Articles

(July 2003) The Senate, House of Representatives and Governor Rendell are trying to merge dueling legislation approving a major expansion of gambling in Pennsylvania. The main objective? School property tax relief, using tax revenue from new slot machines at racetracks and other locations. Potential numbers envisioned for these legislative proposals - in tax relief and slot machines - are very large. What are the odds the vision will pay off? IssuesPA investigated.

How would the money be raised?

Pennsylvania’s state government would receive revenue from slots by levying a tax on "gross terminal revenue" - money wagered minus prizes paid. Current proposals expect 3,000 to 5,000 slot machines at each of 8 to 11 sites. They also recommend additional property tax reduction revenue generated from increases in local income taxes.

For every $100 wagered, approximately $90 would be prizes and $10 would remain as gross terminal revenue. State government would tax that remaining $10. The proposed 34% state tax would yield $3.40 for every $100 played. Estimated revenues differ from proposal to proposal, but $1 billion for property tax reduction is the number most frequently advanced. If all tax proceeds from slots were used for property tax relief, gamblers would have to wager about $24.4 billion annually in slots to reach a statewide revenue goal of $830 million. An additional $170 million from increased local income taxes could raise the total for property tax relief to about $1 billion. If $1 billion is expected to come from slots alone, gamblers would have to wager about $30 billion - and lose $3 billion.

These calculations assume state government will use all proceeds for property tax relief, an assumption current legislation doesn’t embrace. (See "In the Mix" story about other beneficiaries.)

Slot parlors - if you build them, will they come?

According to gaming industry surveys, approximately 2 million Pennsylvanians take an estimated 9.6 million trips outside the state to gamble every year. Theoretically, Pennsylvania’s first step is to stop state residents from visiting Delaware and West Virginia racetracks, and Atlantic City and other casino destinations.

Reclaiming all Pennsylvania gamblers from other states is difficult, if not impossible. Atlantic City is the biggest destination of choice for Pennsylvania gamblers - 76 percent of all gambling trips are to Atlantic City (Harrah’s Survey 2002 - Profile of the American Casino Gambler). Atlantic City, relatively close to Pennsylvania’s eastern border, offers other amenities such as shows, the beach and shopping. It’s a safe bet some Pennsylvanians will continue to go there.

Only 4% of Pennsylvania gamblers visit West Virginia racetracks and 3% those in Delaware. Pennsylvania may be able to reclaim most of them by offering a similar experience here.

If some Pennsylvanians continue to leave, reaching the revenue targets will require efforts to attract new gamblers from other states, add new ones from within, or increase the amount wagered by those who return. Each of Pennsylvania’s border states likely will expand its own gambling opportunities, so Pennsylvania can’t depend on a large influx of out-of-state dollars coming to its racetracks and slots parlors. To reach the $830 million "threshold," Pennsylvanians who currently don’t gamble either will have to start, or the dollars existing players gamble (and lose) must increase.

Will gamblers bet enough?

Not only must players come to Pennsylvania’s slot parlors, they must bet in sufficient amounts to lose at least $2.5 billion. If each of those 9.6 million trips Pennsylvania gamblers now take is redirected here, gamblers would have to wager an average of $2,542 per trip and lose approximately $254 each time to meet the $830 million tax revenue goal.

Further, each player on average would have to annually wager $12,270 and lose $1,270 (assuming that each player maintains an average pace of five gambling trips a year). Those wager and loss figures far exceed other states’ experiences. And if the desired amount of slot tax revenue is $1 billion, those figures would be even higher.

So what’s the bottom line?

To reach and maintain major amounts of property tax relief through taxes on slots, Pennsylvania faces the challenge of attracting many more players - inside or outside Pennsylvania - than those it’s now losing to other states. A surge of player interest is likely at first, but maintaining player interest and attracting gamblers will be an uphill battle. An alternative is to find ways to increase the amount Pennsylvanians bet. For this to happen, money likely would be diverted from other entertainment and leisure activities since disposable income is a finite resource - unless everybody spends his or her property tax reduction on slot machines.