Penn National threatens to halt slots construction

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BANGOR – A legislative push to increase the state’s share of revenues from Hollywood Slots at Bangor could scuttle the company’s $131 million project in the city.

Representatives of Penn National Gaming Inc., the Bangor facility’s parent company, confirmed Monday that the possibility of losing 10 percent of current revenues could force the company to delay, scale back, or scrap altogether plans to build a gaming and hotel complex across Main Street from Bass Park.

“Penn National is not going to assign the [construction contract for the permanent complex] to Cianbro until this is resolved,” Hollywood Slots General Manager Jon Johnson said Monday in a telephone interview from Penn National’s corporate headquarters in Wyomissing, Pa.

The head of Cianbro said Monday that the state was jeopardizing other potential business investments in Maine with its actions.

“The biggest crime and the biggest problem that could come out of this is that we will be sending a clear message that in Maine, we don’t keep our word” on economic development projects, said Peter Vigue, president and CEO of the Pittsfield-based Cianbro.

As it stands, the company pays the state a 1 percent tax on its gross slot machine income, or “coin in,” as well as a 39 percent state tax on its net income and a 3 percent tax to the city.

Penn National spokesman Eric Schippers said Monday that the combination of taxes amounts to 51 cents out of every dollar of Penn’s net revenue.

The current revenue sharing and tax breakdown with Hollywood Slots was the product of hundreds of hours of negotiations involving state and city officials, harness horsemen, agricultural fair representatives and off-track betting operators, to name a few.

But lawmakers serving on the Legislature’s Appropriations Committee now are considering taking another portion of Penn National’s revenue as they struggle to balance the state budget.

Democrats on the panel last week 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,” or the amount of bets that gets paid back in winnings, from 93 percent to 92 percent.

Those changes aim to generate $5.4 million more for the state in the first year of the two-year budget and $8.4 million in the second year.

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

According to Schippers, an additional 1 percent tax on gross revenues would increase the company’s tax burden from 51 percent of each dollar of net revenue to 61 percent.

“Sixty-one percent would make this business unprofitable,” Schippers said Monday.

That would make Maine the third-highest-taxed state when it comes to gaming operations, second only to New York and Rhode Island, which Schippers pointed out have much larger potential markets than eastern Maine.

Though Gov. John Baldacci is no fan of gambling, his budget proposal leaves intact the income split established in LD 1870, the state’s slots law.

The governor has not taken a position on either the Democratic or Republican proposals now under consideration, but his spokesman David Farmer said Monday, “The governor proposed a balanced budget. All [lawmakers] have to do is vote for it.”

Meanwhile, several groups with a stake in the current revenue sharing arrangement are planning a rally at the State House on Wednesday to oppose the proposed changes.

Harness horse owners, breeders, race drivers, horse farm owners, employees and suppliers to the harness racing industry along with construction workers working on the new racino in Bangor plan to rally in Augusta with trucks, horse trailers and construction equipment, according to a press release issued Monday.

The release indicates the rally is designed to oppose plans “to raid the dedicated funds from the Hollywood Slots facility that have helped rejuvenate the harness racing industry over the last 18 months.”

The possibility of a 10 percent cut in income has caused Penn National to reconsider its options for a permanent Hollywood Slots complex – even as construction is under way in Bangor.

The proposed facility, slated to open in mid-2008, would replace the company’s interim facility, which opened with 475 slot machines in November 2005 in the former Miller’s Restaurant, just up Main Street from where the new facility would be located.

City Manager Edward Barrett said Monday that the city had planned to use its share of the slots proceeds to replace the aging Bangor Auditorium and Civic Center, “a regional resource that is important to our regional economy.”

On Monday, Schippers outlined three possible scenarios, none of which bodes well for the Bangor project:

. The project could be scaled back from the current $131 million to $71 million, the minimum investment set forth in the company’s development contract with the city of Bangor, which by law must own the land upon which the gambling complex sits.

. The project could be delayed until as late as 2013, the deadline set forth in the city agreement.

. Penn National could scrap the permanent facility altogether and stay in its interim facility at the former Miller’s Restaurant.

The possibility that the permanent complex could be scaled back or not built at all was a matter of deep concern for Pittsfield-based Cianbro Corp., which has been tapped to build the new facility.

Though Vigue noted that the Bangor project itself would not make or break Cianbro, he said Monday that its impact could be felt well beyond the Queen City.

“It’s unfortunate that this is going on,” he said.

“This issue is not about gambling,” he said. “This is all about, in my opinion, negotiating fairly and setting expectations and allowing companies to invest and create jobs.

“It will affect future investment and growth in Maine,” he said.

“The economy of Maine depends heavily on investment from outside the state and right now, more than ever, the state needs investment.

“This is the most significant project happening right now in the state of Maine,” Vigue said. “We will again be supporting the remarks of those who say that Maine is not open for business.”

Plans for the new Hollywood Slots include, among other things, a 116,000-square-foot gaming facility featuring up to 1,500 slot machines, an attached four-story parking garage for 1,500 vehicles, and a seven-story hotel.

Also planned are a new simulcast facility for off-track betting, a 350-seat buffet restaurant, a 125-seat specialty restaurant, two smaller private dining rooms, and a small cafe offering lighter fare, as well as retail space and a full-service bar with entertainment.

According to Vigue, the Bangor construction project is employing “well over 100” people. Besides Cianbro workers, there are more than 30 independent dump truck operators and nine subcontractors involved in the project.

Vigue said that most of the workers assigned to the Bangor project live within a 35-mile radius and as such, many buy gas, food, tires and other goods and services here.

“There is huge ripple effect and I might add that many of the people who would otherwise be engaged in state road projects aren’t right now” because of the state budget crunch.

“What are these people supposed to do? How are they supposed to pay for their equipment?” he said.

Mal Leary of Capitol News Service contributed to this report.