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Ohio casino developers cry foul over House tax

Mike Gruhin — Tue, 03 May 2011 00:04:53 +0000

COLUMBUS - Developers of four casinos in Ohio say that House budget changes would cost them tens of millions of dollars in additional taxes and that they’re considering a court fight.The Republican-led House proposed Thursday to tax casinos’ gross receipts without deducting winnings and payouts. The adjustment to Gov. John Kasich’s $55 billion, two-year budget plan followed the governor’s concerns that the state got a raw deal when voters approved legalizing casinos in Columbus, Cleveland, Cincinnati and Toledo in 2009.

Eric Schippers, senior vice president for Wyomissing, Pa.,-based Penn National Gaming Inc., called the House language “unique and discriminatory” treatment under Ohio’s commercial activity tax. Another provision of the House budget exempts certain businesses that perform public services under contract from the same tax.

Schippers said receipts that include winnings aren’t a fair reflection of what a casino makes.

“For example, let’s assume a customer puts $10 in a machine and eventually gets the original $10 up to $1,000 in winnings before ultimately cashing out his or her original $10,” he said in a statement. “Under this scheme, we would be forced to pay the (commercial activity tax) on the $1,000 — money that never existed in any rational person’s definition.”

The 2009 constitutional amendment requires casinos to pay 33 percent of gross earnings, which are defined as total amount wagered, minus winnings. If they file a lawsuit, it would argue it’s unconstitutional for lawmakers to change that definition.

Penn may consider scaling back its investment in the state to smaller casinos if the House language isn’t removed, he said. The deadline for passing the budget is June 30. It will cover the two years beginning July 1.

Penn broke ground Monday on its Columbus casino, and its casino in Toledo is about 45 percent complete, spokesman Bob Tenenbaum said. Rock Gaming LLC of Cleveland has begun renovating an old downtown department store as the site of its Cleveland casino. Its Cincinnati casino has been delayed.

Rock Gaming spokeswoman Jennifer Kulczycki said Friday that the exact schedule for the $400 million Cincinnati casino is now unknown.

“We have missed the steel order in Cincinnati that would allow us to be closed this winter for interior work,” she said in an email. “We’re reviewing our construction schedule but it is safe to say that our current circumstance pushes the casino opening to 2013.”

The two companies are slated to spend a combined $1 billion and create 34,000 jobs, Schippers said.

“This type of delay, which could result in construction workers being called off the job, would benefit no one but the neighboring gaming states who will continue to benefit from Ohioans crossing the border to gamble,” he said.

Gambling opponent David Zanotti, president of the conservative public policy group Ohio Roundtable, said he’s not persuaded that casino companies are hurt by the proposal crafted by the House and backed by Kasich.

“They (gambling companies) wrote the amendment and they wrote it to prohibit additional taxation,” Zanotti said. “The courts are open, and they certainly have the power and the lawyers to win this. Let the governor try to stop them. The idea that the governor has suddenly come up with an idea that paralyzes them actually is laughable.”

Zanotti, who fought the 2009 casino amendment and other gambling initiatives before it, argues that Penn and Rock Gaming left an escape clause in the amendment language so they didn’t have to build any of the four casinos if they chose not to. A widely held political theory at the time was that a single casino in Cleveland was the goal of the amendment, with other cities added to draw votes from those areas.

“The driving force behind (the amendment) was and remains Penn National, and they are basically controlling the amount of gambling that is going on in the region, based on their numbers and their profitability,” Zanotti said. “When they want to go fast, they go fast; when they want to go slow, they go slow.”

Kasich ousted his predecessor’s picks for the Ohio Casino Commission and appointed his own members in February. His administration is in the process of hiring a pair of gambling consultants — Spectrum Gaming Group of Linwood, N.J., and Moelis & Co. of Los Angeles — to help him assess Ohio’s gaming market in the new era of casinos.

Among the determinations may be whether to legalize slots-like video lottery terminals at racetracks, sometimes called “racinos,” to be run by the Ohio Lottery.

Penn owns Raceway Park in Toledo and Beulah Park in suburban Columbus and has considered moving them so as not to compete with its casinos in those cities. Those decisions will depend on whether racetrack slots are made legal, spokesman Tenenbaum said.

Schippers said the company should at least have had a chance to meet with the new consultants before the tax change is approved. The House Finance Committee expects to vote on budget changes next week.

Gov. John Kasich to casino developers: ‘Ohio got a bad deal’

Mike Gruhin — Sat, 16 Apr 2011 14:11:55 +0000

CLEVELAND, Ohio — Saying Ohio residents are not getting their fair share of casino revenue, Gov. John Kasich is considering asking operators of the state’s four casinos to pay more — either through additional up-front fees or through the state’s commercial activity tax.

“I think the taxpayers of Ohio got a bad deal,” Kasich said Wednesday at an unrelated bill signing in Columbus, echoing comments he had made earlier this week.

Lisa DeJong, The Plain DealerOhio Gov. John Kasich speaks at Diebold headquarters in Green, Ohio, about the company’s decision to stay in Northeast Ohio in exchange for at least $56 million in state assistance.

Kasich wants developers to pay more, even though Ohio’s new casino tax already is among the highest in the nation and financial analysts caution that higher taxes and fees could lead to smaller projects and fewer jobs.

The governor on Tuesday ruled out going back to voters to get more money from casino operators by increasing the one-time $50 million per-casino licensing fee or the 33 percent revenue tax that they will pay.

Both of these were set by the 2009 constitutional amendment in which voters approved Las-Vegas style casinos for Toledo, Cleveland, Columbus and Cincinnati. Any change would need to be voted on.

But he said the casinos should pay more.

“You like to ask people to step up and help us in tough times,” he said, speaking after a news conference announcing that the state would give ATM manufacturer Diebold $56 million to stay in Northeast Ohio.

“I have told people we don’t want to shut you down, we’re not going back on the ballot, but frankly the taxpayers of this state have a little leverage right now, and this may be the last time we have leverage.

“It would be great to have a little more money to give to our schools, or to give to a job training program,” added Kasich, who made deep cuts to state and local government to plug $8 billion in holes in the state’s proposed budget.

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The 33 percent tax rate that will be charged to Ohio casinos already is well above the national average of 18 percent for 2009, the latest period for which figures were available.

Ohio’s tax rate as it is set in the constitutional amendment ranks third highest nationally out of the 13 states with casinos, according to Holly Wetzel, spokeswoman for American Gaming Association, the industry group that tracks these figures.

“The gaming tax is above and beyond all the traditional business taxes other businesses pay in the state,” Wetzel said. “We call it a privilege tax.”

Still, Kasich says you have to look beyond the tax rate. He says that the casinos are getting a $1.2 billion annual industry for $200 million in licensing fees, which is not enough. Over the last two days, the governor has indicated there are other ways for casino operators to pay.

The governor said the state is within days of hiring a gambling consultant to advise him on these and other issues. That consultant will suggest what additional fees casino operators should pay. Kasich promised to move quickly once the consultant is in place.

The casinos in Toledo and Columbus, a $650 million investment, are being built and paid for by Penn National Gaming Inc.

The Cleveland and Cincinnati casinos are being developed by Cleveland Cavaliers majority owner Dan Gilbert’s gambling company, Rock Gaming, in partnership with Caesar’s Entertainment.

They say they plan to invest nearly $1.5 billion in the two cities – an amount that’s three times what’s required in the 2009 constitutional amendment.

Officials for Rock Gaming said last week that uncertainty of fees, taxes, and when its casinos in Cleveland and Cincinnati could open have kept lenders from giving them the hundreds of millions of dollars necessary to complete the projects.

Matt Cullen, president and chief operating officer of Rock Gaming, compared the developers’ situation with lenders to a family trying to buy a house without knowing exactly what it will cost or how much money you have to pay the mortgage.

“So it’s a problem,” he said. “It’s a significant problem.”

Ultimately, if costs go up the developer may have to scale back the projects.

“This is going to throw people out of work,” said I. Nelson Rose, and expert on gambling and a professor at the Whittier Law School in Orange County, Calif. “Even a delay hurts these projects. But the prospect of raising fees and taxes and adding the element of uncertainty could kill them.”

LeRoy Brooks, a John Carroll University finance professor, said he believes Rock Gaming and Caesars can get the loans if they are willing to assume the bulk of the risk.

“There’s gaming going on right now,” Brooks said. “They’d like to use as much pressure as possible to keep the state from passing increases.”

In Cincinnati, the financing problems mean the developer probably will cancel an order of steel that would be used to frame the project before next winter. In Cleveland, where the first phase of the casino is being built in the historic Higbee building, it’s more day to day because the site is enclosed.

The Cincinnati EnquirerThe last buildings have been demolished along Reading Road in Cincinnati as work continues in preparation for the Horseshoe Casino Cincinnati, a $400 million project downtown.

Another way for the state to up what it gets from casinos is through how it applies an existing commercial activity tax — against gross gambling revenues or total bets cast.

The CAT, paid by most businesses in Ohio, is in addition to the 33 percent casino revenue tax set by state voters. While the tax is just 26 cents on every $100, it adds up quickly. And how it is applied to casinos could make a difference of ten fold.

The Horseshoe Casino Hammond Indiana, a Caesar’s property, last year generated $558 million in gambling revenue, but about $5 billion in bets.

If the CAT tax were applied to total revenue, it would be about $1.4 million. Applied to total bets and that jumps to $13 million.

The tax is for the privilege of doing business in the state. Casino developers point out that banks pay the tax on transactions, but not total deposits.

And horse racing tracks pay the tax on their net revenue, not total wagering.

Still, the governor was adamant Wednesday that the state should get more. Said Kasich, “What more are they willing to do, or do they think they’ve done enough?”

How Old is TOO Old to be a Judge

Mike Gruhin — Sat, 16 Apr 2011 14:07:32 +0000

The issue: Possible constitutional amendment on Nov. 8 ballot

Our view: Ohioans should be permitted to answer this question to their satisfactionOhioans may be asked a fascinating question at the polls in November: How old is too old to be a judge?

The Ohio House this week passed a resolution that would permit judges, including Sup-reme Court justices, to run for election through the age of 75. This is an increase of five years over the current limit, which has been in effect since 1973.

If the Senate passes the resolution, voters will see an amendment to the Ohio Constitution on the Nov. 8 ballot.

The amendment would allow judges to serve until age 80. This notion has an interesting opponent: the Ohio Prosecuting Attorneys Association. According to The Columbus Dispatch, the association believes that the current age limit “has improved judicial quality in Ohio.”

Supporters of the change argue that a person’s ability to judge cases fairly and wisely doesn’t end at age 70. They also note that retired judges who are older than 70 can accept temporary judicial assignments.

Given the steady increase in Americans’ life expectancy, it is a good time to allow Ohioans to answer this question to their own satisfaction.

Thirteen State AGs Threaten Lawsuit over Health Care Bill

Mike Gruhin — Thu, 31 Dec 2009 16:36:21 +0000

The Boston Globe reports that attorneys general from 13 states said yesterday they are prepared to sue unless congressional leaders remove an amendment from the federal health care legislation that exempts Nebraska from requirements to expand Medicaid coverage.

The 13 Republican AGs say the amendment, dubbed the “Nebraska compromise,” unconstitutionally carves out an exception for the state from the sweeping health care reform bill passed in the Senate last week that they estimate will lose the federal government $100 million in the next 10 years. The provision, which its opponents say was implemented to win congressional leaders the 60 votes necessary to block a Republican-led filibuster, also extended federal Medicaid assistance to five other states. Democratic lawmakers called the threatened suit a political ploy, and noted that the exemptions are nothing more than the sort of compromise routinely made to get legislation passed.

For full story, see: http://www.boston.com/news/nation/articles/2009/12/31/13_state_ags_threaten_suit_over_health_care_deal/

Columbushttp://www.dispatchpolitics.com/live/content/national_world/stories/2009/12/31/copy/Health_care_1231.ART_ART_12-31-09_A3_PMG5ISA.html?adsec=politics&sid=101 Dispatch:

Fox News: http://www.foxnews.com/politics/2009/12/30/republican-attorney-generals-threaten-lawsuit-health-care/?test=latestnews

New York Times: http://www.nytimes.com/aponline/2009/12/30/us/AP-US-Health-Care-Deal-States.html

USAhttp://www.usatoday.com/news/washington/2009-12-30-health-ags_N.htm Today:

For background on the controversy, see Wall Street Journal: http://blogs.wsj.com/washwire/2009/12/19/cornhusker-harvest-nebraska-gains-in-nelson-compromise/