Pennsylvania’s Budget Shortfall Hits $1 Billion–Are Online Casinos The Only Hope?

Jessica Welman May 11, 2017
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Pennsylvania’s financial hole just keeps growing. The budget shortfall for the Keystone State is now over $1 billion. Coincidentally, a regulated online casino industry in the state is valued by some experts at–$1 billion.

April tax revenue comes up $500 million short

The state hoped Tax Day would result in a boost in tax revenue numbers for April. Unfortunately, last month’s numbers only added flames to the budgetary fire. Actual revenue missed projections by $500 million. This latest financial setback puts the state’s budget shortfall for 2017-18 at $1.2 billion.

The good news, if you can even call it that, is that the shortfall is actually closer to $1 billion.  Acting Revenue Secretary Dan Hassel told Penn Live some corporate filing adjustments will correct themselves in the spring and the number will go down as a result.

That is about where the good news ends. In the same Penn Live story, the paper also reported Pennsylvania is one of 19 states with budget shortfalls. Moreover, the shortcomings are across the board. Sales tax, income tax, and corporate tax collections are all short by nine-figure numbers.

The structural deficit for the state is now $3 billion. This is the largest budget shortfall since the Great Recession.

The lone hope for the budget is that tax revenues will turn around in 2018. Pennsylvania’s Independent Fiscal Office thinks some companies might have held back on big purchases, expecting President Donald Trump to cut capital gains taxes. Spending will ideally return to normal later this year.

Tourism department says lack of support fueling the crisis

Lawmakers will need to think about what programs to eliminate and where to cut back to address the shortfall. One industry which is begging not to be overlooked is the tourism industry.

In a recent op-ed for the Pittsburgh Post-Gazette, Roger Dow of the US Travel Association begs the state not to cut funds for the tourism bureau. From 2009-2014, the state cut back $125 million on tourism spending. Dow estimates it cost the state $324 million in revenue.

Gov. Tom Wolf’s proposed budget includes $10 million for the tourism department. The decline in tourism for the Keystone State already caused some serious damage. The Pennsylvania Restaurant and Lodging Association says the state lost 37 million tourists. The organizations estimates a loss of $7.7 billion in visitor spending and $615 million in state and local tax revenue.

Meanwhile, nearby states like New York are experiencing prolonged tourism surges over the same time period. Newly opened casinos upstate are only helping sustain those numbers.

Land-based casinos would benefit from online counterparts

Pennsylvania casinos are not immune from the state’s financial woes. While March saw only small year-over-year losses for slots revenue, it continued a six-month trend of decline for the industry. The most optimistic view of the situation is the gambling industry is stagnating. Conversely, the more pessimistic view is that revenues will continue to drop.

The Pennsylvania legislature is arguing over whether or not online casino regulation would help or hurt the revenue cause. The numbers from New Jersey are difficult to disagree with. And they pretty overwhelmingly indicate brick and mortar casinos benefit from having an online counterpart.

As mentioned previously, reports indicate online casinos in the state could mature into a $1 billion industry. In terms of immediate impact, the same report also predicts $230 million of revenue in the first year, $46 million of which would go to the state. Add that to $146 million in upfront licensing fees and it would be a huge dent in that billion-dollar deficit.

Granted, these numbers are based on an optimized regulation plan. The current bickering in the House and Senate features several ill-advised plans like matching tax rates for land-based and online gaming or a state-run online casino operation.

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