Whose Money Is It?

—OR, how a $2 fee is having a multi-million dollar negative economic impact in Missouri.

This entry will be lengthy because we have to use a lot of numbers to make our point.

A number of bills changing Missouri’s gambling laws have been filed for this year’s legislature. But we wonder if any of them should be considered until a significant problem with one of our existing laws is corrected because it has turned into a growing economic drain on our state.

Regular consumers of these pages know that the author has been advocating a fee increase for the casino industry to pay for the creation of a National Steamboat Museum.

As we’ve researched that issue we have come across a lot of interesting other issues and concerns. We passed some of them along to the House Interim Committee on Gaming that met this fall. In some cases we think we have some answers but here’s one where we don’t. Maybe some of our lawmakers will try to provide some. Or maybe somebody will ask the court system to do look into things. Our voice, however, is puny compared to the politically influential voices of a large, wealthy, and politically persuasive industry.

First, the scenario.

In 1993, the legislature required the casinos to pay the state two dollars for each admission on their proposed riverboats. Our first two casinos opened for business in the spring of ’94 and they paid the two dollars, no problem.

Our casinos have paid the two dollars in each fiscal year since. They are obeying the law.

But there’s this thing called inflation.

In the second fiscal year of casino gambling in Missouri, the inflated value of two dollars was $2.05 and the purchasing power of two dollars dropped to $1.95. In the fiscal year after that the equivalent value of two 1993 dollars was $2.11; purchasing power was down to $1.90. (Our numbers come from the Federal Bureau of Labor Statistics.)

We get into some higher mathematics now. Our casinos paid the state in fiscal 1994-95 a total of $25,216,862, a very healthy increase in state general revenue. But if they had paid the state the inflated value of the two dollars, they would have paid the state an additional $702,172.

Whose money was the $702,172? The 1993 law does not say anything about casinos being able to keep what we refer to as “windfall profits.”   In fairness, the law does not prohibit casinos from keeping that money, either.

We were around then, covering the legislature, and don’t recall any concerns that the day would come when two dollars wouldn’t be worth two dollars. Trying to determine legislative intent at this great distance could be difficult although there are a lot of people still around who were serving in 1993 and voted on that bill who might recall what it was.

Fast forward to fiscal year 2018-19 that ended last June 30. Our thirteen casinos paid the state $75,000,634. But the inflationary value of the 1993 two dollars had risen to $3.48 (and it’s $3.53 for this fiscal year). Had the casinos paid the state in contemporary equivalent dollars, they would have paid the state about $55.6 million more than they did. Instead, they kept the money. The total windfall profits after twenty-six years of unadjusted two-dollar payments had reached $888.5 million as of June 30.

Whose money is it?   And whose money SHOULD it be?

Neither side seems to be protected by that 1993 law.

Compounding this question is the continued decline in purchasing power of the two dollars our casinos pay the state. It was down to $1.15 in the most recent fiscal year. The total loss of purchasing power since our casinos opened had reached $944.2 million.

The combined total of dollars the casino industry has kept because of windfall profits and the loss of purchasing power of the two dollars the industry did pay represented an economic deficit to the state during those twenty-six years since the two-dollar fee was established of almost $1.833 Billion as of June 30.

Now the question becomes even more acute: Once again, Whose. Money. Is. It?

There are some other questions, too. Why wasn’t anybody paying attention, either at the gaming commission or in the legislature? The casino industry probably was because it was reaping the benefits but should the industry have stepped forward and said, “Hey, legislature, this two-dollar fee thing is making us a lot richer while the programs intended to be funded by the two dollars are getting poorer and poorer?”

It was under no legal obligation to do so.

Now, with the accumulated negative economic impact after more than a quarter-century of casino gambling nearing Two Billion Dollars, shouldn’t somebody start trying to determine whose money this really is?   Should these windfall funds have been set aside in some kind of an escrow account until somebody decided who is entitled to them? Nothing in the law requires that.

A complicating factor is that the customers of casinos do not pay the fee. It comes out of casino revenues, the money casinos win from the customers. When the law was passed in 1993, it was still assumed there would be boats on the rivers making two hour cruises for which customers paid two dollars. They would get off the boat at the end of two hours and a new group would get aboard (and those wishing for another two hours on the boat would get back on board), each paying two dollars. But when the present system of boats in moats ended any thoughts of customers paying to enter the casino, the decision was made for casinos to pay the state two dollars per person with a new count being made every two hours. That’s how casinos wound up with 37.5 million admissions last year in a state of only six million people, most of whom don’t go to casinos. No customer pays anything.

That means the two dollars is not a pass-through from customers to the state, in effect a user fee. It is now a fee charged to the casinos and it is paid out of their money. (Their adjusted gross receipts in the last fiscal year were more than $1.735 Billion.)

If it is the casino industry’s money, is it the industry’s responsibility to make sure the two dollars going to the state are worth two dollars to the programs and entities that the fee was intended to pay for? If the two dollars are worth only $1.15 to the receiving entity, are they really the “two dollars” promised them by the statute?

The law says two dollars. Period. No inflationary adjustments are mentioned. And the casinos have done what most of us would have done (and what we might have done in certain circumstances)—if there’s money left on the table and nobody else claims it and if it’s MY table, it’s my money.

It is time to answer the questions. Here are the main reasons why.

The two dollar admission fee is split with one of the dollars going to the host city of the casino and the other dollar going to the state gaming commission which takes its budget out of those funds and then divides the remainder among a handful of worthy causes. The biggest worthy cause is the Missouri Veterans Commission Capital Improvements Trust Fund that provides money for nursing homes and cemeteries for our veterans.

Last fiscal year, each of those dollars had the purchasing power of 57.5 cents. The value is down another penny this year. Five years ago, the figure was 61 cents. At this rate, it won’t be long before the casinos are making more money from the two-dollar admission fee that was intended to offset the additional costs to host cities of a casino’s presence and to fund the gaming commission and its worthy causes benefiting veterans, college students, and programs for people who get in trouble because they gamble.

Nothing in the law says they can’t.

Nothing in the law says they can.

Whose. Money. Is. it? And—

Whose. Money. SHOULD. It. Be?

Who can answer the question? The state auditor? The attorney general? The legislature?

No matter what happens with our steamboat museum idea, isn’t it time to find an answer for our veterans, our college students getting scholarships under a program funded by admission fees, problem gamblers looking for help from a program financed by these fees, and our casino host cities?

Here are some additional figures that seem to bold-face the need to address this situation. It has been a long time since our high school bookkeeping class so we hope there is not a flaw in this reasoning. But here it is.

The state received $75,000,634 in admission fees in the last fiscal year. But because of the lack of inflationary adjustment in the two-dollar fee, it did NOT receive $55,600,438 more. That was the windfall profits that the casinos kept. The inflation-caused loss of buying power meant the $75 million the state did get was worth only $42,375,358, a loss of $32,625,276. Here is what it all adds up to:

If we add the amount of money that the casinos kept to the amount of lost purchasing power in the money the state got, the total is $88,225,744.

That means the state of Missouri and the home dock communities in the last fiscal year saw an economic DEFICIT of $13,225,110. Our analysis shows the unadjusted admission fees have produced annual economic losses to the state for the past five years totaling almost forty-eight million dollars.

That economic deficit is on track to almost DOUBLE in the current fiscal year.

In the first six months of this fiscal year (July-December) the economic loss was $$12,201,732—almost as much as all of last fiscal year. Why? Although admissions are down four percent from last year, the value of the two-dollars in contemporary money is more and the purchasing power of the money the state has received is less. The windfall profit so far this year is $28,285,835. The purchasing power loss for those six months is $20,890,844, a combined total of $49,176,680. The two-dollar fee has produced a payment of only $36,974,948.

At least, that’s how it appears from our calculator. And that’s why it is time for the General Assembly to take corrective action, despite this being a campaign year in which the well-financed casino industry can exert great pressure to keep millions flowing into its accounts while the programs the admission fee was created to pay for are victims of a rapidly rising negative economic impact. As long as that $2 fee is not adjusted, the casinos get richer and the programs and entities the fee was intended to finance get poorer.

The casinos want the legislature to let them take bets on sporting events, a new type of wagering that some expert testimony in last autumn’s committee hearings say could increase their revenues by hundreds of millions of dollars a year. Why should it be unrealistic to think the admission fee problem should be solved before these thirteen businesses are allowed to haul in even more dollars through sports wagering?

The casino industry probably would prefer this boat not be rocked, this sleeping dog not be awakened, this pot not be stirred. Its reasons are understandable. But for the others, isn’t it time somebody rocked the boat, awakened the dog, and got busy stirring?

Let me know what you think......

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