Gaming Board Cashing Out

It is common knowledge that the Gaming Control Board, and its employees, receive generous paychecks, fatter than they deserve relative to the prevailing market for comparable work and skills.

In fact, the Pennsylvania Gaming Control Board members are paid more than any other state’s gaming board, including Nevada’s.  The board and its employees are paid more than any other Pennsylvania state agency. The Auditor General found that the Gaming Control Board had the highest number of employees earning more than $100,000 a year among state agencies.

Defenders of board salaries claim that high pay is necessary to ensure that employees experienced in the gaming industry were recruited. However, a Pittsburgh News Channel, found that one-third of the employees were transfers from other state agencies. Many of these transfers were paid much more than they had been in their previous position.

Has gambling in Pennsylvania really delivered for taxpayers, as Gov. Rendell claims, or merely delivered for those with the right political connections?

Has Gambling Reduced Property Taxes?

In a press conference last week, Gov. Rendell patted himself on the back for all the property tax relief he has provided via gambling. 

But John Delano of KDKA-TV in Pittsburgh challenges this notion in a new video, noting that most folks are not seeing property tax relief.  That is because, while gambling is providing about $600 million in relief, property tax increases have matched this level of relief (and since gambling was passed in 2004, property taxes have increased by an estimated $3 billion, far exceeding the level of relief).

The Allegheny Institute points out how the second major aspect of Act 1 - the "back-end referendum" -  has also failed.  As they note, school districts are given a perverse incentive to raise property taxes to the index (the cap over which they would have to seek voter referendum - 4.1% and higher for districts this year) every year, and that when districts want to exceed that thresholds, they can usually get an exemption from the state.  In practice, voters have rarely had any say in local property tax increases.

Federal Cigarette Tax Increase will Reduce PA Tax Collections by $140 Million

A new report from the Tax Foundation looks at the cost of the recent federal tax hike on cigarettes, an increase of 39 cents to $1.01 per pack, state by state.   The analysis finds that Pennsylvania smokers will pay $272 million in additional taxes.  However, because of a decline in cigarette sales from the higher tax (or rather, a decline in reported, taxed cigarette sales), the state will lose $140 million in revenue. 

This at the same time Governor Rendell is proposing a state cigarette tax hike of his own, to help fill the budget gap.  Even without a tax rate increase, revenue from the state cigarette tax has been declining - from $856 million in 2003-04 to an estimated $782 million in 2008-09.

This on the heals of a state report that state lottery revenues have been stagnant over the past few years, and counties with a slots casino have seen lottery sales decline - a trend likely to be problematic as additional casinos open.  And as mentioned previously, it is still unclear whether the slots revenue will be enough to provide property tax "relief" this year at all.

All in all, it doesn't look like taxing the vices of (mostly poor) Pennsylvanians is paying off.

No "Property Tax Relief" This Year?

Sharon Smith writes that the slots taxes may not generate enough revenue to trigger property relief this year.  By law, the Property Tax Relief Fund must have $570 million when it is certified on April 15.   It is currently a quite bit short of that level.  Even if it does reach $570 million, it will like provide less property tax relief than last year's $613 million.

You can get the latest State Gaming Fund collections numbers here.  Remember that the State Gaming Fund first pays for the Gaming Control Board, volunteer fire companies, compulsive gambling treatment, the local share, and a handful of other programs before allocating the leftover funds to Property Tax Relief. (Horse Racing Fund and Economic Development Fund get funds directly from taxes on gambling losses).

Perhaps more importantly is the fact that local property tax increases have far outpaced any "relief" from gambling revenue. Since the slots law passed in 2004, school property taxes increase by about $3 billion, exceeding the property tax "relief" by almost $2.5 billion

Gaming Control Board Under Fire

Sen. Jane Orie, Rep. Mike Vereb, and a few other Republican lawmakers teed off on the Pennsylvania Gaming Control board, for their travel habits during a travel ban.  Click here for the news release.  More from the Tribune Review and PLS. 

On a tangentially related note, you can sign up for the Commonwealth Foundation's bracket challenge here.  Four Pennsylvania schools are in the "dance" - Pitt, Villanova, Temple, and Robert Morris.  As for my alma mater, they showed a great deal of heart this year, showing up for every game.

There is no cost involved, so none of the proceeds will go to pad the Gaming Control Board's expense account, or allow Gov. Rendell to claim he has reduced property taxes or college tuition.

State Employees Take Taxpayer-Funded Trips

Team 4 has an amazing exposé of taxpayer-funded travel by Pennsylvania state employees, in particular the gaming control board--after a travel ban was implement.  Here are some of the more outrageous facts:

Five top Gaming Control Board officials flew to Rome for an international gaming conference. They stayed at this luxurious hotel, costing $434 per night.

They got $365 a day for meals -- which, under state rules, they did not have to account for. But some of it was spent at the pool bar, according to receipts obtained by Team 4. ...


Despite such trips, Rendell says out-of-state travel is way down since the travel ban.  ... But that's not what travel records show.We checked the numbers on all travel since the ban started. We looked at the top out-of-state destinations -- Florida, San Francisco, Las Vegas -- as well as foreign trips. Last year, before the travel ban, state employees spent $244,800 going there. And in the same time period after the ban, they spent almost exactly the same amount -- $244,600.

But hey, the state budget is "cut to the bone", right?

One additional comment: the article notes, "The gaming board says its travel costs are covered by casinos."

Is this the same Gaming Control Board which had to borrow money from the Property Tax Relief fund to meets its costs?  The same one that has frequently had budgetary over-runs and gotten more funding?  The same one with fat paychecks (mostly for people moving from other state agencies), extravagant perks, car leases for part-time employees, and a shoddy record of performance?

If government taking a percentage of net losses by gamblers isn't a tax, what is? Gaming money is taxpayer money. 

Watch the Video

State Bus Tour to Promote PA Lottery

From the "Are you kidding me?" department is this announcement that, despite a massive budget deficit, the state is launching a statewide bus tour to promote a new Pennsylvania Lottery game.

What better way to help people during a recession than tell them to waste their additional unemployment compensation on the Lottery - the worst bet you can make.

What next, a taxpayer-funded advertising campaign to encourage citizens to invest with Bernie Madoff?

PA Budget Proposals: Cut the Fat, Play Poker

Sen. John Eichelberger unveiled a proposal today to issue a moratorium on "earmarks", the legislative-controlled WAMs and other items.  The proposal also calls for a review of all these discretion funds - where the money goes, who makes the requests, etc.  This proposal would save taxpayers hundreds of millions of dollars.

On the other hand, Governor Rendell wants to take more money from taxpayers, by encouraging them to play video poker to pay for his higher ed program.  I'm going to avoid discussing the moral implications of legalizing gambling (I'll leave that to Cato and PA Family Institute). 

Instead, I will note:

• The higher ed funding plan is ill-conceived.
• We should not be creating new programs when facing a massive budget deficit derived from over-spending.
  
• There is a real hypocrisy in cracking down on poker (online or friendly games), which is a game of skill, while allowing video poker, a game of chance in which a computer guarantees a certain level of "the house" winnings. The real distinction seems to be that gambling is wrong, unless state government get a large cut of the profits. 
• Gambling taxes (like tobacco taxes, another revenue source Rendell is pushing) fall mainly on the poor.
  
• Who is going to monitor this program, the cronies at the Gaming Control Board?
  

Ed Rendell and Rosie O'Donnell

Q: What do Governor Ed Rendell and Rosie O'Donnell have in common (hint: it has nothing to do with food)?

A: They have both gotten on Donald Trump's bad side.

Trump is now suing the Pennsylvania Gaming Control Board, alleging his plans for a Philadelphia casino were illegally discriminated against. Says Trump, "Pennsylvania is a little too political a state for me. It sounds like you have to be a friend of the governor to get a casino."

Given the record of the Gaming Control Board, he may well have a case. Of course, the winners of slots licenses in Philadelphia - who have already spent millions on their licenses, legal fees, and planning costs - aren't going to roll over for The Donald. One firm is quote as saying, "When the matter is finally over, Mister Trump will be told, 'You're fired!" Clever play on The Apprentice, except it makes no sense in this context.

PA Lottery lags overall economic growth

There have been seemingly conflicting media reports on the Pennsylvania's Lottery growth. Tom Barnes in the Post Gazette repeats, without analysis, the state revenue department's self-congratulatory release by writing "Economy, casinos not hurting Pa. Lottery sales" as does the Patriot News writing, "Pa. Lottery Sales Up in Down Economy" both highlighting "records high sales." But the AP headline for the same story is "Pa. lottery sales virtually flat for 2007-08"

In fact, lottery sales grew a scant 0.4% over last year. Over the past several years, the lottery had seen double-digit annual growth. And the LBFC study found that not only is the lottery stagnant, but areas near slots gambling have seen declines. So Tom Barnes' headline seems to be incorrect - slots are hurting lottery sales.

But what about the economy? In contrast to the Patriot News headline, the economy isn't down, but up (in terms of GDP it at least). Real growth - adjusted for inflation - in GDP was at 1.1% in the first quarter, and the one-year growth (Q1 2007 to Q1 2008 is 2.5%). And early estimates indicate 3% growth in the second quarter.

This is dramatically higher than lottery growth - in fact, since the lottery revenue is not adjusted for inflation, the lottery actually declined in real terms.

Lottery Dollars ARE Tax Dollars!

PA Secretary of Revenue Tom Wolf recently wrote to the Commonwealth Foundation about a mailing we sent out to members of the General Assembly highlighting the inappropriate use of tax dollars for Lottery advertising (see his letter here).

We thought you'd appreciate our response here and pasted below ...


July 16, 2008

Thomas W. Wolf
Secretary of Revenue
Commonwealth of Pennsylvania
Strawberry Square
Harrisburg, PA 17128-110

Dear Secretary Wolf,

Thank you for your letter dated July 8 in response to our postcard which referred to the $30 million spent on Lottery advertising. You claim that “Not one penny of state tax money is used to pay for Pennsylvania Lottery advertising.” I must respectfully disagree.

First, I would contend that the 33% of Lottery sales going to state government coffers should be considered an implicit tax on Lottery players. I refer you to the U.S. First Circuit Court ruling in the San Juan Cellular case which lays out the legal definitions for a tax. Because the 33% of a Lottery ticket’s price going to the state is not a voluntary contribution; does not go into prizes or administrative costs; serves a general purpose, rather than benefiting buyers as a user fee; and is imposed by state government, Lottery tickets represent a tax on gambling expenses.

Furthermore, the Lottery was created with the intent of funding services while offering reductions in other taxes currently funding those programs. While those tax reductions were never realized, it is clear that Lottery funds are, and were always intended to be, public monies. Therefore, the Commonwealth of Pennsylvania must be held accountable to the public (taxpayers, Lottery players, voters, and residents) for the expenditure of those funds.

The issue of whether the lottery represents a “tax,” a “user fee,” or a profitable enterprise of state government misses the question of whether Lottery funds are being spent appropriately. You point out a number of “important programs” funded though lottery proceeds. What you fail to mention is that the $33 million spent on Lottery advertising, along with the $37 million for administrating the fund, takes money away from these important programs.

What you also neglect to mention is that, while the state engages in many forms of advertising, most of these promote new state programs or encourage citizens to act responsibility (recycle, conserve energy, don’t drink and drive, etc.). To the best of my knowledge, Lottery ads are the only state-funded advertising encouraging unhealthy behavior.

The ads never mention that the Lottery is the worst form of gambling, in terms of odds of winning. Slot machines, roulette, craps, and online poker all represent better odds for players. Yet the state, along with the federal government, has worked to keep these forms of gambling illegal, or in the case of slot machines, highly regulated and controlled by state government. These prohibitions are ostensibly to protect would-be gamblers (but are more likely designed to protect state lotteries from competition). So why doesn’t Lottery advertising inform would-be gamblers they would be better served betting elsewhere?

Your Lottery ads also fail to mention how players would be far better off investing their money in a retirement account than buying Lottery tickets. In fact, the Tax Foundation estimates that investing $100/month over forty years would yield $320,000 more than spending that money on Lottery tickets. Yet Lottery ads featuring “the 2nd most famous groundhog in Pennsylvania” don’t encourage retirement savings, but encourage people to waste their money gambling.

If you feel the Lottery should act simply as a profitable enterprise, or a business, advertising its services and attempting to maximize profitability, then it should be privatized. A private firm, regulated (and taxed) by the state, would undoubtedly provide a more efficient gambling service than state government. But so long as the Lottery is owned and operated by Harrisburg bureaucracies, every dollar collected and spent by your department must be properly viewed as belonging to the taxpayers.

I hope that in the future you will consider Lottery funds as public money and demonstrate greater accountability to the taxpayers and residents of this state in the use of these revenues.

Sincerely yours,

Matthew J. Brouillette
President & CEO

Did slots hurt lottery collections?

A new report by the Legislative Budget and Finance Committee find that slots gambling has hurt lottery revenue. Not only has lottery revenue and participation seen almost no growth (following several years of double digit growth), areas closer to casinos and slots parlors saw drops in lottery participation, whereas areas without any gaming venue nearby continue to see lottery growth.

As I speculated some months ago, unless gambling revenue results in higher tourism (or less to Pennsylvanians heading elsewhere to gamble) it will likely only represent a shift from other expenditures (lottery, sporting events, entertainment, etc.) and not be a net boon for the economy.

It should also be mentioned that - from a purely revenue perspective - a shift from lottery to slots is good for gamblers (slots pay out about 91% in wagers vs 59% of lottery wagers going to prizes) but worse for the government (5% of slots wagers vs. 33% of lottery buys.)

Gaming Control Board screw-ups continue

A number of PA House Republicans are calling for PA AG Tom Corbett to investigate the Gaming Control Board (as if he didn't already have enough government officials to investigate), in response to a Morning Call article claiming the Gaming Board revised the application for Louis DeNaples, after conferring with DeNaples' attorneys, in ways that made him seem less criminal:

DeNaples' final background report included only brief references to what BIE had uncovered about DeNaples, including alleged ties to reputed mobster William D'Elia, questionable campaign contributions to Gov. Ed Rendell and others by some of DeNaples' businesses, and the purchase and resale of trucks damaged by Hurricane Katrina by a company DeNaples co-owns.

The Board has since stripped DeNaples of his license, after he was charged with perjury for lying about his ties to organized crime. In addition to calling for an investigation, they asked for a special committee to review the Gaming Control Board operations (which John Micek thinks there is no need for, since the Morning Call can do that work for them). Their letter also reveals that the US Attorney General is some guy named Mukasey ...I had no idea.

If only someone had warned lawmakers that giving away monopoly slots licenses to politically chosen interests, instead of to the highest bidder, would lead to corruption ... oh yeah, right.

State Lawmakers Argue Gaming Board Lacks Authority

ABC 27 article and video on the latest controversy over at the Gaming Control Board:

The Philadelphia Inquirer reports DeNaples is being investigated by a Dauphin County Grand Jury for connections to the mob, and by the Federal Government for business dealings. Yet, he was given a license. How? The law requires the Gaming Board to do background checks on applicants. But the Gaming Board cannot get information about ongoing investigations because they are not a law enforcement agency. [State Sen. Jeff]Piccola wanted State Police or the Attorney General to do those checks. His amendment was shot down.

"This is Pennsylvania. Things of this nature don't happen in Pennsylvania except because of deals and corruption," Piccola said.

Piccola also wanted a lifetime ban for anyone with a felony conviction. But again, lawmakers overruled him. The law allows anyone with a conviction more than 15 years ago to get a license. It is cynically called the DeNaples Clause because DeNaples pleaded no contest to fraud in 1978, which is outside the 15 year window. According to the Inquirer, he contributed more than 1 million dollars to politicians since 2000.

Add this on to the list of why we may, or may not, be the most corrupt state government in America.

Property Tax Relief?

It’s been three years since the passage of the largest expansion of gambling in Pennsylvania. The people of Pennsylvania were told by Gov. Rendell and the majority of House and Senate members who voted for the legislation that legalizing more than 60,000 slot machines in the Commonwealth would save the horse-racing industry, spur economic development, and reduce property taxes. So how is it doing?

In a Patriot News editorial on Sunday, the author wonders, along with many Pennsylvanians, whether property tax relief is on its way, or whether they have been caught in a "legal charade".

"Perhaps worst of all, the downtrodden taxpayer has been reduced to irrelevancy by an elaborate legal charade."

"Past history suggests that gaming is not a reliable source of revenues, one consequence of which is that states tend to respond by expanding the range of gaming options in hopes of maintaining the revenues to which they have become accustomed."

Listen to The BOX Program with Matt this Saturday at 8 am on WHP 580. He'll be joined by a number of guests as they explore this issue and find out whether these promises were empty or still to come.

Lottery Not Blaming Slots for Flat Sales

Marc Levy of the AP on stagnant lottery sales and the effect of slots.

While the Lottery officials deny that slots had any effect on lottery sales. But the $458 million in gambling losses on slots (revenue reports here), and the 55% tax on those losses had to come from somewhere. Whether it be out-of-state gamblers or PA gamblers staying home instead of going to Atlantic City, the Lottery, or personal savings, there must be some shifting of individuals' behavior to account for the new gambling money. I speculate that slots gambling will take away from other forms of entertainment, and movie ticket sales, sporting events, and show (as well as the lottery) will suffer.

Incidently, compare the payouts on slots vs. the payouts on the Lottery. Almost 91% of slots revenue goes to payouts - but only 59% of lottery sales do. Whether you love or hate gambling, you have to see that the lottery is about the worst bet around.

Taxes on the Poor

NCPA report looks at how certain taxes disproportionately fall on low income holder - specifically taxes on tobacco, alcohol, and the most regressive of all, lottery/gambling.

Funny how those all seem to be part of the Rendell agenda (then again, so are a whole lot of other taxes).

Jackpot for Gambling Staff

WGAL's Ben Simmoneau is reporting that Gaming Control Board Staff make hefty salaries, higher than most make in other state jobs. The Gaming Board tries to justify its higher pay by claiming they need to higher experts from the Atlantic City and Las Vegas, but as WGAL notes, "nearly one-third of its employees came from other jobs in state government."

In other words, the best patronage jobs you can find. Which may be why the Gaming Board ate through its budget and had to ask for more.

The worst bet you can make

MSN Money article comparing state lotteries to each other and to other gambling ventures. You're best bets are "skill games" like poker and blackjack, roulette and slots tend to favor the "house" a bit more, and horse racing has a higher house edge.

The worst bet of all--state lotteries. Some state lotteries give better odds than others, but Pennsylvania isn't among the 10 easiest listed here.

Record Number of Lottery Losers

Governor Rendell issued a news release on the state lottery. Proud of what he calls "a success story of good government and an organization of which all Pennsylvanians can be proud", the Governor notes that more people are playing - and losing - the lottery than ever before. The state takes in about $1 billion in lottery losings (or a 32% tax on lottery sales, depending on how you want to look at it).

To sum up the news release: "The continued growth of the Lottery is particularly gratifying." More gambling losers and more money for big government, quite an accomplishment indeed.