Since opening its doors to the casino industry in 2004, Pennsylvania has enjoyed an influx of gaming revenue. But despite this widely praised venture, recent estimates suggest the state will face an imposing $1.2 billion budget deficit, or more, in the coming fiscal year. And now online gambling regulation is on the table as a way to cut into that deficit.
Campaign promises haunting Wolf
The deficit represents a quandary for Governor Tom Wolf (D), who campaigned on platforms of lowering taxes across the state’s middle class and prioritizing education spending.
According to the Pennsylvania State Education Association, a labor union, Pennsylvania ranks “45th in support” for public schools in the country.
But prior to his election, Wolf was unaware a severe deficit loomed. In March, the governor responded to news of the deficit by proposing an array of tax hikes in the state’s 2015-16 budget, a plan criticized by Harrisburg Republicans as overbearing and unfeasible.
Wolf’s budget would have halved corporate tax rates while increasing personal income tax in the state from 3.07 to 3.7 percent, and increased education spending by over $400 million.
But Republicans, in control of the state legislature, insisted they would not approve what Senate President Pro Tempore Joe Scarnati called “the most massive tax rollout plan in recent history of the commonwealth.”
Forecast better than expected, but still turbulent
That proposal, however, was tailored to bridge a budget shortage estimated in March at $2.3 billion. While it now appears the deficit will be $1.1 billion lower than previously thought, legislators are nonetheless scrambling for a workable solution to the still-sizable gap.
Harrisburg lawmakers, tasked with building a cohesive budget by a June 30 deadline, have floated ideas including raising taxes on tobacco products and phone bills, and placing a severance tax on natural gas extraction.
In proposing the severance tax, Wolf said the initiative would generate $1 billion for the state in its first year, revenue which the governor hoped to earmark for education.
Possibly easing matters further is HB 466, a bill to privatize the state’s liquor operations, which supporters say will trim costs. The bill cleared the Pennsylvania House in February, and is currently before the Senate.
A proposed overhaul of the state’s employee pension system has also gained traction, recently clearing the state senate and currently awaiting action in the House. The Harrisburg-based Patriot-News has spoken favorably of the bill, which it says will lead to savings for taxpayers.
Last week, Scarnati said firm agreements on both pension reform and liquor privatization bills were imminent.
But complicating matters is the state’s extended budgetary forecast. Early estimates predict a deficit of over $2 billion in 2016-2017. And while Wolf still hopes to increase education subsidies, it is unlikely schools will receive the $500 million increase first pitched by the governor.
Gaming a key revenue factor
Legalized online gaming, meanwhile, remains an alluring option for lawmakers seeking to triage the deficit without resorting to tax hikes. Five regulatory bills have already been proposed in 2015, and debates on the subject have intensified in recent months.
This option is supported by a number of key Pennsylvania legislators, including Kim Ward, chair of the Senate Community, Economic & Recreational Development Committee. Ward is the prime sponsor of one such regulatory bill, SB 900. The bill is co-sponsored by several key committee members, including Senator Robert “Tommy” Tomlinson.
Each of the state’s land-based casinos, with the exception of Sheldon Adelson’s Sands Bethlehem, supports the venture. To operate within the state, online casinos would need to partner with brick-and-mortar operations. While critics say online gaming would lead to cannibalization in the marketplace, analysts have said the arrangement would be mutually beneficial.
There are still hurdles to clear if the bill is to become law. Senators on the CERD still seemed to have serious questions about Ward’s bill, and seven casinos recently came out against SB900, which is a wide-ranging gaming bill that includes internet gambling. While online gaming regulation would certainly help the deficit problem of coming years, it’s not clear if that budget relief will come from iGaming in 2015.