THE BACK PAGE: States of need
March 1, 2011
Heather Fong is my hero. Anyone who can retire at age 53 with a guaranteed pension for life of about $230,000 annually with built-in cost of living adjustments and full benefits is my hero. That’s the retirement package Ms. Fong received from the city of San Francisco upon leaving her post of police chief in 2009, and it has become one of many symbols being used to reshape state finances around the U.S.
It always brought a rueful grin to my face whenever I read that lucrative public sector pension deals were nothing more than an attempt to stay competitive with the private sector. On this side of the fence, defined benefit pensions were long ago replaced by 401K’s that turn into exploding cigars every ten years or so. Now, as public sector unions and their success at shielding themselves from the capricious magic of the marketplace are in retreat, at least us private sector big shots can find solace in the notion that everyone can feel insecure as they grow older.
The resulting anger during these tenuous times is major political leverage for the small government crowd and embarrassment for yesterday’s winners. With the finances of California in the dumpster, any desire Ms. Fong had to fade into cozy obscurity has been ruined. I mean, here she is, making an appearance in a gaming trade magazine, of all things.
Sorry, Heather. And, if it’s at a reassuring to you, Dick Fuld is my real hero. Nowadays, he gets beat up less than you, and the man Portfolio magazine called the worst CEO of all-time walked away from Lehman Brothers with an estimated $529 million.
So many rogues. So much bad behavior. Does anyone else smell opportunity?
We would be on the edge of another golden age of gaming if it were not for this little thing called the economy. Runaway deficits, often fueled by a combination of public sector largesse and stagnant-to-down tax revenues continue to be a major net plus for gaming. For every attempt to revisit tax or revenue share structures, there are many more signs of support and new doors opening.
For instance, Gov. Terry Branstad in Iowa, who may not even succeed in his attempt to restore his state’s original tax on casinos from the present level of 22 percent and 24 percent (for Prairie Meadows) back up to 36percent, is offset by Gov. Chris Christie in New Jersey, who has definitely succeeded in breathing life back into Atlantic City in general and Revel in particular. Every racetrack gaming setback, budgetary or image-wise, is more than offset by the potential for new gaming facilities in New England or Texas or strengthened arguments for table games in jurisdictions such as New York. States like West Virginia are doing what they can to respond to cross-border competition, pushing a measure that would increase machine denomination and the dollar amount of bills accepted. There’s a fresh rumor of Las Vegas-style casinos in Florida in the papers every other day. And, on the Internet gaming front, informed observers still see the potential for a federal solution, even in the current Congressional session, for the same reason gaming is more than holding its own at the state level; it’s revenue.
Getting back to Iowa, the Governor’s reasoning is problematic on the face of it. He is looking to fulfill a campaign promise to reduce corporate tax rates, but, post-election, on the back of the casino industry. The increase would extract $190 million or so from the state’s 17 commercial riverboat and racetrack gaming facilities. Branstad says the resulting corporate income tax break, from 12 percent down to 6 percent, and 40 percent commercial property tax decreases would result in the creation of 200,000 jobs and 25 percent income increases for families over the next five years. All if he can just get the casinos to turn back the clock on their business model.
I don’t know. Trillions of federal stimulus dollars and 0 percent interest rates have helped put corporate profits at an all-time high in this country while unemployment is still stuck at over 9 percent. Seems the Governor might be a tad optimistic, but then again, the first job of an elected official is to get elected, and he does have that part sorted out.
How weak is the job “recovery”? According to a study last month by the Employment Law Project, higher-wage industries constitute 14 percent of recent private-job growth, though they accounted for 40 percent of private job losses during the labor-market’s downturn. Meanwhile, lower-wage industries are responsible for 49 percent of recent growth, compared with 23 percent of losses, while midrange-wage industries constitute 37 percent of growth, compared with 36 percent of losses.
The flip-side of more gaming supply is you have too many slot machines chasing too few discretionary dollars. The risk for the industry on the land-based side is that such downside becomes semi-permanent as the once bankable financial security of older customers is seemingly evaporating. But the overall picture isn’t so grim when you account for the potential of an improved economy supplemented by opportunities in the virtual space with its younger demographics. That’s the long-term play for this industry, and there’s still solid ground to hope for governments to play along.