June 15, 2011
JULIE CARR SMYTH
THOMAS J. SHEERAN
CLEVELAND — Ohio Gov. John Kasich said Wednesday he is moving forward with legalized racetrack slot machines and making tax concessions to one of the state’s two casino developers in his efforts to get more money from expanded gambling for taxpayers.
“This was not fun. I mean, this was not easy,” said Kasich, whose push for more cash for the state led the developer to halt construction until a deal was reached.
The deal was announced by Kasich and Rock Ohio Caesars CEO Dan Gilbert, whose company is developing casinos in Cleveland and Cincinnati, in a former department store where the initial Cleveland casino phase is scheduled to open early next year. Gilbert is also owner of the Cleveland Cavaliers.
The deal frees ROC from paying the state’s commercial activity tax on all wagers, a sticking point between the company and state budget writers in Columbus.
The Republican-controlled Ohio House had added a provision to Kasich’s nearly $56 billion, two-year state budget that said the so-called CAT tax applies to wagers plus payouts, a definition casino operators said would cost tens of millions in extra taxes and violate terms of a constitutional amendment approved by voters in 2009.
The deal taxes the company on wagers minus payouts.
In exchange, it requires an additional $110 million in payments from ROC over the next decade and an increase in the company’s overall investment in the state from $500 million to $900 million. The casino application fee would be $1.5 million.
A bigger surprise in the pact was Kasich’s decision to open the door to slots-like video lottery terminals at Ohio’s seven horse tracks. Licenses to operate VLTs would cost $50 million each, for a total of $350 million at seven tracks, plus 33.5 percent of sales revenue.
The deal requires VLT sales agents to invest at least $150 million in their facilities, including VLT machines, with a maximum credit of $25 million for the value of existing facilities and land. Sales agent commissions couldn’t exceed 66.5 percent.
Racetrack betting parlors, often called racinos, would have to open within three years of being licensed.
Through its joint venture with Caesars, Rock Ohio Gaming would control one track: northeast Ohio’s Thistledown. Five of the other six are also controlled by casino interests.
Kasich said the deal would help Ohio’s struggling horse racing industry. How the horse racing industry’s share of the state take will be split remains subject to negotiation, the governor said.
Kasich said he was determined to press for a better deal for the state as part of a comprehensive gaming plan. “I didn’t want any more ballot issues here” on gaming issues, he said.
The governor said he didn’t feel pressured by the halt to casino construction. “I stood pretty firm,” he said.
By putting the VLT rules in a memorandum of understanding with ROC, Kasich skirted one legal conundrum faced by his predecessor, Democratic Gov. Ted Strickland. Strickland’s proposal to legalize video lottery terminals at the tracks was sidelined by a court challenge and ultimately dropped.
Opponents were swift to attack the move by Kasich, a Republican, as an end-run around voters.
“If John Kasich were a commentator on Fox News right now, and some governor somewhere was trying to do this, he would be on a rant about how they were stepping on voters’ constitutional protections,” said David Zanotti, whose Ohio Roundtable has led the charge against legalized gambling in the state for more than a decade.
In a statement Wednesday, the Roundtable said the casino amendment, Issue 3 as written and championed by casinos, required casinos to pay the CAT tax and “can’t be changed by back room deals.”
“If the Governor is serious about getting a better deal for Ohio, he should ask the legislature to place an amendment on the ballot to reconstruct Issue 3,” its statement said. “He could do this in very short order, taking less time and money than all the back room deals have spent to date.”
Zanotti said Penn National, which is building casinos in Columbus and Toledo, was required to pass a constitutional amendment just to move its location from one part of Columbus to another — so a total overhaul of the casinos’ financial arrangements with the state should also go to voters.
“So the Kasich people are going to put VLTs in the racetracks, in essence grant casino licenses to these facilities without a statutory amendment, without a public hearing. How does that work?” he said. “Is this King George III? Did we just lose out whole form of representative government?”
The $110 million in extra casino revenue from ROC would come in the form of $10 million more annually for the first five years and $12 million annually for the five years after that.
The administration noted that portions of the agreement would have to be approved by lawmakers, and in some cases by the Casino Control, Lottery and Racing commissions.
Penn National has not yet agreed to terms with the governor. Spokesman Bob Tenenbaum said the company declined comment on Wednesday’s deal because its talks with the Kasich administration are ongoing.
Penn owns two Ohio tracks — Beulah Park in suburban Columbus and Raceway Park in Toledo — that would benefit from the administration’s authorization of VLTs. The company has told state racing regulators it would relocated Beulah Park to Dayton and Raceway Park to Austintown near Youngstown if VLTs were allowed, in order to avoid competing with the new casinos.
The initial casino phase in Cleveland will include more than 2,000 slot machines, 65 table games and a VIP players’ lounge. The second phase will be built one block away on a riverfront location.