New York: casinos not a magic fix that will solve fiscal challenges

New York

Thomas DiNapoli, New York State Comptroller, has elaborated on a number of economic factors and state policies that could potentially dampen the impact of new casinos, upon publication of a report looking at the impact of gaming venues on upstate local tax revenue.

A fresh igaming push, market saturation and even potential closures or downsizing were all identified, with a series of points of advice also offered to those regions that could play host in the future.

After the New York State Gaming Commission began the bidding process for the three commercial casino licences in January, DiNapoli’s latest report centres on the four current casinos, those being del Lago Resort and Casino, Resorts World Catskills, Tioga Downs Casino and Rivers Casino and Resort.

During 2017 to 2022, these establishments delivered $176m in gaming tax revenue to host and regional local governments, however, it said that only the former trifecta, located in small towns, “realised significant fiscal benefits relative to their overall revenue”.

“all four casinos saw gross gaming revenues exceed pre-pandemic levels in 2022”

This saw the towns of Nichols, Tyre and Thompson cut property taxes as gaming tax revenue made up 30 per cent to 60 per cent of each total, however, the larger host city of Schenectady, which houses Rivers, saw this percentage stand at just one per cent to three per cent.

“Although the pandemic contributed to the shortfall, with casinos shut down for six months in 2020 followed by capacity restrictions that were not fully lifted until June 2021, all four casinos saw gross gaming revenues exceed pre-pandemic levels in 2022,” it was written.

“That did not translate into greater local gaming taxes, however, because state amendments to New York’s gaming law allowed casinos to keep a greater percentage of their gross revenue by asking for cuts in their tax rates for slot and electronic table games to 30 per cent, which three did. 

“A bill to reduce Tioga Downs’ slot and ETG tax rate to 30 per cent is currently pending executive approval. The tax cuts reduced collections by a combined $41.9m in 2022, including $8.4m that would have gone to local governments.”

With this in mind, future host municipalities have been warned of the importance of properly estimating anticipated revenue, ensuring that the revenue is used for the right purposes, undertaking multi-year financial planning and establishing or updating reserve fund policies.

In addition to helping navigate extreme examples of disruption, such as COVID-19 shutdowns, the correct planning procedures, the report noted, could also aid economic factors and state policies that could also reduce local revenue unexpectedly.

One example cited regards a potential online casino legalisation, mirroring moves made in the neighbouring states of Connecticut, Pennsylvania and New Jersey.

“It’s my hope that this report gives state and local officials a clearer perspective that can help potential host communities avoid the pitfalls”

However, it was warned that this may not only reduce foot traffic, a lack of any local government gaming tax component “would likely reduce local gaming taxes, even if it increased overall gaming revenue for the casinos and overall taxes collected by the state”.

A further issue cited is that of market saturation, with tribal casinos and border states potential detractions to this regard, with closures or downsizes also highlighted. 

Subsequently, DiNapoli’ underscored the importance of realistic fiscal planning by localities regarding expectations for gaming revenues, with issues including budgeting challenges associated with gaming revenue and the need for proper, multi-year financial planning evident in the audit of two of the aforementioned towns.

“Casinos are not a magic fix that will solve local fiscal challenges,” DiNapoli said. “While casinos have generated local gaming tax revenue, the impacts vary for the communities that receive such revenues. 

“It’s my hope that this report gives state and local officials a clearer perspective that can help potential host communities avoid the pitfalls that arise with misguided expectations about the public benefits of casinos. They are not a sure bet.”

The report did not examine the non-financial impacts of hosting a casino on issues such as gambling addiction or quality of life issues. DiNapoli will be releasing a report that looks at those issues later this year.