Dover Downs threatens layoffs if casino taxes aren't lowered
Written by Doug Denison and Jonathan StarkeyThe News Journal
May 24, 2013
Dover Downs, the casino operator and one of Dover’s largest employers, said it is considering laying off hundreds of its workers and shuttering restaurants if state lawmakers don’t act to lower the company’s taxes in the next month.
Gov. Jack Markell continues to resist such a deal, as the state continues to rely heavily on casino revenue to balance its budget.
Casino executives have been meeting with state legislators and members of Markell’s administration to continue to lobby for a tax break, as regional competition continues to drain customers. Time is a factor, with the current legislative session set to close on June 30.
Saddled with $60 million in debt and targeted by new casinos across the Maryland line, Dover Downs lost $283,000 in the first quarter of this year, compared to a $2.4 million profit during the same period in 2012.
Top officials there met this week with state Finance Secretary Tom Cook, coming on the heels of a recent sit-down with Markell. But a deal to lower taxes does not appear to be in the works.
“The governor recognizes the casino industry is facing competitive challenges but does not believe the state is in a position to reduce tax rates at this time,” said Mike Barlow, Markell’s chief of staff, who added he was not “at liberty” to characterize the casino’s meetings with Cook and Markell.
Casino executives still insist the administration has been sympathetic to their plight in recent discussions.
“We’re talking to the administration,” said Dennis McGlynn, chief executive of Dover Downs. “They’re aware of this. They’ve indicated that this is a problem, and we have to try to fix it.”
McGlynn said Dover Downs would take the best deal the company can get.
“There’s no demand here,” he said. “It’s us laying ourselves at the feet of the administration and the Legislature, saying, ‘Look, this is where we are. If you think we’re valuable enough from a revenue generation standpoint and a jobs provision standpoint, do something to help us.’”
Delaware casinos are in the middle of an increasingly crowded mid-Atlantic gambling market and are facing competition from four casinos in the Philadelphia area and three in neighboring Maryland, plus the stalwart venues in Atlantic City, N.J.
Hollywood Casino in Perryville, Md., is just 30 miles south of Delaware Park on Interstate 95, and Ocean Downs Casino in Berlin, Md., draws beach-area gamblers who might otherwise bet at Harrington Raceway and Casino.
The toughest competition comes from the massive Maryland Live! casino south of Baltimore, right in the heart of Delaware’s customer base.
Maryland’s fourth casino, located at Rocky Gap State Park in the state’s western panhandle, opened this week. A casino in downtown Baltimore is scheduled to open next year, followed in 2016 by a new venue just east of Washington, D.C., at the National Harbor shopping and entertainment complex.
Delaware relies heavily on gambling revenues and brought in $269 million in total lottery revenue, including taxes from casinos, in fiscal year 2012, which ended last July. Dover Downs alone contributed $86 million to state coffers in 2012.
State projections anticipate $237 million in similar revenue this year, a decline forecasters directly attribute to regional competition.
Markell and the Legislature changed the tax rate for slot-machine revenues in 2009 as part of a bill that reauthorized sports betting in the state — an effort to help account for a massive budget shortfall that year. The slots tax rate paid by the casinos jumped from 37 percent to 43.5 percent.
Table games were legalized in Delaware in 2010, with a tax rate of 29.4 percent.
Maryland taxes slots at a rate of 67 percent, the highest in the nation, and table games at 20 percent. In Pennsylvania, the slots tax rate is 55 percent, and the table game rate is 16 percent. New Jersey’s tax rate for gross gambling revenues is between 8 percent and 10.5 percent.
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Without a deal to lower tax rates and protect Dover Downs, the state risks losing out on some of that money, casino executives said.
“If they don’t give something back, the $86 million they get from us is at risk,” said Tim Horne, Dover Downs’ chief financial officer.
Horne warned of “draconian” cuts starting next month in the absence of a deal, including layoffs and the closing of shifts inside Dover Downs.
“It’s that death spiral,” McGlynn said.
Executives from the state’s other casinos at Harrington Raceway and Delaware Park did not respond to requests for comment.
House Speaker Pete Schwartzkopf staunchly opposes tax breaks for the casino industry and said casino representatives have been scheduling one-on-one meetings with some lawmakers, but he knows of no plans for legislation granting relief.
“I do know they’ve been trying to talk to people so they have a better idea of the financial situation. As far as I know, nobody is asking to lower their tax rates,” Schwartzkopf said. “Maybe because the governor has said he’s not going to do it.”
Lobbyist Robert Byrd, who represents Dover Downs, said the casinos have been asking for tax relief for more than a year, but that he doesn’t see any progress coming until the governor makes a move.
“The casinos are always talking about what their issues are, and they’ve been continuing to do that, and I think they’ll continue to do that,” Byrd said. “My sense is there is probably some sentiment for it in the Legislature, lukewarm sentiment in the Legislature, but this is an issue that will be driven by the administration.”
Schwartzkopf also said he believes Delaware’s casino operators need to adjust to a new reality for their industry in this highly competitive region.
“They made so much money in the days they had their heyday, if they start to make what a normal casino would make, they think they’re going broke,” he said. “I think they’re chasing utopia; it doesn’t exist.”
http://www.delawareonline.com/article/20130524/NEWS02/130524017
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