Fate of host fee uncertain
Pennsylvania’s legislature returned to session last week, with the top priority of funding an unbalanced state budget in place since July 1. Gaming expansion, including the legalization of online gaming, is near the top of the list of methods being considered to address a budget deficit of more than $2 billion.
The taxation of online gaming is one of the point of contention among lawmakers. While both chambers passed legislation that would authorize the legalization and regulation of online gaming and daily fantasy sports, the state House bill would tax online gaming revenues at 14 percent, while the Senate bill would tax iGaming at 55 percent, the same rate as the state slot tax. Casinos have said they would not apply for an iGaming license at that tax rate.
The other main bone of contention is a controversial measure to legalize video gaming terminals, or VGTs, at thousands of bars and taverns across the state. House leaders want VGTs to bring in revenue for their districts, while Senate leaders remain opposed to the measure. The state’s casino owners are vehemently against VGTs, which they see as unfair competition to their operations.
For many of those casino operators, the most pressing gaming issue before lawmakers is passage of a replacement for the local-municipality gaming host fee struck down last year by the state Supreme Court. That fee gave 2 percent of slot revenues or $10 million, whichever was greater, to local municipalities to cover extra costs associated with hosting a casino. The court agreed with lawyers for smaller casinos led by Mount Airy resort that the fee violated the state constitution’s uniform taxation clause, because smaller casinos paid a higher proportion of their revenues for the tax than larger casinos.
Mount Airy officials have said they will also challenge the replacement proposed by lawmakers, which would impose a flat $10 million annual host fee for all casinos. The casino’s owners have pointed out that no property ever reached income levels that would raise the fee over $10 million, which means the new fee would essentially be identical to the one struck down by the courts.
Municipalities such as Bethlehem, where the Sands has refused to follow other state casinos in paying the host fee without a replacement law in place, are facing requirements to borrow money to pay their bills. Bethlehem, which depends on Sands host fees for 12 percent of its budget, is facing a possible drop in its bond rating due to the deficit.
The city is expected to refinance $17.4 million, triggering a credit rating evaluation this month. “The result could be an unwillingness to grant the improved rating, or even worse, reduce it based on the ongoing lack of clarity on this revenue stream,” Bethlehem Mayor Robert Donchez said in a September 1 letter to the Sands Bethlehem President and CFO Brian Carr. Sands spokesmen Ron Reese responded that “a single company can’t provide that clarity; that clarity has to come from the state legislature.”
The city is responding to the Sands by threatening to use eminent domain to seize Sands property where the city’s Redevelopment Authority wants to build a retail center and parking deck the city deems crucial to the ongoing neighborhood revitalization. The Sands has refused to sell the property, and has not revealed any plans to develop it.
