City Hall jackpot?

The Gazette Opinion Staff
Published: September 15 2013 | 12:01 am - Updated: 28 March 2014 | 8:26 pm in
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The Gazette Editorial Board

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If it receives a state license next year, the proposed Cedar Crossing Casino in downtown Cedar Rapids has the potential to deliver a big economic boost to the cityís core and serve as a catalyst for new development.

As for local government, itís not exactly a golden goose.

Thereís been persistent talk around town since Linn County voters approved casino gaming in March that a casino will fill local government coffers overflowing with new tax revenues. There have even been suggestions in recent weeks that a proposed local-option sales tax extension for street repairs ó on the November election ballot ó is unnecessary because the cityís gambling ship is about to come in loaded with loot.

HOW IT WORKS

But thatís not how gambling taxation works in Iowa.

Casinos need a state license in Iowa. And itís the state that created, shaped and now regulates the gambling industry in Iowa. So itís no surprise that the lionís share of gambling taxes go to the state. A gaming license alone costs $20 million, a fee paid entirely to the state.

Casinos pay 22 percent of their adjusted gross revenues yearly in wagering taxes. They pay 20 percent of that revenue to the state, 1.5 percent to their home county and 0.5 percent to their home city.

During the last fiscal year, according to the Legislative Services Agency, the state collected more than $317 million in wagering taxes and fees. Roughly half of that went into the Rebuild Iowa Infrastructure Fund to pay for an assortment of state building and infrastructure projects. A $55 million share went to pay off bonds issued to cover former Gov. Chet Culverís I-JOBS program. Environmental programs, school infrastructure, technology upgrades and the Vision Iowa Program are among the other ways gaming taxes were spent.

Itís estimated that a Cedar Rapids casino, in its first full year of operation, would pay $16.5 million in wagering taxes to the state, along with a $5 million portion of its $20 million license fee. Linn County would get about $977,000 in wagering taxes and Cedar Rapids would collect $377,000.

But Cedar Rapids casino developers also have agreed to pay the city another 1 percent of adjusted gross revenues annually, or an additional $752,000. So the city could receive more than $1 million annually in taxes and payments from wagering revenues.

There are also property taxes. But in this case, the $1.9 million in new annual property taxes expected to be generated by the casino will be used over the next 20 years to pay for the construction of a $28 million parking facility. Itís also likely that up to 30 percent of that extra $752,000 wagering revenue payment to the city would be used to help pay off parking garage bonds. The 1,000-space garage, which will be owned by the city and will be open to the public, will be maintained by Cedar Crossing.

The city also is planning $2 million in infrastructure improvements at the casino site, including work on streets and underground utilities. The casino will cover $1 million of that cost.

THE BOTTOM LINE

So, bottom line, from a direct tax standpoint, the city would collect more than $900,000 annually for the next 20 years. That number could edge closer to $1 million, depending on actual casino revenues and how much the parking garage actually costs once bids are received.

City officials have discussed using whatever annual take they receive to help pay for flood protection along the Cedar River, potentially to match dollars from the stateís new flood mitigation program. Both the casino and parking structure, built near the river, will be designed to withstand flooding.

Weíre not suggesting that the cityís casino take isnít significant money. It is.

The casino also will pay roughly $2.4 million annually to its license-holding non-profit organization, which will make grants to an array of local charitable organizations and causes.

There also are the potential revenue effects that could flow from new jobs, sales to local vendors, new nearby development, rooms rented in local hotels, including the city-owned downtown Double Tree, and many other economic impacts big and small.

And in 20 years, once the parking structure is paid off, the cityís tax take from the casino promises to jump considerably.

STREET NEEDS GREATER

In the long run, we think the relationship forged between the city and the casino will benefit both entities and the taxpayers of Cedar Rapids.

But casino tax revenue clearly wonít solve all of the cityís problems. In the case of the cityís $500 million list of street repair and reconstruction needs, that shot of casino taxes pales in comparison to the $18 million that would be collected annually from an extended local-option sales tax, or $180 million over the 10-year tax.

We believe the city struck a reasonable and fair deal with the casino within the framework of Iowaís casino tax laws. The city will benefit, but, contrary to local speculation, it didnít hit the jackpot.

Comments: editorial@thegazette.com or (319) 398-8262

CASINO LINKS

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Linn County developersí gaming license application:

http://tinyurl.com/pdpt7un

Iowa gaming revenues and distribution:

http://tinyurl.com/osr7lnm

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