Five years ago this month, Gov. Rendell signed into law the signature policy achievement of his tenure — legalized slot machine gambling. Act 71 of 2004 allows for 61,000 slot machines in 14 casinos throughout Pennsylvania. The governor promised many benefits from gambling revenue, the most appealing of which was a predicted $1 billion in property tax relief.
With lawmakers considering expanding the state’s gambling monopoly to include table games (such as poker and craps) to fill the current budget gap, it is important to consider its impact thus far. Unfortunately, Act 71 has failed to deliver the promised benefits. Instead of reducing property taxes, the governor created a political web of corruption. The egregious flaws in the legislation were pointed out five years ago, but regrettably ignored, giving taxpayers little to celebrate.
Licenses for slots casinos were sold for a mere $50 million each, far below their probable market value, to politically chosen winners. This cost Pennsylvanians more than $2 billion in potential revenue. In 2004, estimates conservatively set the worth of Philadelphia casinos at $500 million each, and the Pittsburgh casino at $300 million.
Even licenses at horse racing tracks have resold for more than $50 million. The Meadows racetrack in Washington County was bought for $53 million in 2001, but resold for $225 million in 2005. This 325 percent increase in value does not include the cost of improvements just to house slot machines. The Pocono Downs facility was sold for $280 million. This is revenue the state could have earned had it competitively bid slots licenses.
The property tax reductions haven’t materialized either. While the administration estimated $1 billion in annual property tax reductions, the actual amount in 2008-09 and for 2009-10 was around $600 million each year. That amounts to about $200 per Pennsylvania homeowner.
Yet because it took four years to deliver any gambling funds, property taxes skyrocketed while homeowners were waiting for relief. Since 2004, annual school property tax collections have increased by an estimated $3 billion, or five times the level of relief. On average, homeowners are paying $800 more in school property taxes than before the slots law.
The Commonwealth Foundation and others also predicted that slots gambling would cut into state lottery sales. As the State Lottery’s profits go to fund the Department of Aging, this should be a serious concern for lawmakers looking only at new revenue. Our predictions have proved to be accurate; slots gambling has negatively affected the lottery. The Legislative Budget and Finance Committee found that in counties with a casino, lottery ticket sales fell 4.2 percent. And statewide, lottery sales have been stagnant after years of double-digit growth.
Besides these disappointments, the Gaming Control Board has proved costly and susceptible to corruption. The six board members have a combined salary of more than $1 million, not including benefits, with a few earning more than the lieutenant governor. The members are not required to work any minimum number of hours, and many hold outside jobs.
When the executive director stepped down from her position recently, the board paid her more generously than her contract stipulated, giving her an extra $60,000. Board members took a recent trip to Italy that cost more than $30,000, during a ban on out-of-state travel. The board also receives the perk of leasing luxury cars.
All in all, the board’s expenses have added up to more than $25 million per year. The cost overruns from the board are such that it had to repeatedly “borrow” from the Property Tax Relief Fund to pay its bills.
More discouraging is the board’s failure at conducting background checks and investigations. Many employees were hired before they had completed any background check, including a senior employee whose background check continued five months after he was hired.
The lack of complete background checks has led to embarrassing situations for the board. One employee was charged for murdering his girlfriend, and then was found with drug paraphernalia. One employee was found to have falsified information on his background investigation questionnaire, but 10 months later was returned to his original position.
Perhaps the most infamous example of faulty investigation is the fiasco involving Louis DeNaples, who was awarded a license to open the Mount Airy Casino. DeNaples was charged with four counts of perjury for lying about his connections with organized crime figures. In April his charges were dropped, in exchange for the transfer of the casino to his daughter.
Gov. Rendell’s much-hyped slot machine legislation has failed to deliver on his soaring promises. Gambling’s first five years in Pennsylvania have been an embarrassment for residents and state officials, something lawmakers should consider before further expanding legalized gambling.
Natalie Rogol is a research fellow with the Commonwealth Foundation (www.CommonwealthFoundation.org), a public policy education and research institute located in Harrisburg.