Gaming in Salem, Mitigation in Methuen?

Today’s Tribune has an outstanding story on a new study by the New Hampshire Center for Public Policy Studies on the impacts of gaming in New Hampshire, and the potential impacts on the budget, social impacts, how New Hampshire revenues might be impacted by regional competition, and the jobs and economic potentials. The report details some of the budgetary challenges, including the very important issue of when New Hampshire might be able to realize the potential gaming revenue that could be vital to their budget. (Governor Hassan has included $80 million in licensing money in her current two year budget submission). So what does the report say about when revenues might realistically be expected?

It is difficult to accurately predict when the state would see any new revenue from a license fee or casino operations. Experience in other states suggests that it could take at least two years before any tax revenues from casino operations would be available to the state. While up-front license fees paid by developers might come sooner, that will depend on several factors: the speed with which local communities allow expanded gambling through a referendum, and the state’s ability to set up a regulatory structure, among other factors.

The report will draw some fire from pro-gambling forces, but I think some of the results make good sense. For example the study estimated job creation would be directly correlated to the size of the investment required, which of course seems quite intuitive.

While expanded gambling would result in job increases, the number of long-term jobs depends on the size of the investment. Our estimates range from 540 jobs (at a $100m facility) to 2,700 jobs (at a $500m facility). Further, some portion of these jobs will likely replace other jobs. The extent of this so-called “substitution” will be driven by how many visitors to the casino come from outside the market.

What can we expect from a southern New Hampshire casino by way of investment? I was somewhat surprised to see the investment number in the New Hampshire Senate bill.

Let’s walk through the assumptions in Figure 7. First, we assume that the facility in southern New Hampshire would be a mid-sized investment of $300 million, with about 3,000 slot machines. We arrive at this assumption based on language in Senate Bill 152, the expandedgambling bill that has received the backing of Governor Hassan. While the bill requires that developers of a new expanded gambling facility make a capital investment “not less than $425 million,” the bill allows developers to include the cost of the license fee (now set at $80 million)
in that investment total. It also allows casino developers to include the cost of purchasing or leasing land where the new casino will be located, as well as infrastructure designed to support the site, including drainage, roadways and water contamination issues. Thus, one might assume that the $425 million capital investment requirement might actually result in a facility that is significantly smaller than a casino worth $425 million. Further, accounting for recent declines in gambling revenue in New Hampshire and at other facilities across the country, we estimate a casino of this size could potentially generate $91 million in annual revenues to the state of New Hampshire, at a tax rate of 30 percent on net casino earnings, as SB152 calls for.

The study estimates that the opening of competition at Suffolk Downs in Massachusetts would roughly cut New Hampshire’s revenue in half, and in fact, with the estimate included of social costs, could actually produce a net loss for the State. A controversial proposition in terms of how social costs are estimated, but certainly it cannot be argued that no social costs will accrue. The social cost issue was discussed within the context of the tax rate that would be imposed. As noted above the tax rate of 30% could, in conjunction with social costs, produce a net loss for the state. The report suggests that a 40% tax rate would produce a net positive for the State, even where the casino built was on the smaller size, with the Massachusetts competition. That type of analysis will likely not be warmly embraced by gaming interests.

As mentioned earlier I am shocked by the low level of investment required, and certainly can see some potential for an overall investment (after netting out fee, infrastructure, and land acquisition) that could be as low as $250 million. For the purposes of the study the authors assumed an investment of $345 million, and estimated that would bring 1700 jobs. The report takes a look, in detail, about what types of jobs we might expect, utilizing comparative data from other gaming states. That end of the study is worth a good look as well. The Governor, in the Eagle Tribune story, responded to the report:

“Today’s report reinforces that one high-end, highly regulated casino can generate a licensing fee of $80 million or more the next budget that will help New Hampshire invest in priorities that are critical for building a more innovative economic future,” Hassan said.

The governor faulted the study for overlooking potential benefits from other local and state taxes, as well as economic development opportunities emanating from a casino.

“And while the study appropriately notes the impact of social costs, it fails to recognize that with gambling already taking place in our communities and with Massachusetts moving forward with casinos, costs will be felt with or without a New Hampshire casino,” Hassan said.

The New Hampshire battle lines are drawn, and while it appears that the Senate vote should be in favor of the gaming bill, the House seems a bit more uncertain.

Finally it appears evident that the successful passage of the bill would bring gaming to Rockingham Park, which will have impacts on neighboring Methuen. The proximity of Rockingham Park to Methuen, and the utilization of Methuen and Massachusetts infrastructure for a prospective casino, should bring Methuen to the table for discussions on impacts, and potential mitigations. The impacts are real, including social costs, and we on the Methuen side should not be left with additional costs and infrastructure burdens. I recognize the difficulties involved, but I do believe that the concerns are real, and should be addressed. We will talk about gaming in Southern New Hampshire on my new show on WCAP this Wednesday March 6, 2013 at 10:00 a.m.

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