State Budget Proposal Opens Door for Three NYC Casinos

The Senate’s version of the 2021 spending plan fast-tracks the siting process—even as it carves out tax breaks for existing casinos that are struggling—and gives the City Council a voice.

Amid a pandemic, an impeachment investigation and with the April 1 deadline fast approaching, New York’s state budget could put New York City on a very fast track to get three full-scale casinos—even as it carves out tax breaks for existing casinos that are foundering.

When voters approved casino gambling by referendum in 2013, they okayed four upstate casinos. Under that law, a decision on casinos in New York City was put off until 2023, but it’s been expected for months that the legislature would rewrite the rules to begin a process for siting New York City casinos this year. 

Casino interests, some with labor allies, have been fighting behind the scenes over what that process should look like. Companies like Sands, Wynn Resorts and Bally’s wanted a traditional and slower request-for-proposals or request-for-information process, according to people familiar with the discussions. But Genting and MGM, who own the two video lottery terminal facilities in or near New York City, wanted a speedier process that would give them a leg up, and so did the Hotel Trades Council, sources tell City Limits.

Altogether, gaming interests have spent at least $2.2 million lobbying state and city officials over the past year.

The governor’s executive budget proposal called for a request for information on potential downstate casino licenses. But one of the State Senate’s budget bills sets a more aggressive approach: It directs the state Gaming Commission to issue a request for applications for casino licenses by July 1 and decide on winners within 150 days.

Under the Senate proposal, the commission would use a “speed to market” factor as part of its evaluation of license applicants, giving preference to those who “can demonstrate an ability to commence gaming operations more quickly relative to other applicants, in the interest of making revenue available to the state in an expeditious manner.”

The proposal also includes a mechanism requiring City Council approval of the casino locations—possibly putting a huge issue on the table for the Council this year, as many of its members seek higher office.

The Senate’s plan will have to be reconciled with the Assembly’s budget bills, which omit action on casinos. In most years, the governor wields enormous power over the budget but Cuomo’s legal troubles and the Democratic supermajority in the Senate could alter those dynamics.

Big money predicted

Noting that the 2013 law left “the downstate market unaddressed,” the Senate proposal argues, “neighboring states have authorized forms of gaming that are siphoning New York state dollars and travel industry-derived revenue to other out-of-state markets.”

“Simultaneously, as a result of the COVID-19 emergency, state and local revenues have been devastated,” the proposal continues. “This is particularly alarming given the potential effect on the state’s education funding. The legislature recognizes that downstate gaming resorts have the potential to significantly boost revenues for education support, create thousands of quality jobs, and support the local economy downstate.”

A consultant’s report released by the state Gaming Commission in January sized up several downstate casino scenarios. These differ in how many casinos get built, and where, and also what to do about the two existing racinos (also known as “video lottery terminal” or VLT facilities) that currently serve the city: At Empire City just over the Yonkers border and at Resorts World in Queens.

With three casino licenses to play with, New York could let the VLT facilities become full scale casinos and build one new casino in Manhattan or Brooklyn or Queens. Or, it could build three new casinos—one each in Manhattan, Brooklyn and Queens—and let the VLT facilities continue in their current form.

Spectrum Gaming, the consultant hired by the state, found the latter option to the most lucrative: three new casinos, plus the existing VLT facilities, would generate a projected $5.5 billion in gross gambling revenue, crank out $841 million a year in new tax revenue, produce $10.5 billion in statewide economic impact and create 30,000 jobs statewide.

Under the speedy Senate proposal, however, it seems likely that the state will adopt one of the less lucrative siting options in which Empire City and Resorts World become full-scale casinos and one new casino is built. According to Spectrum, that approach would generate upwards of $4.2 billion in gambling revenue and roughly $500 million in annual tax haul.

They’re big numbers, but they come with qualifiers.

The casinos are not expected to draw new tourists to the city. “There is no reason to expect that visitors from anywhere in the world will travel a long way – even to a proven global destination such as New York City – simply for the opportunity to gamble,” Spectrum finds. Instead, the idea is to let the casinos capture some money from the existing flow of tourists, as well as recapture some of the millions that flow out of New York when city residents go elsewhere to gamble.

But there’s not a bottomless pit of gamblers or gambling money in New York, so the new casinos would almost certainly “cannibalize” (that’s the industry term) the business that existing local gaming facilities now get. Resorts World Catskills in Monticello and the Jake’s 58 VLT facility on Long Island would lose some of the money that the new casinos rake in. The state is also moving to legalize online sports gambling.

There’s also the question of whether a broader cannibalization will take place—whether tourists will drop a few hundred bucks on the casino instead of, say, a Broadway show. Spectrum says that kind of spending diversion is accounted for in the economic impact estimates, but it’s harder to assess specific winners and losers.

Clyde Barrow, a political science professor at the University of Texas-Rio Grande Valley and a gambling-industry expert, believes there is potential in the New York City market, though he thinks Spectrum’s projections might be a tad optimistic. More importantly, the potential for cannibalization is something to consider carefully. “It’s not just an additive process where you build a casino and it attracts new growth,” he says. “A very significant proportion of a casino’s revenue will come from existing facilities.”

Lobbying windfall

One indication that there’s money to be made—for somebody—on casinos in New York City is the amount that gaming interests have spent on lobbying just in the year 2020 alone.

The Las Vegas Sands Corporation has spent more than $445,000, employing five different teams of lobbyists. MGM dished out $528,000 to four firms. Genting spent the most, more than $1.2 million, and used seven different lobbyist companies. Bally’s recently hired its own New York lobbyists.

Both Genting and Empire have a powerful voice in their corner: Peter Ward, the longtime head of the hotel workers union. His retirement made news in August and he registered with the gaming commission in October as a lobbyist for both firms, listing as his address the same building that hosts the union’s pension fund office.

Lobbyists for each of these casinos did not respond to City Limits’ requests for comment.

The governor’s executive budget called for an RFI “to seek information from parties interested in developing and/or operating one of the three remaining gaming facilities” and  “assess interest in the un-awarded licenses by focusing on determining the appropriate size and scope of development, the value of the gaming facility licenses, and the process that should be used in award consideration.”

Asked last week if an RFI process was what the state was likely to use, State Sen. Joseph Addabbo, the chair of the Senate’s Committee on Racing, Gaming and Wagering, said, “I hope not. Let’s not waste time with a process. We know there’s interest. Let’s have a process that’s time-constricted and we can recognize the revenue this year.”

“The 2013 law gave the legislature the power to allocate these licenses,” Addabbo said. “But you want to do things in an open, transparent way.”

In a statement, Empire City Casino by MGM Resorts told City Limits, “We are very pleased to see the Senate include acceleration of downstate casino licenses in its budget proposal.  MGM Empire City can play a meaningful role in New York’s economic recovery by supporting thousands of well-paying jobs, generating hundreds of millions in short and long-term revenue for the state through a full-scale casino and mobile sports betting licenses and ongoing tax revenue, and recapturing gaming dollars that currently are leaving New York only to be spent in neighboring states.”

Tax break for upstate casinos

The state budget is also likely to include a mechanism for existing casinos to apply for a reduction in state taxes. Proponents of that approach say the gaming businesses need flexibility to deal with the impact of the pandemic. But even before COVID-19, those casinos were performing below expectations.

Under the 2013 law, casino taxes are split between statewide education funding (80 percent of the haul), payments to host towns and counties, and revenue sharing with surrounding counties. The existing casinos pay different tax rates of 37 percent to 45 percent.

Noting that “the upstate casinos have struggled financially, and their initial revenue projections have not come to fruition” and that “the facility closures for six months and capacity restrictions this fiscal year have only exacerbated these issues,” the governor’s budget would create “a petition process in place for the casinos to demonstrate their need for a lower tax rate based on certain criteria including their financial projections, the use of the additional funds, impact on the overall competitive landscape and other economic factors.”

The Senate’s budget proposal includes such a mechanism, permitting casinos to ask for a discount of up to 20 percent on their taxes if they meet a list of criteria, including “the inability of the operator to  remain competitive under the current tax structure.”

Although they do support 3,500 jobs, the four upstate casinos had predicted they’d generate more than $269 million in annual tax revenue for the state, but in 2019 they produced only about $188 million. Their misery has company: Casinos in New Jersey and Connecticut were also flagging, and the one that opened in western Massachusetts fell short of initial earnings projections, even before COVID.

It’s unclear that a different tax rate will materially change the landscape facing New York’s upstate casinos, which operate in what Spectrum has determined is already a saturated market. There’s also an interesting contrast in the budget possibly offering tax breaks to keep existing casinos afloat while banking on the potential windfall from new ones.

“I think they’re separate issues,” Addabbo says. “It’s about the existing casinos and saving the 5,000 jobs that are there.” He also says the move is in response to COVID-19’s impact, not the longer-term limitations the casinos face. “Would we be talking about this if it weren’t for the global pandemic? Probably not.”

Defenders of the mechanism say it’s not a tax break, exactly—it’s a chance to ask for a tax break, and the casinos would have to justify how they planned to spend the money, on marketing or capital improvements, to try to generate more business.

But Barrow says the action the legislature is considering is unprecedented. “I can’t believe a legislature would cede their authority to the executive that way,” he says. Once the state opens that door, it will be hard to close it. New casinos in New York City would likely siphon off some of the business the state’s existing video lottery facilities now get, making them candidates for a tax break, too. And if the city casinos spur new casinos in other states, and those cut into local casino profits, what them? “It becomes this never-ending downward spiral where you keep building in what is essentially a saturated market, and the more you build the less the state collects,” Barrow says.

What the candidates say

The Senate’s move throws a new issue on to the table for the Council and for other 2021 candidates, especially those running for mayor.

At least one mayoral contender has made it clear casinos are a bet he’s willing to take. In one of his first policy pronouncements of his mayoral campaign, Andrew Yang proposed a casino on Governors Island, promising—as casino proponents always do— that the facility “would generate so much money it would be bananas.”

City Limits asked the seven other major mayoral candidates besides Yang for their feelings on casino gambling. Three replied.

Shaun Donovan, the former city and federal housing commissioner, is a no. “Casinos offer very little in terms of long term economic development that would actually improve the quality of life of New Yorkers. Moreover, casinos tend to prey on the economically insecure, which would only further exacerbate the inequity we see in our city,” he said. “Building a casino on Governors Island or elsewhere in New York is a lazy approach to dealing with the real economic challenges facing our city, and we should instead focus our resources on creating higher-paying and career-building industries.”

Dianne Morales is also against the idea. “New York City doesn’t need casino real estate giants to come save us. They may have held influence in Albany and across the city, but we must reject accepting that normal. When tourists come back, they’ll come back for what New York City is known for: our people, our food, our culture, our entertainment spaces and more,” she said. “The city’s recovery is interconnected with addressing systemic barriers New Yorkers are facing. We must invest in our communities while prioritizing the Black and brown, working-class and poor neighborhoods we have ignored for so long.”

But Kathryn Garcia, the former city sanitation commissioner, wants not one but three casinos. “There are three casino licenses for downstate that are up for purchase in 2023. At $500 million each, I’m excited about the opportunity to generate badly needed revenue for the state and the city,” she said. “I believe we should put the licenses up for sale in advance of the 2023 date to make up for budget shortfalls and reverse cuts to essential services and social programs.”

The Senate’s proposal does require a minimum license fee of $500 million for each of the three sites. The prospect of a $1.5 billion windfall would be tempting under the best of times, and is especially alluring amid the fiscal wreckage wrought by COVID-19. The federal stimulus bill has helped to narrow the state’s gaping deficit, but not close it. And Washington’s short-term help comes amid longer-term fiscal uncertainties about whether office work—and the economic activity it spurs—will ever regain its pre-pandemic levels.

The licensing revenue is, like the feds’ help, a one-shot deal. The city casinos would also pay annual taxes at a rate of 45 percent, according to the Senate proposal—although the casinos could deduct spending on promotional gaming credits. Obviously, those tax revenues would depend on how much businesses the casinos get. And, as is true for all state revenue streams, it’s unclear how much of that money would trickle down from Albany to the five boroughs.

An industry’s uncertain future

Plus, the gambling industry faces uncertainties just as big as the economic doubts the city is facing.

As the state Gaming Commission pointed out in January, “The long-term impact of COVID-19 on individuals’ behavior is unknown at this point and that too will influence gaming companies’ willingness and plans to invest in facilities to accommodate large volumes of guests.” Past economic crises have had very long-lasting effects on the gambling industry: There’s evidence, for instance, that the industry never fully recovered from the 2007-2009 financial crisis, in terms of the share of disposable income spent on gambling.

The long-term impact of online gaming on physical casinos is also hard to predict, experts say. Brick-and-mortar casinos do offer the allure of an event, a destination—even sports gamblers who wager online sometimes gather at casinos on SuperBowl Sunday or during March Madness just to be part of the excitement. However, the rule of thumb in the gambling industry is the more convenient wagering option wins—and tapping your smartphone is a lot easier than traveling to a casino, even one that’s just a few subway stops away. Technology also affects the supply side of the industry: The number of jobs supported by casinos could dwindle as automation takes hold with electronic table games and automatic tellers.

And while the downstate market is not saturated yet, it soon could be, as what Barrow calls a “casino arms race” takes off in the region. If New York City ends up hosting one or more casinos, New Jersey is likely to move ahead with a Meadowlands casino to capture customers who would otherwise be lured away by the city casinos from Atlantic City. Connecticut might launch a third casino, perhaps in Bridgeport, to defend the market share that Foxwoods and Mohegan Sun are losing. And New York might see a new Indian casino on Shinnecock land on Long Island, as well as a new video lottery facility in Orange County.

Spectrum projects that even in combination, those rival casinos won’t erase the market potential of gaming facilities in the five boroughs. They will, however, diminish it. And that could alter the tradeoff between the benefits and the costs of hitching part of the city’s economy to one-armed bandits, roulette wheels and blackjack odds.

Winners and losers

Evidence of gambling’s social impacts is notoriously hard to pin down. Some studies have found that bankruptcy rates spike in states with easier access to gambling, but other research finds no effect. Casinos do attract crime, but it’s not clear they draw any more criminality that any large gathering of people might. Barrow says research on income demographics indicates that the average gambler has an average income. While desperation could, in theory, drive poor people to wager, the difficulty in getting to a casino is often a barrier to low-income customers.

The presence of three casinos in New York City would significantly reduce those barriers for the 234,000 families in the five boroughs that live below the federal poverty line, and the tens of thousands of others who survive just above it. Even if the poor aren’t overrepresented among the clientele at the city’s casinos, a huge share of the city is expected to become patrons. Spectrum estimates that one in three New Yorkers will visit a casino each year, visiting an average of 12 times.

Some of those patrons will win money, maybe big money. Some people will get jobs. Some casinos and surrounding businesses will thrive. But others will not. That’s the tradeoff facing the city and state. Barrow was speaking about the casinos themselves, but might have been talking about all of us, when he told City Limits, “There’s no win-win-win solution for the state of New York. Somebody’s going to lose.”

Murphy is the 2021 Wayne Barrett Fellow with Type Investigations