Legalized sports betting could generate millions for California as state considers cuts to public services

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There is much about the future of post-COVID-19 California that is unknown. But this we know with certainty: Cities across the state have been hit with unprecedented losses in revenue, and the next wave of harm to come from this pandemic will likely be a deep reduction in the public services that keep our communities safe and livable.

            Cities that are highly dependent on sales and hotel-occupancy taxes have been hit particularly hard, but no communities have been spared. A recent survey of California cities shows that more than 90% are considering laying off or furloughing workers, reducing public services or, in most cases, both. More than 80% report that police services will be adversely impacted.

            To minimize the harm that lies ahead, California must consider creative ways of increasing revenues to fund public services – measures that will help keep teachers, police officers and firefighters on the job but won’t risk further impeding our struggling small businesses or hard-hit families.

            The Legislature is now considering a proposal, Senate Constitutional Amendment 6, we have jointly authored, that would allow voters in November to approve just such a measure. By legalizing sports betting, experts estimate that California could generate up to $500 million in revenue each year by taxing and regulating an enterprise in which Californians are now illegally wagering an estimated $10 billion a year.

            It is hardly a radical, or even novel, idea. Since the U.S. Supreme Court ruled two years ago that states are free to legalize sports betting, 22 states have already done so, and a majority of the remaining states are considering it.

            Given all the challenges that have arisen from the coronavirus crisis, some might argue that is an unlikely time for the Legislature to consider a gambling issue. But the revenue losses suffered by schools, cities, the state and other local governments are real, immediate and severe. By acting now to end the black market in sports gambling, California can generate desperately needed revenues simply by regulating an enterprise that is already taking place.

            The proposed constitutional amendment – passage will require a two-thirds majority vote of the Legislature to place it on the ballot, and then approval by voters – would authorize tribal casinos and the state’s four major horse racing tracks to operate sports wagering at their facilities and via mobile devices. As in other states, it would put in place strict third-party verification of the age and identity of those placing wagers. Advertising to minors would be prohibited.

There are a few key differences between the proposal being considered in the Legislature and a potential ballot initiative being backed by some gaming tribes and the racetracks. Most significant is that the proposal in the Legislature would authorize mobile wagering.

That provision is essential to convert a substantial percentage of the illegal market and to generate meaningful revenue to support education, public safety and other vital public programs. Without mobile wagering, the Legislature’s fiscal analysts estimate legal sports gambling would generate only “tens of millions” in tax revenue.

The proposal before lawmakers would set the tax rate on gambling revenues at 15%, and also place a tax on the online providers that contract with tribes to provide mobile wagering.

In addition, the proposal in the Legislature would authorize established cardrooms in California to continue to play the games they already operate. For 51 cities across the state, this provision is essential because tax revenues from cardrooms are a significant part of their budgets; in one community, about 75% of the general fund is dependent on cardroom revenue.  Without this provision, police, fire and safety net programs in those communities face devastating cuts.

For state and local governments, some stark choices lie ahead. Vital services will be cut back, some programs will be eliminated. The only question now before us, what can we do to minimize the harm?

On the issue of legal sports betting, the answer ought to be obvious. We can raise new found revenues and secure existing funds, or we can face a reality in our cities that is even harsher than it needs to be.

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Assemblyman Adam Gray is a Democrat from Merced who represents Assembly District 21, assemblymember.gray@assembly.ca.gov. He has also written about hydro-electric power and vaping. State Sen. Bill Dodd is a Democrat who represents Napa and parts of five other counties, Bill.Dodd@sen.ca.gov. They wrote this commentary for CalMatters.