Issue Summary (Updated January 2011)

The Impact of Gaming Money in Allegheny County

The Issue:  

Legalized slots machines in Pennsylvania will result in the redistribution of close to $700 million for various economic development and general government purposes in Allegheny County in the coming years. 

What We Know:  

Under two state statutes-one creating legalized slots (Act 71 of 2004)-and the other setting the distribution of gaming money from the Tourism and Economic Development Fund (Act 53 of 2007), we can pinpoint the amounts, recipients, and purposes of gaming money.  Here is a rundown of what exists in legislation at the present time:

Act 53

                                                      Act 71

Initial returns for the lone casino in Allegheny County, the Rivers Casino, have been disappointing.  As indicated in the table above, Act 71 guarantees Allegheny County two percent of gross terminal revenues to be used for general government purposes.  Rivers' owners had forecasted first year gross revenues at $427 million while the Gaming Board estimated them at $362 million.  If these estimates were accurate, the County would receive at least $7.3 million in host fees.  However, the first full year of operations (August 2009 through July 2010) gross terminal revenues at the Rivers Casino came in at $222.3 million--well below either projection.  The County only received $4.5 million as a result of Act 71. 

But the County is not the only claimant on money generated at Pittsburgh's casino.  The casino, as a condition of its license application, is responsible for paying a $7.5 million per year for the new hockey arena.  The Rivers Casino was not able to make the first payment in whole by the October 2009 deadline, instead opting to make a partial payment while paying the rest in April 2010.  Further casting doubt on the success of the casino, its bond rating had been downgraded a few times since its opening and at the end of 2010 stood at SD (selective default).  This reflects pessimism among credit agencies that the casino will be able to meet its own debt obligations, let alone its community related obligations. 

In July 2010, the Rivers Casino began operation of table games such as poker and blackjack which were added to the video slot machines.  Through the first six months of play, table games have brought an additional $1 million per week on average to the casino's gross revenues.  However, table games are more labor intensive and have higher costs than do electronic slot machines that will eat into this extra revenue.  The early indications are that table games have not hurt the slots play, but it hasn't helped either.  Even with the new table games, the casino is still well below the initial revenue projections. 

Recommendations:

The gaming money can be viewed as a "fix it program" for some of the mistakes of the past: an airport that is now too big, a convention center that was too big and failed to generate the spinoff development its proponents promised, development funds that diverted tax revenue, etc. 

Many officials have viewed the money as "manna from heaven", but that has not stopped fierce competition over the money.  For instance, the first two installments of gaming money for airport debt were instead used by the County.  All along, officials seem convinced that the $150 million would be used to pay down the close to $600 million in debt held by the Airport Authority, but the County, thanks to an amendment to the bill, swooped in and got the first call on the money.  Despite claims that the County itself had a $42 million debt stemming from what they put into construction of the airport, the debt did not show up on the Authority's books as a debt owed and one as they intended to repay.  Now the County will receive the entire $150 million under the law, but promises to forward $108 million to the Authority for debt service purposes.