August 22, 2007

Maryland: Save the Poor Horse Racetracks?

Another day, another state contemplating the use of legalized gambling as an alternative to fixing its tax system. But there's an interesting twist in Maryland: some pro-gambling advocates are making an obscure economic development-based argument for gambling. A new report from Governor Martin O'Malley's administration argues that allowing slot machines at Maryland race tracks would help to save the state's horse-racing industry.

There's not much substance to the administration's "report." It's thinly-disguised pro-slot-machine propaganda that makes only a passing attempt at addressing the ethical and economic arguments against a "slots for tots" revenue-raising strategy. But the report does beg a couple of questions that are worth asking:

1) Why, at a time when the state faces a big budget crisis, should Maryland taxpayers be subsidizing the horse-racing industry?

2) Even if there's a plausible answer to the first question, why is giving racetracks a cut of the take from slot machines the best way to subsidize this industry?

The report, written by the state's secretary of labor, licensing and regulation, Thomas Perez, gives two answers to the first question:
(a) it's a job-creator: Perez says "the horse racing and breeding industry in Maryland accounts for over 9,000 jobs."
(b) it would save the environment. The report says that horse farms represent "roughly 10 percent of Maryland's open space."

A Washington Post editorial effectively disembowels each of these points, noting that in a state with 2.6 million jobs, saving 9,000 jobs in a distinctly 19th-century "industry" isn't an awfully compelling goal and that the state already has more direct tools at its disposal for preserving open spaces, including special agricultural zoning rules.

Of course, even if these 9,000 jobs are worth subsidizing, the big question is how relevant the "9,000" number really is--how many of those jobs are going to go away if the race tracks don't get slots? As long as a horse-racing industry exists in the mid-Atlantic reason, there will be a market for Maryland's thoroughbred racing horses. Even if Maryland's racetracks closed tomorrow, it doesn't follow that every horse farm in the state would simply vanish.

And there's a pretty dubious trickle-down theory behind the whole argument. Follow it if you can:

1) If you put a bunch of slot machines in race tracks, more gamblers will come to the race tracks, and in between throwing rolls of quarters at the slot machines will find time (and reserve a little cash) to play the ponies.

2) This will make racetracks more profitable, which will allow the tracks to have more races each week, which in turn will increase the demand for thoroughbred horses.

3) Maryland horse farms will thrive, selling horses galore.

Which brings us to question #2: why rely on such a convoluted, trickle-down approach to subsidizing horse racing and horse farms? If the state really thinks that this is an industry worth saving, why not provide direct, annually appropriated subsidies to the racetracks, or to horse farmers? The most likely answer is that in a time of fiscal shortfalls, this is not a budget priority that many people would value highly.

The sad thing, of course, is that if you put a gun to any economist's head and made her write up a list of what's wrong with Maryland's economy and tax system, it would take a pretty long time to get to "our racetracks aren't profitable enough." Much higher on the list would be eliminating a host of egregious loopholes in the state's sales, income and corporate tax that are making it harder and harder for the state to pay for needed services.

The only reason why pro-gambling advocates in the state legislature are beating this drum, instead of talking about needed tax reforms, is that they're afraid to say the "t" word. The O'Malley administration's ginned-up rationale of saving the horse-racing industry is a smoke-screen designed to hide policymakers' cowardice on this issue.


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