Doug Schmidt Blog & Writings

Years from today, if Marylanders are asked to cite Governor Martin O’Malley’s greatest achievement while in office, the first answer will be, “He was the governor who gave us slots.”

The Governor’s ego and self-image will surely bristle at this epitaph on his career, but the fact is that no single issue in memory in Maryland has engendered more lobbying money, public rallies, legislative hearings, arm twisting, bill printing, press reporting and hot air than slots gambling.  Slots is a mass from which there is no calculable escape velocity.  Long after Governor O’Malley retires, his legacy of slots and the gambling industry will remain with us.

When Governor O’Malley shepherded through the new era of slots gambling in Maryland, he thought he was achieving two important goals.  The first was to plug, in the face of a recession, a major leak in state revenues with a predicted $660 million per year of new revenue by 2013.  The second was to put an end, once and for all, to the perpetual, divisive debate about slots in Maryland.  He has accomplished neither.

The Governor led a campaign for slots based on a claim that the State of Maryland would have to cut services or increase taxes without slots revenues.  The gambling lobby, the largest lobby in Annapolis, spent an estimated $7.1 million in its efforts to convince the electorate to vote for the November 2008 referendum to change the Maryland Constitution, outspending the citizen-led coalition against slots by 7 to 1.  In the last week before the referendum, the Governor robo-called Maryland homes politicking for slots.  It was an all-out fear mongering campaign.  Deficit budget or slots.  Reduced funding for education or slots.  Considering the pressure politics, it is notable that four out of ten Marylanders still voted against the referendum, suggesting that the moral and political debate on this issue would persist.  Nevertheless, the Governor claimed a tremendous mandate.  Slots forged ahead.

Slots was originally designed to save Maryland horse racing, but to the chagrin of the horse racing industry, this objective has become a shadow of its former self.  When Governor Robert L. Ehrlich, Jr. first took office in 2003, he was greeted with a potential tsunami of a deficit that he inherited from Governor Parris Glendenning.  In a move that may have doomed him to one term, Governor Ehrlich rejected seizing the moment in a Reaganesque fashion to use his political goodwill and capital to right-size state government, shelf the unfunded “Thornton” education mandate, and otherwise rein in spending.  Instead, he and his poorly prepared advisors grasped at slots as a life ring.

The Ehrlich administration took what was his modest and soft-pedaled campaign promise to push forward slots for the horse racing industry and turned slots revenues into the foundation for his administration’s balanced budget.  Ehrlich’s slots bill was hastily conceived and poorly written.  After spending two sessions battling a Democratic legislature and dragging luminaries such as Maryland State Superintendent of Schools Dr. Nancy S. Grasmick in front of committees to shill for slots, Governor Ehrlich finally tossed in the towel.  Surely partisan politics defeated his effort.  But a sloppy bill and concept made it easy to reject.

Fast forward to newly elected Governor O’Malley in 2007.  The same set of circumstances awaited him—a budget with a looming deficit that only draconian cuts, new taxes or the promise of slots could cure.  Politicians get elected on promises to spend money on new programs not to cut them.  So, like his predecessor, O’Malley chose the hope of slots revenues over better budgeting and better government.  Key to the whole slots initiative was the Governor’s and the Department of Legislative Services’ projection that slots would, after a few years, bring $660 million of annual revenue to the State’s coffers.

The numbers do not add up.  The numbers have never added up.  Even the humblest church lady who ever testified against slots in Annapolis could see into the future better than two governors.  What people did not understand at the time was that to net $660 million for the state, gamblers had to lose approximately $1.4 billion at the machines.  The majority of the $1.4 billion take was promised to the slots parlor licensees, horse racing, local governments and various other constituencies needed to pass a gambling bill.  Everybody got something—or so they thought.

The great folly of Maryland’s slots plan was to be the fifth and last state in the region to enact slots after New Jersey, Delaware, West Virginia and Pennsylvania.  Jack Welch of General Electric fame used to preach that GE would not own or enter a business where GE could not be number one or number two.  His summation of being a follower was, “When you’re number four or five in a market, when number one sneezes, you get pneumonia.”  The concept that Maryland could expect people to flock to our slots parlors from across a highly competitive and saturated regional market was flawed from the beginning.

Even more ridiculous was that this $660 million was based on Maryland jamming into our little state more slot machines than already existed in either Delaware or West Virginia.  The total take per machine per year was rosily projected to be better than what is actually achieved in Delaware or West Virginia.  In a final display of financial lunacy, Maryland was going to accomplish all of this by exacting from the gambling companies one of the lowest revenue sharing deals in the nation.

Senate President Thomas V. Mike Miller, Jr. was equally reliant on the people’s inability to add and subtract.    He was particularly obsessed with repatriating the money he claimed that Marylanders gambled in other states, as if he could turn around Charles Town bound buses at the West Virginia border.  An oft-cited $350 to $400 million gross number came from a study of dubious origins and limited sampling.   Again, even if it was correct, the math did not work.  The question people never asked was how do you get from $400 million currently spent by Maryland gamblers to $1.4 billion needed to make Maryland slots work?  That is apples to apples.  You get there not be enticing Maryland gamblers to come home or depending upon already satisfied out-of-state gamblers to stream across our borders.  You get there by turning tens of thousands of Maryland citizens who formerly did not gamble into slots gamblers.

Published in Baltimore Citybizlist.com on November 1, 2010.