Gambling vs. Marijuana: A Tale of Two “Vices”

It’s been nearly six months since the voters approved Question 4 to legalize and tax recreational marijuana. But we’re still at the starting line, because in December the Legislature pushed back by six months all the timelines that the ballot question had established. The regulatory commission that was supposed to be appointed by March won’t be appointed until September, the review of license applications that was supposed to begin in October won’t start until next April, and so on.

And now it’s possible that the finish line may be moved. There’s a brand new legislative committee that will review the 44 bills that were filed at the start of the new 2017-2018 session responding to the passage of the new law.  With only a few exceptions, the bills are far more wary than enthusiastic. They propose stricter local control over retail marijuana establishments, a reduction in the amount of marijuana that can be grown at home, restrictions on potency (the law, as approved by the voters, provided that such restrictions would be imposed by the regulatory commission), restrictions on advertising, etc., etc.

Which is at least a little odd considering that the Department of Revenue has estimated that marijuana sales could bring in $64 million in new revenue in the first year of the law’s operation, and once again this year the state is digging through the sofa cushions for loose change to fix the perennial hole in the budget.

But before we conclude that our lawmakers are skittish about any new enterprise that may strike some members of the citizenry as morally problematic even as it brings in new revenue, let’s review the launch of the casino law.

At a comparable time (six months after the law was passed), the members of the new Massachusetts Gaming Commission had been appointed and staked to a $15 million line of credit.  The buzz was all about the new jobs that were shortly to arrive and the new revenues that were shortly to replenish our recession-depleted treasury.  (The marijuana law has gotten only a measly $300,000 to cover costs to date.)

The Gaming Commission got the licensing process underway with an award to Penn National Gaming to operate a slots parlor in Plainville. They did so with the rosy understanding that it would bring in as much as $300 million in revenue annually. But whoops. After the first year of operation, the revenue number was $160 million, barely half of the original estimate. What happened?

According to the Commission’s account, which the Globe reported credulously, the initial revenue projections were “extravagant” guesses offered by casino industry consultants. Well, okay, but what about the Commission’s due diligence in investigating that guesstimate? “We thought there was a flaw in their methodology but we couldn’t find it,” Crosby said.

Indeed. The Commission could not find the flaw, even when aided by the research of their own consultants, who also predicted that Plainville’s annual revenues would yield far more than $160 million — and who were rewarded by the state for such prognostications to the tune of a million bucks.

Water under the bridge, apparently. Anyway, now all is well.  The Commission “could not be more pleased” with the Plainridge revenues, which are half of the original estimates and which is totally okay, because we now know the estimates were unrealistic to begin with. Construction has begun on two other casinos, with who knows how many more to follow, as Massachusetts duels Connecticut for supremacy in the gambling wars. Gambling is clearly the Legislature’s favored child, (as compared to marijuana), and even more cossetting may be on the way — the House of Representatives is proposing to let casinos continue to serve alcohol for hours after bars and restaurants must close. Meanwhile, marijuana legalization is in danger of being strangled in its crib.

Did the Legislature ever take note of the discrepancy between revenue expectations and revenue reality in Plainville? No evidence that they did, and if it’s brought to their attention, many seem prepared to laugh it off like Commissioner Crosby did: “we all seemed to be smoking something.”

 

“Breaking Faith” with the Voters: A Tale of Two Ballot Questions

The Justices of the Supreme Judicial Court have ruled that the income tax proposal the Senate included in its budget is not unconstitutional, ending the legal controversy, but not the political controversy.

The Senate’s income tax plan would freeze the personal income tax rate at its current rate (5.15 percent) rather than allowing a formula to remain in place that year by year automatically lowers it to 5 percent. The plan would also increase the personal income tax exemption and the state earned income tax credit, thus providing a modestly progressive adjustment to state income tax collections.

Opponents of the plan have taken to saying that the proposed freeze amounts to “breaking faith” with the electorate that voted back in 2000 to reduce the rate to 5 percent. The Herald used the phrase in a recent editorial. And Governor Baker repeated the charge in an interview on Boston Public Radio last week.

“Breaking faith” — that sounds grave. It’s a phrase that might lead you to think, for example, that the Legislature has never before tampered with a ballot question that the voters had passed. Well, that’s an assumption easily disproved. We can start with a pair of ballot questions, one from 1998 and the other from 2000.

In 1998, voters approved with 58 percent of the vote a ballot question providing for public financing for political candidates who agreed to fund-raising limits. The Legislature, whose leadership abhorred the new law, refused to provide the revenue necessary for its operation. The law remained on the books for a while, but the lack of funding kept it from taking effect.

In 2000, two years after the voters approved the public campaign financing initiative, a question to reduce the state income tax from 5.85 percent to 5 percent over the course of three years was on the ballot. Republican Governor Paul Cellucci strongly supported this proposal, and his administration worked hard to convince skeptical voters that the state could afford this enormous tax cut without cutting state services. The Governor’s Secretary of Administration and Finance was dispatched to proclaim that, far from resulting in service cuts, the tax rate reduction would stimulate economic activity and produce more revenue. In what was likely one of the last straight-faced invocations of the Laffer curve, the Secretary promised: “when you cut taxes you have a stimulating effect” (Globe, 10/31/2000). As it happens, the Secretary was Stephen Crosby, the current chair of the state Gaming Commission, who today promised that casino gambling will bring as much as $400 million annually to the state.

Voters approved the tax rate cut that November, although by a lesser margin than the public campaign financing initiative had received two years earlier. But even before the year was out, state tax collections had begun to drop precipitously: the tech stock bubble was bursting. Only weeks after promising no cuts in services, Secretary Crosby was rethinking the entire situation. “That’s a colossal drop” in tax collections, he said. “That’s like falling off a cliff. That gives the message that we need to be ready” for spending reductions (Globe, 12/24/2000).

And the next few years would bring even more problems — the tragedy of 9/11 and the additional economic bad news that followed. The Legislature turned to paring programs and services and they also used the fiscal crisis as an opportunity to repeal the public campaign financing law. Said Governor Mitt Romney in okaying the repeal — “I do not want to put in our budget, particularly in a year with the financial challenges we have, money going into a Clean Elections fund.” In addition to cutting services, the Legislature also halted the voter-approved income tax reduction at its then-current level of 5.3 percent and put in place a formula tying future rate reductions to growth during the prior year, which is how we arrived at the 2015 tax rate of 5.15 percent.

In order to pave the way for the repeal of public campaign financing, the Legislature placed a non-binding question on the ballot in 2002 asking voters whether they approved of using taxpayer funds to pay for political campaigns. Money raised from large corporations funded an ad campaign that persuaded voters to reverse their prior vote in support of public campaign financing. No comparable effort was launched with respect to the income tax cut, so we don’t know whether voters would have favored significant reductions in funding for their schools, libraries, police and fire departments.

In the 15 years since the voters approved the income tax cut on the basis of a promise that it would increase revenue, that cut has been responsible for much of the reduction in funding for important state services: higher education is down 20 percent; early education down 23 percent, public health down 25 percent; local aid down 44 percent. (Hat tip for the stats to MassBudget.)

So what does it mean to “break faith” with the voters? To freeze the income tax rate and provide a small governmental counterweight to the growing problem of income inequality? Or to continue to peddle a promise made the better part of a generation ago that never could have been kept?