Patrick skeptical of plan to license three slot parlors

State Treasurer Timothy P. Cahill outlined his slot machine parlor plan yesterday before a committee at the State House. (Globe Staff Photo / Wendy Maeda)

Governor Deval Patrick reacted skeptically yesterday to state Treasurer Timothy P. Cahill's proposal to license three slot machine parlors around Massachusetts, as legislative leaders quickly embraced the idea as a way to raise quick cash that could help the state navigate a recession of historic proportions.

Patrick said that he does not want immediate budget considerations to trump the benefits of his preferred gambling alternative: large resort casinos. He argued that gambling resorts, with accompanying hotels and other luxury amenities, would create far more jobs and economic development than slot parlors, offering lasting gains that he said could help offset the inevitable social costs of gambling.

"It seemed like the human costs would be less in the resort setting, and that the benefits would be greater," Patrick told reporters yesterday morning, adding later, "Whatever we do or not do is going to be with us for a while."

Lawmakers and specialists also questioned whether Cahill's estimates on revenues were excessively rosy, particularly his prediction that selling slot parlor licenses could immediately raise as much as $3.3 billion.

Nonetheless, the Cahill proposal, detailed in yesterday's Globe and highlighted at a legislative hearing, renewed the spirited debate over legalized gambling in Massachusetts. House Speaker Robert A. DeLeo, Senate President Therese Murray, and other lawmakers welcomed Cahill's plan, their rapid support a reflection of the deep budget problems facing lawmakers.

"If they're real, I'll take them," Murray said of Cahill's revenue estimates from slots, adding that she was open to looking at the idea further.

Cahill has proposed that the state sell the rights to as many as three slot parlors across Massachusetts, which he estimated could boost state coffers by up to $244 million annually through a 27 percent tax on revenue from the slot machines. In addition, licensing fees for 15- to 20-year operating rights could bring in between $2 billion and $3.3 billion in up-front payments.

The figures are significantly higher than the governor's 2007 estimate for licensing revenue, which was $600 million to $900 million.

The slot machines could be built in a matter of months, and revenues could start coming to the state before the end of 2009, Cahill said at a budget hearing yesterday.

But while slot parlors are much cheaper to build and operate than casino resorts, some questioned whether developers would really be willing to spend what Cahill predicted. Las Vegas gambling operators are suffering mightily in the recession, with empty casinos, stalled expansion projects, and plummeting stock prices.

"Two years ago they would have been flooded with applications. Right now the people who want to do it - I don't know if they can do it," David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas, said when told of Cahill's proposal.

Other states that have tried to get in on slot parlors have struggled. Four years after Pennsylvania legalized gambling, only half of the state's 14 slot parlors have opened, and competition was light for some of the licenses. Maryland, which charged $50 million for slot-machine licensing fees, has struggled to sell its licenses, and some companies have neglected to submit their license fees.

"I'm doubtful in this economic climate, when the industry is feeling the impacts of the recession, whether these estimates can be realized," said Michael Widmer, president of the Massachusetts Taxpayers Foundation. "It's one thing to look at these numbers in a growing economy, quite another when we're in this global economic meltdown."

Cahill made his proposal as lawmakers grapple with increasingly dire budget news. Murray and DeLeo said yesterday that revenues are falling more than projected and could result an additional $500 million budget gap this fiscal year. That would come on top of a $2.5 billion budget hole that has already been plugged by the governor, and could result in immediate budget cuts.

Cahill laid out his slot proposal yesterday during a legislative budget hearing. He plans to further outline the plan in an address this morning before the Greater Boston Chamber of Commerce.

"I'm not suggesting that this is a solution to this year's budget problem, because it's not," Cahill said. "But it very well could be part of the answer to next year's budget problem."

The proposal is very much in flux and would need approval by the Legislature and the signature of the governor. Also, Cahill has not proposed specific locations.

The 27 percent state share proposed by Cahill is identical to Patrick's proposal for resort casinos. But Patrick's relatively low gambling tax took into account the large up-front costs resort developers would invest in billion-dollar properties. Other states have set much higher rates for smaller slot parlors. In Pennsylvania, the "racinos" have to pay 55 percent. Because Cahill believes the state would get large upfront costs from bidders, he is suggesting a lower annual tax than most other states that offer slot parlors.

DeLeo, who has advocated for slot machines at the racetracks for years, responded with enthusiasm yesterday when asked about Cahill's proposal.

"It's been an issue which I've been talking about for a number of years," he said, before entering a luncheon forum at Locke Ober. "To have the treasurer bring it back to the forefront of the discussion is something I'm very interested in. I've always been in favor of slots at the racetracks."

Others, who have been under fire from constituents for considering a 19-cent increase in the gas tax, were happy to discuss any revenue-generating proposal.

"Anything that raises nontax revenue should be on the table," said Senator Steven C. Panagiotakos, chairman of the Senate Committee on Ways and Means. "You absolutely have to look at it."

Cahill's plan does not envision giving any special rights to the state's four racetracks, although they could bid on a license.

George Carney, owner of Raynham Park, declined to comment specifically on Cahill's plan yesterday but said he was interested in pursuing slot machines at his track.

"We're pushing for the racetracks to be given slots," he said. "On what terms and conditions, I don't know. That will have to be worked out with the powers that be."

Material from State House News Service was used in this report. Matt Viser can be reached at maviser@globe.com.