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Your property taxes cut because of Horseshoe Casino? Don’t bet on it

Lower gaming revenues are putting the mayor’s plan to use casino funds to reduce homeowner property taxes in jeopardy. A special Brew report.

Above: Mayor Stephanie Rawlings-Blake speaks at the grand opening of the Horseshoe Casino on August 26. Gov. Martin O’Malley is the second person to her left.

Besides jobs, the most frequently touted benefit of the Horseshoe Casino is the future flow of gambling revenues to the city that would be used to lower property taxes.

Mayor Stephanie Rawlings-Blake said the casino would make her 2011 campaign promise to reduce the city’s tax rate by 20 cents over ten years a reality. As an extra bonus, 10% of the revenues would be earmarked to underwrite the city’s school rebuilding program.

Those plans are now in jeopardy due to the sharply-lower-than-expected revenues from the casino in its first three months of operation.

On Monday night, Budget Director Andrew Kleine told a City Council budget panel that the city is anticipating $6.1 million less in revenue from the casino than was expected in the budget for the current fiscal year.

Kleine did not provide additional financial information to the Council, which made the figure he cited difficult to interpret.

Based on documents signed by the city and Caesars Entertainment Corp., The Brew has determined that ground rent revenues are expected at only $8.4 million this year – or 41% below the $14.5 million originally projected.

Amounting to a fraction of the city’s total property tax revenues of $808 million last year, it is hard to conceive how this revenue stream could fund the mayor’s promised property tax reduction.

In fact, according to the budget office’s estimate that every 1 cent of the property tax rate equals $3 million in revenues, Horseshoe’s projected ground lease payment of $8.4 million would generate a 2.8 cent tax reduction.

Two years ago, when the mayor and Board of Estimates ratified the financial terms of the casino deal, taxpayers were told that the facility is “estimated to generate a five (5) cent property tax reduction on the Baltimore City tax rate in Year 1, increasing to an seven (7) cent property tax reduction by Year 5.”
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The Brew asked Budget Director Kleine how the city plans to pay for a property tax reduction (technically known as “targeted homeowners tax credit”) if casino revenues remain at or near the present level. He has not responded to our question. Communications director Kevin Harris has not answered the same question posed to the mayor.
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Even combined with property taxes due from the Warner Street parking garage owned by Caesars – so far, $914,263 has been paid, with another $1,646,048 due by December 31 – the casino will be generating far fewer revenues than advertised.

Two Revenue Streams from the Casino

Before explaining the shortfall further, it is important for readers to understand that there are the two main revenue streams coming from the casino:

• “Local impact grants” are mandated by state law to go to communities surrounding the casino to improve infrastructure and mitigate against the negative impacts of gambling such as crime, trash and traffic congestion.

• “Ground rent/property taxes” are paid into the city’s general fund. (The city owns the land where the casino is sited.)

While each works on a different formula, both revenue streams are based on the the casino’s total gaming revenues, which so far are running well below expected.

The Brew has written about how the local impact grants are being used to fund road improvements, provide police protection and even re-route a steam pipe line for the casino.

So far, the mayor and Board of Estimates have legally committed $9 million of future local impact funds to repay Caesars for widening and repaving the roads immediately around its facility and for relocating the underground steam line.

Police protection is expected to cost about $3 million in fiscal 2015, with some funds coming from impact grants and the rest from officers “donated” to a new casino mini-district established by Police Commissioner Anthony W. Batts.

Ground Lease Payments

The funds referred to by Kleine on Monday involved the ground lease payments to the city, which by law amount to 2.99% of gross gaming revenue, with a minimum payment of $8 million in the first year of casino operations.

The city promised these future property tax reductions when the mayor and Board of Estimates approved the casino in October 2012. (Board of Estimates agenda)

How casino lease revenues (called rent here) were said by “an independent consultant” to generate property tax reductions when the city approved the casino deal in October 2012. (Board of Estimates agenda)

The city budgeted $14.5 million in ground lease payments for the current fiscal year. These revenues now are projected at $8.4 million, or  just above the $8 million minimum threshold.

Next year, the minimum  payments by Horseshoe are supposed to go up to $10 million, and then increase in steps to $14 million in fiscal 2019.

Repaying Warner Street Land

In 2017, Caesars is obliged make a special $4.7 million payment to the city for land it purchased on Warner Street for the casino’s parking garage.

When the land was sold, Caesars agreed to a price of $5.9 million, but was required to pay only 20% ($1,235,200) at settlement.

The other 80% could remain unpaid for “five years after the settlement date,” then was to be paid in a lump sum without interest, according the October 31, 2012 agreement signed by Mayor Rawlings-Blake and Caesars. That would make October 31, 2017 the due date for the $4.7 million land payment.

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