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Cincinnati
Enquirer...
Kasich’s indecision
impacts Cincinnati casino
by Alexander Coolidge
Apr. 11, 2011
Failure by the state of Ohio to finalize key casino taxes and fees may
delay the opening of Horseshoe Casino Cincinnati by three or four
months, into 2013, developers said Monday.
They say Gov. John Kasich’s indecision is making it difficult for them
to close financial deals necessary to proceed with the $400 million
project at Broadway Commons downtown. The administration says it needs
time to study the taxes and fees to make sure taxpayers are getting the
best deal possible.
In the short term, a delay in opening would lower overall gambling
revenues in the state, meaning less tax revenue for Ohio counties,
school districts and host cities that will split total statewide
gambling tax proceeds.
In the long term, fundamental changes in the project’s cost structure
could risk it being scaled back.
Rock Gaming president Matt Cullen said Monday he won’t order “tens of
millions of dollars” worth of steel to build the framework for the
Broadway Commons casino in the next couple of weeks, given the
“uncertainty” coming from Columbus.
Rock Gaming, its operating partner Caesars Entertainment and their
lenders are balking at investing more money into the project when they
don’t know what their tax bill will be.
“Right now, we don’t feel we’re in a position to make that order,” he
said. “When there’s that much uncertainty, a prudent investor or lender
takes some time out.”
Part of the uncertainty stems from Kasich’s comments on the campaign
trail publicly questioning whether the 33 percent gambling tax for the
casinos or the $50 million one-time licensing fees are enough for Ohio.
Both were set when voters approved a constitutional amendment in 2009
allowing casinos in Cincinnati, Columbus, Cleveland and Toledo.
Changing either now would require amending the constitution again.
A more immediate question is how to apply Ohio’s 0.26 percent
Commercial Activity Tax on casinos: against gross gambling revenues
(how much gamblers lose at casinos) or total bets cast.
For example, the Horseshoe Casino Hammond in suburban Chicago, which
developers say is a prototype for Cincinnati’s casino, generated $558.5
million in gambling revenue in 2010, but took in more than $5 billion
in bets.
If the CAT tax were applied to total bets, the resulting tax bill could
easily be eight to 10 times higher than if it were calculated using the
gambling industry’s standard definition of gross gaming receipts. The
CAT tax is applied to most businesses in the state.
Not knowing your tax bill is a major concern that can seriously
complicate any business’ attempts to get commercial loans from banks,
said Steve Wyatt, chairman of the finance department at Miami
University.
Banks lend money based on how much cash flow a business will generate,
which can’t be determined if major tax costs are not ironed out.
Uncertainty makes such a loan riskier for a bank and prompts it to
charge a higher interest rate – or may stop it from lending at all.
“Banks want to know the profit stream that’s going to repay them,”
Wyatt said. “They really want tax costs nailed down (in
heavily-regulated industries like gambling) because state and federal
governments have so much power.”
Steve Gallaway, principal of Denver-based gambling consulting firm
Gaming Market Advisors, said boosting taxes could prompt developers to
scale back on expensive extras, such as restaurants, and force them to
turn the project into more of a slot parlor.
“Politicians look to gambling to fix anything, and the reality is we’re
a business like everyone else and we need to generate a return to
investors,” he said.
The governor’s office insists it needs to conduct more due diligence
before it determines its positions.
Kasich is set to hire a gambling consultant in the next few weeks to
help him nail down his position. “The governor wants these casinos to
succeed, but he wants taxpayers treated fairly,” said spokesman Rob
Nichols.
Plans for Cincinnati’s casino call for a 350,000-square-foot building
with a 2,500-car parking garage.
Until now, developers have been planning a late 2012 opening. The
24-hour facility will be operated by Caesars Entertainment, which will
take a partial ownership stake. The project is expected to generate
2,100 construction jobs and 1,700 permanent jobs once it is up and
running.
Cullen said work on the casino site won’t stop immediately. Foundation
work will proceed into the summer, he said. But if steel isn’t ordered,
workers won’t be able to erect the frame of the structure this fall as
planned, and they won’t have an enclosed building to work on through
the winter.
He declined to speculate about further impacts to the project.
Cullen said the $600 million Cleveland casino that Rock Gaming also is
developing won’t run into similar delays at this time because it is
housed in an existing building that is being rehabbed.
Bob Tenenbaum, a spokesman for Penn National Gaming Inc., said the
company that will own and operate the casinos in Columbus and Toledo
finances its own projects and is proceeding with construction and
development.
Read it at the Cincinnati Enquirer
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