When Maryland legislators voted to legalize slot machines in 2007, an overriding concern in Annapolis was to make sure the state got as large a share of the proceeds as possible. The reason was fiscal — the state needed the money — but also political. It helped to win some reluctant votes that Maryland would have one of the highest gambling tax rates in the country. But five years later, many have come to conclude that the focus on the bottom-line number — a 67 percent tax rate — betrayed an unsophisticated understanding of gambling economics. In the rush to expand the state's gambling program before it's even off the ground, we run the risk of making the same kind of mistake again.
Gov.Martin O'Malleyindicated Tuesday that he is still pushing for a special legislative session this summer so that a gambling expansion proposal could go on November's ballot. He points to estimates that allowing table games statewide and authorizing a sixth casino inPrince George's Countycould net the state as much as $200 million more per year, and he says he is seeking to revive a proposal supported by Senate leaders that would also lower the slots tax rate to 62 percent. The key, he says, is to act by Aug. 20 so the matter can be placed on the ballot this fall.
He should save himself the effort. There is substantial risk and little reward to be gained by acting quickly. Waiting two years to put the matter on the ballot would have little fiscal impact on the state but would guard against making a potentially catastrophic mistake.
In a meeting Monday with The Sun's editorial board, Gary Loveman, the CEO of Caesars Entertainment Corp., which is awaiting approval for a license to open Baltimore's casino, said his company is prepared to do business under the prevailing law, even given the additional 3 percent tax Caesars would pay to the city. However, he said he could support a Prince George's casino, provided that the state authorized table games and lowered the tax rate on slots. Those inducements, he said, would allow Caesars to provide more amenities in Baltimore, which would make the facility a draw for tourists rather than primarily an attraction for those who live in the region. Even better, he said, would be to keep the existing tax rate and number of casinos but to legalize table games.
What is crucial to the state's current debate is that the amenities Caesars would offer under either scenario are not entirely or even primarily tied up in the physical structure of the casino it hopes to open by summer 2014. Mr. Loveman said the company is designing the facility on the assumption that Maryland will eventually legalize table games.Cordish Cos.did the same thing when it built Maryland Live. Mr. Loveman said the way a company like Caesars brings in high rollers from around the nation and world is by offering inducements like tickets to sporting events or shows, free hotel rooms, free meals, free airfare and the like. That's difficult to do with a slots-only facility, no matter the tax rate. But allowing the casino to keep a greater share of the take provides it more leeway to offer those amenities. It may mean less in direct gambling tax revenue for the state, but it means more in payroll taxes, admission and amusement taxes, sales taxes and other ancillary benefits.
Mr. Loveman said he would prefer to see a resolution to Maryland's debate before he constructs his facility. But in his industry, he said, it is not the exception but the norm for state legislatures to change the rules after the fact, and any smart operator is prepared to adjust.
Why not move forward now? The risk is that the state will get the tax rate wrong. We have little data about the performance of Maryland Live and none about the unbuilt Baltimore casino. Increasing competition through a Prince George's casino without providing a sufficient tax break to compensate them could put one or both out of business. The 5 percentage point tax reduction the Senate and O'Malley administration coalesced around and the 20 percent table games tax they favor may help them round up votes in the legislature, but they provide a substantially smaller break than Mr. Loveman says he would need to compete. Furthermore, those terms aren't as good as what MGM says it would need to build the $1 billion destination casino in National Harbor that advocates are promoting.
If we get this wrong, we could end up with the worst of both worlds: one of Maryland's existing casinos out of business due to competition from a National Harbor casino that fails to live up to expectations.
There is little reason not to wait two years. Under the Senate/O'Malley plan, a National Harbor casino wouldn't be allowed to open until the middle of 2016 anyway. And fears that legislators wouldn't want their names on the ballot at the same time as a gambling referendum are overblown; a majority of voters in every county in the state supported slots in 2008. Even Prince George's County, the site of the most potent anti-gambling activism, supported slots 59-41. And two years from now, we will have a wealth of data about the market for Maryland Live and, potentially, some preliminary information about the Baltimore casino.
Mr. O'Malley should give up on the idea of a special session this summer. Better to wait and get things right than to rush and risk making an expensive mistake.