Bluffdown On The Square

By Doug Magill

Governor John Kasich isn’t afraid of some high-stakes gambling.

His support of Senate Bill 5 clearly positioned him as someone willing to take on public sector unions in hopes of improving the state’s finances.

Similarly, his confrontation with Rock Ohio Caesars showed he is willing to engage in some high-risk brinkmanship to rectify what he thought were inequities in Issue 3, which gave approval to the construction of Ohio casinos.  Many observers feel that Issue 3 was a good deal for casinos and local communities, but not for the State of Ohio.  This battle has upset conservatives who feel Kasich has maneuvered around the state’s budget laws by striking a deal that circumvents the original ballot measure.

As passed, Issue 3 allocates 33 percent of gross casino revenues to be spread around the state – but not to the state.  And, the one-time $50 million fee per casino is to be used for jobs training – effectively leaving Ohio out of any and all future revenues from what may be a lucrative enterprise.

The desire to have the state’s commercial activities tax apply to all wagers was a novel approach, and not easily defensible based on what other states are doing.  Effectively, the proverbial retiree could spend all day betting his roll of quarters and walk out of the casino not having won or lost anything.  Yet, the casino would have to pay taxes on every bet that was made.  That could be a considerable amount of money.

Not surprisingly, the casino company, Rock Ohio, held up its figurative hands and yelled, “Whoa……..”  Shutting down construction both in Cincinnati and Cleveland, the CEO of the company, Matt Cullen, was quoted as saying: “It’s difficult to invest in any business when you don’t know what the tax rate will be.”

I wish someone would send that quote to President Obama, as a great deal of the economic difficulty faced by companies afraid to invest or hire is based on their uncertainty about future taxes.

Dan Gilbert, the owner of Rock Ohio, knows a thing or two about negotiations.  He has developed a name for himself both in Cleveland and Detroit for his commitment to investing in the cities, and his fervent desire to see increased economic development.  His table opponent, Governor Kasich, is aggressively trying to stem the flow of investment, and jobs, from the state and is focused on improving Ohio’s profile in the investment community.

The two strong personalities managed to strike a deal that enables slot machines at race tracks in return $110 million in additional fees to be paid to the state over 10 years.  And the CAT will be paid on casino revenues after winnings are paid.  That means Ohio will have an ongoing stream of revenue based on casino winnings.

The details of the deal include additional fees to be paid by race track owners wanting to add slots, as well as a required minimum investment which should improve the dwindling ambiance of Ohio’s racing venues.

Still pending are negotiations with Penn National Gaming, the company that is building the Toledo and Columbus casinos.

The Ohio Roundtable, which has been staunchly opposed to casino gambling appears to be ready to pursue litigation.  The group claims that by making a deal that amends the original ballot measure that the state constitution is being subverted.

Deals with both casino companies will have to be approved by the legislature once they are completed, and then the legal games will begin.

So, what’s not to like?

Casino gambling has never seemed to be the panacea that many people think.  Yes, it will prevent Ohio gamblers from spending money outside the state.  But it remains to be seen that it is a business with long term viability relative to local economics.

It seems bizarre that gambling is illegal except when the state can benefit by it through casinos or the lottery.  Most people will shrug off that conundrum, but it does make it seem as if we are being hypocritical.

The probability that casino gambling will transform downtown is about as great as it was for the other rust-belt poker player – Detroit.  It doesn’t hurt, it may even help a little, but it is only part of the challenge.

A recent study by Jonathan Riley and Douglas Walker stated that the Detroit casinos had a strong positive effect on retail property values.  Especially those within 5 miles of a casino.  This suggests, say the authors, that “casinos have a complementary, rather than substitution, effect on other businesses.”

One hopes that that alphabet soup of economic development groups in Cleveland are paying attention, and encourage complementary businesses such as restaurants and retail shops.  That is where most of the possible new businesses will be found.  High tech dream companies are interesting, but bet money on low-tech enterprises that will be the engines of most of the economic growth here.

Plus, it will sure be wonderful to see the Higbee building resplendent once again.

Doug Magill is a consultant, freelance writer and voice-over talent who has been known to fumble his way through a few blackjack hands upon occasion.

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