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Scandal: Ohio Casino Consultants Not Impartial

13 May 2011 by admin

ohio-location-mapThe fight over casino taxation in Ohio just got more interesting – and more scandalous. Last month, Governor John Kasich angered casino developers by saying that he wanted to renegotiate the contracts to increase taxes on casinos. In 2009, the state passed a law allowing the casinos and in that law, the tax rate was given, but Kasich wants to amend that law and increase the taxes and fees.

Kasich says that the taxpayers got a “raw deal” in 2009. He says that taxes and fees aren’t high enough and that the casinos will be making out like bandits. That’s because they’re only taxed at a measly 33% rate, with the state taking only a third of their money. Only a third? Wow, the government really got ripped off there, huh? In addition to the 33% tax, casino developers must also pay a $50 million non-refundable licensing fee before they can even get started with construction. There are four casinos slated for development right now in Ohio, and with the projects not yet started, Governor Kasich sees this as the best time for renegotiation.

As a result of the uncertainty, construction has been delayed, which will delay the opening of the casinos and cost money. The casino developers are livid, but Kasich insists that they can handle an extra tax burden. To make sure, though, he hired two consultants. Moelis & Company was hired by the state to look into Kasich’s ideas for tax rates and licensing fees and determine their impact. The Spectrum Gaming Group was hired to research the state’s gambling industry as a whole, including the lottery.

As the Associated Press has recently learned, at least one of those consultants has a clear conflict of interest. Though their contract with the state has not been released, it has been reported that Moelis & Company will earn a percentage of every dollar they generate for the state. According to Kasich, this ensures that taxpayers get the most bang for their buck, only paying the consultants for getting results.

There is a big problem, though. Getting paid for any increases in taxes and fees gives incentive for Moelis to propose increasing taxes and fees. Of course, that’s what Kasich wants, but the consultants are usually supposed to at least pretend to be conducting objective research. After all, they were pitched as objective researchers by Kasich. How can they be objective when they are essentially determining how much they get paid for the job?

Moelis sent a memo to Kasich stating that there is “significant room to implement changes such as increases in the initial license fee and/or tax percentage.” Significant increases in taxes and fees would significantly increase the checks Moelis receives, but I’m sure that in no way influenced their preliminary findings. It seems clear that Kasich isn’t really interested in finding a fair and appropriate tax rate for the casinos. Instead, he wants to milk them for everything he can get and has provided the consultants with an incentive to propose that.

The casino developers aren’t happy. I think Bob Tenenbaum, a spokesman for developer Penn National, but it best. He says that the taxes and fees that they originally agreed to, and are found in the current contract and law, should be kept. “That’s what voters approved and that’s what we believe we should pay,” he said. Check back with for updates on this story.

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