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April 19, 2013

Budget forecasters predict bigger drop in gaming revenues

Bipartisan group: State needs to protect income source.

INDIANAPOLIS — While a gaming bill is still in play in the General Assembly, state budget forecasters are predicting the payoff to the state from legalized gambling will be even lower then expected.

The April budget forecast released this week predicts revenues from the state’s casinos and racinos will drop by $71.5 million more over the next two years than what those forecasters predicted just four months ago.

The quicker-than-expected plunge in gaming revenues is critical as the General Assembly crafts its final biennial budget and debates a watered-down gaming bill that was supposed to the buffer the state’s casinos from growing competition.

And it may be worse than it looks, according to one of the chief budget makers who thinks the latest forecast low-balls the coming losses.

“I thought they should have shown a bigger drop,” said Senate Appropriations Chairman Luke Kenley, a Republican from Noblesville. “I don’t think they show the true impact of what’s going to happen. [Gaming] has been a big revenue producer for Indiana, but I don’t think it’s going to continue to be.”

Since the first riverboat casino opened in Indiana in 1995, the state’s gaming industry has poured more than $10 billion in taxes into the state’s coffers, becoming the third largest source of revenue for the state’s general fund.

But with rising competition for gaming dollars in neighboring states — including four new casinos in Ohio — the pool is growing smaller. While the two racinos (horse track-based casinos) have been holding their own, admissions and revenue at the state’s riverboat and land-based casinos are down over the last three years.

The state’s budget forecasters have been preparing for the loss. In their December 2012 forecast prepared for the budget makers in the General Assembly, they estimated overall gaming revenues would drop from about $567 million in fiscal year 2013 to just over $520 million by the 2015 fiscal year.

Four months later, in the April forecast used in the final budget bill negotiations, estimates are more grim: they’re now predicting a drop to $492 million by 2015. That includes a drop in racino tax revenues, from $117 million in 2012 to just over $95 million by 2015.

For lawmakers like Rep. Terri Austin, a Democrat from Anderson with the Hoosier Park Racing and Casino in her district, the latest forecast numbers are evidence that the General Assembly needs to act this session, before it ends April 29.

“This really paints the picture that we must do something to protect the state’s revenue source,” Austin said. “It’s our third largest revenue stream, aside from personal and sales taxes, and the state depends on that money at this point.”

Austin is part of bipartisan group of lawmakers with casinos in their districts frustrated that a gaming bill, Senate Bill 528, has been watered down from an original version aimed at giving casinos more flexibility to compete.

The current version of the bill, now caught in House-Senate conference-committee negotiations, prevents casinos from expanding their physical footprint and bars racinos from adding live table games, which would result in about 600 new jobs.

“This industry employs thousands of people,” Austin said. “So we’re trying to do two things: Trying to make sure we don’t hurt ourselves in unemployment picture and at the same time, keep our revenue stream as protected as possible.”

Republican Gov. Mike Pence, who wants a 10 percent income tax cut in the final budget bill, opposes adding live table games at the racinos, calling it an expansion of gaming he won’t support.

Ed Feigenbaum, publisher of Indiana Gaming Insight, said the downward revised numbers in the April forecast shouldn’t come as a surprise.

Numbers released by the Indiana Gaming Commission earlier this month showed Indiana’s riverboat casinos took another financial hit in March, after five consecutive months of lower revenues. The most dramatic: While a brand new casino in Cincinnati raked in $21 million in March, the Hollywood Casino in Lawrenceburg, 30 miles away, saw revenues drop by $9.8 million from a year ago, or 25 percent.

“That just confirmed everybody’s expectations,” Feigenbaum said.

The drop in gaming dollars is due to more than just the new casinos in Ohio, Feigenbaum said. When the federal payroll-tax holiday lapsed late last year, the paychecks of wage earners dropped about two percent. “That left people with less disposable income, particularly those discretionary dollars used for entertainment.”

For Feigenbaum, the April budget forecast prompts the question: When will the state start to wean itself off the gaming tax dollars?

“We’re not going to be able to rely on them to extent we did before,” he said. “Even if we expand gaming — in whatever form that takes — it’s not going to be possible to regain that kind of revenue again.”

Maureen Hayden covers the Statehouse for the CNHI newspapers in Indiana. She can be reached at maureen.hayden@indianamediagroup.com.

 

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