Holding a pat hand
6/17/2011Gov. John Kasich has cut a deal with the owner of two of Ohio's four new casinos that will help balance the state budget for several years. But at what longer-term cost?
The state constitutional amendment that gave a gambling monopoly to Penn National Gaming and Rock Ohio Caesars is a good deal for the casino owners. They paid a one-time, $50 million licensing fee for each casino and agreed to a 33-percent tax on their gross earnings. Both figures are low by industry standards.
The amendment, which the gambling companies wrote, defines "gross revenue" as wagers minus payouts. That will save the companies millions of dollars a year in tax liability.
Voters approved the amendment because the developers promised millions of dollars in new revenue for state and local governments and schools, and thousands of good-paying temporary and permanent jobs. But during last year's campaign for governor, Mr. Kasich insisted, rightly, that Ohio got a "raw deal."
Since he took office in January, the governor has tried to get more money from Penn National and Rock Ohio. Those efforts appear to have yielded somewhat withered fruit.
Under the deal, Rock Ohio will pay the state another $110 million over 10 years. The company also agreed to raise its investment in its casinos in Cleveland and Cincinnati to $900 million from the constitutionally required $500 million. In return, it keeps the favorable definition of gross revenue and 33 percent tax rate.
In addition, the state will allow video lottery terminals at Ohio's seven horse-racing tracks, and will consider allowing track owners to transfer racing permits to new locations. Penn National, which is building Toledo's casino, plans to move Toledo's Raceway Park to Youngstown.
Each track would have to pay a $50 million license fee for video slots, invest at least $150 million in each facility, work out a financial arrangement with Ohio's racing industry, and pay 33.5 percent in state taxes on all revenue.
The short-term infusion of cash in the state budget is welcome. But the governor's penchant for trading long-term revenue for immediate cash is perplexing.
Rock Ohio will reap the greater rewards long-term; otherwise, it wouldn't take the deal. Penn National's hesitancy so far to sign onto the deal is likely over the question of profit or bigger profit, rather than profit or loss.
Construction is on schedule for Hollywood Casino Toledo to open early next year. Some 2,000 construction workers are employed locally who might not otherwise be working. The $300 million casino will create 1,200 full-time equivalent jobs, some of which will pay well.
The four casinos will put millions of dollars in the coffers of state and local governments. But the $250 million in promised local investment will be smaller than anticipated, because it includes slot machines and other things that won't be bought locally.
The 1,200 promised casino jobs will be offset by jobs lost in Toledo when Penn National closes the horse track here. Many of the new casino jobs will pay little more than minimum wage.
The casinos will compete with other local, taxpaying, job-creating businesses for entertainment spending. They also inevitably will eat into revenue from charitable gaming such as bingo.
Gambling addiction will rise among Ohioans. It is not at all clear that enough money will be available to treat addicts.
Crime does not always increase in the immediate vicinity of casinos; bright lights, crowded sidewalks, and an enhanced police presence see to that. But the effect of casinos on crime in the broader community is less clear and must be monitored.
Gambling persists because people believe they can beat the odds, but entrepreneurs know the house always holds a pat hand. If that sounds like the way Ohio's casino campaign is playing out, it's no accident.