Using Fiscal Impact Analyses in the Approval of Gaming Projects

I recently completed a gaming project in the State of Kansas, for the last three years I have been part of a consulting team selected to aid the Kansas Lottery Gaming Facility Review Board in choosing a gaming applicant for State of Kansas’ gaming zones. My responsibility was to conduct a fiscal impact analysis of proposed gaming developments on the State, county, cities, and school districts to ensure that the developments have a positive net impact on these entities and to provide a comparison of the incentives offered by the applicants.  In addition to my firm, the consulting team included gaming, financial and economic consultants from Reno and nationwide.

Last year, my partner and I wrote a paper summarizing lessons learned from this experience and presented it at the 14th International Conference on Gaming & Risk Taking at Harrah’s Lake Tahoe, June 2009.  The full paper can be found on our website at http://www.ekayconsultants.com/website.pdf.  Below is a summary of our conclusions:

  1. The fiscal or financial impact of casinos on local governments is often overlooked as decision makers’ attention is often drawn to the impacts on the private sector–more jobs, more spending by tourists, more economic development.  However, as the provider of most public services required by the patrons and employees of the casino, it is critical that local governments know the financial impact of the casino and plan for it.  The Kansas experience highlighted this impact with the Review Board taking an active role in questioning the proposers about the impact and the mitigating actions they proposed.
  2. The recognition of the importance of local government financial impacts leads to the need to retain an independent expert to estimate the incremental revenue and costs generated by the casino.  The Review Board required that each proposer estimate the fiscal impacts, but we found that many costs and revenues were omitted from proposals.  The experience also showed that not only were costs often underestimated by the proposers, but also revenue, to the disadvantage of the proposers.
  3. The identification of infrastructure costs to service the gaming facility—roads, utilities, sewer/water, fire stations, class rooms—is critical in the fiscal impact analysis as these can be substantial, up-front costs.  As was done by the Unified Government of Wyandotte County, developer agreements should be drawn up stipulating what costs or percentage of costs will be funded by the developer and the government.
  4. Due to time and budget constraints, we were unable to conduct on-site interviews with local government representatives, relying on telephone interviews instead.  The collection of data and cooperation from government representatives is enhanced by on-site, face-to-face interviews, which are longer and thus more in-depth, providing better information on which to base the revenue and cost estimates.  It is recommended that independent consultants pursue on-site interviews if at all possible.
  5. Funding formulas for School Districts are complex in many states, and Kansas was no exception.  If time permits, it is recommended that the independent consultant work with the State Department of Education to develop an estimate for K-12 funding for each impacted district given the addition of a casino within the District.  Estimating the cost to the school district is a fairly easy analysis based on available capacity and absorption of the estimated number of new students generated by the casino employees.
  6. A summary sheet comparing each proposer’s fiscal impact and incentives allows the reviewing panel a quick overview of how each proposal compares to the others.  In the Kansas experience, we developed such a summary sheet. The reviewing board must have a good understanding of the different tax rates/fee structures and service levels among the competing jurisdictions to address inevitable questions, such as “Why does Proposal 1 generate more property tax revenue than Proposer 2 when the construction value of the project is the same?”  The answer often rested in the differing tax rates assessed by different jurisdictions.  It is the independent consultant’s responsibility to explain the difference.
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