Financial sector sees Pennsylvania gaming law changes as good for municipal governments

Pennsylvania recently legalized online gambling with a new law that also provides for 10 mini-casinos and standalone gaming terminals throughout the state.

This expansion will take some time to be implemented.

But Act 42 also addresses how the state’s existing casinos pay taxes on gambling revenue to their host counties and municipalities, about $140 million per year. And that part of the law is already having a positive effect.

It appears to have reassured the municipal bond market, according to a recent report from Moody’s Investors’ Service, after months of uncertainty stemming from a court decision last year.

Under the original gambling legislation, casinos had to pay their host municipalities whichever was greater — two percent of their slot machine revenue, or $10 million.

Mt. Airy Casino in Monroe County sued, and the State Supreme Court ultimately ruled that the tax was unfair to smaller casinos.

State legislators then blew the court’s deadline for fixing the law and didn’t get it done until nearly a year after the ruling.

In the meantime, some casinos voluntarily continued to make payments to counties and municipalities as usual. Others, notably Sands Casino in Bethlehem, did not.

Those companies that didn’t keep up with their local share assessments, as the payments are called, now have to settle up with the local governments, under Act 42.

The new law was enacted only a few weeks ago.

Moody’s says the new legislation has already restored investors’ confidence that municipal borrowers can once again count on casinos for millions of dollars in revenue.

Although the language has been tweaked, the new law doesn’t seem to change how slot revenue taxes are paid in practice, says Doug Harbach, Communications Director for the PA Gaming Control Board.

The city of Bethlehem, for example, expects payments from the Sands to continue at the same level as before: about $8.4 million, or 12 percent of the city’s budget.

Act 42 also spells out how some local share money will be distributed, with earmarks designated for projects and services both inside and outside host communities. For instance, some Hollywood Casino slot taxes previously paid to host Dauphin County will instead go to Lebanon County and a handful of fire/EMS agencies there. It amounts to about $330,000, less than 3 percent of Dauphin’s typical haul.

Local governments are, in some cases, still analyzing effects on their local share assessment, according to the County Commissioners Association of Pennsylvania.

But others have already assessed the situation and expect only minor changes, if any.

According to The Pennsylvania League of Municipalities, local leaders have been more focused on understanding their options in regards to the mini casinos authorized by the new legislation. Some want to learn how to prevent them from coming into their communities. Others hope to put themselves in a position to get one.

The mini casinos and other aspects of Pennsylvania’s expansion will, Moody’s predicts in a separate report, mean growing pains for the state’s gaming industry, which will need to weather cannibalization risks from additional licensing options in Pennsylvania while dealing with the fact that online gambling will be taxed at a lower rate in neighboring New Jersey.

Moody’s also notes the changes in Pennsylvania could ultimately exacerbate struggles in Atlantic City.