Online Gambling Revenue: A Key To Pennsylvania’s Budget Lock

June 26, 2015
Online Gambling Revenue: A Key To Pennsylvania’s Budget Lock

Facing a potential $1.2 to $2 billion budget shortfall, which led to the state’s credit rating being downgraded, Pennsylvania needs to make some significant changes to its budget. The status quo means no property tax relief and schools remaining underfunded.

One problem is that the governor and the legislature are miles apart when it comes to potential solutions, and the budget is ostensibly due next week.

Online gambling and several other gaming reforms are seen as a potential compromise/jumping off point between the proposals put forth by the state’s Democratic Governor Tom Wolf and the largely Republican legislature.

Wolf is pushing for the implementation of the tax overhaul plan that won him the governorship in 2014, while the legislature is of the opinion the state’s budget hole can be plugged through existing revenue channels.

One of those channels is gaming reform and expansion, which seems to be the cornerstone of the legislature’s plan.

Proposed gaming reforms

The legislature is exploring the following gaming reforms:

  1. Online gambling expansion.
  2. Removing membership restrictions on Category 3 casinos.
  3. Allowing slot machines at OTB locations.
  4. Allowing liquor service 24/7.

Other than point four, the state’s casinos are split to varying degrees on all of these issues.

Online gambling in PA

This proposal is the most widely supported, with eleven of the state’s twelve casinos on the record as being in favor of online gaming expansion.

The lone voice of opposition is unsurprisingly Sands Bethlehem, the casino property owned by anti-online gambling crusader Sheldon Adelson’s Las Vegas Sands.

However, there isn’t a consensus among the eleven casinos, as Parx is not quite on the same page as the rest of the pro-online gaming crowd. T

he politically powerful casino is pushing for a more conservative rollout of iGaming, including requiring players to register in-person at one of the state’s brick and mortar casinos, something that would all but kill the industry before it even got off the ground.

There is also the not-so-small problem of reaching an agreement on a tax rate. The Senate (SB 900) is calling for a tax rate of 54%; casinos would like to see that lowered to at least 15%.

Representative John Payne’s HB 649 calls for a tax rate of 14%.

Membership restrictions

As was reported in GamblingCompliance, seven of the state’s twelve casinos sent a letter to the legislature in which they collectively said they approve of the Senate’s proposal that would remove the membership fee requirement currently needed to enter one of the state’s two Category 3 casino.

In addition to the Category 3 casinos (Nemacolin and Valley Forge) the letter was also signed by SugarHouse, Rivers, Harrah’s Philadelphia, Presque Isle, and Mt Airy.

The state wants $5 million for this privilege, while the letter calls for the fee to be reduced to just $1 million.

Slots at OTB parlors

This appears to be the most contentious issue being considered, as it would be a boon for some of Pennsylvania’s Category 1 racinos.

The cost to add slots at an OTB parlor is a hefty $5 million per location, and the state would tax them at a rate of 54%.

The coalition of seven casinos mentioned above was also united on this front, opposing the addition of slot machines at bars, taverns, and OTB parlors.

Other revenue options

If gaming reforms aren’t included in the state’s budget where will the money come from?

It depends on who you ask.

Wolf’s proposals

The main aspect of Governor Wolf’s budget proposal calls for an overhaul of the state income tax code to create a more progressive tax rate. Wolf is also pushing for tax increases on banks, retail sales, and tobacco, as well as a new – and sizable – tax on natural gas production in the state.

It will be a tall task to talk the Governor out of his tax proposals, considering he ousted former Governor Tom Corbett running on these very issues as the solution to the state’s high property taxes and underfunded schools.

Wolf has also stated that while he’s open to gambling reforms, he wouldn’t consider a straight up exchange of one of his proposals for online gaming.

“There is no revenue estimate that we have seen that would cause us to replace anything in the governor’s budget with it,” Wolf spokesman Jeff Sheridan told the Washington Times earlier this month.

The legislature’s proposals

The legislature has proposed a number of plans to help close the budget deficit, from the aforementioned gaming reforms, to privatizing liquor distribution in the state, to overhauling the pensions of state workers.

The legislature would like to solve the problem without raising taxes, or at least limiting these increases as much as possible.

Upshot

While gaming expansion can often be a hot button issue – and a vote many legislators would rather not have to make – there are other issues that are even more controversial.

When the option is gaming expansion or cutting retirement benefits for state employees or raising taxes on residents and businesses, voting for gaming expansion doesn’t seem all that bad.

This is especially true when the alternative is a massive budget deficit that will likely lead to underfunded schools and rising property taxes.

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