Gambling debate: A wager on the state's future

Expanded gambling could earn the state hundreds of millions of dollars. But critics point to legal hurdles and social costs.

Early last week, Paul Landvick sat at the bar of the Schooner Tavern in south Minneapolis with a glass of Diet Coke, a shot of booze and 10 paper pulltabs in a tidy pile.

One by one, the 54-year-old meat cutter ripped open the matchbook-sized pulltabs hoping for a winner. Nothing. 

"If people want to spend their money gambling, it should be up to them," Landvick said.

Soon, Landvick and others like him may have more ways than ever to try their luck, because Minnesota is contemplating its boldest step into gambling expansion in a generation.

Not only do political leaders want to modernize pulltabs to boost revenue, they are eyeing a casino in the heart of downtown Minneapolis and considering video slot machines at the state's horse-racing tracks. For the first time, they would be counting on the revenues to pay for prized amenities such as a Minnesota Vikings stadium and public schools.

The payoff could be huge -- hundreds of millions of dollars in coming years without higher taxes. But the risks, too, loom large if gambling developers fail to deliver, if the money doesn't roll in as projected, or if legal fights swamp the effort. More gambling is proving especially tempting in a climate of chronic revenue shortages and politicians allergic to raising taxes and cutting services.

"People who won't willingly pay another dollar in taxes happily go to one of the casinos and enjoy the evening out, as they're certainly entitled to do," Gov. Mark Dayton said. "The state, we need to develop other sources of revenue."

Until now, Minnesota has resisted a wave of gambling expansion that has swept other states strapped by the recession. In 2010, at least 10 states approved various new gambling measures. Pennsylvania legalized poker and other table games, while New York joined a multistate lottery. Four new casinos are expected to open in Ohio next year after voters approved a referendum in 2009. Iowa has privately run casinos and racinos as well as tribal casinos. Altogether, 15 states now have commercial casinos and 13 states have racinos, according to the American Gaming Association.

Even so, a large and politically powerful coalition of Minnesotans oppose gambling expansion for moral reasons, saying it comes with steep social costs, such as higher crime and gambling addiction. They say it's immoral to solve the state's financial ills on the backs of those who often can least afford it.

"The entrance into gambling by government is a huge, huge mistake," said former Republican Gov. Arne Carlson. "You are fundamentally enticing people into a system of false rewards and it tends to victimize people in the lower income."

Pulltabs could be easiest

Dayton and other supporters say switching to electronic pulltabs and bingo would be the least divisive way to expand gambling. A state estimate shows that the state government could double its take from charitable gambling, adding about $40 million a year. That is the least lucrative of the options under consideration, but would come close to covering the state's annual share of a new Vikings stadium.

Critics doubt that ditching paper pulltabs for snazzy new iPad-type devices would spur that kind of increase in a $1 billion-a-year industry that has experienced a steep, decade-long decline. State revenue officials say their estimate is a rough one. No other state has converted to a pulltab system like the one Minnesota is considering.

Debi Seifert sells pulltabs several nights a week at the Rail Station Bar and Grill in Minneapolis on behalf of the Air Force Association. A decade ago, she could move $5,000 of tabs in a night. These days, she's lucky to sell $1,000. Seifert and other pulltab retailers blame the economy, the smoking ban and the ubiquity of credit and debit cards. Customers, Seifert said, just don't carry cash like they used to -- crucial for her cash-only business. "It is probably never going to be back like it was," she lamented.

Tom Barrett, executive director of the Minnesota Gambling Control Board, said the revenue estimates could be achievable. Tidier and trendier electronic pulltabs will likely appeal to more of the state's 6,000 bars and restaurants, he said.

Block E numbers 'realistic'

If the state moves forward with a casino on downtown Minneapolis' Block E, it would be putting a lot of faith in a man making his first foray into casino development. Bob Lux, with Alatus LLC, is a luxury condominium developer who is untested in the gambling sphere. Lux said any concerns about him should be offset by the fact that the legislation mandates that the state choose a management firm to help develop and then run the state's first non-tribal casino. Lux and his investors have already talked with five potential operators, many of which he said are "household names."

One of the management companies that has already expressed interest is Minnesota-based Lakes Entertainment, which has developed and managed casinos nationwide, including Grand Casino Mille Lacs and Grand Casino Hinckley.

Lakes CEO Lyle Berman said Block E is a "very good location" for a casino. State revenue estimates peg Block E's projected tax revenue at about $100 million a year, a figure that Berman calls "very realistic."

Proposals to install video slot machines at horse-racing tracks have been floated for a decade. The state's two horse-racing tracks, Canterbury Park and Running Aces, say turning their sites into so-called racinos could revive an ailing horse industry and send needed revenue to state coffers.

A recent state fiscal analysis projects that racinos could bring in more than $130 million a year for the state, based on 2,000 gaming machines at each site. Iowa's racinos bring in about $90 million a year.

Indian tribes, which operate 18 casinos in the state, firmly oppose both the racino and the Block E casino ideas, vowing to file a lawsuit to block them.

Attempts to expand gambling could trigger a flurry of legal challenges that might call the state's entire charitable gambling industry into question. A 1988 amendment to the Minnesota Constitution bars the Legislature from authorizing any lottery other than "a lottery and sale of lottery tickets for a lottery operated by the state."

The legal question of what constitutes a lottery has never been settled in Minnesota. In a letter to the governor on Nov. 3, state Solicitor General Alan Gilbert cited a 2005 Minnesota House research report that says legal authorities in other states have held that "lottery, in this context, includes most casino games. This constitutional provision has been ignored for decades in the case of charitable gambling."

Eric Magnuson, a former state Supreme Court chief justice and attorney now working on behalf of the racino proponents, said the racino is "either a lottery and it's authorized by the Constitution, or it was not intended to be in the constitutional definition of lottery and the Constitution then doesn't have anything to do with it."

Gilbert also noted that to issue appropriation bonds secured by revenue from charitable gambling would require going before the state Supreme Court. That could trigger a wholesale reexamination of what types of gambling are prohibited under the state Constitution.

Risks close to home

State leaders don't have to look far to see things have not always gone smoothly when governments turn to gambling profits to pay bills. In the mid-1980s, Duluth partnered with the Fond du Lac Band of Lake Superior Chippewa to convert an old Sears department store downtown into a casino.

Fond-du-Luth Casino operators agreed to give the city a cut of slot machine profits, which lately has amounted to about $6 million a year. The city earmarked most of the money to repair its battered streets. But in 2009, the tribe stopped paying, arguing the contract was not legal. The city filed a lawsuit for $13 million in back payments.

"It's been a very difficult financial situation for the city," Duluth City Attorney Gunnar Johnson said.

Staff writer Rachel E. Stassen-Berger contributed to this report. baird.helgeson@startribune • 651-222-1288

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