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Education funding: Casinos split over tax plan

21 May 2008

By Howard Stutz and Molly Ball
and Howard Stutz

LAS VEGAS, Nevada -- Voters in November are likely to be asked whether they want the Legislature to increase hotel room taxes to alleviate the state's budget woes and help schools, but the big casino companies remain sharply divided about the proposal.

The state teachers union agreed late Monday not to go forward with a ballot initiative seeking voter approval to raise gaming taxes in exchange for three major gaming companies' support for raising the room tax.

But while Wynn Resorts, Harrah's Entertainment and Station Casinos were on board with the deal, which was brokered with the help of Assembly Speaker Barbara Buckley, the chief executives of MGM Mirage and Boyd Gaming Corp. said Tuesday they do not like the idea. Las Vegas Sands Corp. previously came out against raising the room tax.

Also expressing skepticism were Gov. Jim Gibbons and Senate Majority Leader Bill Raggio, though both said they would consider the tax increase if voters were in favor of it.

Under the terms of the proposal, the room tax rate would rise 3 percentage points up to a maximum rate of 13 percent.

Room taxes vary by jurisdiction. On the Strip, the rate is 9 percent; in downtown Las Vegas, 10 percent; in Boulder City, which has hotels but not gaming, 8 percent. In Washoe County, the rate is already 13 percent and would not rise under the proposal.

In the coming biennium, the resulting money, estimated by various parties at $150 million to $185 million, would go toward the current state revenue shortfall, especially preventing cuts to education, Buckley, D-Las Vegas, said.

In future years, the tax revenue generated would go to a special fund dedicated to teacher salaries and "student achievement," the teachers said.

"This is to be a supplement, not supplant any current funding levels, so money will be added to the education budget to help kids in schools," Nevada State Education Association President Lynn Warne said.

The union hopes to get the proposal on the ballot as an advisory question in all 17 of the state's counties. County commissions must approve the question to send it to the ballot.

Voter approval of the advisory question does not obligate the Legislature to do anything but would give lawmakers a sense of whether public support exists, Buckley said.

At the same time, the union plans to collect signatures in the coming months to make the same measure a statutory initiative.

Under Nevada law, the union would have until Nov. 11 to collect 58,628 signatures of Nevada registered voters in all 17 counties. When the Legislature meets in February 2009, it then would have 40 days to act on the proposal.

If the Legislature and governor did not enact the plan, it would go to voters on the 2010 ballot and become law if passed.

The two-pronged process of advisory question and statutory initiative would give legislators the backing of public opinion upon which to pass the tax in 2009 but also provide a fallback if the Legislature did not manage to get the job done, union representatives said.

"The agreement envisions asking the voters for their opinion, and if the voters approve of the measure, they will request that the Legislature impose additional room tax to fund the state budget concerns, avoid cuts in education and give ongoing support to education after this biennium," Buckley said.

"In my opinion, the teachers and the gaming industry having reached a compromise solution will immensely benefit the state in general and education in particular," she added. "Without a source of revenue provided quickly, we would be facing massive education cuts."

Tuesday would have been the deadline for the teachers to submit their ballot initiative, which would have amended the state constitution to raise the top tax rate on gaming receipts to 9.75 percent from 6.75 percent and put the resulting revenue into education. The initiative would have had to pass statewide in two successive elections and could not have taken effect before 2010.

The gaming tax increase would have brought in $250 million to $400 million per year, according to estimates.

Buckley said she believed legislators would approve the new proposal, which would require a two-thirds vote in both the Assembly and Senate, if voters did. In talking to other lawmakers, she said, "there was a sense that room tax is paid primarily by tourists, and there seemed to be strong support for having tourists pay more to help education, especially in light of gaming officials feeling it would not hurt the economy."

Buckley said she talked to representatives of MGM and Boyd, and although they "were not part of this announcement," they "want to be part of the solution."

But that might have been wishful thinking, as the heads of both companies said the plan does not go far enough in solving the budget crisis.

MGM Mirage Chairman and CEO Terry Lanni, who last year called for the state to adopt a broad-based tax on businesses, said the company might look at opposing the proposal at the Legislature next year. He said he would support an increase to the hotel room tax, but he was against earmarking the money.

"We're going to sit back and evaluate what we should do," Lanni said. "It's not even a Band-Aid approach, and I think it's a very poor choice for a solution. The best and most logical solution is a combination of room taxes and a modified business tax."

Gaming revenues in Nevada are down more than 3 percent in the first three months of the year, and the slowing national economy has caused visitation to remain flat over the same time while the average daily hotel room rates are down almost 3 percent.

Boyd Gaming CEO Keith Smith, who is vice chairman of the Las Vegas Convention and Visitors Authority board, called on lawmakers to adopt a budgetary solution that targets multiple industries, not just gaming.

"We don't agree with the proposal," Smith said. "We don't think it's the right way to fund the state. You are continuing to rely too much on the success of tourism. The economy continues to struggle, so we need a broader solution to provide more revenue. I don't agree that this is a good first step. We need a broader solution that incorporates other things."

Some casino officials expressed concern the solution, which could add anywhere from $10 to $30 to the daily bill on a Strip hotel room, might hinder visitation because of the price increase.

Station Casinos Chief Development Officer Scott Neilson, who was involved in negotiating the plan, admitted there could be an effect on room occupancy. The company has been dropping rates and offering deals recently to boost visitation.

"It does have the potential of impacting visitation, but I believe the solution raises significant money for the general fund," Neilson said.

Wynn Resorts Chairman and CEO Steve Wynn, who helped get the deal started, did not think there would be much of an effect.

"Room taxes are higher in every other city that competes against us," Wynn said. "People book rooms on the net price. This solution is a no-brainer. I think it targets improving education."

Las Vegas Sands President Bill Weidner could not be reached for comment Tuesday. Previously, Weidner opposed any increases in the room tax but supported reducing the amount of existing room tax that funds the Las Vegas Convention and Visitors Authority and putting it toward other state needs.

Las Vegas Convention and Visitors Authority spokesman Vince Alberta said the agency did not want to comment on the agreement with the teachers because all of the major gaming companies except for the Las Vegas Sands Corp. have seats on the authority's board of directors.

"We are aware of a lack of consensus among our resort partners on this issue, and we will not weigh in on the discussion at this time," Alberta said.

Raggio, R-Reno, the Senate leader, said that in previous conversations with the governor and Wynn, he advised that he did not think the Legislature would approve the plan unless it had "the unified support of the gaming industry" and a vote of approval from the public.

Raggio said he would vote for it only if his constituents supported it. "I've consistently said that I don't support new taxes at this time or a revision in taxes, but I would consider it if it had a favorable vote of the public," he said.

Gibbons, a Republican, has said he would veto tax increases passed by the Legislature but would sign a tax increase if it were backed in a public vote.

Gibbons, visiting Nevada troops in Iraq, skipped a scheduled teleconference with print and radio reporters Tuesday. In an interview with KLAS-TV, Channel 8, he said he does not like taxes that are earmarked for a specific purpose and objects to the singling out of "our No. 1 industry" for taxation.

Deutsche Bank gaming analyst Bill Lerner, who has spoken out against raising the gaming tax, said companies would be affected differently depending on the extent to which they are in the hotel business.

"Some gaming companies could be opposed to this solution given their relatively higher exposure to the room tax if they have disproportionately more hotel rooms than other operators," Lerner said in a note to investors Tuesday.

MGM Mirage controls 40,679 hotel rooms in Nevada, including 38,159 hotel rooms on the Strip. Station Casinos operates 4,062 hotel rooms in Southern Nevada.

Representatives from Harrah's Entertainment, Wynn Resorts and Station Casinos negotiated the deal with the teachers but kept their counterparts from MGM Mirage and Boyd Gaming Corp. apprised of the discussions.

"We spoke with them during the two weeks leading up to the agreement," Harrah's Senior Vice President Jan Jones said. "They did not oppose the room tax increase, as long as it was not earmarked. They wanted it to go into the general fund. It's not the broad-based solution that we have been hoping for, but it's an important piece of the puzzle."

Wynn said the plan was the best possible solution on the table, as opposed to the 44 percent gaming tax increase the teachers union had been seeking. Wynn said industry leaders explained to the teachers that increase would have "done tremendous damage" to the casino industry, causing thousands of layoffs.

The proposal, he said, will help alleviate some of the budget shortfall.

"There is no fat in the state budget," Wynn said. "After we take care of education, health care and prisons, the only extra money is chump change. This is not a state with a bloated budget. Our only problem is growth, and if we don't educate our kids properly, then we're hurting the vitality of our community."

Copyright GamingWire. All rights reserved.


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