Proposal for racino revenue grab blasted

AUGUSTA – Hollywood Slots at Bangor would be “killed” if a proposal to increase the state’s share of slot machine revenue were included in the state budget and Maine’s harness racing industry would be “seriously hurt” by another series of proposals, lawmakers were told Thursday.

“In our business model, this tax increase kills us, literally kills us,” said John Johnson, general manager of Hollywood Slots.

Johnson appeared before the Legislature’s Appropriations Committee to answer questions about several proposals to take more of the revenue being generated by the slot machines at his company’s Bangor facility.

The Democrats on the panel suggested increasing the state share of the gross slot machine income from 1 percent to 2 percent and reducing the amount of money set aside as the “players’ share” from 93 percent to 92 percent. Those two changes were designed to generate $5.4 million in the first year of the two-year budget and $8.4 million in the second year to help balance the state budget.

Johnson said that under the current tax arrangement, Hollywood Slots expects to recover its $70 million investment in the Bangor slots facility in 12 years. He said that under the new proposal, it would take 182 years to recover the investment.

“That kind of a high tax rate makes it very difficult for us to do business here,” he said.

Johnson said the taxes paid by his company are among the highest in the country. In addition to the 1 percent on the gross, he said, Hollywood Slots pays a 39 percent tax on the net income to the state and 3 percent to the city of Bangor. He said that is an effective tax rate of 51 percent.

He said reducing the “players’ share” would result in less winnings and would discourage players. He said the bottom line of that move is not good for his company or the state.

“In the end, this higher tax is a lose-lose for me, for my players and for the state of Maine,” he said.

Johnson said his company now employs 190 people in Bangor with an annual payroll of $5.2 million, and that will increase when the new facility is completed.

“We certainly want the industry to grow and thrive, but we need some help with the state’s financial situation,” said Sen. Peggy Rotundo, D-Lewiston, co-chairman of the panel. “We did ask for some other proposals of where we can find some additional revenues. This is a work in progress.”

Republicans on the panel proposed to cap the increase in funds from Hollywood Slots that would go every year to a variety of special funds and programs. Increases would be limited to 5 percent starting in budget year 2009.

The programs benefiting from slots revenue are popular. They include scholarships to the University of Maine System and the community colleges, racing purse supplements, and subsidies to the commercial harness racing tracks and support for the state’s agricultural fairs.

Rep. Donald Marean, R-Hollis, who has been involved in the harness racing industry, told the panel the industry is starting to benefit from the subsidies, but limiting their growth will “have us go backward” because the number of race dates has been increased in anticipation of the larger purses funded by the subsidies.

“That just doesn’t give us enough growth,” he said.

But committee members look, for example, at the fund for the Sires Stakes – which would go from $3.2 million to $4.8 million – and said that is a significant increase when other programs in state government are being flat-funded or getting only a slight increase.

“That number, while smaller than you like, is certainly faster than the economy overall grows, nationally and certainly here in Maine,” said Sen. Karl Turner, R-Cumberland. “It grows faster than people’s incomes grow.”

The panel is working to balance the state budget for the next two budget years and is continuing its review of cuts and revenue increases proposed by the two party caucuses.