Long shots from the treasurer
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STATE TREASURER Timothy Cahill's proposals to license three slot parlors and privatize the state Lottery look like desperation bets. The successful Lottery isn't broken, and the slots proposal undermines the governor's sensible plan to introduce resort casinos, which maximize job creation and economic development.
In a speech yesterday to the Greater Boston Chamber of Commerce, Cahill said his proposals could generate as much as $4 billion in upfront payments or licensing fees from private interests eager to operate slot parlors and the Lottery. Such promises are creating a lot of buzz on Beacon Hill, where lawmakers fear that falling revenues will generate a $500 million midyear budget deficit in addition to the $2.5 billion gap already identified by the governor. But Cahill's boast of $2 billion to $3.3 billion in upfront concession fees from slot machine operators seems based on a wildly optimistic view of the capital markets, especially given the current downturn in casino gambling from Connecticut to Las Vegas.
"I haven't seen any analysis that supports this [Cahill plan]," says Greg Bialecki, the state's economic development secretary.
Cahill acknowledges that many observers might find his proposals "completely out there," in his words. Still, he argues that the state's economic crisis, and support for expanded gambling within the House's new leadership, make this the right time for bold ideas. Cahill's proposal to open a competitive bidding process for up to 9,000 slot machines is certainly bold. But is it in the best long-term interest of the state? Not by a long shot.
Slot parlors are the skid rows of the gambling industry. There may be distinctions of degree, but the basic play for slots operators is to put as little capital investment as possible into the facilities to offset the high gambling tax rates levied by the state on gross gambling revenue. Rhode Island imposes a whopping 60 percent gaming tax on Twin River, a combined racetrack and slot parlor. Taxing slot parlors at 30 to 50 percent is more the norm. Cahill's 27 percent proposal runs the double risk of opening the door for second-rate gambling facilities while shortchanging the state coffers.
Governor Patrick's plan to license three such casinos held out the prospect of 20,000 permanent jobs in addition to healthy licensing fees and nearly $600 million in annual casino-related tax revenue, including meals and hotel taxes. Cahill's plan offers unrealistic upfront licensing fees, marginal employment, and up to $243 million in annual revenue for the state.
Unlike destination casinos, slot parlors are also an instant draw for so-called convenience gamblers with marginal incomes. Divorced from the wider entertainment crowd, slot parlors could quickly become a breeding ground for problem gamblers and other social ills.
This is a disappointing comedown for Cahill, who was one of the state's earliest and most ardent proponents for building world-class destination casinos in Massachusetts. He now says that he is trying to protect the state's taxpayers in an economic climate that is hostile to resort casinos. He also fears that the Legislature might move to license slots at the state's four racetracks for much less in upfront fees. Desperation permeates his plan. And it isn't warranted, according to at least one industry leader. Richard Fields, an owner of Suffolk Downs and the co-developer of the Hard Rock Casino in Florida, has issued a statement claiming "complete confidence" in his ability to finance and develop a world-class casino complex in the Boston market.
When Republican legislators proposed privatizing the Lottery in 2007, Cahill put up a ferocious defense, reminding them that Massachusetts sets the "gold standard" among the nation's lotteries and already operates as a public-private partnership, with 8,000 small businesses that sell the product.
"Why would you want to mess with the best-performing lottery in the country?" he asked at the time. That is still the question. Cahill had it right the first time. He should fold this weak hand.
