Category Archives: taxes

The Casinos in Our Pockets

Posted on by
Reply

We lived in an “appointment” world in 1993, when the first Missouri laws governing casino gambling were written.  Voters had approved riverboat gambling, as it was called then, in 1992. The first casinos on boats would open in the spring of 1994.

Many of us still got our national news with the 5:30 network newscasts on television and our local news at 6 and 10 p.m. when those laws were written.

If we wanted to buy new clothes, we went to a clothing store during the hours it was open.  We went to grocery stores during their open hours to get our food.

We knew when each day we could go to the mailbox to get letters from friends and relatives.

And by the end of the year we knew that if we wanted to gamble we would have to go to the riverboat at a certain time to be admitted.

The Station Casino-St. Charles and the President Casino on the moored Admiral riverboat opened May 27, 1994. Gamblers could board the boat in St. Charles from 9 a.m. to 1 p.m. for a two-hour cruise (for which they paid three to five dollars, depending on the day). If they missed the cruise time, they had to wait for the boat to come back so we could pay to get aboard for the next trip.

The President never cruised. It was permanently moored near the Gateway Arch because the old aluminum Admiral had no engines. Gamblers would pay two dollars during the week and five dollars on weekends and could board every two hours from 10 a.m. to midnight.

But the world was changing and the change accelerated each year. “Appointment living” was beginning to diminish although many of us did not realize it at the time.

There were some hints, however.

The Pew Research Center reported in 1994 that the percentage of Americans getting news from the internet at least once a week had more than tripled since 1991, going from 11-million to 36-million news users.

The number of hosts on the internet tripled from January, 1994 to January, 1996, the year something called a “browser” was created—Netscape, the same year that the island nation of Antigua and Barbuda passed a Free Trade and Processing Act allowing licenses to be given to companies wanting to allow internet users to gamble. By the end of the year there were fifteen gambling websites. The next year there were 200 and by 1998, a study was published showing online gaming revenues had topped $830-million. Modern online gambling in this country dates from November 22, 2010 when the New Jersey Senate passed a bill allowing certain forms of online gambling.

It was about that time that the casino industry was starting to see an erosion in patronage. In Missouri, casino admissions reached almost 54.3-million in FY 2005 then declined for three years before climbing back to almost equal 2005’s number. Admissions began annual declines after FY 2011.  In FY 2019 (the last full year before the pandemic crippled casino business), casino admissions had declined by 49%.

Various reasons for the decline can be suggested but the end result seems to be the same—people just don’t go to where casinos are.

So the casinos have to go where the people are.

The situation is not unique to the casino industry. It is part of our changing lifestyles and those changes have become more obvious with the COVID-19 Pandemic that has forced casino closures for in-person business and quarantines for many who would patronize them.

We no longer live in an “appointment” world.  We can buy clothing at any time of the day off the internet.  We can use the internet to get our groceries delivered.  We can order deliveries to our homes from our favorite restaurants.  The same with our pharmaceuticals. Telemedicine is eliminating some office and hospital trips.

Casino betting can happen 24 hours a day because, as one source has observed, “everyone has a casino in their pocket.”  Casinos are looking for new products that can be offered through the ubiquity of the internet that we call up on our ubiquitous cell phones.  First is sports wagering. But later, Missouri legislators are likely to be asked to let table game betting to take place remotely.

Those who find gambling a reprehensible sin will find nothing redeeming about gambling on the internet.  But thousands of other Missourians will welcome the opportunities—as they welcome opportunities to grocery shop from home.

In a world where less and less of life is lived by appointment, the gaming industry knows it must change. And it is, as it should.

Missouri’s casino gambling laws must change, too.  Laws written and fees created in the days of physical customer presence in casinos need to be changed to account for virtual presence.  State services relying on gambling fees and taxes will be increasingly diminished as appointment gambling diminishes.  Casinos, profiting from laws of the 1990s appointment culture, resist modernization of the law. It is understandable that they do.

What is not understandable is why the Missouri General Assembly would not want to protect the state’s interests by bringing our laws from the appointment era into the virtual, but very real, era.

 

The parable of the caretakers’ wealthy friends

Posted on by
Reply

And the professor came among them as they convened to determine the welfare of the people.

And the professor said unto them, “Do not foolishly assume that following an unchanging law benefits the great mass of people who have chosen you to make wise decisions on their behalf.  Nor should you find it adequate to proclaim that enriching a few by adhering strictly to the law is good.”

And he said, “Suppose you, as caretakers of the common good, approve a generous spending plan of $32 billion for the benefit of those who have chosen you. And suppose you determine that $32 billion is adequate for the future and ignore the undeserving who believe your good stewardship of financial resources has become inadequate.

“But inevitably the system generates $33 billion in the next year, and $35 billion in the second.  By following the law, friends and supporters of those who established the “adequate” amount can divide the excess totaling $4.5-billion.

“But in the fullness of time,” said the professor, “those who are limited might rise up and say to those they assume to be their caretakers, ‘This is unfair for inflation has reduced the buying power of $32 billion to only $26 billion and those who rely on actually having $32 billion are becoming impoverished and the people who elect the caretakers are suffering.’”

“’You have established by the growth in wealth of your friends and supporters, year after year, the true value of the $32 billion. Yet you have refused to adjust the law to be fair to the greater number of those you serve while bowing to the wishes of supporters who offer benefits to you for being with them.’”

“’But we are only following the law.  We are meeting all of our obligations,’” you respond. “We are blameless.”

And the professor cast disdainful eyes upon them and said, “Your professions are hollow and self-serving! Those you proclaim are well-served are instead growing thin, yea, their ribs are beginning to show.  In the interests of fairness and justice, it is time—yea, it is PAST time—to adjust the law so that they shall be fulfilled.”

“But,” the caretakers said to the professor, “we do not understand why we should be forced to give our excess back to those who fall under the law.”

The professor rose and he said with passion, “Wisdom without honor has become greed.  You have impoverished those you claimed to help and it is time for those remaining with honor to show the courage to recognize what you have done and to correct it to the benefit of the greater public welfare.”

But the friends and supporters did not care about those who were being impoverished as they grew wealthier.  “You cannot change the law,” they said.  “Giving the impoverished dollars that are worth dollars would be punishment for our success.  Have pity on us for we are your friends.”

And the professor stood nearby hoping the caretakers of the public good would see the hollowness, self-serving, and greed of the supporters who demanded protection from those who trusted the caretakers to be just.

 

Who should control sports wagering?

Posted on by
Reply

Kurt Erickson’s article in last Friday’s Post-Dispatch should be a warning that the state’s control of casino gambling is in danger.

Erickson wrote that four of our professional sports teams are launching a petition campaign to legalize sports wagering, an issue the legislature has talked about for several years but has been unable to get out of its own way and approve.

The St. Louis Cardinals, the St. Louis Blues, the Kansas City Royals, and the St. Louis City soccer club have filed nine proposed petitions with the Secretary of State. One of them will become the focus of a campaign to amend the constitution to allow sports wagering. The proposals also establish various tax rates and earmark revenues from sports wagering.

Some of the proposals will lower the overall tax on casino gambling by creating a super-low rate on sports wagering revenues. The proposals also change the way funds from gambling taxes are allocated.

Both are issues of legislative concern—-and of concern to educators in particular.  Both are issues the legislature dealt with in the 1990s when casino gambling was first legalized. The earmarking of funds from casino gambling has been a legislative prerogative from the beginning. The legislature changed the earmarks once, moving portions of casino admission fees from support for early childhood education to support for nursing homes and cemetery development for Missouri veterans.

Legislative leaders need to protect the general assembly’s authority to determine the best interests of the people of Missouri—the people who send their representatives and senators to the capitol on their behalf.

The only way to do that is to approve sports wagering during the 2022 legislative session.

The BEST way to do that is to recognize that casino gambling laws enacted in the 1990s are no longer adequate thirty years later at a time when casino gambling as an industry and  public access to casino gambling are changing.

Additionally, it is time the legislature recognize that the two-dollar admission fee established in 1993 has become a multi-million dollar liability to the state and to the casinos’ own host communities.

Proposed legislation has been written, but not introduced, that addresses all of those topics.  One of the major provisions is increasing the admission fee to a contemporary amount that is the equivalent of 1993’s two dollars. The United States Bureau of Labor Statistics says the equivalent for this fiscal year is $3.67.  A new estimate will be released in February, during the legislative session.

The proposed legislation increases the admission fee to $3.50, leaving seventeen cents unclaimed.

The proposed legislation increases the admission fee to $3.50.  We know the casinos will vehemently oppose this provision because they like to keep a dollar-67 in 2021 dollars for every two 1993 dollars they give the state (which have a purchasing power of only a dollar and nine cents now). They’re happy getting richer and richer while the state gets poorer and poorer

The proposal leaves seventeen cents unclaimed. The filing of the possible petitions has prompted a suggestion for the remaining seventeen cents.

We know from past experience that the private owners of professional sports teams will expect the legislature to put up state taxpayer funds to help pay for a new stadium. The tub-thumping for a downtown Kansas City Royals stadium is well-underway, in fact. The state does not have the major funds the teams want it to commit without cutting funding for other state programs.  A provision not yet in the suggested gambling reform bill could direct the unclaimed seventeen cents into a state fund for construction and renovation of professional athletic facilities, alleviating the inevitable pressure on the state for help with new professional facilities.

With wagering being permitted on sports, it is only proper that part of the proceeds from that activity be directed in that direction.

One reason sports wagering legislation has struggled and foundered in past legislative sessions is the effort to bring so-called grey-market gambling machines in convenience stores under state regulation. Efforts to make the two issues run in tandem have been counterproductive.

There is no doubt that it is important the state regulate those machines. But the stakes have been increased enough on sports wagering with the proposed petition campaign that the two issues should be separated and sports wagering should be a higher priority.

Nothing in what has been written today should be considered as opposing either sports wagering or regulation of the grey market convenience store machines. The author does not oppose either but does believe our gambling laws are outdated and are costing the programs the state once promised would be funded by those taxes and fees tens of millions of dollars a year.

The governor and the legislature have many issues to consider as priorities in the 2022 session. One of them is changing the law to make it harder to circulate petitions. We hope that issue will not obscure the importance of the sports wagering effort.

The proposed petition campaign should make state authority to regulate gaming and to appropriate the proceeds from it one of the major issues as a stand-alone matter that will not be endangered by other issues.

It’s What We Do

Posted on by
1

We are replacing today’s usual reflection on life by Dr. Frank Crane with a reflection on a regrettable reaction by our governor to a good piece of journalism in which the journalist did what journalists are supposed to do journalistically and did what a good citizen should have done ethically.

In all my years of covering Missouri politics I have never heard of any of our top leaders suggest a reporter should be jailed for giving the state a chance to correct a serious problem before a story was published.

Let’s be clear:

There is nothing wrong with testing whether the information about us held by government is safely held.  You would expect a journalist to defend another journalist who was able to prove some private information held by the Department of Elementary and Secondary Education wasn’t so private after all.

And I am.

Good journalists test and challenge systems, people, programs, and policies to see if they are what they claim to be.  It’s a responsibility we have.  If I can get information about you that the government claims is protected, how safe are you from those who want that information for malicious purposes?

We were involved in just such an issue many years ago and it exposed a weakness in state government that could have exposed everybody’s most important private information.  This is the story, as I remember it.

Steve Forsythe was the bureau chief for United Press International back then. In those days there were two highly-competitive national wire services.  Steve’s office in the capitol was next door to the Associated Press office in room 200 , which now is carved up into several legislative offices.

One day, Steve called the Department of Revenue because he couldn’t find his previous year’s income tax return, something he needed for the current year’s return.  Could the department send him a copy of his previous year’s return?  Yes, he was told. What’s your address? And a few days later it showed up in his mail box.

Steve was a helluva reporter who instantly realized what had happened.   The Missourinet was a UPI client.  He called me and we talked about what he had learned and we decided on a test.

We lured one of State Auditor Jim Antonio’s employees to call the department and use the same line that Steve had used. The department gladly agreed to mail the previous year’s tax return to her.

—except the return she asked for was that of State Revenue Director Gerald Goldberg.   And the address she gave was mine.

A few days later, a fat envelope arrived in my mailbox.

Steve and I went to the Jefferson Building that afternoon and, as I recall it, stopped Director Goldberg in the lobby as he was returning from lunch.  I handed him the envelope and asked him to open it.  He was stunned to see his personal state income tax return inside it.  There was a brief moment of, I suppose we could say, anger. But as Steve explained to him why we had done what we had done, he calmed down.  On the spot he said he’d immediately look into the situation.  I don’t think he wound up thanking us but we didn’t expect any thanks.

We could have asked for anybody’s tax return, I suppose, even Governor Teasdale’s although that might have been a harder ask.  But this was bad enough.

There naturally was a certain amount of hand-wringing and anguish and probably some hostile thoughts about two reporters who were not known as friendly toward the administration to begin with pulling a stunt like this. But rather quickly, the department recognized that we had not opened that envelope and we had not looked at the director’s return, had not made any beneficial use of the information, had not yet run a story, and that we certainly did not intend anything malicious in our actions.

Antonio was less than enthusiastic that we had used one of his trusted employees as a tool for our investigation, but he also recognized the problem we had pinpointed.

The department almost immediately changed its policies to outlaw accepting telephone requests such as the ones that led to the stories UPI and The Missourinet later ran and instituted a process designed to protect the confidentiality of those returns.

From time to time in later years I wondered if I should see if the department’s policies had slipped back to those days when Steve and I embarrassed it.   But I never did.   Every year, Nancy and I file our state tax returns and assume you can’t have them mailed to you with just a phone call.

I suppose Governor Teasdale could have demanded a criminal investigation of our actions but he didn’t.  His Department of Revenue just fixed the problem.  Steve went on to a long career with UPI, which eventually lost in the competition for wire service clients to the AP and closed its capitol bureau.  I went on to a long career with The Missourinet, which still serves a lot of radio stations in Missouri. We didn’t often care if we ruffled some feathers from time to time as long as we were reporting the truth—and that always was our goal.

Good reporters do what they are called to do—question, investigate, test, and report.  Sometimes those whose skirts that turn out to be dustier than they think they are don’t like the findings.

One big difference between the days when Steve’s tax return and the security of private information turned into a state policy-changing news story and today, when a reporter’s news story about the security of private information has led to threatened criminal charges, is the change in times. We are living in stressful times that not only breed physical and political disease, but tend to breed reactions that are less prudent than necessary.

But that won’t discourage good reporters from doing what they have a calling to do.  And the day it does, all of us are losers, even those who are embarrassed by what reporters find.

 

Running government as a business, or—-

Posted on by
Reply

It’s an easy suggestion to make: Government should be run like a business. We first heard this piece of oratory so long ago we have forgotten when and we’re sure it wasn’t original then.  So let’s test the validity of that idea. We’ll test it by reversing it. Suppose you ran your business the way Missouri government is run.

The first thing you would do because it would be popular with your customers is cut prices.  Customers like free stuff and if it can’t be free, it should be priced as lowly as possible.  People will like your store a lot because they will pay as little as possible for the merchandise. The best way to keep your prices low is to pay your employees as little as possible. Many won’t stay very long but that’s okay.  There are always more where they came from.

Of course, your merchandise won’t be of the quality of some of your competitors because you’re holding down the prices and you couldn’t afford better merchandise anyway. Your customers won’t complain about the inferiority of the product until it falls apart on them when they need it the most.  And their complaints will be easy to ignore because most of the others are satisfied with inferiority or mediocrity.

You won’t be able to pay for the new roof your store needs.  The parking lot will develop cracks and potholes you can’t afford to fix.  The place might not be as clean because there’s not enough money for a cleaning crew.  A lot of your business equipment is outdated because you can’t afford new stuff that will speed up payment processes or handle orders. You don’t have the money to train employees to use the new equipment anyway.  Your customers won’t mind the inefficiencies as long as you’re cheap enough.

You think about all of this for a while and you realize you’ll make the money you need to fix all of these problems if you just lower your prices some more, which will produce more customers who will in the long run spend more money.  You also can get by with fewer employees. That will help you become more prosperous and shoppers won’t mind if there are fewer people to wait on them or fewer people who can help them find something or order something.

Yep.  That’s the answer.  Keep prices low. Don’t worry about quality. Don’t bother with retaining employees. People will love you because they don’t have to pay much. Of course, they won’t get much.

Run your business the way government is run. Watch government be run the way you run your business.

Prosperity is just around the corner!

The Forty-Something State, Again, Still

Posted on by
Reply

Let’s have a show of hands.

How many of you, when you think of people who have had the most influence on your lives put at least one teacher in your top ten?   I have at least three.

A lot of people in a lot of roles in our society do not deserve our praise; they deserve our awe.  As schools begin classes in whatever form, teachers join first responders of all stripes and health and mental health workers of all kinds, public safety employees, and men and women in uniform who “provide for the common defense” on the platform of heroes.

When it comes to recognizing all of these folks at the most basic level, however, we talk a good game but we don’t play a good game. We saw a recent survey by Business Insider that should bother all of us.  A lot.

Since then we’ve seen a report from the state auditor that buttresses what BI told us.

Business Insider is a German-owned website that focuses on business and economic issues.

The folks at BI have looked at figures from the U. S. Department of Education and the census bureau for the school year 2018-19, the most recent year for which data is available. It finds the average Missouri teacher was paid $50,064 that year.

The national average was $61,730.

Missouri ranked 44th.  The lowest-ranking went to Mississippi, which paid its teachers $45,574. West Virginia is 49th at $47,681.

The only thing that keeps Missouri from being West Virginia in the rankings is that our average teacher salary is a whole $46 a week more than the teachers there.

$46.

What’s worse is that when our average teacher salary is measured against inflation, our teachers have lost more than six percent of their purchasing power because of inflation in the last twenty years.

This isn’t news to our much-praised but barely-raised teachers.   But it should be disturbing to those who expect so much of them.

Spare me the excuse that you can’t solve a problem by throwing money at it.  The problem is the money. We need to throw $11,000 a year at our teachers just to get them to the national average.

This is a matter of recognizing the important role people play in building or maintaining our society. And in times like these when we are asking—and when some are DEMANDING—that these good people face the possibility that they are stepping into harm’s way every day they open their classroom door, recognizing how far below the national average they are in pay and doing nothing about it is demeaning.

Then when their school district doesn’t have enough money to provide their classrooms with enough basic things such as paper and pencils, we expect them to guy their own.

Now we have a virus threatening their well-being and the well-being of their students that has led to terrible cuts in state funding for education in this fiscal year. Legislation is being introduced in the General Assembly this year that will undermine state support for our schools and our teachers even more.

What is an appropriate salary for our teachers?  Don’t look to this otherwise all-knowing oracle for an answer.  We had two children in our house for about eighteen years. We can’t imagine having twenty or thirty children in one room for six or eight hours every day of the week—children who bring multitudinous health and personal issues with them from home.

We pat our hometown public servants on the head and tell them they’re doing good.  But we don’t appreciate them enough to pay them salaries that at least keeps up with inflation.

Such is the lot for anyone who sees public service—teachers, police and firemen, healthcare workers, sewage plant operators, government employees—you name it.  “What’s in it for them?” you might ask.  If you have to ask you’ll never understand the answer.

Sometimes being a low-tax state is nothing to brag about.

If you want to see how the states stack up in the teacher salary study, go to:

https://www.businessinsider.com/teacher-salary-in-every-state-2018-4#38-indiana-14

A month or so ago, State Auditor Nicole Galloway announced a study by her staff confirmed Missouri’s abysmal standing in education funding. She confirms Missouri ranks 49th in state support of elementary and secondary education. The report comes just two years after the auditor’s staff found more than two-thirds of local school districts have put increased financial burdens on local taxpayers in the last decade because the state (i.e., the governors and legislatures) budget for education has not kept pace with education’s costs.

We’ve cited before one of the favorite jokes of long-dead comedian Myron Cohen about the man who found a naked man in his wife’s closet one day and asked him, “What are you doing in there?’  And the man said, “Well, everybody has to be somewhere.”

Missouri is somewhere when it comes to funding for education, one of the things that is often spoken of as a key to the state’s economic health.  But Misouri’s “somewhere” in this case, as in so many others, is nothing to be proud of.

It’s about time

Posted on by
Reply

The capitol started to cool at 6 p.m. last Friday, the official adjournment time of the 2021 regular session of the legislature.

Actually, as we understand it, the heat and the hard pulse of the building began to diminish at mid-afternoon when the Senate adjourned, deadlocked in an intra-party fight about the most notorious bill-killer issue for the last twenty or thirty years—abortion.

Tack some language on a bill that forbids any funding for any program that involved anyone who might say or think “birth control” and that bill goes to the grave’s edge with one foot on a banana peel.

That’s what took whatever wind was left in the sails of this session out of those sails.  Unfortunately, the effort this time was tied to a bill that continues a tax on hospitals—that are willing to be taxed—so more federal money is available to provide healthcare to poor people. Democrats let it be known the birth control amendment wouldn’t fly, especially after the Republicans refused to find funding for the expanded Medicaid program voters put into the Missouri Constitution last year. The Democrat leader moved to adjourn early and although the R’s had more than enough votes to defeat the D’s motion, it passed, leaving the House the only chamber still in business. The House, to its credit, slogged on despite expressions of urinary agitation toward the Senate.

It’s about time—-too little time to iron out problems assuming anybody wanted to do any ironing.

This isn’t the first time, by the way, that one chamber or another has quit early for one reason or another.

On the other hand, “it’s about time” has another and more positive meaning.

It’s about time the legislature approved a fuel tax increase that does not require a public vote.  The refusal of voter twice to support increases has left our transportation system in desperate straits and this observer thinks our lawmakers deserve a friendly pat for doing what had to be done—-although it should have been done years ago.

But discussing what should have been done has little value. What has been done is what’s important today.  Now.  My car is grateful and so am I.

It’s also about time the legislature finally decided state sales taxes should be collected on internet sales.  Again, it’s something that should have been done years ago but this year, it got done. Will it keep local stores trying to compete with internet super-super-super stores from closing?  In reality, not many probably.  But it’s nice to see the legislature get past the idea that having people pay sales taxes they should be paying is some kind of an onerous tax increase.

But there seems to be some kind of a tiny irony here.  Missouri will start collecting taxes on internet sales of things that lead to birth control.

We’re mulling what seems to be a logic disconnect in that but we haven’t figured it out yet.

An Untenable Position

Posted on by
Reply

Missouri Gaming Commission Chairman Mike Leara was no doubt relieved by last week’s Missouri Senate defeat of an omnibus gambling expansion bill.

The bill would have saddled the cash-poor commission with even more things to regulate.

Senator Denny Hoskins’ bill would have allowed slot machines at truck stops and veterans and fraternal organizations (there is a big disagreement whether video lottery terminals are slot machines that we are not going to get into). It also would have legalized betting on sports in casinos.

The gaming commission is largely funded by admission fees paid by casinos.  One-half of the admission fees go to the commission and the other half stays with the thirteen host, or home-dock, cities. The bill did not address the problems caused by our long-outdated admission fee law.

The gaming commission had to cut more than two-dozen employees last year because the pandemic forced closure of our casinos for several weeks and admissions understandably lagged for the remaining months of the fiscal year.  The commission also reduced funding for the Access Missouri scholarship program administered by the commission by twenty percent.

The commission’s position has been further weakened by an almost decade-long thirty percent decline in   casino attendance, a drop from 54.3 million admissions in fiscal 2010-11 to 37.5-million in FY 2018-19, the last non-pandemic year. The pandemic year that ended last June 30 saw another drop of about ten million admissions, leading to the commission layoffs and reduction in the scholarship program. Admissions so far this year indicate another weak year for commission and home dock city income from casino patronage.

Pardon us while we get into some mathematics here:

The admission fee was set at two-dollars per person in 1993.

The commission, therefore, has been dealing for some time not only with declining income because of declining attendance but with declining value of the money it has collected in admission fees. Almost thirty years of inflation have reduced the purchasing power of fee income by about forty-five percent.

Those circumstances left the Missouri Gaming Commission with significantly reduced resources to regulate the casino industry, producing layoffs and taving Chairman Leara justifiably concerned about how well the commisison could regulate an entirely new form of gambling as well as regulate a large number of slot machines in veterans and fraternal organizations throughout the state.

The bill defeated by the Senate provided no protection against continued funding declines.

While the bill might have been seen by Leara as three lemons, it might be viewed somewhat differently by Missouri’s educators.

Other sports wagering bills in the last three years sought to tax sports wagering adjusted gross receipts at six to nine percent, far less than 21% rate on all other forms of gambling.  The effect of those proposals would have been to lower the state’s commitment of gambling funds to public education by tens of millions of dollars yearly. None of the amendments proposed during floor debate sought to change the Hoskins bill’s provision taxing sports wagering proceeds in the same way all other forms of gaming are taxed, a good first step in making sure next year’s sports wagering legislation protects other state interests as well rather than undermining them.

The Missouri Gaming Commission, faced with the likely return of this legislation in the next session in some form, would do well to evaluate its present financial situation that is significantly worsened by outdated gaming laws and suggest ways the legislature can protect the ability of the commission to do its job by bringing laws adopted in the last decade of the Twentieth Century into the third decade of the Twenty-first. Sports wagering legislation would be a solid vehicle to accomplish that.

Finally—

Posted on by
1

Somebody has come up with a way for the legislature to improve financing of our roads and bridges while also anticipating the growth of electric vehicles and their impact on future transportation infrastructure funding. The idea is halfway through the legislative process but some observers think the road ahead is uphill. And the hill is the House of Representatives.

Your loyal observer observed the last part of Missouri Senate debate on the bill sponsored by Senate President Pro Tem Dave Schatz of Sullivan last Thursday morning, shortly before the Senate adjourned for spring break. Schatz, who thinks returning to gravel roads is not much of a solution to our present road upkeep problems, has gotten his gas tax increase bill through the Senate but he had to work for it.

Passage of the bill was reminiscent of some of the bi-partisan collegiality and compromise in which the Senate takes pride but which has too often in many recent years been missing.

Earlier in the week, Schatz’s plan for a 15-cent per-gallon fuel tax increase ran into a roadblock thrown up by the conservative caucus, a group of senators that seemingly opposes any kind of a tax increase any time (the present tax rate of 17 cents a gallon ranks Missouri 49th in the country in fuel tax level).  Our last gas tax was a phased-in tax that peaked in 1996.

MODOT doesn’t buy much asphalt, cement, or winter salt and the equipment to spread it for 1996 prices these days.  But it sure could use the estimated $460 million a year the increased tax will produce when it’s fully effective.

The compromise bill phases in a 12.5 cent increase through five years.  For those who think roads and bridges can be built and maintained for free, there’s a provision that lets people save all of their receipts printed at the pump and then claim a full rebate of the new taxes.  It’s a nice touch to mollify some no-tax folks, many of whom won’t keep track of all of those receipts to claim 2.5 cents per gallon at the end of the year.

We calculate that somebody traveling 12,000 miles a year in a vehicle that gets 20 miles per gallon would get back $15, not much money for the hassle of saving all those receipts.

We’ve observed previously in some of these conversations the growing number of vehicles that do not contribute to the cost of maintaining our road and highway system, which is why we are gratified to see a provision in this bill that increases present EV fees by twenty percent during the next five years.

As we understand present law, the owners of Alternative Fuel Vehicles have to buy a decal from the state. For cars that are not powered by electricity, that decal is $75. AFVs weighing 18 tons or more have to have a $1,000 decal in the window.  For plug-in hybrid electric vehicles, the decal costs half of the fee for vehicles that powered by fossil fuels.

But is that half-off fee proper for EVs fair to the road system?  That’s where another welcome part of Schatz’s bill kicks in. It establishes the “Electric Vehicle Task Force” within the Revenue Department to recommend future legislation on ways EVs can appropriately contribute to the infrastructure they use.

There is never an ideal time for a tax increase as far as the public and some members of the legislature are concerned.  But two or three pennies a gallon will mean that the state can afford do more than to apply cold patches to potholes and keep fingers crossed that rusty bolts on bridges will hold on a little bit longer.

I’d rather pay a little more at the pump than read about school buses winding up in a rural creek on the wsay to school.

There’s no guarantee the House will accept Schatz’s plan or recognize the compromise work that got it passed (every Senate Democrat joined with some of the members of Schatz’s party to pass the bill).  From our lofty position, however, it seems to be a prudent, responsible approach to dealing with a major problem today while laying the groundwork for dealing with our electric-powered future.

 

People’s Interests Being Dealt a Losing Hand

Posted on by
1

Several bills have been introduced to legalize casino wagering on sports in Missouri this year.  Most are versions of bills that have failed to gain passage for the past three years.

None of the bills has a single word protecting the state’s interests in casino gambling.  Not a single word.

What are the state’s interests?

Funding for public schools.

Funding for various veterans’ services.

The National Guard

Funding of a college scholarship program.

Funding for a program to help people who become addicted to the casinos’ products.

Funding for the cities that are hosts for casinos.

The first hearing on one of the bills took place yesterday in a Senate Committee before which I raised this issue last year. In the year since, there has been time to dig deeper into this concern. And the concerns have become deeper.

Yesterday, I talked to the Senate Appropriations Committee about, first, the much-lower tax proposed for sports wagering adjusted gross receipts and, second, about the multi-million dollar damages that tax will cause to elementary and secondary education. Other concerns will be voiced as other bills are brought up for hearings.

None of these bills should be sent out for floor debate until they have been extensively revised to protect the state’s interests.

Please understand that these comments do not oppose casinos or sports wagering. But they do oppose the Missouri General Assembly being skillfully maneuvered into passing new gaming laws that degrade the state’s interests and the interests of the people of Missouri.

0-0

After listening to three years of committee hearings on proposed sports wagering legislation, I am left with the impression that the proposals are being presented as if the issue is unique, separate from other forms of gambling and therefore should be treated as a special category.

It would be erroneous to accept that concept.

The creation of legalized sports wagering can be likened to the addition of a new kind of cheeseburger to the menu at McDonald’s. The biggest difference is that McDonald’s is not lobbying you to lower the sales tax on the cheeseburger while leaving it the same for all of its other products.

Sports wagering is just one more activity in which casino customers can take part. One more item on the gambling menu. But the menu also contains the same products it always has had. Separating one product from the other for taxation purposes makes no sense, whether is a sports bet or a cheeseburger.

This year’s proposed legislation makes it clear that sports wagering will not be done in some other building but will be done on the property of the casino, a phrase that bears scrutiny because it does not specifically say the activity will take place within the wagering area of the casino, a clear position for the state to take. Nonetheless, the assumption seems to be that bets will be accepted within the casino, processed within the casino, and—when necessary—paid within the casino—the same as with bets in all other forms of casino gambling.

Betting on sports is no different than betting on the fall of the cards, the roll of the dice, or the circling of a little white ball.  You will hear me say it many times in these discussions: a bet is a bet is a bet. It’s done in the same facility; the money goes into the same bank account; the taxes are paid on both kinds of money—although the casinos want much less tax charged on proceeds from sports betting by calling for a much lower rate and then by re-defining AGR to make less money taxable by exempting things from the taxable amount in some of the bills.

The proposed legislation accepts that casino winnings on sports bets will be considered part of the casino adjusted gross receipts (AGR) and part of those receipts will be funneled to public education. But the industry claims some of those receipts are not equal to the others for taxation purposes. Once again, a bet is a bet is a bet. That’s the central issue.

Although I have not seen a federal or state income tax form filed by any of our casinos, I doubt that there is one line for taxable income and a second line for taxable sports wagering income on those forms. The federal tax on that income is the same regardless of the source of the income. There is no fair reason why the state tax on AGR should be different from the tax on AGR generated by other forms of gambling.

Sports wagering is NOT something apart from the rest of the casino operations in either space, processing of bets, or in accumulated casino income.

The casinos argued in an earlier hearing that the tax on adjusted gross receipts should be much less than the tax on other forms of gaming because the house advantage on sports wagering is “only five percent.”  That is true. But it’s not the whole truth.

The house advantage of sports wagering is more than the house advantage of several other games offered by the casinos. A study done for the Center for Gaming Research at the University of Nevada-Las Vegas indicates the house advantage is lower than five percent for some of the other gambling opportunities in casinos, yet the industry has never sought a lower tax rate on those games.

Because sports wagering is just another gambling opportunity within the casino, the income from which is part of the general profits of the business, there is no reason to grant sports wagering a preferred tax rate or a different definition of AGR than is used for other gambling activities—as is proposed in this year’s sports wagering bills.

Missouri has 28 years of history to support this argument.  For almost three decades the monthly financial reports of the State Gaming Commission have broken out revenues from table games from revenues from slot machines for each of our casinos. Table games contribute about 15% of the revenues; electronic gaming devices, as the category is called, contributes the other 85%.

For almost three decades, the casinos have had no problems with the revenues from those two sources combined into one AGR figure and taxed at 21%.  Now, however, the industry wants you to approve and new, and what is likely to be the second-most lucrative revenue stream, but they want the legislature to approve a far lower tax rate for it—a tax rate that will undermine support from the other two categories for elementary and secondary education.

I have been told that casinos say they cannot do sports wagering with a 21% tax on AGR.  That’s THEIR problem.  The legislature has a responsibility and that responsibility is not to solve the casino industry’s problems.  The legislature’s responsibility is to the people back home–the school teachers and children, the veterans, the college kids needing a state scholarship, the home dock citis.

If the casinos “can’t do sports wagering,” there still will be gambling on sports.  It just won’t be legal.  and the casinos won’t make any money from it.  That’s their choice.

DAMAGE TO ELEMENTARY AND SECONDARY EDUCATION

Various sports wagering legislation this year proposes tax rates on sports AGR of nine percent, 6.75 percent, 6.25 percent and 6.0 percent. (The particular bill heard yesterday proposes a nine percent rate)

The present tax on AGR from all other forms of gaming is 21 percent.  Ninety percent goes into a fund for elementary and secondary education. Ten percent goes to the home dock cities.

We can explain the problem with a fourth-grade-style arithmetic example.

Johnny’s mother wants to make some apple pies.  She gives him some money and tells him to guy ten apples. There will be enough to buy something for himself if wants it.

Johnny buys ten applies and, seeing plums also on sale, buys a plum to eat on the way home. At the checkout counter, he learns the apples cost $2.10, or 21-cents per apple.  His plum costs 6.75 cents.  The first ten items cost 21-cents each. The last one lowers the average cost of the eleven items to 19.7 cents each.

Using this example, the tax rates proposed for sports wagering could lower the average AGR tax to 19.91% (nine percent rate), 19.70% (the proposed 6.75% rate), and 19.66% (the proposed 6.25 rate, which would establish a new low rate in the nation), and 19.64% (the 6.0% rate proposed in a House bill).

In fiscal year 2018-19—the last full year before the pandemic significantly affected the casino business, the casinos reported to the Missouri Gaming Commission that $15,160,505,906 had been bet in their slot machines.  Table games produced “only” $1,255,959,366 for a total bet in our casinos of $16,416,465,272.  The slot machines had a payout rate of 90.3%.  Table games had a “hold” of 20.8%–meaning table games produced a 79.2% pay out.

The result was an AGR of $1,735,757,881, or 10.57% of the total amount bet and Missouri’s tax on the AGR amounted to 2.2% of all funds bet in slot machines or at gaming tables.

The math shows that a nine percent tax on AGR (the definition used for all other forms of gaming in Missouri) would cost elementary and secondary education about $17 million. The loss to schools would top $21.2 million at the lowest rate proposed.

I don’t know how many members of the General Assembly want to go home and tell their school superintendents they favor legislation that would pump tens of millions of dollars into casino profits while cutting state funding to education by $17-21 million with no realistic hopes of recovery. It will take a lot of PTA chili suppers to make up the difference.

All of this is based on numbers supplied to the Missouri Gaming Commission by the casino industry in Missouri.  We believe it shows the depth of loss the state will incur if the legislature passes these gaming bills without major rewriting.

The extensive homework behind these observations is below.

0-0-0

All discussion of percentages and holds and payouts aside, here is what the current AGR tax rate produced in that fiscal year and how much the state would have lost if the tax rate were reduced.

21%       $364,509,155    Existing rate

9% (19.91) $345,589,394     Reduction of $18,919,761 ($17,027,785-$1,891,976)

6.75%  (19.7)  $341,944,303     Reduction of $22,564,852 ($20,308,367-$2,256,485)

6.25%  (19.66) $341,249,999     Reduction of $23,259,156 ($20,933,240-$2,325,916)

6.0%   (19.64)  $340,902,848  Reduction of $23,606,307 (21,245,676-2,360,631)

It might be argued that the increased AGR of sports wagering would have offset those losses.  How much betting would have been necessary to bring about that offset?

It would have taken an AGR increase totaling $210 million to produce $18,900,000 at 9%

It would have taken an AGR increase totaling $336 million to produce $22,680,000 at 6.75%

It would have taken an AGR increase totaling $372 million to produce $23,251,000 at 6.25%

It would have taken an AGR increase totaling $ 394 million to produce $23.640,000 at 6.0%

Actually, the AGR increase would have had to be even more substantial because the sports wagering bills re-define AGR through a series of exemptions that would have lowered the amount of money that was taxable.

If, using the 2018-2019 fiscal year as the basis, we calculate how much more would have to be bet on sports to reclaim the lost funds, and understanding that AGR represents 11% of the total amount bet (we’ve rounded up the percent), then the amount bet on sports to recover the lost funds at the four tax rates advocated in this year’s bills would be:

9%—$2,079,000,000

6.75%—$3,326,400,000

6.25%—$3,682,800,000

6.0%—$3,374,938,195

And further, there would have been another loss occurring because of the lower tax rates because the schools and home dock cities would be losing income from the AGR if it had been  taxed at the present 21%.  For example:

$210,000,000 taxed at 21% would have earned $44.1-million.

$336,000,000 taxed at 21% would have earned $70.56 million.

$372,000,000 taxed at 21% would have earned $78.12 million.

$394,000,000 taxed at 21% would have earned $82.74 million

In other words, the schools and home dock cities, while waiting to collect $22,564,853 at 6.75% would have been foregoing $70.56 million that would have reached them at the current 21% rate.

The loss to elementary and secondary education and to the home dock cities, therefore would have been (approximately) $25.2 million, $48 million, $54.8 million, and $59.1 million.

Elementary and Secondary Education (and the home dock cities) will NEVER catch up.

The goal for the casinos in adding sports wagering is to INCREASE their AGR.  This study shows how much the DECREASE in elementary and secondary education and the home dock communities might have been if the average AGR tax had been lowered, that it would have taken hundreds of millions of dollars in wagering to REPLACE the funds lost by elementary and secondary education through the lowering of the average AGR tax rate, and the income loss while waiting to replace lost income through increased wagering would have been an even larger financial setback.

Casinos don’t seem to care about elementary and secondary education, veterans, college kids, problem gamblers, or even their home dock cities.  Somebody has to raise these issues. Perhaps you might ask your legislator about whether he favors passage of legislation that will undermine financing for all of these issues we’ll be raising in subsequent hearings.

I hope legislative committees don’t send any of these bills to the floors for debate without substantially rewriting them to protect the interests of the state.

-0-