TALLAHASSEE — In 1986, the Florida Lottery was pitched to residents as a cash cow for schoolchildren, with promises of millions to pay for the educational extras that lawmakers wouldn't.
That didn't happen.
Last year, parimutuel operators sold Broward County slot machines to voters statewide using much the same spiel, advertising up to $500 million for education add-ons such as teacher bonuses and laptop computers — and promising that, unlike the lottery, the money would supplement education dollars, not replace them.
That promise probably won't pan out, either. Instead, expect something similar to what happened with the lottery.
Legislators and school boards already are talking about using the tax money from slots to build schools or add on to overcrowded schools, something the state would have to pay for anyway to comply with the class-size limits that are now part of the state constitution.
The slots amendment said only that the tax money must be used for nonrecurring educational expenses. That means it can't be used to pay teacher salaries, but it could be used for bonuses — or building schools.
"The lottery was sold as a way to add money to education and everyone knows it didn't work out that way," said Lance DeHaven-Smith, a Florida State University political science professor who served as director of the National Public Sector Gaming Study Commission. "Ten-to-one you would see the same thing with the gambling money we're talking about now."
No matter how the slots money is used, gambling industry analysts say lawmakers were short-sighted in setting the tax rate so high. A lower rate, they say, would leave more profit for the industry to reinvest in buildings that would attract more people to gamble, which ultimately would mean more money for the industry — and the state.
Schools need $9 billion
Florida's population boom created a classroom crunch long before voters approved the class-size amendment in 2002. That leaves school districts, especially those in the fastest-growing areas, desperate for dollars.
Of the more than $1.1 billion the lottery contributed to education in 2004, $388 million went to public schools, $288 million to state colleges and universities, $235 million to Bright Futures scholarships for high-achieving high school students and $187 million to school construction, according to the Florida Legislature's Office of Economic and Demographic Research.
The Florida School Boards' Association would like to see slots money spent on school construction, too.
"We would like to see some of that money spent as pay-as-you-go for capital expenditures," association director Wayne Blanton said. "We are so far behind both in our growth for capital outlay and meeting class size that we've got to come up with some substantial dollars in this year, and that would be one way to do it."
But the slots taxes could pay only for about 14 to 17 schools per year, far short of the 450 necessary by 2010 to comply with the class-size amendment, according to EDR.
Schools cost an average of $20 million to build, depending on the location and type of school. EDR predicted in 2002 that it would cost $9 billion to build enough elementary, middle and high schools to accommodate the class-size amendment.
But only $270 million a year will go to education from slots by 2008, when the parimutuels with slots — known as "racinos" — are fully operational, according to EDR.
Industry experts estimate the amount could be higher — up to $345 million by 2008, despite the 50 percent tax rate that's one of the nation's highest.
The state number is based on the estimate that players will lose $90,000 at each of Broward's 6,000 slot machines per year — a total of $540 million streaming from their pockets into the parimutuels' coffers.
Just how much gamblers will actually wager — and win — is unclear. Under state law, the payout rate must be at least 85 percent, but the industry average is 90 percent, to encourage people to play the slots. If the parimutuels had a 90 percent winnings ratio and kept $540 million in a year, that would mean that players were getting $5.4 billion worth of play on the slot machines during the course of the year.
But it is unlikely that bettors would be bringing anywhere near $5.4 billion to the racinos. Rather, much of that money would be their winnings churned back through the machines.
The effective tax rate on the revenue of $540 million is expected to be 58 percent to 60 percent, depending on how much they rake in and the severity of the rules created by the Department of Business and Professional Regulation.
Of that, 3.2 percent or slightly more, depending on revenues, will go to local governments. The parimutuels negotiated those tax rates with Broward County, Pompano Beach, Dania Beach and Hallandale Beach.
About 5 percent will be spent on state regulatory fees, including an annual $3 million licensure fee and the cost of state-required criminal background checks for employees and business and occupational licenses. Fifty percent will go to education.
High tax rates criticized
Industry analysts claim that the high tax rate will actually shortchange the state and local governments, because it won't leave enough money for parimutuels to make the capital investments necessary to create glamorous destinations that draw gamblers — and shoppers — to places like the Bellagio in Las Vegas or Atlantic City's Borgata.
"It's socially irresponsible," industry analyst Eugene Christiansen said of Florida's tax rate. "You really condemn your community to properties that don't offer much beyond machines.... High tax rates really aren't good for anyone in the long run because they grind everything but gambling out of the equation."
Multi-use complexes such as Borgata — which boasts a spa, shopping, hotel rooms and other amenities — could help Florida maintain the "family-friendly" tourism image that gambling opponents fear will be usurped by slot machines.
By setting the tax rate so high, gambling proponents say, lawmakers have virtually guaranteed the scenario they feared — seedy slot barns.
Even the state's own economists warned that Florida would benefit most from the slots if taxed at 35 percent, a point that irks Sen. Steve Geller, D-Hallandale Beach, whose district is home to two of the county's four racinos, including what is likely to be the crown jewel, Gulfstream Park.
"I believe it was the intent when we passed this to have them fail," Geller said. "At a 10 percent tax rate, you get the Bellagio. You create massive amounts of jobs and opulence. At a 35 or 40 percent real tax rate, inclusive of regulatory costs, you end up with nice Hyatt or Hilton hotels, helping out the parimutuel industry and creating jobs. At a 70 percent tax rate, you end up with slots at the 7-11."
Geller estimates the effective tax rate could be as high as 70 percent because officials in the neighboring cities of Hollywood, Fort Lauderdale and Aventura hope to persuade lawmakers to give them a slice of the revenues to cover the impact of the racinos on their communities.
"The state can make money" on any of the tax rates, Geller said. "The question is, what kind of benefit do you want to give to the community?"
But Gov. Jeb Bush opposes using slot machine revenues to drive the economy.
"This is not economic development," he has said. "This is gambling."
Bush, who reluctantly signed the slots bill into law, also was concerned about setting the tax rate too low because he is negotiating an agreement with Florida's Indian tribes that would allow them to install slot machines in the casinos on tribal lands, including the Hard Rock Casino, just miles from Broward's four parimutuels.
Geller said, "What's going to happen is these parimutuels, because their costs are so high, they are not going to become the very attractive facilities that they would have with the tax rate 10 points lower."
Even at a 45 percent tax rate, EDR estimated that the machines would generate up to $112,000 per year, a total of $672 million — which would translate to $66 million more than the taxes going to education under the 50 percent tax rate.
Because of people switching to slot machine gambling, the lottery is expected to lose about $20 million a year in earnings. That's about 2 percent of the $1.1 billion a year that the lottery sent to education last year, according to EDR.
Politics a factor
Some lawmakers who oppose slots largely on moral grounds advocated setting the high "sin" tax as a prelude to trying to later overturn the slots amendment.
"It's a degradation of our moral compass. It's a disruption of our family-friendly state. It's a depletion of the meager income of the poor," said state Sen. Daniel Webster, R-Winter Garden, one of three senators who voted against the measure. "We're spending the future of our children on a wheel of fortune and it's going to leave a disaster."
House Speaker Allan Bense and Senate President Tom Lee, as well as Bush, support a repeal of the slots amendment. It is unlikely that in an election year, the legislature will be any friendlier to the parimutuels than they were in December's special session, when the slots implementation was passed.
Rep. Randy Johnson, R-Celebration, who is running against Lee for state chief financial officer, also plans to pursue a repeal during next year's regular session.
The nation's infatuation with gambling — especially poker and Internet gaming — appears to have left Florida's lawmakers unfazed.
"It's an unfortunate consequence of American history. Gambling is exactly like demon rum was 75 years ago when the temperance movement was agitating," Christiansen said. "Once you demonize something, it becomes difficult to look at it in any rational way."