December 19, 2014

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Ohio racinos mean less money for cities, counties

Christine Valentine dusts a slot machine at the Hard Rock Rocksino Northfield Park in Northfield. The growth of race track slots gambling in Ohio has led to declining casino revenue for local governments. (AP Photo/Tony Dejak, File)

Christine Valentine dusts a slot machine at the Hard Rock Rocksino Northfield Park in Northfield. The growth of race track slots gambling in Ohio has led to declining casino revenue for local governments. (AP Photo/Tony Dejak, File)

CLEVELAND — Declining casino revenue has cut into the take for local governments, and now the growth of racetrack slots gambling is diverting some of that money from cities and counties to schools.

The switch has made some local governments wary of allocating uncertain casino money for mandated expenses like courts, elections and jails. Instead, they are using the money for extra items like one-time building projects, economic development and port projects.

The double whammy of casinos generating less tax money than forecast and a shrinking city-county share of casino taxes has emerged as a sobering lesson in local government finance planning across the state.

“Everybody’s not going to get what they thought they would get,” said Commissioner Daniel Troy in Lake County, which has a $52 million annual budget and netted $2 million in casino taxes. Lake County’s casino take has dropped almost 3 percent in the past six months as overall casino revenues fell and the number of school-benefiting racinos doubled to four.

Lake County’s share of casino taxes figures to shrink further if bettors migrate to an expanding racino industry offering slots-style video lottery terminals, Troy said.

By year’s end, Ohio will have three additional racinos for a total of seven, along with four casinos.

The overall casino tax pot is shrinking. The Ohio Department of Taxation will be distributing $68.6 million, the local cut of the taxes collected from casinos from October through December. That was 2.2 percent less than the last quarterly disbursement.

On the racino side, the October-December take was $28.1 million, up 25 percent from the July-September take of $22.5 million. The third and fourth racinos opened only in December.

A 2009 state projection envisioned a declining city-county casino tax pot if seven proposed racinos were created. The bottom line predicted racinos would cut the city-county casino take by 27 percent.

The projection, based on overly optimistic forecasts as Ohio embarked on a new venture, said annual tax revenues from four casinos would top $640 million, with host cities sharing $32.2 million. But actual revenues, based on the fourth-quarter 2013 distributions announced in January, are 57 percent less.

Casino taxes going to counties also are off 57 percent compared with the projections, which drafters said reflected bad assumptions, like how big the Cleveland casino would be and how long it would take to recover from the recession.

Because of the uncertainty over casino taxes, Lake County has earmarked that money for optional items like business development, not required spending like the courts and jail expenses such as guards and inmate meals, Troy said.

Fulton County west of Toledo made a similar move, avoiding earmarking uncertain casino money for regular operating costs, county administrator Vond Hall said in an email.

But Toledo put its $5.6 million gambling take in the $244 million general fund that pays for police, fire, trash pickup and street repairs.

Casino money also goes toward basic city services in Cincinnati, where Mark Ashworth, superintendent of accounts and audits, sees the shift to schools firsthand. “I fully believe the racinos will further erode the traditional casino revenues,” he said in an email.

Cincinnati may get less than half of the early $20 million estimate in annual casino taxes, Ashworth said.

Local government officials across the state are learning to come to grips with casino tax revenues that could flatten out or decline, but it’s still added revenue, according to Brad Cole, research director with the County Commissioners Association of Ohio.

“It’s money they weren’t getting five years ago,” he said.

The 33 percent tax on gross revenues at casinos in Cincinnati, Cleveland, Columbus and Toledo is split seven ways, with most going to Ohio’s 88 counties.

After 51 percent goes to the county fund, 34 percent goes to public schools and 5 percent to the casino host cities, which also get a share of the county fund. Three percent each goes to the casino and racing commissions and 2 percent each to gambling addiction services and law-enforcement training.

The split was written into the Ohio Constitution as part of the 2009 voter-approved amendment legalizing casino gambling.

Slots-styling gambling is offered by tracks near Lebanon and Columbus and two near Cleveland, and outlets are planned this year in the Youngstown, Cincinnati and Dayton areas.

The catch for cities and counties: The racinos are regulated by the Ohio Lottery, which funnels all profits to public education.

Mike Sobul, treasurer of public schools in Granville east of Columbus, said cities and counties can definitely expect a shrinking casino tax pot, but that won’t necessarily translate into a jackpot for schools.

By law, casino taxes are allocated to schools in addition to state aid. But racino profits funneled through the lottery commission could be offset by lower state education assistance, Sobul said.

“There’s a guarantee it’s coming to public schools. Whether it’s new money to public schools is a different question,” he said.

Damon Asbury, director of legislative services for the Ohio School Boards Association, said schools could benefit if money moves to the racino pot, but districts haven’t rushed to anticipate it.

“The general tendency for treasurers has been to estimate on the low side,” he said.

He said gambling proceeds going to schools might provide only 1 percent or less of the average $10,000 annual per-pupil cost of an education, or perhaps $50 to $100 per student.

Casino revenues don’t make much of a money-saving dent for taxpayers. Sobul estimated casino revenue for Granville schools are equivalent to only $10 in taxes on a $100,000 home.

The overly optimistic 2009 projections of higher casino revenues have prompted caution on forecasting that money, Asbury said. “It’s hard to see how it’s going to play out over the long term,” he said.

Marcus Glover, senior vice president and general manager of the Horseshow casino in Cleveland, sees a positive future.

“We feel we have a very competitive product in terms of a full gaming experience with slot machines and table games,” he said. “Our model is a very unique one.”

Ohio’s racinos don’t have table games like poker.