Local Share Assessment Fix in New Gaming Law
Summary: Act 42 of 2017 has a multitude of changes in store for the gaming landscape in Pennsylvania—Internet gaming, fantasy sports, and additional casinos, to name a few. It also put forth a plan to deal with the local share assessment (LSA) paid by casinos to the counties and municipalities where they are located, a payment scheme that was invalidated by a September 2016 Supreme Court decision. This Policy Brief explains the LSA changes.
The court struck down the portion of Act 71 of 2004 (Section 1403c) outlining the LSA formula. The original language directed casinos outside of Philadelphia to pay 2 percent of their gross terminal revenue to the county where they were situated, and 2 percent or $10 million, whichever was greater, of gross terminal revenue to the municipality where situated. It was over the municipal language that Mt. Airy Casino brought suit since casinos paid varying amounts based on how much gross terminal revenue they generated and, thus, were being taxed at different rates in violation of the Constitution’s uniformity clause.
The General Assembly was given 120 days in the decision to craft an alternative. January 26 came and went with no solution. After a petition by legislative leaders, the court gave the Assembly another 120 days. But nothing passed out of the Assembly by the expiration date of May 26. The legislation that became Act 42 was signed into law more than a year after the Supreme Court’s original ruling.
Much like the 2004 law, Act 42 arranges the LSA by casino type: Category 1 are racetrack casinos, with distinctions between harness and thoroughbred tracks, Category 2 are stand-alone casinos with no connection to racing, and Category 3 are resort hotel casinos (the act also creates a new Category 4 of “mini” casinos). The LSA distribution depends on what class of county (based on population) and municipality (based on population and type) the casino is located in. With 12 casinos and 67 counties of eight separate classes there are numerous casino location scenarios provided for by law that are unlikely to be utilized.
Counties will continue to receive 2 percent of gross terminal revenue from their respective casino. How that 2 percent is directed varies. In some cases the act assigns 1 percentage point to the county for general purposes. But the other percentage point is intercepted by the Department of Community and Economic Development or the Commonwealth Financing Authority for the purpose of making grants. In other cases specific functions like human service non-profits, a land bank, a redevelopment authority, and community colleges are outlined as recipients of LSA revenue.
The municipal LSA formula is revised by the act in two respects. First, the “2 percent or” language for municipalities is eliminated. Second, municipalities will receive a guaranteed $10 million as its LSA, but their share will not come from gross terminal revenue as it had previously, but from an annual “slot machine license operation fee.” This fee will be a 20 percent levy on the casino’s $50 million slot machine license fee, which is a one-time payment at the time of issuance.
The law also contains provisions for casinos in consolidated city-county governments. Philadelphia, which hosts a Category 2 facility, will likely get a second casino. Further, casinos in a city that crosses county lines such as the one in Bethlehem, which lies in both Northampton and Lehigh counties and hosts a Category 2 facility, as well as casinos that might be coming on line in counties/municipalities in the future, all have specific descriptions of how the LSA is to be utilized.
Here is how the act treats the Rivers Casino in the City of Pittsburgh in Allegheny County—a Category 2 facility in a Second Class city in a Second Class county. Allegheny County will receive a LSA of 2 percent of gross terminal revenue. The LSA currently amounts to about $5.5 million that goes directly to Allegheny County’s general fund. Note that the county’s LSA represents less than 1 percent of total county revenues. There are no restrictions on the county’s use of this revenue and none is diverted to the state for grant making purposes. It should be noted that the county does receive separate additional distributions from the state’s Gaming Economic Development and Tourism Fund for projects in the county.
Pittsburgh will get its $10 million LSA payment directed to the city treasury. That amount represents about 2 percent of total city revenues. This allocation scheme is different from the original gaming law arrangement in which the Intergovernmental Cooperation Authority intercepted the LSA and then directed it to the city for specific uses, such as debt reduction or pension funding. Act 99 of 2016 altered that process and Act 42 maintains it.
The law also deals with the immediate past since there was a period of “legal limbo” when there were no LSA payments collected after the second extension expired in May. Data from the Gaming Control Board shows that $58.3 million in LSA revenue was collected from the 10 Category 1 and 2 casinos in the period between the Supreme Court’s decision and the expiration of the second extension (October through May). The Act credits casino payments that may have been made on a voluntary arrangement in lieu of a statutory fix. Both Allegheny County and the City of Pittsburgh received payments at various points in 2017, but these may have been distributions from when the LSA was still being collected rather than from voluntary arrangements. According to an article from the end of last month, casinos will have to cover LSA payments from June through October.
There is plenty more to be analyzed in the complex and far reaching new gaming law, but the LSA issue is settled, albeit well past the two deadlines set by the court. It is worth asking what the 120 day deadline in the original judgment really amounted to in terms of the Supreme Court instructing the Legislature to follow a directive. The expiration of that deadline simply prompted the Legislature to ask for, and receive, an extension.