Impact of Harrah's Casino on State Finances

Rhode Island public Expenditures Council

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Impact of Harrah's Casino on State Finances

A new study by the Rhode Island Public Expenditure Council (RIPEC) shows that if the Harrah’s casino proposal goes forward, the state would lose an estimated $1.1 billion in gaming tax revenue during the first decade of operations (2010-2020).  The findings conclude that passage of the proposed constitutional amendment could impact the State’s ability to fund essential services and that claims of $144 million in annual property tax relief are unrealistic.

The reduction in revenue would occur because Harrah’s would draw away a portion of the business projected for both Lincoln Park and Newport Grand.  The state’s two current slot facilities pay Rhode Island more than 60% of gaming revenue in taxes while Harrah’s has proposed to pay only 25% as a base rate and modestly higher rates as gambling activity increases.

The State is projected to generate nearly $2.4 billion less in revenue from FY 2010 to FY 2020.  The $2.4 billion budget gap is further exacerbated by the requirement to make “slippage” payments to Lincoln Park and Newport Grand in excess of $440 million during this period.  Even if one assumes the State could use the $1.7 billion in tax revenue generated by the Harrah’s casino during its first decade of operations to partially offset the projected $2.8 billion reduction in State resources, the State would have a $1.1 billion shortfall.

However, because the proposed constitutional amendment requires that all casino tax revenue be reserved exclusively for property tax relief, the State may not be able to use the projected $1.7 billion in tax revenue generated by a Harrah’s casino to offset the projected loss.  This would result in a budget gap of $2.8 billion from FY 2010 to FY 2020.
 
If a Harrah’s casino were approved, RIPEC estimates that gross gaming revenues generated in the State that would be subject to Rhode Island taxation would total $13.0 billion from FY 2010 through FY 2020.  Taxes paid to the state would total nearly $5.7 billion and slippage payments to Lincoln Park and Newport Grand would total $440 million, resulting in total net revenue to the state of $5.2 billion.

Conversely, if a casino were not built, RIPEC estimates that there would be less gaming activity but greater revenue for the taxpayers.  Without a casino, gaming activity during the same period is estimated at $10.3 billion, no slippage payments would be required and total gaming tax revenue is projected to be $6.3 billion, which is $1.1 billion more than will be realized if a casino is built.