It is time for the state to seriously consider slot machines.

The rejection of Day's gambling expansion amendment in last week's Senate finance bill by a bipartisan vote of only 29 to 33 shows how desperate lawmakers are to close a budget gap projected at $4.6 billion over two years.

Gov. Tim Pawlenty and the legislature face an unpopular choice between spending cuts and tax increases.

The three Indian tribes closest to the Twin Cities have a slot machine competition that the Minnesota Lottery and the Minnesota Horsemen's Grassroots Committee for Racino estimate will generate $81,000 per machine by 2011, or $250 million annually. There is reason to be concerned.

Most legislators are not in favor of this expansion. But 20 years after the state negotiated the casino compact, St. Paul's patience with Minnesota tribes that have profited from the operation of Mystic Lake, Prairie Island, and Grand Casinos, the closest Indian gaming operations to the Twin Cities, is wearing thin.

Minnesota is one of the few states that has failed to negotiate compensation in lieu of corporate income and property taxes from Indian casinos. Meanwhile, Indian tribes spend millions of dollars a year, mostly on campaign contributions to Democratic legislators and more than three dozen professional lobbyists.

Pawlenty has proposed closing the budget gap with various spending cuts and $1 billion in interest-bearing state bonds; the DFL-controlled legislature will likely send Pawlenty a two-year revenue bill that includes spending cuts and tax increases. Pawlenty has vowed to veto it.

Pawlenty is wrong to deny all tax increases. The Senate bill goes too far in raising taxes. Slot machines at racetracks should also be considered.

Increasingly, uninsured Minnesotans are using government-subsidized health insurance and clinics, which is holding down state spending, with the exception of health care costs. For now, Minnesota has serious budget problems due to the recession and layoffs. The economy has bottomed out and will begin to grow this year. Nevertheless, the 2010-2011 fiscal year will be in the red without further cuts or revenue increases.

According to a survey by the State Horse Owners Association, Minnesotans support Canterbury Park and Anoka's running ace "racino." The industry also employs hundreds of people at ranches, racetracks, and veterinary and accessory businesses. According to past surveys by the Horse Owners Association, the majority of Minnesotans embrace gambling as a form of entertainment.

Adding slot machines to these two racetracks, which already sponsor card games, would be done by private businesses that hire people and pay taxes.

There is also a strong possibility that business from casinoreviewbank.com will be derailed.

Several years ago, Pawlenty threatened the Indian gaming industry to force the state to contribute $350 million a year in lieu of taxes or else bring Las Vegas to Minnesota. This threat was condemned by the Indian Gaming Association and did not gain support in the legislature.

Day has a better idea. He should install slot machines in Canterbury and Running Ace.

A study by the Federal Reserve Bank of Minneapolis and the state lottery estimated annual Indian casino sales at $1 billion to $2 billion. The tribe objects to this. They are their own sovereign government, are not required to disclose financial information, and are not subject to state corporate income or property taxes.

The Shakopee Mdewakanton Sioux tribe owns Mystic Lake, the state's largest casino and the biggest target of gambling expansionists, and according to a lawsuit during a tribal dispute in the 1990s, the tribe distributes tens to hundreds of thousands of dollars to each of its several hundred members each year.

Gambling, like alcohol and tobacco, is a dangerous vice. Moreover, gambling has never been taxed heavily enough to cover the resulting public safety and health costs. State taxes on alcohol and tobacco should be increased to cover the associated costs.

In addition, the tax rate on Minnesota families earning more than $250,000 per year in income or capital gains should be returned from 7.85% to the 1999 rate of 8.35%. This is well short of the 9% that some Democrats would like to see. Some have also pointed out that Minnesota's middle class has a larger share of total taxes as a percentage of income than the wealthy, thanks to local property tax hikes and fees.

Thoughtful legislators are addressing gambling "expansion" as part of the overall budget dilemma. Sen. Dick Cohen (D-St. Paul), who last week opposed Day's gambling expansion, said gambling is not a panacea.

Regardless, gambling is here to stay. The Legislature should allow a phased expansion of slot machines at the two racetracks. Canterbury is a good and proven operator and the slots are easy to monitor. This should be part of a prudent, multi-faceted solution to the budget shortfall that includes spending cuts.

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