After Pennsylvania casino executives spent months trying to drive back the state’s threat to let taverns and private clubs compete with them, legislators quietly found another way to make those casinos help fill the budget hole.
Beginning This week, the state’s 12 gambling halls will start paying a higher tax on table games, adding another $17 million a year to the state’s budget – and the biggest part of that will come from Sands Casino Resort Bethlehem.
The table game tax increase – from 14% to 16% – is projected to cost Sands roughly $4.6 million a year as state legislators try to find new ways to close gaps in Pennsylvania’s $31.6 billion budget for 2016-17.
Few will feel sympathy for casinos pulling in hundreds of millions of dollars a year, but casino executives have argued that higher taxes usually lead to fewer free meals, rooms and gambling for the millions of people who wager in casinos statewide each year.
The tax increase is just a piece of the changes casinos may soon feel as legislators still have to find $100 million in new gambling money to balance the state budget. Many of the decisions on whether to legalize online gambling or allow race tracks to open satellite casinos won’t be addressed until legislators return to Harrisburg in September.
“We spent a lot of time fighting the other stuff. This one sort of came out of nowhere,” said Sands CEO Mark Juliano. “We’re not happy about it, but it doesn’t stop us in our tracks. Pennsylvania is already the biggest tax environment for casinos, but we’ll deal with it.”
Pennsylvania legislators have been trying to close a hole in state budget which is more than $1 billion, and casino gambling has become an increasingly convenient target. This year alone, legislators have proposed permitting online gambling, fantasy sports betting, allowing clubs and taverns to have video poker, and putting slot machines in airports and off-track betting facilities.
The concern of new competition at every corner bar was most feared by casino executives, and Juliano last month said if it was passed Sands would halts its expansion plans in Bethlehem. However, the idea was defeated and some Harrisburg insiders now say that increasing the table games tax was the compromise.
“We were searching for revenue to fill the hole, and this one turned up on a menu of options,” said Sen. Pat Browne, R-Lehigh, chairman of the Senate Appropriations Committee. “This was one that we thought could gain a majority.”
Sand’s success with tables means the new tax will hit a little hard. The $228 million in raked in over the past year from games such as blackjack, roulette and craps easily outpaced second-place Parx Casino’s $155 million, and five times that of its geographically closes competitor, Mount Airy Casino in Monroe County.
In fact, the $32 million in table games tax Sands paid last year is more money than the gross tables revenues of three casinos. If Sands has the same revenue this year, that tax would increases to nearly $37 million.
If there is any good news for casinos, it is that the new tables tax increase is scheduled to expire in June of 2019. That doesn’t mean the tax will go away, but legislators would have to approve it for it to remain.
Despite the compromise of the increased tables tax, Sands isn’t out of the woods on the gambling expansion issue. The $31.6 billion state budget includes $100 million in new gambling revenues, beyond the $17 million expected from the tables tax.
Legislators will return Sept. 19 to begin debate on the tax issue. Among the options will be legalizing online gambling and fantasy sports betting, but it could also include slot machines in airports and off-track betting facilities, said Rep. John Payne, D-Dauphin, who chairs the House Gaming Oversight Committee.
While most Pennsylvania casinos support legalizing online and fantasy sports gambling, Sands opposes all expansion. Some casinos, such as Mohegan Sun near Wilkes-Barre, are hoping to run their own online gambling and fantasy sports operations to offset the higher tables tax.
“Certainly with any tax increase there is a balance between good effective government and a business’ ability to provide a quality product and stimulate the economy through job creation. If the balance tips too far, it is not good for anyone,” said Bobby Soper, president of the Mohegan Tribal Gaming Authority, which owns the casino. “We clearly are watching the other issues very closely and believe that online and [daily fantasy sports] are part of a comprehensive product offering.”
Harrisburg insiders suggest that online and fantasy sports betting are most likely to be approved, while approval for slot machines in airports and off-track betting facilities is more of a long shot. The chance of approval for video poker in taverns and clubs appears dead.
“I think we can conservatively expect more than $100 million from I-gambling and fantasy sports betting alone,” Payne said. “Beyond that, I’m not sure and I don’t even try to read the tea leaves of what they may do in the Senate. Obviously, we still have work to do to finish this budget.”