Citizens Research Council of Michigan

The Citizens Research Council of Michigan is a private, not-for- profit public affairs research organization established in 1916 to provide nonpartisan analysis of state and local government organization and finance in Michigan.

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The right to criticize
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-- Lent Upson,
1st Executive Director of CRC

PROPOSAL 04-01: Requiring Statewide and Local Votes on New Forms of Gambling

On November 2, 2004, Michigan voters will be asked to amend the 1963 Constitution to require a statewide vote on any state actions to expand gambling opportunities and voter approval in any municipality to which gambling is proposed for expansion.

The Proposal

The proposal would amend Article IV, Section 41, of the Michigan Constitution to provide as follows:

The legislature may authorize lotteries and permit the sale of lottery tickets in the manner provided by law. No law enacted after January 1, 2004 that authorizes any form of gambling shall be effective, nor after January 1, 2004, shall any new state Lottery games utilizing table games or player operated mechanical or electronic devices be established, without the approval of a majority of electors voting in a statewide general election and a majority of electors voting in the township or city where gambling will take place. This section shall not apply to gambling in up to three casinos in the City of Detroit or to Indian tribal gaming. [language of proposed amendment in italics]

Proposal 04-01 would not terminate the expansion of gambling in the state, but would require voter approval of proposed expansions. Any legislation that authorizes any form of gambling – such as authorization of new casinos or the so-called racinos – would require voter approval on a statewide ballot before it could become effective. Likewise, any new games introduced by the Bureau of State Lottery that utilize table games or player operated mechanical or electrical devices would require voter approval in a statewide ballot before they could become effective. "Player operated mechanical or electronic devices," although not defined by the proposal, can include slot-machines, video poker machines, video lottery terminals, and electronic pull-tab machines that have been introduced in some states and are being investigated in others to enhance sagging lottery revenues.

The proposal also would require voter approval of city or township ballot questions before new gambling establishments can begin operations within a municipal unit. In Michigan, village residents remain township residents, so no provisions are necessary for voting on such a question in a village.

The proposal would not affect any current or future Indian tribal casinos or the three casinos currently operating in the City of Detroit. Tribal casinos operate under compacts with the state government. The Detroit casinos operate under a petition-initiated law approved in a statewide vote.

History

In 1933, as the state attempted to deal with the financial impact of the Great Depression, a law was enacted to provide for the regulation of horse race meetings, license of conduct for racing meets, and imposition of a tax on the pari-mutuel wagering associated with the races. Pari-mutuel wagering is a betting system in which all bets of a particular type are placed together in a pool, taxes and a house take are removed, and payoff odds are calculated by sharing the pool among all placed bets. Michigan has 7 horse race tracks with opportunities for pari-mutuel wagering on live and simulcast races. Today, 40 states authorize pari-mutuel wagering, with some states authorizing wagering on dog races and jai alai.

Other than casino gaming in Las Vegas, pari-mutuel wagering was the only state-sanctioned gambling authorized in the United States until the 1960s. In 1963, New Hampshire became the first state to authorize a state lottery. Several states followed, and in 1972, under pressure to balance the state budget and in view of the revenues garnered in other states, a ballot question proposed to amend the Michigan Constitution to authorize a state lottery. Upon approval, a lottery game was introduced, followed shortly thereafter by the introduction of instant games. Over the years, the Michigan Bureau of State Lottery has operated Daily 3 and Daily 4 games, instant games, Lotto and multi-state Lotto games, Keno and Club Keno games, and television game shows. Presently, Lottery tickets are sold in over 7,000 locations and another 700 locations sell only instant games. Club games are played in over 1,500 bars and restaurants. Michigan is one of 40 states currently with lotteries operated within their borders. Oklahoma will be voting on the question of authorizing a state lottery at the November election.

Also in 1972, Michigan authorized wagering on bingo games and millionaire parties as fundraising activities for charitable causes.

Casino gambling was introduced to Michigan in 1984, when the first Indian tribal casino opened. In 1988, the United States Congress enacted the Indian Gaming Regulatory Act that authorized Indian tribes to operate casinos under certain terms and conditions. The states’ role in authorizing Indian tribal casinos is generally limited to negotiating compact agreements that regulate the conditions under which the casinos operate. Michigan, with 11 tribes operating 17 casinos, is one of 28 states with Indian tribal casinos operating within their borders.

Commercial casino gambling was authorized in Michigan in 1996, when a petition-initiated statute was enacted by a statewide vote to authorize three casinos within the City of Detroit. Detroit’s casinos were intended to provide tax revenues to fund the state’s schools, to support the City of Detroit finances, and to provide viable alternatives to Casino Windsor, which had begun operations in Windsor, Canada, in 1984. The first of the three Detroit casinos began operations in 1999, with the other two beginning operations shortly thereafter. Michigan is one of 11 states that authorize commercial casino operations.

Legislation to authorize racinos, short for racetrack-based casinos, has been approved in both houses of the Michigan Legislature and currently awaits action in Conference Committee. Usually racinos offer slot machines, but some states have authorized other games as well. Michigan’s horserace track operators have expressed an interest in expanding their operations to include racinos and other interests have applied for track licenses based on speculation that the legislation authorizing racinos will be enacted. Should the authorizing legislation be enacted and if Proposal 04-01 is approved by the electors, it would be necessary to subject the racino legislation to a statewide vote and local votes in the municipalities hosting racetracks that would have racinos. With the recent enactment of legislation in Pennsylvania to authorize up to 61,000 slot machines in racetracks and card rooms, 10 states now authorize racinos or casinos with limited gaming opportunities. Other states are considering racinos, with electors in California and Illinois voting on ballot questions to authorize racinos in November.

In Fiscal Year 2003, the State of Michigan received 2.9 percent of it’s own source revenue from gambling. The City of Detroit received 16.5 percent of it’s own source revenue from the local tax on casinos (See Table 1).

 
Table 1

Michigan State and Local Revenues from Gambling, FY2003
(millions of dollars)

State Casino Gaming Tax $ 90.8
Horserace Wagering Tax 11.8
Lottery (Net to School Aid Fund) 586.0
Local Casino Gaming Tax 111.3
Total $800.0

 

Analysis

More so than in many other states, gambling providers in Michigan primarily draw upon local state residents as their customers. Las Vegas has long served as a destination, with visitors traveling from all over the world for the gambling and entertainment opportunities offered. Atlantic City experienced success by offering gambling close to the major population centers of New York, Philadelphia, and Baltimore. Likewise, casinos in Louisiana, Mississippi, and many of the other states with casinos have been able to draw customers from other states or capitalize on the tourism activity already in place.

Gambling providers in Michigan have had different experiences. Lottery sales are largely made to Michigan residents. Some residents of other states might come to Michigan when the size of the pot grows sufficiently large, but those occasions are the exception rather than the rule. Horserace related pari-mutuel wagering opportunities are available in most states, including all of Michigan’s surrounding states, so few residents of other states travel to Michigan to visit those establishments. Club Keno players are, by definition, patrons of neighborhood bars and restaurants. The Indian tribal casinos are not marketed much outside of Michigan. According to a July 28, 2004 article in The Detroit News, MGM Grand draws only about 15 percent of its patrons from outside of Michigan. Another 65 percent of the casino’s patrons are from outside of Detroit, but within Michigan.

Mandated Referenda

This proposal offers two avenues to the ballot that are not currently available to those opposed to the expansion of gambling. The Michigan Constitution reserves to the people the power to approve or reject laws enacted by the legislature, the referendum. Many city charters also reserve the right of referendum to city residents. When the right of referendum is invoked, the enacted law is suspended until the people have an opportunity to approve or reject it at the polls. Proposal 04-01 would extend the right of referendum to actions of the Bureau of State Lottery that otherwise do not require legislative action. It is likely that any efforts to authorize a new casino in a city other than Detroit would involve a local effort to levy a local gaming tax. Provisions of the “Headlee Amendment” in the state Constitution require a vote of the electors of that local government to authorize new local taxes or to increase tax rate increases above those previously authorized. However, not all expansions of gambling would involve a new casino or new taxes, and the proposed amendment would require a local vote in those instances as well.

Michigan mandates ballot questions for few subject matters. Ballot questions must be submitted to the electorate on such issues as constitutional amendments and home rule charter amendments, the issuance of bonded indebtedness, the authorization of new local taxes not authorized in 1978, and tax rate increases above the rates authorized in 1978. The rate of the Sales Tax may not be increased without a statewide constitutional amendment. Proposal 04-01 would thus elevate the authorization of enhanced gambling opportunities to this select company.

Restrictions on Competition

Historically, certain private firms -- water and electricity or bridges and ferries, for example -- have received protection by the State from competition on the grounds that they were public utilities. Gambling has received somewhat similar treatment. The limitations on gambling already accomplished through restrictions on the number of commercial casinos and licensing of horse racetracks would be augmented by the adoption of Proposal 04-01 in a way unprecedented for other private firms.

A case might be made that conditioning expanded gambling on voter approval may be justified by the negative social ramifications of compulsive gambling. Responding to a Congressional charge to provide more information, the National Gambling Impact Study Commission (NGISC) issued a report on the social and economic impacts of gambling.1 Among the findings reported in the NGISC study was that the prevalence of pathological and problem gambling doubles when a casino is available within 50 miles. However, gambling opportunities exist outside the purview of Michigan state and local government that the proposed constitution amendment would do nothing to limit. Gamblers do not have to travel far from Michigan – Indiana, Illinois, Wisconsin, Pennsylvania, New York, Canada – to find gambling opportunities. People may engage in friendly wagers for their own entertainment. The Internet has spawned tens of thousands of websites where gamblers can try their luck from the comfort of their own homes.

Ballot Questions in Other States

A review of statutes authorizing gambling found at least 13 states with requirements for statewide votes, local votes, or both. Most vote requirements in other states call only for a local vote in the community that will host the gambling facility. Some states without vote requirements have sought voter approval through initiative or referenda provisions.

In South Dakota, the ballot question must appear in all counties within 15 miles of a proposed gambling facility. Such a measure reflects the area from which a track expects to draw customers, while the proposed Michigan measure and most provisions in other states reflect only the local unit in which the facility will be located.

Shortly after Louisiana adopted a constitutional amendment similar to Proposal 04-01, a statewide election gave every parish an opportunity to keep or reject most existing forms of gambling. At that time, video poker was operating in all parishes. The land-based casino was limited by statute and contract to Orleans Parish and riverboat licenses were limited to 15 and to certain parishes. Orleans Parish approved retaining the casino and all of the parishes with riverboat operations voted to keep them. On the other hand, 33 of the 64 parishes voted out video poker.

At the same time Michigan voters are deciding whether to amend the Constitution to require votes on future expansions of gambling, questions on the expansion of gambling will appear on the ballot in several states -- most of which appear due to petition-initiated efforts rather than voting requirements. Washington and Ohio electors will vote on authorization of video lottery terminals. California electors will vote to authorize 30,000 slot machines at five racetracks and 11 card clubs. Another California measure and an Oklahoma question would seek voter approval of expanding the operations of Indian tribal casinos. Nebraska electors will vote on authorization of casinos and slot machines at restaurants, bars, and racetracks. Oklahoma electors also will vote on authorization of a state lottery.

Effect on the Lottery

The proposed amendment will have no immediate impact on Lottery games, but may burden the Bureau of State Lottery in efforts to capitalize on technological developments in the future. The state relies primarily on convenience stores, restaurants, and bars to serve as retail outlets for lottery tickets. That role is troublesome for some of these retailers, as time spent selling Lottery, instant game, or Club Keno tickets is time that cannot be spent on their core business.

While the provisions in the proposed amendment were apparently aimed at the video lottery terminals (VLTs), video poker, and other electronic games that rival slot machines for gamblers interest, they also may apply to self-serve Lottery terminals. Lotteries in other states have introduced VLTs and other electronic games to appeal to new customers due to their fast-paced action and instant pay off. Self-serve Lottery terminals are player operated electronic devices that sell lottery tickets just like those which currently can be purchased from a store clerk. In this way, they resemble automatic teller machines, vending machines that sell snacks and beverages, or self-checkout lanes that have been introduced to some stores. Self-serve Lottery terminals are already in place in Texas and California.

Proponents and opponents agree that the State could introduce self-serve Lottery terminals to sell tickets for the games currently offered. Disagreement arises over what constitutes a "new state Lottery game." Proponents of Proposal 04-01 argue that the State Lottery currently offers instant games (such as scratch-off tickets), online games (such as Daily 3 or Mega Millions games), and Club games (such as Club Keno). In their view, variations on these themes -- such as the name of the scratch-off game or the number of digits drawn in the daily games -- do not constitute new games, and thus would not require a vote. Opponents have taken a more literal reading of the proposal and worry that the courts would interpret a "new state Lottery game" to be anything not currently offered.

The implication of the courts taking a literal interpretation of the wording is troublesome for the Lottery. Michigan, like all states with lotteries, routinely develops new games to attract and retain customers. A strict requirement for voter approval would create several hurdles for Lottery officials:

  • The need for the Lottery to gain a legislative resolution to place any questions on the statewide ballot could introduce legislative micromanagement to their operations.
  • Because general elections are held only once every two years, a potentially long time delay would impede the ability of the Lottery to react to changing markets.
  • State law restricts the use of public resources to advertise in support or opposition to ballot questions. Lottery officials could not spend state funds to support their ballot question while any potential opposition could spend freely.
  • Finally, a strict interpretation would require hundreds of local votes any time new Lottery games are planned for sale through self-serve terminals. With over 7,000 outlets selling online games, more than 700 outlets selling only instant games, and more than 1,500 restaurants and bars selling Club Keno tickets, the proposed introduction of a new Lottery game through self-serve terminals could necessitate ballot questions in every municipality in which new games would be offered for sale through self-serve terminals.

 


1 National Gambling Impact Study Commission, June 18, 1999.

 

 

Questions, comments, errors: crcmich@crcmich.org
Last Updated: September 24, 2004