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ALTOONA, IOWA -- The streets were quiet just before midnight Monday on the outskirts of Des Moines, but the casino at Prairie Meadows Racetrack and Casino was still buzzing. The smell of cigarette smoke lingered in the air while a cacophony of bells and whistles blared from hundreds of glowing slot machines.
The track's thoroughbreds draw big weekend crowds, but video slot machines such as "Stinkin' Rich" and "Kingdom of Gold" keep the money flowing 24 hours a day.
Now, in the 11th hour of negotiations to break a months-long impasse on Minnesota's budget, the long-overlooked "racino" idea may be gaining fresh appeal for DFL Gov. Mark Dayton and Republican lawmakers as they seek to plug the state's $5 billion projected deficit. Unable to agree on whether they should tax the wealthy or scale back state services to close the budget gap, they have brought the state within 48 hours of an unprecedented government shutdown.
In Iowa -- population 3 million -- three racinos generate about $90 million a year in tax revenues, or 1.5 percent of the state's budget, according to local gambling officials. Minnesota racino backers estimate that installing slot machines at the state's two horse-racing tracks could generate at least $125 million a year in taxes.
"[Racino revenue has] been paying for our infrastructure for state facilities. It's been paying for our environmental issues," Iowa Senate President Jack Kibbie said. "So it's certainly helped as far as the state budget."
Until now, racino has faced stiff opposition from DFLers allied with the Indian tribes that control casino gambling in Minnesota and from some Republicans, whose party platform opposes expanded gambling.
Dayton has said he could support expanded gambling to avoid deeper cuts in the state's budget, but Republican Party leaders say the state should not increase revenue and particularly should not turn to gambling to increase revenue.
Revenue without taxes
Former Sen. Dick Day, who left office to lobby for Racino Now, has a different take: "We've got one of the only things that I know of that you don't need to tax people for and could bring in 200 to 250 million dollars every two years to help solve the budget."
An independent state analysis estimated the revenue will be closer to $92 million a year, though Day said tracks would be willing to pay an upfront fee if lawmakers need more money to be convinced.
A recent report from the Nelson A. Rockefeller Institute of Government at the State University of New York/Albany found that at least 10 states expanded gambling in the last fiscal year to balance budgets. Six of the 12 states that allow racinos legalized them in the past decade.
"It's a quick shot in the arm in terms of revenue for the state," said the institute's deputy director, Robert Ward. The report also found that gambling revenue makes up a smaller share of Minnesota's revenue than the national average.
In Minnesota, Indian-run casinos pay no gambling taxes to the state. The state does draw some gambling revenue from the state lottery and from nominal taxes on charitable gambling, such as pulltabs and bingo.
Iowa was one of the first states to legalize racinos, in 1994, when a financially ailing Prairie Meadows racetrack was on the brink of shutting its doors. Prairie Meadows CFO Brian Wessels said gambling revitalized the track's operations and now accounts for about 95 percent of its revenues. Prairie Meadows is building a hotel next door to better accommodate visitors and generates $39 million a year in state taxes.
"It has been an asset to the state of Iowa," said Wessels, surrounded by paintings of horses in his office below the casino. "It has given the state money that they would not have had otherwise in the general fund."
Iowa only has three tribal casinos, compared with 18 in Minnesota. It has two other racinos located at dog tracks and a multitude of private casinos that pay about $180 million a year in state taxes.
But that's penny ante compared with Pennsylvania, whose six racinos paid $856 million in taxes to the state last year.
Tribes have fought vigorously against the racino proposal in Minnesota, arguing that it would steal jobs and business from their casinos and infringe on a franchise that was designed to mitigate the decades-long poverty of the state's tribes. Day acknowledges that racinos may have that effect, but says that's the nature of a competitive marketplace.
"We do not believe that Canterbury will take jobs away from Mystic Lake any more than a new Home Depot will take away jobs from an existing Lowe's," he said of the massive tribal casino just five miles from the Canterbury Park racetrack.
Tribes may have another card up their sleeve: the state's Constitution. John McCarthy, with the Minnesota Indian Gaming Association, said tribes will file suits if racino legislation is passed, likely arguing that a racino is beyond the scope of the state lottery. Then-Attorney General Mike Hatch made a similar argument against state-run casinos in 2005. The tribes also have said they would compete aggressively for business, even serving liquor at casinos that they have kept dry.
Racino supporters are gearing up too. They recently hired former Minnesota Supreme Court Chief Justice Eric Magnuson, now a private attorney, to draft a legal opinion that concluded that the racino proposal is constitutional. Day said the opinion has been shared with "a lot of legislators."
Day has been lobbying on radio stations across the state, while Running Aces Harness Park in the northern Twin Cities suburb of Columbus has taken out full-page newspaper ads asking why lawmakers would head toward a shutdown while "throwing away $100 million per year?"
Eric Roper • 651-222-1210 Twitter: @StribRoper