Initiative 892 - “Equal Treatment Equals Lower Property Taxes”

On the November 2, 2004 General Election Ballot

Summary of Measure

The measure would authorize licensed gambling establishments such as charities, restaurants, taverns, bowling alleys, horse racing establishments and card rooms to operate electronic scratch ticket machines. Beginning in 2006, a portion of the revenues generated by the scratch ticket machines would be used to offset and reduce state property taxes by the amount that would otherwise be collected under current law. The Washington State Lottery Commission and the Washington State Horse Racing Commission are authorized to determine the number and allocation of licenses for the proposed electronic ticket machines, at a level equal to the number of machines licensed to be operated by tribal governments in the state.

The State’s Office of Financial Management prepared an analysis of the fiscal impact of the initiative. The following summary is taken from the report:

Fiscal estimates are based on staged deployment of 18,225 electronic scratch ticket terminals. Expected net revenue per machine is assumed to be about $112 per operating day. Total prizes are assumed to be the minimum 75 percent of gross annual revenue from electronic scratch ticket games as required in the Initiative. Given these assumptions, revenues and distributions of revenues from Initiative 892 are as follows:

Revenues from Initiative 892

Revenue in $ millions

2006

2007

2008

2009

Net Revenue

277.0

690.3

742.5

742.5

Distribution of Net Win

Licensees @ 65%

180.1

448.7

482.6

482.6

State tax @ 35%

97.0

241.6

259.9

259.9

Distribution of State Tax

Lottery operating expenses

5.5

5.1

5.3

5.3

Property tax reduction @ 99%

90.6

234.1

252.0

252.0

Problem gambling @ 1%

0.9

2.4

2.5

2.5

Revenues from the state tax placed in the Equal Treatment Equals Lower Property Taxes Account will be used to reduce the state property tax levy starting in Calendar Year 2007. The effects of the reduction on the state levy and the state levy rates are shown below:

Change in State Property Tax Levy from Initiative 892

State Levy in $ millions; Rates in dollars per $1,000 of market value of property

State Levy before I–892

State Levy Reduction from I–892

State Levy after I–892

State Levy Rate before I–892

State Levy Rate after I–892

CY 2006

$1,629.4

$0.0

$1,629.4

$2.50

$2.50

CY 2007

1,680.0

90.6

1,589.4

2.43

2.30

CY 2008

1,731.7

234.1

1,497.6

2.34

2.03

CY 2009

1,783.1

252.0

1,531.1

2.28

1.96

Property tax savings on property with market value of $100,000 will be approximately $13 in Calendar Year 2007. Once the deployment of electronic scratch ticket machines is completed savings will rise to $32 per year for property with market value of $100,000 in Calendar Year 2009.

Electronic scratch ticket games may compete with Lottery Commission products as well as other gaming and entertainment options for consumer spending. The Lottery Commission estimates that sales of its products will be reduced by up to 25 percent if those products are not sold in the same venues where there are electronic scratch ticket machines…. If the competition from electronic scratch tickets reduces the sales of Lottery Commission products by 25 percent, Lottery revenue deposited in the Education Construction Account would be reduced by $19.3 million in the 2005-07 Biennium and $60.0 million in the 2007-09 Biennium.

Electronic scratch ticket games are also likely to compete with other gaming products like pull tab and punch board games. Cities, towns and counties have statutory authority to tax punch board and pull tab games as well as bingo, raffles, social card games and amusement games. The state Gambling Commission estimates that local gambling tax revenues might decline by as much as $8.4 million in 2008 and in 2009.

Arguments FOR the Measure

The Ballot Issues Committee identified the proponent organization, Just Treat Us the Same. However, its representative, Tim Eyman, declined to participate in the League’s process. The Committee developed the following arguments from Tim Eyman's August 20, 2004 Guest Opinion, "I-892 Eases Tax Burden" published in the Puget Sound Business Journal:

· I-892 will help address Washington's tax problem. Washington is the seventh highest-taxed state in the nation and the state's property tax problem is the No. 1 issue that needs fixing. According to the state Department of Revenue, citizens’ property taxes have increased six-fold from $1 billion in 1980 to $6.25 billion in 2003. This increase is unsupportable and unsustainable. Since 1980, property taxes have nearly doubled per citizen after accounting for inflation and population growth.

· I-892 substantially lowers property taxes for citizens but doesn't cost the government a penny by imposing 35 percent user fee on electronic scratch ticket machines. The tax would generate $400 million per year in new revenues to substantially lower property taxes.

· I-892 allows the non-tribal establishments to compete with the tribes who currently are the only entities that can provide this type of gambling and who don't pay taxes.

· I-892 will not "expand gambling," as opponents contend. I-892 only allows existing non-tribal establishments (not grocery stores or 7-Elevens, but only gambling licensees whose customers are age 21 and over) to compete with the tribes that already offer these same machines. So I-892 authorizes nothing new -- it just gives the fixed number of people who play these machines a different place to go.

· I-892 is fair because it requires equal treatment of non-tribal and tribal establishments. That's fair. I-892 doesn't "take away" from the tribes -- it only requires them to compete. And because the tribes pay no taxes to federal, state and local governments, they will be able to continue to compete.

Arguments AGAINST the Measure

The Ballot Issues Committee met with representatives of No On I-892. The following arguments were put forth by the opponents:

· Initiative 892's main intent is not lowering property taxes, but legalizing electronic slot machines in Washington State. Currently, slot machines are only allowed in Native American tribal casinos. Over 18,000 of these machines could crop up almost anywhere in our neighborhoods - in bowling alleys, restaurants, and bars.

· Using gambling to fund schools is inappropriate and an unstable revenue source.

· The proponents claim of $400 million in new state revenues is overstated. OFM projects revenues from the initiative to reach $260 million by 2009; however, that amount will be offset by losses to the State Lottery account for schools as lottery tickets compete with the new slot machines.

· Additionally, local governments will experience a loss of up to $8 million in annual revenues as punch card and pull tab gaming competes with the new slot machines. Also, other recreational spending will be shifted to gambling, further reducing sales tax revenues.

· I-892 is bad for Native Americans. The proponents’ reference to I-892 as "Just Treat Us the Same," conveniently ignores the fact that we have not treated Native Americans "the same" for most of America's history. The surviving tribes today work hard to preserve their culture and way of life, and one of the ways they do this is by building casinos on their reservations.

· I-892 is funded by out of state corporations. Corporations from Canada and Nevada contributed most of the funds to buy this initiative onto the ballot. Great Canadian Gaming has given $160,000 already.

· The introduction of 18,255 slot machines, the most addictive form of gambling, will increase problem gambling and thus increase the incidence of gambling-related social problems such as domestic violence and child abuse and neglect.

POSITION and RATIONALE

The Municipal League opposes Initiative 892. The trustees concluded that the measure would increase, not just spread, existing levels of gambling. Money spent on increased slot machine gambling would come from current spending on other recreational activities and lottery tickets, punch cards and pull tabs, and as such would be merely shifting tax revenues from property taxes and sales taxes to the gambling tax, a less stable source. Local governments would additionally be faced with increased policing and social welfare costs. Trustees believed that the negative impacts on our tax system and our communities would be significant.

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