyone comes to justifying this handout is that OTBs deserve the money because they are losing customers to the Bangor casino.

“Everybody’s losing money, they (gamblers) are all going to Bangor, or they're going to Foxwoods,” said George Kerr of Old Orchard Beach, a commercial property owner and co-owner of the Sanford OTB. “All the handles are way down,” he said, and it’s been that way since the Bangor casino opened in late 2005 and proved to be an immediate draw. “What they're doing up there in Bangor [in total sales] is mind-boggling. What I see is incredible ... Everybody wants to play the slot machines.”

Kerr says he deserves his allocation as much as the state of Maine deserves revenue from the sale of Tri-State Megabucks and PowerBall lottery tickets. He says he’s just a hard-working, job-creating guy trying to do business in a business unfriendly state. “I sign the front of the check, not the back of the check,” he said. And as long as the state takes a cut of the action from some kinds of gambling, and as long as Internet gambling remains, he’s got no patience for people who try to prescribe what should happen with the gambling dollar. “I live in the real world,” he said. “People are going to spend their money any way they want.”

It’s the same argument that drug dealers make – they’re just selling a product people want. But there are many other ways to discount the pleadings of OTB owners like Kerr.

Anecdotes aside, it has yet to be sufficiently demonstrated that Hollywood Slots is the reason they are losing business. That would require opening the books on tracks and OTBs.

“I have no evidence it is because of Hollywood Slots,” said Jackson.

Jackson says that harness racing tracks have been losing customers for decades and OTBs have been losing business since before Hollywood Slots opened. The single biggest factors are probably the aging of older gamblers who prefer following the ponies over mindless, push-button slot machines, and the proliferation of other kinds of gambling, he says.

But if financial harm is the criteria for receipt of slots revenue, why is none going to Maine’s 1,660 social clubs that are losing patrons at their charity beano games? Unlike OTBs, social clubs must account for their revenue and are allowed to spend profits on either building improvements or charitable endeavors. A wide array of programs benefit from beano money, including American Legion baseball, Christmas food baskets, scout programs, Thanksgiving dinners for the needy, Little League and college scholarships.

Last year, weekly beano games generated $4.8 million in profits, down from $5.3 million in 2004, according to Sgt. William Gomane of Maine State Police’s gaming division. Attendance has dropped noticeably since last year at weekly games throughout Hancock County and the Bangor casino is probably a factor, according to an article in The Ellsworth American. The American Legion in Trenton reports attendance is down 30 percent from last year. The VFW in Ellsworth reports attendance is down by a third in the past year. Clubs are caught in a bind, having to reduce prize money, which further hurts attendance, the paper said.

“It's a sad situation taking from non-profits doing all this charitable work,” explains Mike Hurley, who owns A-Coin-O-Matic in Bangor. His company provides bingo hall supplies, including pull-tab tickets, to nonprofit organizations throughout eastern and northern Maine. His business is down by 20 percent and the decline is especially noticeable within 40-50 miles of Bangor. “All I know is if these clubs didn't have bingo, half would close down. That's how they pay their bills. If they close, all those scholarships ... towns aren't going to pick it up.”

But why should declining businesses be propped up by state revenue anyway, asks Peter Danton of Saco, an outspoken member of Maine's Gambling Control Board, which monitors the distribution of revenue from Hollywood Slots.

“The argument they make is ‘You know, we're having a tough time.’ Well, if you can't make it, get out of the business. Why don't we save the fishing industry, or logging industry or shoe industry or any other industry,” asks Danton.

Danton said it’s inexcusable that OTBs and harness tracks receive no-strings-attached subsidies. “You know, I pick up the paper and read that community colleges have to go up 12 percent in tuition, then I pick up the paper and Dirigo Health can't afford to take on any new people. Then we turn around and give all this money to OTBs and racetracks. Does that make any sense to you?”

Danton is pushing to eliminate the cross subsidies to tracks and OTBs and give Bangor additional money to build a long-sought convention center. “I'm not against OTB operators. I'm not against racetrack operators. I'm just against giving them public money,” said Danton.

It’s worth remembering that OTBs were created in response to earlier pleas from the gambling industry that it was the only way to perk up the declining harness racing industry. (Like the later casino allocation formula, a portion of OTB revenues go to tracks.) The first OTB was authorized in 1991 at a time when the total “handle” of $29.8 million at harness racing tracks had dropped the past four years and was down from $45.2 million in 1987. Additional OTBs were allowed in 1993.

It’s almost comical to read the bold predictions about OTBs back then.

“Off-track betting could salvage Bangor harness racing,’ reads the headline over a Bangor Daily News column Nov. 5, 1993.

“Off-track betting only salvation” is the headline over a Nov. 1, 1993 Morning Sentinel column that begins: “The overwhelming consensus among harness racing fans in Central Maine is that off-track betting could save a multi-million dollar industry that currently is dying. ‘It is the only thing that will keep it alive,’ said Toby Nason, a standardbred owner and longtime fan.”

Fourteen years later, both harness racing and OTBs are still withering. The total handle of $29.8 million that was such a cause for alarm in 1991 has fallen by three quarters since then and is now down to $7.5 million, according to Jackson at the Maine Harness Racing Commission. The total handle at OTBs, meanwhile, hit a peak of $40.3 million in 2002 and has been falling ever since and now stands at $25 million, he said.

So, after bringing in OTBs to save the harness racing industry, we’re now being asked to bring in slot machines to save the OTBs.

You wouldn’t know it from all those Yes on 1 TV ads, but the revenue the OTBs get from Hollywood Slots is twice as much as the allocation to Maine’s woefully under-funded community college system. Last year, the community college system received $320,000 from the slots revenues. Some 288 students have each received $1,000 scholarships in the past two years as a result of casino money, according to Dave Daigler, chief financial officer for Maine Community College System. (Other casino money has gone into other kinds of financial aid.) Those scholarships reached just 1 percent of the 11,800-member student body, which is the smallest community college student body as a percentage of the population of any community college system in the country. The $4,000 average cost to enroll in Maine's community college system - which does not include room and board - is exorbitant compared to states like California that built community colleges as extensions of high school.

Community college is still out of the reach of many poor families in Maine, notes David Again, who runs a mentoring and tutoring program for first-time college students at York County Community College. “We appreciate any little bit of scholarships we get,” he said. “I know scholarships help students afford college and I know that getting a community college degree helps many individuals and families move out of poverty. I don't think gambling does that.”

The Calais casino would continue the Hollywood Slots formula and allocate just one percent of net revenues - potentially $130,000 - to the Washington County Community College. But it would also earmark two percent of its revenues ($260,000) to the OTB slush fund to benefit the state’s four OTBs and one yet to be created in Washington County. Hidden in the text of the bill is this line: “the fund must also provide revenues to an off-track betting facility licensed and operating after December 31, 2003 within the market area of a tribal commercial track as long as the tribal commercial track is licensed to operate and operates slot machines.”

And if the Tribe is also the owner of the track and the OTB, it will join the double dipping club. Some of that much touted 41% of revenues earmarked for education and other state needs actually does a U-turn in Augusta and goes right back to the owners of the racetrack casino/OTB.

Why are we giving more money to OTBs, including one that hasn’t even been created? Isn’t it time for Maine to take a closer look at the slippery gambling slope we're headed down?

Lee Burnett is a former reporter with the Biddeford Journal Tribune. He was commissioned by CasinosNO! to research and write this article.