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Efforts to legalize it likely to draw federal scrutiny

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By Matt Richtel New York Times / August 14, 2011

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NEW YORK - The District of Columbia is not thrilled that its residents are traveling to Maryland, Pennsylvania, and West Virginia to gamble in casinos. Starved for cash, like states across the country, the district wants some of the millions in revenue that gambling generates each year.

So district officials want residents to gamble closer to home - inside their homes, actually. Or in cafes, restaurants, and bars. By year end, the district hopes to introduce an Internet gambling hub that would allow Washington residents to play blackjack, poker, and other casino-style games.

It’s an idea gaining currency around the country: virtual gambling as part of the antidote to local budget woes.

The District of Columbia is the first to legalize it, while Iowa is studying it, and bills are pending in Massachusetts, California, and other states.

But the states may run into trouble with the Justice Department, which has been cracking down on all forms of Internet gambling. And their efforts have given rise to critics who say legalized online gambling will promote addictive wagering and lead to personal debt troubles.

“States had looked at this haphazardly and not very energetically until the Great Recession hit, but now they’re desperate for money,’’ said I. Nelson Rose, a professor at Whittier Law School who specializes in gambling issues.

When it comes to taxing gambling, he said, “the thing they have left is the Internet.’’

The moves by the District of Columbia and the states have put them into a murky legal area with a potentially big obstacle. The Justice Department in recent years has vigorously pursued operators of offshore Internet casinos, shutting down their sites and arresting their executives when they travel to the United States.

The agency’s position has been that these operations violate federal laws including the Wire Act of 1961, which prohibits wagering over telecommunications systems that cross state or national borders. But legal experts say the law sent a mixed message. It seems to carve out an explicit exception for states to run online gambling operations.

But in the bill’s legislative history, it says it is not meant to amend existing law on the subject, which can be taken to mean that the Wire Act prohibitions still apply, said Mark Hichar, a lawyer who specializes in gambling law at Edwards, Angell, Palmer & Dodge in Boston.

Arthur Terzakis, staff director of the Committee on Governmental Organization, a legislative policy committee in the California state Senate, said the 2006 law “gives states the right to do this.’’

Illinois, which passed a law two years ago allowing it to put its lottery online, asked the Justice Department about its plan but has not heard one way or another, suggesting it can move ahead, said John Cullerton, president of the State Senate.

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He said Illinois had budgeted to gain some $200 million in revenue from moving the lottery online.

“We’ll be selling to new players, not the same old players,’’ he said. “That means more roads and bridges.’’

Officials in other states sympathize with the logic.

“We need money,’’ said Matt Fitzgerald, legislative director for Michael Rush, a Democratic state senator from Boston, who last month introduced a bill to allow the Massachusetts lottery to test an expansion into other “games of chance,’’ but not poker.

It’s not all about revenue. In Iowa, which is running a budget surplus, lawmakers say they want to legalize online poker to create a regulated forum for a popular activity.