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States Bet on Riverboat Casinos for New Revenue

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Thanks to the public's seemingly unquenchable thirst for waterborne games of chance, Mississippi educators these days are savoring a heady brew of teacher-pay raises, health benefits for all school employees, air conditioners in every classroom, new textbooks, and bus and building improvements.

What was once a wish list for Magnolia State schools is nearing reality, as lawmakers work this month to put the final touches on a state budget that has the rarest of attributes--money aplenty.

Current plans would raise education spending by nearly $270 million in a state where school funding has held steady at about $900 million for several years. The funding is expected to buy a new assessment system, administrator- and teacher-training programs, and a tech-prep program linking high schools and community colleges.

Much of state government's prosperity can be traced to the growth and popularity of its newest industry: riverboat gambling.

Fiscal Benefits

The latest chapter in states' interest in sanctioned gaming as an alternative to general taxes, riverboat casinos are increasingly appearing in the South and Midwest. Like the state lotteries that preceded them, the casinos are being touted as a way to help fund schools.

Mississippi has made the most of the trend, imposing some of the lowest taxes on boat operators and offering them the greatest opportunity. Since a casino opened on the Gulf of Mexico in Biloxi in 1992, 20 casinos have opened on the Gulf or the Mississippi River. Forty-eight more licenses are pending.

First-year state taxes on the boats, initially estimated at $15 million, easily doubled that figure. Halfway through the current fiscal year, the $40 million annual estimate has been eclipsed by the $55 million in state revenue that officials have already taken in.

The casinos are also bringing indirect fiscal benefits, with analysts crediting them with spurring a surge in both jobs and sales. A 1 cent portion of the state sales tax devoted to education accounts for the bulk of the school-appropriations increase.

"We have never been, at least in recent memory, in the situation we are in right now for education,'' said Andy Mullins, a special assistant to the state schools chief.

'Somebody Else's Revenues'

While no other state expects results on the scale of Mississippi's, many states are showing interest in riverboat casinos as moneymakers.

Missouri voters will go to the polls next month to consider a constitutional amendment that would authorize riverboat gambling. While the law does not limit the number of boats, state officials expect to initially grant up to four licenses. An Indiana law allows for 11 vessels on the Ohio River, Lake Michigan, and an inland lake.

Other states are continuing to expand their riverboat gambling.

Iowa, which sparked the current wave of interest with the launch of a boat in Davenport nearly three years ago, now has three boats. Illinois officials have granted the last of their 11 licenses, and seven boats are licensed in Louisiana, where up to 15 are authorized.

Mississippi officials have set no limit on the number of riverboats the state will allow, choosing instead to let the betting market find its equilibrium.

"It won't be long before you can walk down the Mississippi River from Memphis to New Orleans on riverboats,'' quipped Bill Howell, the executive director of the Mississippi Association of Educators.

One sure bet is that before a balance is found, other states are likely to try to cash in. Bills authorizing casino gambling have been introduced in a number of legislatures.

Observers say the trend demonstrates both states' need for new revenue and lawmakers' reluctance to pay for new services by saddling voters with a general tax.

"Legislators are looking for a source of funding that will not be related to their given constituency,'' observed David S. Honeyman, a school-finance expert at the University of Florida. "With gambling, these are always somebody else's revenue sources.''

Once a lottery has opened a breach in the traditional moral objections to gambling, say analysts, turning casino bets into state revenues becomes an easy step. "As an alternative to general taxation, legislators see this as politically less harmful,'' Mr. Honeyman said.

Taking Off the Bottom

Yet, unlike the lotteries currently operated by 37 states, which put funds directly into state treasuries, riverboat-gambling laws tax for-profit casino operators.

In Illinois, where riverboat-casino taxes are earmarked for education, the state charges a $2 tax on operators for every gambler, with the proceeds split evenly between the state and the city where the boat operates. The bulk of the state revenue comes from a 20 percent tax on the casino's gross receipts, of which the state keeps 75 percent and the locality gets the rest.

State education officials expect $90 million from riverboat taxes this year, up from last year's $30 million. That compares with $587 million in earmarked lottery proceeds that go to education as part of the state's $4.5 billion K-12 budget.

Whether the schools are any better off is open to question.

In Illinois, officials say, casino proceeds have followed the same trend as lottery funds, which has been to free up an equal amount of state general-fund money for lawmakers to appropriate elsewhere.

"As the lottery and riverboats dump money in at the top, the legislators take it out at the bottom,'' said Kim Knauer, a spokeswoman for the Illinois education department. "We still have a problem trying to explain that to local citizens who think gambling is helping the schools. It has been a public-relations nightmare for years.''

Indeed, as the lottery and riverboat gambling have flourished in Illinois, the state share of education funding has consistently fallen.

Happy Problems

Towns that now are home to riverboats, meanwhile, are struggling to make the most of what they see as a boom rather than a fixture of their economies.

In Metropolis, Ill., where the entertainment magnate and former talk-show host Merv Griffin opened his Players International casino last year, school officials anticipate their budget will rise from increased residential-property values and an expansion of business activity in a small town whose previous chief export was "Home of Superman'' trinkets.

School officials also recently won city-council approval of a 2 percent share of local riverboat profits, which will fund $30,000 in college scholarships for Metropolis students and, beginning next year, a $30,000 after-school tutoring program for 2nd, 3rd, and 4th graders.

In Tunica County, Miss., one of the nation's poorest localities, the local proceeds from six dockside casinos led to school improvements and $1,000 pay raises for its teachers last year.

"We are trying to be extremely cautious and very conservative in dealing with gambling revenues,'' said Sen. D. Ronald Musgrove, the chairman of the Senate education committee and an opponent of the casino law.

"From a policy perspective, I am opposed to it, but, obviously, we have seen more from a financial standpoint than even the strongest supporters imagined,'' Mr. Musgrove observed. "It has created problems that we feel fortunate and certainly happy to be dealing with.''

"The money they have laid on the table is enormous for a state this size and, outside of California and Texas and a few others, for a state of any size,'' said Mr. Howell of the Mississippi teachers' union.

"We know it will eventually flatten out, but, for now, we are able to start replenishing what we've had to cut and add some new things,'' he added. "But we hope to build a better system in the one or two years of opportunity we have.''

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