Feb. 18--A sure bet to grow for more than a decade, Montana's gambling economy is now cooling down as the recession sets in, according to video betting taxes.

Tax reports for the fourth quarter of 2008 show bettors putting $5.4 million less into video gambling machines in October through December of last year than for the same time period in 2007.

The decline suggests that people who gamble are tightening their purse strings. Terry Johnson, the chief revenue forecaster for the Montana Legislature, said he expects cutbacks in discretionary spending on such things as gambling, lodging, rental cars and tobacco to continue as the economy worsens. That means less money in the bank for state and local governments, which have come to rely on taxes from all three items.

"We're seeing some declines in anything that is consumption-driven but is discretionary," Johnson said. State and local governments unevenly split a 15 percent tax on video gambling. In November, revenue forecasters were predicting gambling revenue growth of 4 percent this year, which would be the second-lowest growth rate of the past decade. However, people continue to gamble less, which isn't lost on the casino industry.

"Frankly, I thought the last quarter drop would be greater, given what the economy is doing" said Neil Peterson, the Gaming Industry of Montana's executive director.

Video betting isn't down across the state, Peterson said. Belgrade reported a 26 percent increase over the same period a year earlier, while Bozeman, eight miles east, posted a 7 percent decline.

In Eastern Montana, Glendive reported a 16 percent drop. Sidney reported a decline of 7.4 percent. Peterson said eastern parts of the state that saw a resurgence in the oil and gas industry generally saw more money placed on video betting. When the price of crude started to falter, Montana oil drilling became less lucrative and so did video gambling in those areas.

In Billings, gambling has tapered off at the Reno Club, owned by Bob and John Blair. On a lazy Tuesday afternoon, the stools at the club counter were filling up and conversation was starting to stir, but the video gambling area near the front door looked more like a time-out room. There, a lone bettor in a high-backed chair smoked a cigarette and played poker with his back to the rest of the bar.

Across the city, gambling for the last quarter of 2008 was down 4.7 percent from the period a year earlier. Countywide, the decline was 7.5 percent, though people still plugged $19.7 million into Yellowstone County gaming machines in the last quarter of the year.

"Our gaming is down. Our liquor store is up. The bar is about the same," John Blair said. "I think we're finding that people are still coming out and getting their spirits and maybe going home. What will be really interesting is to see what happens when the smoking ban comes in October."

Blair said customers who smoke tell him they'll just stay home after the state bans smoking from bars. And people who play the video machines at the Reno Club smoke more than the average customer. He expects to lose some customers for a while after the smoking ban but expects them to return to the father-and-son-owned bar eventually.

Business declines in destination gambling locations have been noticeable, but gambling machine manufacturers have also taken a hit.

International Game Technology, the world's largest maker of slot machines, has a software skunk works in Bozeman. The company reported a 42 percent profit drop in the last quarter and has laid off 700 people since November, including five in Missoula. The company's Bozeman staff numbers 22.

GameTech International Inc., which owns Summit Gaming of Billings, reported that its 2008 third-quarter revenue was off $3.2 million from the same period in fiscal year 2007. It also cited a softening economy for its performance.

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