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Weigh all the pros and cons, not just the new revenue

What do permitting a third casino, legalizing marijuana and eliminating liquor price controls have in common? They all have politicians seeing dollar signs.

Each of these policy directions have pros and cons and the potential for serious consequences if we adopt them. So they should not be made lightly.

Unfortunately that is exactly how lawmakers are looking at them right now, or at least that’s how these policies are being sold by proponents. Don’t worry, supporters say, my policy will bring in revenue for the state.

This is a sign of how money-hungry Hartford has become. Gov. Dannel Malloy and the General Assembly gave us two of the largest tax increases in state history in just five years. Meanwhile, we are cutting services. Some parts of the budget are growing much faster than others (debt payments and state-employee-benefits), creating this conundrum. But deciding important policy issues simply based on their budget impact would be short-sighted.

There are good arguments for and against each of these issues. So much so that supporters and opponents often break down along non-traditional lines, creating rifts within parties and among members of other like-minded coalitions.

There is a push to grant permission for Indian tribes to operate a third casino in Connecticut. Supporters argue a third casino is necessary for Connecticut to remain a competitive gambling destination as Massachusetts allows casino development. They argue a third casino will increase economic activity — and generate new revenue for the state. Opponents point to the social cost of casino gambling.

Connecticut’s two existing casinos provide evidence supporting both sides. Where anyone falls on the issue depends on how you weight each side’s evidence. But the incremental revenue to the state should not be the deciding factor. Recently, gambling revenues have provided $200 million in revenue to the state. That’s only about 1 percent of the state budget. Adding a third casino is largely a defensive measure to protect existing revenue rather than an opportunity for a large new funding source.

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Casino development in Massachusetts reveals the fundamental weakness of gambling-related government revenue. Gambling is a highly-profitable business because it is a government-sanctioned monopoly. Most states run a lottery but don’t allow any competing lotteries. Similarly, casino gambling creates an oasis of often-luxurious economic activity. But if the government limited any kind of economic activity to two — or three — locations, it would have the potential to create similar luxury and opulence. To put it another way, an unlimited supply of casinos would drastically reduce their profitability and probably their ability to contribute to the state budget. Gambling is far less attractive than destination gambling.

Legalizing marijuana will have far more side-effects than adding a third casino. While some of those side effects could be desirable (for example, keeping some people entirely out of the criminal justice system), the long-term consequences of this move could be momentous. The worst-possible outcome would be rash decision to grasp at $50 million in projected new revenue without fully weighing these real costs and implications.

Connecticut has an antiquated system of setting the minimum price for alcohol not found in any other state. Some supporters suggest repealing minimum pricing laws will generate $5 to $8 million in new state revenue by increasing sales volume. I support repeal — and submitted testimony in support of repeal for the Yankee Institute — but I find the revenue impact the least persuasive argument.

Estimates like that are highly contingent and impossible to verify after the fact. If we repeal minimum pricing, the direction of the state economy and numerous other factors will make it hard to separate out the impact of the policy change on state revenue.

That being said eliminating minimum pricing makes sense. We wouldn’t stand for state officials telling business owners how much they have to charge for most other products (tobacco being the other exception, although a more common one nationally). Support for state regulation like minimum pricing — and the previous issue of Sunday sales — among liquor store owners diminishes as one approaches the state line. Store owners near competitors who can compete more freely are less likely to support Connecticut’s anti-competitive liquor laws. Lawmakers already have a lot of important issues to address. The right price for a bottle of alcohol is far from a priority.

This column originally appeared in the Lakeville Journal.

Yankee Staff

Yankee Institute is a 501(c)(3) research and citizen education organization that does not accept government funding. Yankee Institute develops and advances free-market, limited-government solutions in Connecticut. As one of America’s oldest state-based think tanks, Yankee is a leading advocate for smart, limited government; fairness for taxpayers; and an open road to opportunity.

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