Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2009

Governor's Budget Recommendation FY 2009

Gaming Initiative

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Governor Patrick    FY09 House 2 Budget Recommendation:
    Issues in Brief

    Deval L. Patrick, Governor
    Timothy P. Murray, Lt. Governor



In October of 2007, the Governor filed legislation that would result in the development of up to three resort-style casinos in the Commonwealth under a rigorous regulatory framework that would encourage transparency in the gaming industry. This proposal would provide for over 10,000 temporary construction jobs and more than 20,000 new permanent positions from the development of three new casinos. Under the Governor's proposed legislation, the casinos would be located in three different regions in the Commonwealth to provide for shared economic growth from the development of resort casinos. Building off the Governor's Life Sciences, Clean Energy, and Readiness Project initiatives, the Gaming proposal represents a substantial opportunity for growth for the state economy and for billions of dollars worth of private sector investments and developments. As one part of the Governor's larger development strategy, the economic benefits provided by the three resort casinos would ensure balanced job growth across the state.

Gaming Revenue Assumptions

The Governor's gaming proposal would provide for $800 million in new FY09 revenues, generated from casino licensing fees paid by three casino operators immediately following the award of their licenses to develop resort casinos in the state. While the Governor's legislation requires that no less than $600 million would be received by the State for casino licenses, independent analyses by industry experts project that the State would be paid at least $800 million in licensing fees.

The H.2 recommendation assumes that, with the adoption of the resort casino legislation by July of 2008, all $800 million in licensing revenue would be paid within the first 12 months of the bill's passage. However, the Governor's proposal would only plan to use $300 million of this revenue during FY09, which would preserve the balance of the licensing fees for use in FY10 and FY11. By FY12 it is assumed that the three casinos will be fully operational and will generate, combined, over $500 million in annual State revenues. While the Governor's proposal does not rely on any casino operating revenue being available until FY12, it is likely that, with the licensing of casinos within FY09, that one or more of the resort casinos will begin operating before 2012.

It is essential to note that the Governor's H.2 budget recommendation does not rely on proposed gaming revenues to meet the constitutional requirement that the Executive Budget submission be balanced. The resort casino legislation would allow for substantial benefits to Massachusetts residents and local governments as early as FY2009, but all gaming revenues are fully dedicated for new State initiatives and are not required to finance increased spending on existing State programs.

Gaming Revenue Proposal

While the Gaming initiative is primarily focused on economic growth in the state economy, the proposal is designed to provide substantial State revenues, which are dedicated to support new initiatives to provide real property tax relief for state homeowners and to make much-needed investments in the State's transportation infrastructure. In FY09, the Governor's recommendation would make $300 million available in casino licensing revenues for the following purposes:

  • $124 million to provide additional local aid, which would be distributed to the state's cities and towns in a manner consistent with the current Lottery distribution;
  • $88 million to provide property tax relief for state homeowners; and,
  • $88 million to fund municipal transportation and infrastructure projects, which would be distributed pursuant to the Chapter 90 formula.

This chart shows the New Casino Revenues and the breakout for the funding dollars: Gaming Licensing Funds would include 3 licenses valued at approximately $800 million in FY09 revenues.  This revenue would be used for the following, $124 million to meet FY09 lottery shortfall and support local aid distributions, Property Tax Relief (beginning in FY09),  Transportation Improvements (beginning in FY09); The Gaming Operating Revenues are annually recurring funding for the State estimated at more than $500 million annually when casinos are fully operational. 2.5% of the Gaming Revenue would go to the Community Gaming Mitigation Fund. Funding to address increased local costs. Estimated at more than $50 million annually.  2.5% of Gaming Revenue would also go to the Gaming Public Health Trust Fund, which supports compulsive gambling services. Estimated at more than $50 million annually.  Lottery Funding Gap would fund any shortfall in Lottery revenue resulting from competition from casinos.  The Remaining Casino Tax Proceeds would be revenue used for the following, Transportation Improvements, Property Tax Relief. Estimated at more than $200 million in spending for each when fully operational; Regulatory Assessment funds the operation of new Commission and Funds state public safety expenses. Annual Assessments, would equal the regulatory and administrative costs of new Commission, fund new State public safety costs.

Local Aid and Lottery Revenue Distributions

Over the last 20 years, the Massachusetts State Lottery has generated an invaluable source of resources for the state's municipalities to fund essential programs and services to their communities. While experiencing tremendous growth over time, recently the State Lottery's revenue growth has slowed moderately. In FY07 and FY08, lottery revenues were not sufficient to fully fund programmed distributions to municipalities, and a similar deficit is projected in FY09, totaling $124 million. Despite the slowing of lottery revenue growth, it is projected that the problem is short-term in nature and that this vital funding source for cities and town will continue to grow, reducing -and eventually eliminating- the need to use casino revenues to fund anticipated lottery fund deficits over the next few years. The Governor's H.2 recommendation would use $124 million in casino licensing revenues, together with projected lottery receipts, to fund a total local aid distribution of $935 million.

It should be noted that the State's commitment to cities and towns is to distribute uncapped net lottery revenues to them for unrestricted use to support their municipal budgets. Based on current projections of FY09 net lottery receipts, a distribution to cities and towns of $811 million would satisfy this commitment. The Governor, however, recognizes the fact that municipalities have come to rely on an aggregate distribution of $935 million. Although the Commonwealth cannot afford to fund the expected shortfall for existing State resources, passage of the Governor's casino proposal would provide new State revenues that the Governor proposes to dedicate in part to funding this shortfall.

State Lottery Revenue and Distribution Projections, FY09-FY12
($'s in millions)
Lottery Revenues*4,648.24,764.44,883.55,005.6
Net State Operating Revenue1,028.0 1,053.7 1,080.1 1,107.1
Administrative Expenses*96.0 100.1 102.6 105.1
Distributions*1,056.1 1,056.71,057.31,057.9
Local Aid810.9 810.9 810.9 810.9
Portion of Local Aid to be funded through gaming revenues124.1 124.1 124.1 124.1
Lottery and Gaming combined distributions935.0 935.0 935.0 935.0
Lottery Transfers**106.7 106.9 107.2 107.4
Mass Cultural Council12.4 12.7 13.0 13.4
Gambling Prevention2.0 2.1 2.1 2.2
Gaming Revenues (124.1)(103.1)(79.8)(55.9)
*Preliminary estimates of revenue and spending growth.
**The State Lottery has projected $19.1M in additional revenue in FY09 from investments in Keno and Lottery administration. However, until this revenue has been realized, additional spending is reflected as transfers and not added to the Local Aid distributions.

While the Governor's proposal would allow for short-term relief for any insufficient Lottery Fund revenues to meet annual lottery distributions level in FY09, the gaming initiative would also hold the State Lottery harmless from any adverse affects to revenue attributable to resort casino expansion. As the resort casinos became operational, estimated to be in 2012, State gaming operating revenues would be used to meet any lottery revenue shortfalls that were linked to gaming activity. This proposal would ensure that the lottery fund distributions, including aid to the state's cities and towns, were held harmless from any temporary revenue loss.

Meaningful Property Tax Relief

Under the Governor's resort-style casino proposal, the Homeowners Property Tax Credit Program would provide meaningful property tax relief. Beginning in FY09, the Governor's proposal would begin to implement the new property tax relief program, funded at $88 million, which would provide nearly half a million households with a state income tax credit equal to, on average, $200. This initiative would mark the first step in providing lasting property tax relief to homeowners who have witnessed substantial increases in their property tax bills over the last 10 years. With the adoption of the Governor's casino legislation, the State would be provided with a new funding vehicle to begin to address the trend of increasing property tax burdens.

Vital Transportation Investments

Early in 2007, the Transportation Finance Commission estimated that funding to meet the needs of existing transportation infrastructure would be between $15 and $19 billion less than the amount needed over the next 20 years. In an effort to ensure that the State and its localities can meet pressing transportation needs, the Governor's resort casino proposal would allocate approximately $200 million per year for transportation infrastructure improvements when the three casinos become fully operational. Under the proposed legislation, a new Transportation Infrastructure Improvement and Maintenance Fund would pay for transportation improvements to roads and bridges throughout the Commonwealth.  The Governor proposes to provide for $88 million in casino licensing to be made available to the State's localities for investments in necessary transportation and infrastructure projects. This funding, made available through the adoption of the casino legislation, would begin to address long-standing maintenance requirements for the state's vital public infrastructure.

Local Mitigation and Public Health Funding

While the development of three resort casinos in Massachusetts represents a great opportunity for growth for the state economy, there are real costs to the local communities and to State programs from the expansion of gaming. Under the Governor's proposal, 2.5 percent of gross gaming revenues (or roughly $50 million annually) would be provided for both a community mitigation fund and a public health fund once the casinos become operational. The community mitigation fund will provide revenue to local communities affected by increased traffic and other infrastructure demands from the development of the casinos. The public health fund will make available additional funding to the State to support compulsive gambling prevention and treatment programs, at roughly 50 times the level of funding available for these purposes in FY08.

Governor's Casino Revenue Proposal Summary
($'s in millions)
Casino Licensing Revenues$800
Local Aid Distribution$(124)
Property Tax Credit Program$(88)
Transportation Aid to Locals$(88)
Total FY09 Spending/Tax Credits$(300)
Balance for FY10 and FY11$500

Prepared by the Executive Office for Administration and Finance • Rooms 373 & 272 • State House
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