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If Gambling Expansion is Approved, Let’s Auction the Licenses
Op-ed by Sen. Gibson Armstrong (R-Lancaster)
For the past year and a half, the legislature has
debated the wisdom of expanding gambling in Pennsylvania to include slot
machines. In their original proposal, proponents advocated allowing slot
machines only at the four horse racetracks throughout the state. Doing so, they
said, would benefit a dying industry as well as provide funding for education
and property tax reductions.
Since then, the proposal has been expanded to
include track and non-track venues - potentially 12 in all.
I have been one of the leading opponents of
expanding gambling in Pennsylvania, because it is bad public policy.
Ultimately, it will hurt the economy as well as families.
But if gambling is to be expanded in Pennsylvania, I
strongly believe that we should auction the licenses to the highest bidder or
sell them for a substantial fee. By auctioning off the licenses the state would
receive between $3 billion and $5 billion dollars.
Proponents originally thought they would receive the
licenses for free. These politically connected individuals believed that it
would go unnoticed that a limited number of licenses have a significant dollar
value. When the idea of auctioning the licenses was first proposed, the
gambling interests suffered a collective bout of the vapors. Recovering
quickly, the gambling interest offered to pay a measly $50 million dollars.
This is not even close to the fair market value.
In an effort to discredit the auction plan, the
gambling interests argue three points. First, they say the licenses are not
worth more than $50 million. Second, they point out that the tax rate for the
slot machines is so high (in their opinion) that it wouldn’t be fair to require
anyone to pay more for the license. Finally, they argue that it would be
impossible to have an auction.
Recent events have proved that the arguments of
gaming industry simply aren’t true.
Earlier this year, after insisting that $50 million
was too steep a price for a license fee, Penn National not only participated in,
but bid $508 million (yes, over half a BILLION dollars ) for a license in
Illinois, at an auction. And they lost.
As another example, Harrah’s Entertainment Inc.
bought a 50 percent share of Chester Downs. Now, for the uninitiated, Chester
Downs is the site for a future harness race track. To date, Chester Downs is
only a harness racing license, a potential slots license, and land in the City
of Chester. The price paid by Harrah’s? A whopping $275 million, which brings
the total value of Chester Downs to $550 million. It should be clear that the
value of the potential slots license is what drives the valuation of that track
to such stratospheric levels.
So what have we learned? We now know that an
auction is possible – one successfully took place in Illinois. We know that
licenses are worth more than $50 million. And we know the rate at which the
state would tax slots revenue s not an impediment to higher prices for the
licenses. If they were, Harrah’s, knowing what the tax rate will be, would not
have bid $275 million.
The short-term monetary benefit to the state is
substantially outweighed by the long-term costs. That said, those who oppose
either auctioning the licenses or substantially raising their price are putting
the interests of politically connected track owners ahead of the citizens of
Pennsylvania. Some of these casinos will be foreign-owned corporations, and
obviously the money will not be staying in Pennsylvania.
If this debate is really about property taxes and
education, why do those favoring gambling expansion so vigorously resist an
auction or increased fees? It’s a serious question deserving of a serious
answer. Unfortunately, I doubt any of us will get one.
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