Casino bailouts will add burdens
Another year is upon us and upstate New York’s commercial casinos are back at the trough with plans to request reductions in their state taxes — in simpler terms, tax breaks.
While state leaders rejected this in years past, New York’s commercial casinos are looking for a workaround by restructuring state gaming policy. The problem: state bailouts will not solve casinos’ challenges in New York, but only only add new burdens for the state and its people.
Inserted into the state 2021-22 budget is a provision that would eliminate the need to secure legislative approval for any future tax reductions granted to commercial casinos. This alarming proposal would allow commercial casinos to directly petition the New York State Gaming Commission for tax reductions. As a policy analyst who has spent the last 29 years studying the Northeast gaming market, including New York, I could not imagine a worse arrangement. As it stands, this proposal fundamentally eliminates the Legislature’s role in overseeing the state’s gaming tax structure and policy. Instead, the Gaming Commission would become the sole agency responsible for deciding casino taxes, with casinos appealing directly to it on a one-to-one basis.
One the face of it, New York and its tax paying residents are set to lose a shocking amount of annual revenue — revenue that could be put to good use as the state recovers from the pandemic and faces the prospect of years of multibillion-dollar budget deficits. Stated in the comprehensive Gaming Market Study for the State of New York released by Spectrum Gaming Group in January, these reductions are expected to cost the state an annual $626 million in lost revenues — at a minimum.
But these reductions will not, and cannot, mitigate the foolishness of the commercial casino operators who willfully charged into a saturated market with exaggerated and false promises from the outset. As I predicted in 2014, the upstate casinos have consistently underperformed compared to their projected revenues by a wide margin, year after year. This was the case before the pandemic hit in 2020. For instance, in 2019, all new commercial casinos generated less than half of their projected revenues and state tax payments. Casino operators should not be allowed to retroactively invoke market saturation as an “external cause” beyond their control when many of them discounted this fact in their initial investment decisions.
Now, however, these same casinos contend that their underperformance as private businesses requires the state to grant them additional tax breaks in addition to the ones they received during the licensing process. It begs the question: In what other industry would poor financial performance result in an individual business enterprise receiving a tax reduction, while all other enterprises in the same industry continue to be taxed at a higher rate?
The difficulty for New York casinos is not that they are taxed at their current rates — the same rates are standard for gaming in other states — it is that they simply do not generate enough revenue to sustain their operations. As I warned prior to their development, the gaming market surrounding these new gaming venues is oversaturated and the public demand is not there to meet the excess supply. No number of tax breaks will increase demand for these gaming facilities. Therefore, tax breaks will not result in increased revenues for either the casinos, their local areas, or the state.
With this unavoidable economic reality in place, and with the steep cost to the state budget, these tax breaks will serve as nothing more than a very generous gift from New York residents to casino owners and their investors. Some residents might understandably question this arrangement, especially as the region endures the hardships of the COVID -19 pandemic, but most are likely unaware. Even for public officials, this process was just proposed within the state’s behemoth budget document, and the idea that a gaming commission can grant tax breaks to individual casinos is simply unprecedented as public policy. Imagine if the U.S. Department of Energy could grant tax breaks to individual oil companies like Exxon or Sunoco. It would be a feeding frenzy at public expense.
I can think of no other state with a similar process. Some may remember last year’s findings of the Gaming Commission failing to collect $13 million in owed funds from these same casinos, which will now be making their case to receive hundreds of millions in tax breaks. At its worst, the process introduces a new environment for potential corruption and favoritism to arise without the necessary oversight of lawmakers.
From an economic standpoint and as a matter of good public policy, the proposed process for awarding tax breaks to commercial casinos does not serve the interests of New York. And because the challenge of market saturation in upstate New York will continue, tax breaks will only reward these casinos’ initial misjudgment at a real cost to the public.
In what other industry would poor financial performance result in an individual business enterprise receiving a tax reduction, while all other enterprises in the same industry continue to be taxed at a higher rate?