How Online Gambling Could Help Solve PA Budget Dilemma

Here’s How Online Gambling Regulation Could Intersect With Pennsylvania’s Budget Talks

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In the coming weeks the Pennsylvania legislature will begin crafting the state budget, with the chief challenge of finding additional revenue to help fund education and ease property tax burdens.

The budget is due on June 30, and if Pennsylvania’s recent history is any guide, the budget won’t be finalized until the 11th hour (perhaps even beyond).

This should give the legislature plenty of time for debate – a debate likely to include online gambling regulation.

Background on the funding issue

Going back to Governor Ed Rendell (2003-2010) Pennsylvania has tried (mostly unsuccessfully) to increase the state’s percentage of public education funding in lieu of raising property taxes.

Rendell wanted the state to fund 50% of education funding, but during his tenure the state only reached 40% funding, a number reached in large part because Pennsylvania legalized gambling in 2004.

The amount of state funding to education has since dipped to around 33% under Rendell’s successor Tom Corbett (it was 34% when Rendell took office), and local municipalities have had little choice but to raise property taxes to make up the difference.

First-term Governor Tom Wolf, a Democrat, defeated Corbett by running on a platform that highlighted the state’s ever-increasing property taxes and diminishing education funding. Now he has to make good on it, and like Rendell, he may have to turn to gaming.

Wolf has proposed overhauling the state’s income tax code and a new 5% tax on natural gas production. These proposals have not sat well with the state’s Republican controlled legislature.

The legislature is of the mind that revenue can be raised elsewhere, without resorting to tax increases.

Wolf willing to consider online gambling

During the campaign, Wolf seemed opposed to gaming expansion.

However, his comments were very generalized and didn’t indicate a particular ideological opposition to gaming. Wolf’s opposition to gaming expansion seemed more like a case of “would you rather,” rather than something he flat-out opposed.

Earlier this year Representative John Payne (the author of one of Pennsylvania’s online gambling bills, HB 649) called Governor Wolf “open-minded” about online gambling expansion.

Payne also stated he has spoken with the Governor’s office about online gaming expansion and was told “go show me, what it is, how it would work, and what the revenue numbers are.”

More recently, Wolf’s Press Secretary Jeff Sheridan told the Governor was willing to consider online gaming expansion during the negotiation process.

Sheridan went on to say that while the Governor was willing to compromise, he wouldn’t replace his proposal for a new tax on natural gas production tit for tat with online gambling.

License fees could be key

Part of Wolf’s dilemma regarding iGaming is how to raise revenue for 2016, when online gambling would take at least a year to launch.

Even if online gambling meets expectations, and generates $20 million in tax revenue for the state in Year 1, that wouldn’t begin until late 2016 (or more likely 2017).

However, online gambling raises revenue through licensing fees as well. Each of the state’s 12 casinos would have the option to apply for an online casino license, something most would likely do, and these iGaming licenses come with a hefty price-tag of $5 million.

Operator licenses alone would amount to an immediate influx of $50 million or so into the state’s coffers in 2016.

The numbers work, but will the stakeholders?

Wolf and the Republican legislature are going to have to find some form of compromise, and online gambling could be the key to a budget agreement. Something both sides can begin with.

The numbers (even the conservative projections) are impressive enough to warrant consideration.

And online regulation could be one of the key components of a larger, comprehensive, compromise, that includes some of Wolf’s tax increases, and other measures suggested by the legislature such as the easing of regulations on bar poker operators or the privatization of liquor sales. Alternatively, online regulation could come in as part of a package of casino initiatives, and approach suggested by Sen. Sean Wiley’s yet-to-be-introduced bill.

- Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus for OPR is the developing legal and legislative picture for regulated US online poker and gambling.
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