Pressure is on the incoming legislature to resolve local tax issue
While the majority of the Pennsylvania casinos have agreed to maintain payments to their host communities while state lawmakers formulate a new system that will pass constitutional muster, one glaring exception to the rule is Sands Casino Resort Bethlehem.
In September, the Pennsylvania Supreme Court declared the host fee in the 2004 state gaming law to be illegal under the tax uniformity clause of the state constitution. The ruling was in response to a lawsuit initiated by Mount Airy Casino Resort and supported by the Sands. The high court agreed with the plaintiffs that the original law—which required a payment to each local host community of $10 million or 2 percent of gross revenue, whichever is greater—caused smaller casinos to pay a disproportionate portion of their revenues compared to larger casinos.
State lawmakers scrambled to replace the host fee during the November lame-duck session, but that effort was defeated after amendments to legalize online gaming and other expansion measures were tacked onto a bill that provided for a flat $10 million annual fee to host communities. (That law would have been challenged by the same casinos, for the same reason; it would have placed an uneven tax burden among the state’s 12 casinos.)
As the issue will now linger until the newly elected legislature holds its first session, the majority of Pennsylvania casinos have announced that they will maintain payments to their host communities—they pay a portion of the minimum $10 million on a quarterly basis. Rush Street Gaming was the first to pledge continuing support to Pittsburgh and Philadelphia, where its casinos are located. Those casinos were followed by Harrah’s Philadelphia in Chester, Hollywood Casino outside of Harrisburg, Mohegan Sun Pocono in Plains Township and most recently, Parx Casino in Bensalem. (The small, resort-class casinos in Valley Forge and Fayette County are not subject to the $10 million minimum fee.)
Smaller properties such as Mount Airy in Mt. Pocono, Presque Isle Downs in Erie and the Meadows in Washington County have yet to address the issue, but Sands officials have told city officials in Bethlehem that they will not address the issue before they see the legislative fix lawmakers come up with in early 2017.
“We’re not going to speculate on any future outcome by the legislature,” said Las Vegas Sands Corp. spokesman Ron Reese in an interview with the Allentown Morning Call. “As it unfolds, we’ll follow and act accordingly.”
Local officials in Bethlehem, the former steel town that has been revitalized by the Sands’ transformation of the former Bethlehem Steel plant into a casino and hotel, hold a particular interest in the outcome, since casino host fees account for a full 12 percent of the annual city budget.
“We met with the Sands,” Bethlehem Mayor Robert Donchez told the newspaper, “and we’re all hopeful legislators will find a fix. If nothing happens by April, we’ll talk again and take it from there.”
April is key because it is the first month municipalities would receive no host fee under the old law. According to the court ruling, a quarterly payment is still due in January under the old law. The next payment would have been due in April.
Bethlehem City Council adopted a 2017 budget that does not include any tax increases, but does count on the host fees from the Sands.
The host fee is one of two casino issues to be faced by the new Pennsylvania legislature—the other being gaming expansion, including establishment of online gaming. Pennsylvania is facing a budget shortfall of $600 million for the new fiscal year, and the budget passed by lawmakers last month includes a $100 million revenue assumption from establishment of online casinos.
While lawmakers have sought to separate the expansion issues from the host-fee issue, the two likely will become entwined again in the new session as local representatives bargain to achieve benefits for their own districts.
