Wheel of Misfortune: Gamblers, nonprofits eyed as sources for more tax revenue

Member Group : Lincoln Institute

As the economic recession continues to impact state and local budgets elected officials at all levels are seeking new ways to increase revenue. The schemes to fleece more money from the private sector are infinitely more creative and in far greater abundance than are ideas for operating government more efficiently or, heaven forbid, cutting spending.

In recent days two ideas to "enhance revenue" appear to be gaining traction. On the state level the legalization of table games at the commonwealth’s casinos is attracting serious consideration from both sides of the aisle. And in Pittsburgh, Mayor Luke Ravenstahl is looking for ways to take more money from the pockets of the city’s nonprofit organizations.

It is worth remembering that Pennsylvania’s foray into legalized gambling began as a means of saving the ailing horse racing industry. Initial plans called for a limited number of slots machines at race tracks giving rise to "racinos" that would generate the dollars necessary to make the tracks financially viable.

From that beginning the slots initiative morphed quickly into a full scale casinoization of Pennsylvania that produced not only slots at race tracks, but also a number of stand-alone casinos and resort licenses that expanded gambling to every part of the state except Philadelphia. There only a string of controversies have prevented the opening of planned casinos.

Gambling opponents argued that slots would be but a "gateway drug" that would open the door for table games and ultimately full service casinos. State government is grappling with a $3 billion budget deficit and, with tax hikes apparently politically impossible, table games have emerged as an enticing alternate method of raising revenue.

Governor Rendell would like to spread gambling even further by making it legal for bars and restaurants to operate video poker machines. That idea is stalled – for the moment – but table gaming is gaining traction. House Democratic Whip Bill Deweese is a proponent of table games and champions that cause. In the senate, President Pro Tempore Joe Scarnati – a Republican – says he is open to the idea.

Pennsylvania’s experience with legalized gambling has been fraught with bureaucratic bungling and outright corruption. Despite that fact, the allure of more tax revenue from gambling now appears to be too enticing for cash starved legislators to resist. It is entirely possible, if not likely, that table games will be part of whatever budget solution emerges.

Meanwhile, in the Steel City, Mayor Luke Ravenstahl is upset. He told a local publication that voluntary contributions from nonprofit organizations have dropped and now do "not meet what we need." As a result, the mayor is seeking to compel nonprofits such as universities and hospitals to pay more.

His timing could not be worse. Most nonprofits depend on grant-making philanthropic foundations for a significant portion of their income. Those foundations in turn reap their income from investments. We all know what has happened to the equity markets in the past year. Foundations have fewer dollars available to award in grants which means less revenue for nonprofits.

The fact is nonprofit organizations relieve both government and the for-profit sector of a significant burden in providing a wide array of services ranging from health care and education to feeding the hungry and clothing the poor. The demand for all such services is up, and the dollars to provide them are down. If the city – or any level of government – starts extracting more money from nonprofits in additional taxes many with either fail, or be unable to provide the level of service needed.

Ravenstahl’s focus on the nonprofit sector is short-sighted and counterproductive. If the city’s nonprofits can no longer fulfill their missions, a greater burden for social services will fall back upon the city, thus raising costs for taxpayers. And, I am will to bet the mortgage that any properly run nonprofit can get more value per dollar than city agencies which get bogged down by bureaucracy and unions.

From expanded gambling to taxing nonprofits elected officials are seeking more ways to put their hands into our pockets. It is time for a new mindset to take hold. All that creativity and effort that is put into finding new sources of revenue should be redirected to finding ways to live within the revenue already available. By following that course, more money will remain in the private sector – the only place where real wealth and true economic growth can occur.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])

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