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Delaware Senate votes to bail out three casinos

by Eileen Norcross on June 26, 2014

in Government-Granted Privilege, Public Finance, Tax and Budget, Taxes

Delaware’s state senate has voted to redirect $10 billion in economic development funding to bail out three gambling casinos. The measure now goes to the House. Two reasons the casinos are failing: increased competition from Maryland and Pennsylvania and having to share a large chuck of revenue with the state. Lawmakers admit the bailout is only a “Band Aid,” and not enough to salvage the operations.

Supporters defend SB 220 as a jobs protection measure. But the real incentive is more likely the revenues involved. Lottery receipts are the fourth largest source of Delaware’s revenues at about 7 percent of the total bringing in $277 billion in 2013, right behind Income taxes, Franchise taxes, and Abandoned Property.

The casinos are certainly in trouble. According to Delaware Newszap.com Dover Downs Gaming & Entertainment saw a $1 million loss in Q1 2014 and is $46 million in debt. During that same first quarter the casino paid the state $16 million in revenue.

Revenue sharing between the state and the casinos has grown more onerous over the past 20 years. In 1997, the casino claimed 50.2 percent of the revenue and the state took 25.2 percent. In 2009, that split reversed, with the state claiming 43.5 percent of revenues and the casino keeping 37.8 percent.

The incentive for the bailout is fairly clear though the economic thinking is convoluted. Why not reduce the tax rate instead? Economist James Butkiewicz at the University of Delaware notes that as a voluntary tax it’s easy revenue and the state doesn’t have to raise taxes elsewhere.

But do casinos deliver for state coffers and economies?  Economists Douglas Walker (whose field is casino economics) and John Jackson find that while lotteries and horse racing tend to increase state revenues, casinos and greyhound racing tend to decrease it. Using recent data, Walker and Jackson find casinos have a positive economic impact. There are many other things to consider when thinking about the effects of casinos. As state creations there is ample opportunity for corruption and regulatory capture. Walker and Calcagno find just such a link in their paper in the journal Applied Economics (Dec 2013), “Casinos and Political Corruption in the United States: A Granger Causality Analysis.” And as a recent article by the WSJ notes oversaturation of casinos on the East Coast has also triggered an interstate “war” for revenues. Delaware’s gaming revenues are down 29 percent since 2011. A Delaware Casino Executive laments that the business model they are using is simply, “unworkable.”

 

 

 

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