Reeling casinos seek breaks from Statehouse

Indiana lawmakers are working to keep afloat the state’s crippled casino industry in an effort to shore up declining tax revenue and spur investment.

The state’s $2.2 billion casino industry has languished over the past decade due to fierce competition from neighboring states. Tax revenue brought in from the state’s 13 casinos—$600 million in 2016—has taken a 30 percent hit since 2007.

And casino admissions—16.7 million people in 2016—are down 40 percent since 2007.

But as casino representatives flock to the Legislature in search of regulatory solutions to ease their tax burden, key lawmakers say they are faced with a balancing act: keeping the industry successful while trying to maximize the revenue state and local governments receive.

“We’re in essence partners with this industry whether we like it or not,” said Senate Appropriations Chairman Luke Kenley, R-Noblesville. “We want to keep them healthy, but we want them to pay a lot of taxes to the state of Indiana.”

A bill moving through the Legislature—but which has already undergone significant changes—illustrates the inherent tension.

House Bill 1350 would eventually eliminate a $3 per-person admissions tax imposed on the state’s riverboats, replacing it with a supplemental tax capped at 3.5 percent on a casino’s adjusted gross receipts—essentially what the casino wins from gamblers.

Industry experts say the $3 admissions tax is outdated, harking back to the days when the boats were required to cruise.

Now, people frequently go back and forth between their hotel rooms and the casino, meaning the venues are often taxed multiple times for the same person’s admission in one night, said John Chaszar, general manager of the Tropicana Casino & Resort in Evansville.

Proponents are “making a fairly good case” to institute the change in the admissions tax, Kenley said.

But other tenets of the bill, which passed the House in late February, might be dialed back.

One example is the proposed phase-out of the so-called “add-back tax” for casinos. The state currently makes casinos pay tax on every dollar of revenue they receive, even a dollar used to pay other taxes (the money added back into revenue to be taxed again).

Matt Bell, executive director of the Casino Association of Indiana, said the add-back tax is a “huge disincentive for investment and growth in Indiana.”

But eliminating it could reduce state casino tax revenue $10 million to $18 million a year by the time the phase-out is fully implemented, according to the nonpartisan Legislative Services Agency. Kenley has proposed phasing it out over a longer period of time.

“I don’t know we’re at the point yet that [casinos are] so crippled where we have to give them that extra privilege,” Kenley said.

Also, the bill originally sought to reduce the amount of money local governments receive from the state in the form of “hold-harmless” distributions tied to gambling revenue—from $48 million now to $40 million after 2020. That’s money the state began paying to casino communities after previous changes that reduced their take.

The House voted to merely study that issue this summer. But Kenley wants local communities to share in the losses the state is facing.

Sharing the pain

The bill’s author, Rep. Todd Huston, R-Fishers, said his goal is to “attract more casino business” and create a regulatory structure that recognizes that “we’re no longer in a position where we can tax [casinos] at a disproportionate rate than we tax other industries.”

“We also, frankly, have to make sure our operators are competitive against other states where they could be making investments,” Huston said.

After years of steady increases in revenue, Indiana’s casinos—most of which were built close to state lines to attract non-Hoosiers—have spent the last decade struggling against out-of-state competition.

Bell said the industry, which has lost its geographic monopoly, is now at a “crossroads.”

“We’ve lost the Ohio border, we’ve lost the Michigan-Indiana border, and now Illinois is aggressively coming after us,” said Sen. Jon Ford, R-Terre Haute.

The decline in casino tax revenue tracks with the expansion of gambling in other states.

For instance, 2013 brought a brand-new Horseshoe Casino—now known as Jack Cincinnati Casino—to downtown Cincinnati, about 30 miles from Lawrenceburg’s Hollywood Casino. The Hollywood Casino generated $110 million in tax revenue in fiscal 2013. But a year later, its tax revenue had dropped to $65 million.

Meanwhile, some say local communities—and the state itself—have become too reliant on tax revenue from gambling.

For instance, Michelle Mercer, an at-large member of the Evansville City Council, said the approximately $12 million that city receives each year from gambling revenue has been spent buying police cars, firetrucks and computers and improving roads, along with bond payments to pay for the city’s Ford Center arena.

“We’re not using it for fluff projects,” Mercer said. “We’re using it for pretty much essentials. It’s meeting a budget need that we wouldn’t be able to meet otherwise.”

That’s why some lawmakers have been hesitant to reduce distributions to local governments.

Huston “has taken a very legitimate policy issue and is trying to minimize the impact,” said Minority Leader Scott Pelath, D-Michigan City, whose district includes Blue Chip Casino. “The dilemma I find myself in is, it’s [gone] in the right direction but there is still a significant loss at a time which is not ideal.”

But Kenley said local governments can’t be immune from casino troubles.

“If the revenues are going to go down, the locals need to share in the reduction of revenues,” he said.

Prepare for more

Michael Hicks, director of Ball State University’s Center for Business and Economic Research, said state government “is going to have to figure out who’s going to take the biggest haircut in this.”

“That comes down to who’s benefited the most,” said Hicks, who added that it was questionable that locals have benefited more than the state from casino revenue.

Hicks said casinos “eviscerated hotels and motels and restaurants in existing communities” and largely moved economic activity, as opposed to creating new activity.

And casino employment is down. Casinos employed 14,524 people in Indiana in 2016, according to the American Gaming Association. In 2008, the industry employed 16,040 people.

But several lawmakers said Indiana eventually has to take more aggressive steps to keep the industry competitive and deal with the reality of declining revenue.

Ford said the Legislature has “been slow to make changes to help our casinos become more competitive.”

“If we are not going to have the stomach to make changes to gaming, I think we’ll have to resign ourselves to the fact that the revenues will continue to go down,” Ford said.

And Huston said both the state and local governments should likely prepare for the loss of future tax revenue. He said he wants to make that as painless as possible.

“Some of these dollars may not be here forever,” he said. “I’d rather land the plane softly.”•