Sometimes, Terry Branstad just has to laugh about gambling.      “There is a certain allure of gambling for certain people,” said the former Iowa governor. “The worse the odds and the bigger the prize, the more people will spend.”

In an effort to shore up state revenues during the farm crisis of the late 1980s and later in response to expanding gambling operations in other states, Iowans have bet on a path that has grown into a billion-dollar-a-year casino industry in the state.

State government has arguably become as hooked on gambling as some of its residents, as it has spread more than a quarter of a billion dollars a year in casino tax receipts into a growing number of projects ranging from renovations of state buildings to funding for schools, libraries and recreational programs.

Branstad, who had reluctantly allowed the introduction of gambling in the state with lottery scratch cards, which gradually expanded to include a jackpot lottery, had also opposed casino gambling in Iowa. However, he acquiesced to strong demand for casino gambling and guided the implementation of strict regulations on it.

“For somebody that doesn’t particularly like gambling, I feel that in Iowa at least we’ve tried to regulate and control it and to see that there is some benefit that comes to the state and the communities,” he said. “But there is also certainly the down side of gambling addictions and people that lose their money, so I think you have to look at it with eyes wide open.”

Since the state’s first three casinos opened in 1991, Iowa’s gaming industry has “extraordinarily exceeded expectations,” said Wes Ehrecke, executive director of the Iowa Gaming Association.

The annual adjusted gross revenues of Iowa’s state-regulated casinos and racetracks – the total amount wagered less winnings paid — have nearly doubled over the past 10 years and are expected to exceed $1.1 billion during this fiscal year. In fiscal 2006, which ended June 30, Iowa’s 13 non-Indian casinos paid nearly $279 million in gaming taxes to the state

However, there are indications that the new casinos that opened earlier this year are beginning to cut into revenues from existing operations. Revenues from the Isle of Capri – Bettendorf, for instance, are down nearly 13 percent from a year ago, the result of some patrons switching to the closer Riverside Casino and Golf Resort.    State officials are uncertain whether revenues that had been growing in the low double digits in the past few years will begin to level off.

Those tax revenues have been used by the state to pay for literally hundreds of public infrastructure projects, from the restoration of the state Capitol to improvements at the Iowa State Fairgrounds. Through the Rebuild Iowa Infrastructure Fund, which last year received nearly $56 million in gambling tax revenues, funding has gone into construction and maintenance of correctional facilities, into public libraries and upgrades to Iowa Public Television’s transmitters and into trail construction at state parks.

The departments of Agriculture and Land Stewardship, Natural Resources and Economic Development last year shared $35 million of gaming money deposited in the Environment First Fund for use in conservation programs, water quality projects and brownfield redevelopment.

Also, $70 million of gaming tax revenues deposited last year in the Endowment for Iowa’s Health Account went toward programs such as smoking cessation and tobacco use prevention, children and family services programs, and to fund education programs at the state’s correctional facilities.

Much of the present structure that Iowa’s casinos operate under was instituted under Branstad.

“When the proposal came for riverboat gambling, I said the conditions would have to be: licenses issued only to non-profits that would make substantial contributions to their communities, and only in communities in which a majority approved a referendum that they wanted it,” Branstad said.

“I put together a strong commission of people who were not gambling supporters, and I resisted the effort to put tax-exempt Indian casinos in locations other than places where they already had property,” he said. “We insisted that a certain amount of the money go toward gambling addiction, and of course, before I left office we put a moratorium on further expansion.”

That moratorium was lifted in 2004 and led to gambling referendums in a dozen counties, ending with the issuance of four new casino licenses last year.

The industry’s fiscal success in Iowa has been somewhat of a surprise to state officials.    “When we first started doing this, there was this perception that the pie was only so big,” said Joel Lunde, team leader for the Iowa Department of Management’s budget and finance team, which assists the Legislature’s Revenue Estimating Conference in gauging anticipated tax revenues. “That perception has been wrong — the pie keeps growing. There seems to be a bigger demand than anticipated for gambling.”      The $60 million of casino tax revenues that goes into the state’s general fund each year is relatively small, representing just over 1 percent of the $5.68 billion in last fiscal year’s general fund receipts. However, some legislators say the revenues that gaming makes available for infrastructure funding have helped the state move forward with significant capital projects, despite the state’s recent budget crisis.      When the Revenue Estimating Conference meets Monday to estimate how much the state will receive in gaming revenues through the next fiscal year, it will be factoring in taxes received from the four new casinos for which the Iowa Racing and Gaming Commission approved licenses in May 2005. Three of those casinos, the Wild Rose Casino & Resort in Emmetsburg, Diamond Jo Worth Casino in Northwood and Riverside, opened earlier this year. When the fourth new establishment, Isle of Capri-Waterloo, opens next spring, it will be Iowa’s 17th state-regulated casino.      Jack Ketterer, administrator of the Iowa Racing and Gaming Commission, said the four new casinos should collectively generate approximately $270 million in additional adjusted gross revenues within their first year of operation, which would mean about $60 million in additional state gaming taxes collected annually.      Though the new facilities will likely have an impact on the revenues of existing casinos, Ketterer said he believes the number of new casinos was sufficiently limited so that it will not significantly affect total gaming revenues.

“We had an idea at the time we issued the licenses that we wanted it to be a competitive environment,” he said. “But we also wanted the competition to be for the license in a certain market, so there would be more incentive for new ancillary facilities, such as entertainment and restaurants.”     State Rep. Scott Raecker, a Republican from Urbandale who is chairman of the House Appropriations Committee, said the $60 million general fund allocation is appropriate, and that any additional revenues gained from the recent casino expansions should be used to deal with the state’s extensive backlog of infrastructure and deferred maintenance needs.

Gaming tax revenues did help the state through the recent budget crisis, Raecker said, but the spending down of the state’s Economic Emergency Fund and borrowing of $300 million from the Senior Living Trust Fund, which are both being replenished from the current fiscal surplus, had a much bigger impact.

Sen. Bob Dvorsky, a Coralville Democrat who co-chairs the Senate Appropriations Committee, said gaming tax revenues have been “very helpful in funding infrastructure.”

“A good example is this past year,” he said. “We made a three-year commitment of $36 million to the University of Iowa Hygienic Lab. That building was built in 1917, and it’s the oldest public health lab in the country and we were able to fund [a new building] through gaming revenues.”      With the recent expansion in casinos, Dvorsky said, it may be time for the Legislature to review the allocation of revenues to various funds. “When we look at the formula, we may want to look at how casinos are taxed, especially because I think we’re getting pretty close to the point where we’re going to have all the casinos that we’re going to have,” he said.      Ehrecke, whose association opposed legislation to raise the tax rate on casinos three years ago, said the several proposed increases, which were defeated, would have been seriously detrimental to the state’s gaming industry. The Iowa Supreme Court had upheld a ruling in favor of the racetracks that held taxing the racetracks at a higher rate than the riverboats was unconstitutional. In July 2004 a compromise measure was enacted for the current structure, which bases the rates on a number of factors, among them whether a racetrack is the only casino operation in a county and whether it offers table games.      “We’re not the lowest [rate compared with other gaming states] and we’re not the highest, which I think puts us in a fair rate,” he said. “We would like to think that with the additional revenue that we’re generating for the state, that it doesn’t come up again.”      Branstad said he hopes casino gambling doesn’t expand in Iowa, and that controls he helped to put in place remain strong.      “We need to keep the casinos in the hands of non-profits, and make sure they make substantial contributions to the communities,” he said.      Branstad said he believes the tax system now in place is fair and that the local referendums held every 10 years, which allow voters to decide whether to continue to allow gambling in the county, is a control that shouldn’t be weakened.       “And I think it’s very important that the people elected to the commission should be very strong and committed to the interests of the state,” he said. “There’s so much money here, the potential for corruption is something we have to very strongly guard against.”