PA Towns Fear Financial Devastation After Top Court Decision Cutting Casino Tax Revenue

Oct 10, 2016


Changes to Pennsylvania casino tax revenue rules could have a big effect on cities including Chester, which relies on Harrah's Casino for about one-quarter of its revenue.
Credit Lindsay Lazarski / WHYY

Last month, the Pennsylvania Supreme Court dealt a bad hand to communities that host casinos.

Municipalities including Chester City, Bensalem Township and Erie County stand to lose millions in revenue after part of the state's gambling code was declared unconstitutional on Wednesday.

Mount Airy, LLC, a small casino in Mount Pocono, sued the state Department of Revenue, arguing that the gambling code's "local share assessment" provision unfairly burdened some casinos.

Under state law, casinos had to pay out 2 percent or $10 million of annual slot revenue — whichever was larger — to the municipalities where they're located. (That money is sometimes sliced up between more than one township or shared between contiguous communities.)

In effect, small casinos had to pay out $10 million, even if that greatly exceeded 2 percent of their slot revenue, thus taxing different casinos at different rates and violating the Pennsylvania Constitution's uniformity clause, the plaintiffs argued.

A majority of state Supreme Court justices agreed.

"It's shocking and devastating," said Bensalem Mayor Joe DiGirolamo. Ten million dollars amounts to just over 20 percent of the township's annual budget, and it was a major selling point for welcoming the casino, according to DiGirolamo.

He said the only place to cut significant costs from Bensalem's budget would be in public safety, and "that's not an option."

Chester City, in Delaware County, stands to lose an even larger percentage of its budget, according to chief financial officer Nafis Nichols.

"Twenty-five percent of our (City of Chester) yearly revenue is predicated on the monies we receive from Harrah's Philadelphia," he said in a statement. "If the current decision is upheld, it would be devastating for Chester."

Chester, already on a state watch list for cities with chronic financial problems, is unable to break even with the local share assessment contributing to its bottom line.

More examples from around the state:

  • Erie divides its money somewhat differently between county and townships;  all told, it stands to lose about $11 million, spread among different communities, reports
  • Bethlehem stands to lose $8.8 million, or 12 percent of its budget, and Allentown $3.5 million, according to the Morning Call.

SugarHouse Casino in Philadelphia and small "boutique" casinos, including one in Valley Forge, are governed by a different tax standard and exempt from the ruling.

Four months to fix it

The justices baked some language into their decision to soften the blow to cities, such as a 120-day stay on implementing the decision.

"We are mindful that our decision may significantly affect many counties and municipalities that have ordered their affairs in reliance upon [local share assessments]," read the majority opinion.

Lawmakers are already exploring legal options for rewriting the gambling code to square it with the state Constitution.

"I guarantee you, we will be on this very, very quickly and have something when we go back in October and try to correct this as quickly as possible," said state Rep. Gene DiGirolamo of Bensalem.

Lawyers for Mount Airy casino are also working hard — to push for a refund.

Tom Leonard, counsel for Mount Airy, said he is exploring options to recoup some of the millions paid out before the tax was struck down. The Supreme Court decision includes language barring that possibility.

"You can't just say you made a mistake and then keep the money," he said. Though pragmatic for cities, the stay is also on tenuous legal ground, according to Leonard.

If the casino does appeal parts of the court decision to the federal level, "we would fight that as hard as we could," said  Gene DiGirolamo.