Betting on the Future: Where does all the money go?

More and more states around the country are legalizing sports betting, with visions of millions of dollars pouring into state and local government coffers. That’s especially true now that revenues have slowed because of the COVID-19 pandemic, and many local governments are staring at shortfalls.

Betting has been legalized in D.C.; voters in Maryland are in the process of deciding the question, and gaming companies are putting in their applications in Virginia.

But will it work? And how? And for whom?

This week, WTOP’s series “Betting on the Future: A look at sports betting in the DMV” is assessing the state of gambling in each area jurisdiction.

This week, WTOP has been highlighting sports betting around the D.C. area and all the promises that proponents of sports betting have been making about the money it could generate. Now, it’s time to look at where the money actually goes — when there’s actually some to be made.

Gambling was introduced into the area in the form of slot machines in Maryland. Before 2008, one had to go to Pennsylvania, Delaware or West Virginia to gamble legally. Table games were legalized in Maryland in 2012 in an effort to keep up with neighboring states.

In both cases, organized campaigns opposing the gambling measures. In order to gain support, gambling proponents vowed that the money raised by gambling would go to education: Lawmakers created the Education Trust Fund specifically to measure the revenue flowing in.

Indeed, it has flowed. Even with the pandemic shuttering casinos for the final months of the 2020 fiscal year, casino gaming netted Maryland almost $400 million in education money. In 2019, it was over $542 million generated.

But all of that was happening after the Great Recession, and so those who were leery about gambling from the get-go noticed school systems around the state were still struggling with their budgets. That reignited questions about promises made when gambling was introduced.

WTOP SPECIAL SERIES: BETTING ON THE FUTURE

“The state did in fact put the bulk of the casino revenue into what’s called the Education Trust Fund and that money then did go to schools,” explained Chris Meyer, a researcher with the Maryland Center On Economic Policy.

“But at the same time, the state essentially cut back on education funding out of the general fund, which is essentially the state’s main checking account,” Meyer said. “The casino money did go into schools, but it was essentially money out of one pocket and into the other.”

He added money out of that other pocket, so to speak, was then used to help balance the state’s other budgetary items such as transportation and health care, as state tax revenue slowly crawled back to pre-recession levels.

But, he admits, you could argue that even though casino gaming has produced billions in tax revenues for Maryland, the state’s promises about using gambling money for education were being broken.

That all changed in 2018, when Maryland voters amended the state’s constitution.

Now, the gambling-money lock box is really a lock box. “Not only does that revenue have to go towards schools, but it has to be on top of the formula revenue required under law,” said Meyer. “The state has to fully fund the formula [for education] out of the general fund, and then add the casino revenue on top of that.”

In the District, gaming revenues are just now trickling into the city’s coffers, but it’s far less than had been expected initially, and promises made to get key votes needed to move ahead with sports betting have also been broken.

When D.C. lawmakers first voted to legalize sports betting, it was agreed that the first $200,000 in tax revenues would go to help fund gambling addiction treatment programs. From there, the money would be split evenly between early education (Birth To Three For All DC Act) and the Neighborhood Safety and Engagement Fund, which works to quell violence in city neighborhoods.

If things had worked out as city leaders expected, millions of dollars would be flowing into those two programs now. That’s not nearly the case.

By last year, D.C. was lowering initial expectations of $26 million in the 2020 fiscal year, which ended Sept. 30, to $17 million. The reality was, a few hundred thousand dollars in tax revenue were generated once the city started hosting sports betting at the start of the summer.

Last year, the expectation was that sports betting would earn the city $27 million during the current fiscal year which just began earlier this month. Those projections have already been reduced to $12 million.

But even if the money was flowing as promised, it doesn’t mean early education and violence prevention programs in the District would be getting the promised money.

In 2019, the budget passed by the mayor and the D.C. Council stripped away those provisions and redirected gaming revenue into the general fund, minus the $200,000 to gambling addiction programs. After that happened, outrage combined with budgetary complexities to fix the law that made it really difficult to sort out exactly where the money was going.

Seriously. Lots of questions were asked to lots of people, who had to turn around and ask those questions to even more people, before it was sorted out. The bottom line is, early education and violence prevention programs will eventually be funded by gaming revenue.

For now, the revenue is going into the city’s general fund. However, any budget surplus over the next three fiscal years, including the current 2021 fiscal year, will go to those programs.

In the meantime, since passing a budget in 2019 that redirected the funding, the council has acted again.

Three years from now, when the 2024 fiscal year begins, the first $200,000 generated by sports betting will still go to help funding gambling addition prevention programs.

But then, the rest of the money, which the city expects will total in the millions of dollars, will be split evenly between the city’s Early Childhood Development Fund and the Neighborhood Safety and Engagement Fund.

Virginia, which is expected to see sports betting begin sometime in January 2021, has made no such promises. The first 2.5% of gambling revenue generated will go to gambling addiction programs, with the other 97.5% going to the state’s general fund.