States: No luck from gambling

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NEW YORK (CNNMoney.com) -- Recession-weary Americans aren't gambling the way they used to -- and that could be a problem for many U.S. states already struggling with record budget gaps due to the weak economy.

State revenues from all sources of authorized gambling fell 2.8% in fiscal 2009, according to a report from the Rockefeller Institute of Government released Monday. It was the first decline in data going back at least 20 years.

"It's not a huge decline, but it's sobering," said Mark Marchand, director of communications for the Rockefeller Institute.

Lottery income, the largest source of state gambling revenues, fell 2.6%. It was the first annual drop in lottery revenue going back to 1970, according to the group.

Income from casinos fell 8.5%, while revenue from pari-mutuel wagering, which includes dog and horse racing, sank nearly 15%.

However, revenue from race tracks that also host electronic gambling machines such as slot-machines, or "racinos," increased by 6.7%, largely because of new racinos opening in Indiana and Pennsylvania, the report said.

Lucy Dadayan, a Rockefeller Institute senior analyst, said the decline in gambling revenue is a red flag for states planning to expand gambling activities to help pay for social services.

"Expenditures on education and other programs will generally grow more rapidly than gambling revenue over time," Dadayan said in a a statement. "Thus, new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, long-term budget imbalances."

Over the past year, the report said 25 states have proposed or considered expanding gambling activities, according to the report.

The decline in gambling revenues comes as the U.S. economy struggles to recover from one of the longest recessions on record. The report said the drop in gambling revenue was "likely influenced by the current economic downturn."

Of the 41 states with major gambling revenue, 28 states reported declines over the year, with 14 states reporting decreases of more than 5%, according to the report.

However, the study did not include income from Native American casinos, which are active in 32 states, because comprehensive data were not available.

Twelve states showed growth in revenue collections from the major sources of gambling.

While the report said gambling revenue plays a "relatively small" role in state budgets, this year's drop comes after several years of sustained growth.

Overall gambling revenues increase by 60% over the previous decade, from $15 billion in fiscal year 1998 to $24 billion in fiscal year 2008, according to the report.

During that same period, state revenues from gambling activities amounted to no less than 2.1% and no more than 2.5% of state-generated general revenues.