A warning flag was hoisted at the Statehouse last week. It came in the form of a report about gambling by the Legislative Services Agency, a nonpartisan office that does research for the state's elected politicos.

No, this report wasn't about legalized gambling's harmful effects on the deluded souls who tell themselves they can beat a system that's rigged to separate them from whatever money they've got.

The LSA report was about all the money our state stands to lose if our neighbors in Kentucky, Ohio and Michigan go ahead with plans to build casinos to compete with the gambling halls already in Indiana. The report estimates that new casinos in other states could cut into the $900 million a year Indiana makes in gambling tax revenue by almost a third.

This news is cause for alarm in a state where revenues have been below projections for three periods. Indiana needs every dime it can get, even if those dimes are being generated by old ladies who keep special gaming credit cards strapped to their wrists so they don't have to go to the trouble of actually putting coins in their favorite slot machines.

Gambling revenue is vital for a state that finds itself over a fiscal barrel. The cost of everything — from fixing the streets and providing police protection to educating kids — is constantly going up. But household income for most Hoosiers lags behind the rest of the country, making tax increases even more onerous here than they might be in other places.

That's been the dirty secret behind Indiana's brag about its low cost of living. Things are cheaper here because people have less money. This was ok so long as the costs of services remained low, could be put off for another day or simply ignored. But as the state — and, in particular, Indianapolis — tries to make itself more competitive relative to other states, the need to provide comparable public services has increased. These things have to be paid for.

Under these circumstances, gambling seems like free money. Casinos have enriched both state and local coffers and enabled politicians the luxury of being able to make civic improvements without having to ask voters to pay up.

That's why Bart Peterson's plan for what became Lucas Oil Stadium included the expansion of gambling in Indianapolis. He knew the stadium would require a steady flow of cash to pay for ongoing costs; he figured gambling revenue would be one way to keep those costs under the public's radar. But the state legislature had a better idea — and now the Capital Improvement Board is trying to dig itself out of a multi-million dollar hole.

Indiana's infatuation with gambling has only served to delay a larger reckoning about the kind of place we want this to be. We have limited resources. But we have growing demands. That some have turned to privatization — the outsourcing or leasing of public services to private businesses — as an answer should not be surprising.

Privatizing is the capitalist equivalent of a Hail Mary pass, a last best hope that something necessary, like seeing to the needs of poor people, might also be a good business proposition. Gov. Daniels tried this when he put IBM in charge of the state welfare department.

The governor eventually had to admit this was a bad idea. Nevertheless, it's probably safe to say that he still believes it's best to run government like a business. But what kind of business would that be? Maybe he'd be thinking of the financial industry — big banks and investment firms like AIG or Citigroup, for example. Or maybe General Motors. Perhaps he has health-insurer WellPoint in mind.

The problem with confusing government with business is that a high percentage of businesses fail — unless, as we have seen, government decides otherwise. And businesses don't have to serve everybody. WellPoint can choose not to insure you if you've had an episode of depression or high blood pressure. They can say they won't pay for a procedure your doctor recommends because it'll cut into their profit margin.

People who think government can be run on a for-profit model may not have noticed yet, but the world we live in is getting more nonprofit all the time. From public transportation to providing clean water, there just don't seem to be effective business models for more and more of the things we need. Does this mean we have to forget about having such things? That would be nonsensical. Other societies are able to provide them. Why can't we?

We need another model for how we fund and deliver a sustainable quality of life in the 21st century. When he was first elected, Gov. Daniels seemed to sense this. He proposed a temporary tax hike for the most affluent Hoosiers. His Republican colleagues shot that idea down in less time than it took to turn out the lights at the Statehouse.

They must have thought gambling was the better bet.