Should Wyoming gamble on gambling?

Some pieces of legislation receive far less attention than they deserve. House Bill 171 – Wyoming gaming commission, sponsored by the travel committee, looks to be one such under-the-radar measure this session. 

Early legislative comments focused on the idea that it regulates gambling. It’s more accurate, however, to describe the measure as legalizing instant-gratification gambling on a new level for the state. And the high number in its name reveals, the bill surfaced late in the game, allowing very little time for public scrutiny. 

Wyoming has historically approached gambling pretty conservatively compared to most other states. Sure, the state’s never been a complete stranger to games of chance, but since consistent enforcement of the McGill Act took hold in the 1950s, opportunities for legal gambling have been limited for the most part to bingo, charity raffles and pull tabs, a little pari mutuel horse racing, and, more recently, Wind River Indian Reservation casinos. 

That started to change in 2013 when lawmakers passed two bills expanding gaming opportunities for Wyoming citizens. 

One bill established a state-sponsored lottery, allowing citizens to participate in national lotteries such as PowerBall and eventually lotteries unique to Wyoming. This bill very narrowly passed, and only did so with an amendment that specifically prohibited instant gratification games such as scratch-offs. These latter game is more closely linked to problem gambling and addiction behavior. A major justification for enacting the state lottery at the time was that Wyoming residents were already playing the lottery in neighboring states. If our residents were spending money on gaming, Wyoming might as well reap the benefits too.

House Bill 25 also passed in 2013. Sponsors characterized the gaming it legalized as historic horse races taking place on a machine. The product was explained in terms similar to pari mutuel live horse racing. What materialized instead were instant gratification games that had — and still have — questionable relationships to actual past horse races. 

In one instance the state attorney general declared these electronic machines were effectively no different from slot machines, and ordered them closed down for more than a year until they could be reprogrammed to meet state law. These machines are allowed to be located in counties where live horse racing has taken place. A portion of the profits were distributed to horse breeders, the counties in which they were located and the Pari Mutuel Commission. These video games have been very popular — well over a half billion dollars have been wagered by players since their inception.

This year’s proposal would build on and greatly expand the changes made in 2013. House Bill 171 would reconstitute the Wyoming Pari Mutuel Commission into the Wyoming Gaming Commission and add one new commissioner. The new commission would operate under expanded responsibility to regulate and oversee basically all gambling in the state.

The bill contains many other routine language changes to statute. The main purpose of the bill, however, is to legalize what are referred to as “skill games.” 

These are actually electronic video game machines. They feature an element of skill coupled with chance. Think bartop video poker and the like.

At a glance these “skill games” may look indistinguishable from the standard electronic gambling machines found in other states with legalized gaming. Today these gray-area skill machines are found in many establishments in Wyoming communities and are producing wins and losses to players that reach well into four figures.

In recent years the attorney general has declared certain versions of these games don’t conform to state law. Currently, the responsibility of analyzing the legality of skill games has fallen to county attorneys and local law enforcement agencies, who are not technically able to do so.

Under HB 171, the Wyoming Gaming Commission would determine specifications and rules for these games going forward. It would also require licensing or permitting of all video game vendors as well as establishments hosting these machines. The bill limits each establishment to five of these video devices.

Support informed commentary with a tax-deductible donation.

The bill also defines taxes, fees and profit levels and who gets what. The owner of the gaming establishments would be entitled to 19.4% of the net proceeds according to the bill. Local governments stand to receive 13.5% of the net proceeds. The Wyoming Gaming Commission would receive 3.375%. Another 3.375% would be deposited in the state’s Legislative Stabilization Reserve Account — better known as the rainy day fund. In total, state and local governments would receive 20.5% of net proceeds. The bill does not specify the allocation of the remaining 60% of proceeds. 

Clearly, this type of gambling could produce very substantial revenues for state and local governments. The experience of other states suggests the income could equal about a half-percent increase in the sales and use tax. This perhaps explains why leadership referred the bill to the appropriations committee instead of the committee that developed the bill.

There is an important provision in the bill that maintains local control by requiring an election by local citizens to approve skill gaming in their community. Unfortunately, this local provision is unlikely to survive the  considerable pressure exerted by pro-gambling lobbyists.

The bill offers an alluring cocktail of positive features to lawmakers struggling with shrinking tax revenues. First, it provides about four times the funding to state and local governments than equal expenditures would yield in sales tax revenue. Another appealing aspect is that gambling taxes are voluntarily paid; that is, if a citizen doesn’t want to pay the tax they have the option to forego gambling. Furthermore, it provides a path for the state to reduce revenue distributions to local governments. It is this set of advantages that has caused many state governments to become as addicted to gambling as many gaming patrons

Is it any mystery why nearly every state that has expanded gambling did so in periods of fiscal shortfalls?

To paraphrase Milton Friedman, however, there is no such thing as a free lunch.

Little time will be afforded during the next three weeks of this budget session to fully explore the negative social impacts that come with expanding instant-gratification gaming. Much research has been accomplished in this regard, and some of the findings include significant social costs.

Although proponents point out that each dollar the public spends on gambling yields at least four times as much revenue to state and local governments as other purchases, the negative social impacts of reduced spending in other sectors should be equally considered. Some issues that have been documented in other states include the tendency for a small but significant segment of the population becoming problem or even pathological gamblers. This brings increased bankruptcy rates, real estate foreclosures, marital breakups, suicide, unemployment and even certain crimes. 

One recent study from Baylor University summarizing several other gambling studies suggests the social cost per year of one pathological gambler is $9,393. It is interesting to note also in other studies that social impacts are much more evident when gaming is spread over an entire state than is the case for individual casino-type operations.

Evidence suggests that most other states either included mitigation expenses to deal with problem gambling in their original gaming legislation or found a need to establish formal programs after gaming had been launched. As currently drafted, HB 171 contains no specific language that makes reference to problem-gaming mitigation.

The next few weeks of legislative activity will reveal whether or not Wyoming’s Legislators will take the next step in the evolution of gambling activity in their state. One thing is certain though: Their decision will have far-reaching effects on the future of Wyoming.