State Revenues Under Projections, but Nothing to Worry About Yet

It’s true: The tax collections for the first two months of the new fiscal year and new state budget have fallen slightly below the forecasted target. Specifically, general fund revenues for July and August combined are $65 million short of the projections. That is 3.2% under the combined forecasts for those two months. But to worry about $65 million at this point is not warranted. First, $65 million is only a blip when you consider that we are talking about a $30 billion budget. Secondly, as in surveys and polls, a variance of less than 5% in revenue forecasting is statistically insignificant.

And lastly, there are 22 more months in the biennium. There will inevitably be fluctuations in the revenue numbers throughout the balance of this fiscal year and next fiscal year. The variance could double or it could disappear in the next couple months. The point is – until we experience a full quarter of shortfalls that total more than 5% – concern is premature.

This is not to say that the numbers are meaningless or that they should be ignored. Keeping a close watch on the revenues and reacting accordingly has been a key to Indiana maintaining its strong fiscal status over the last several years. Discrepancies between the forecast and the actual collections can result from many things, as can be noted in the budget agency commentary that often accompanies release of the hard numbers each month. Changes in the law, special transfers and timing issues can all explain monthly anomalies.

However, closer looks at the individual sources, plus year-over-year and month-to-month comparisons can evidence significant trends. Sales tax revenues are by far the largest single source, making even small differences between the actual year-over-year growth and the projected annual growth something to pay close attention to. While corporate income tax collections are not as critical to the bottom line, they are a major source of revenue and have been very strong (46.7% above the target through the first two months). Another positive aspect of the short-term numbers is the modest uptick of gaming revenues (7.2% above target).

So keep in mind that the numbers will fluctuate and most probably balance out over time – if not, adjustments can and will be made to assure that Indiana maintains its prudent fiscal posture.

A Turn of Luck for the Gaming Industry?

Business and consulting firm Rubin Brown issued a release last week asserting the American gaming industry has seen a slight boost of late. However, note toward the end of the statement that Indiana gaming saw a slight downturn in 2010. Hopefully, 2011 will be a different story:

The nation’s gaming industry stabilized in 2010 with a slight increase in adjusted gross revenue (AGR) of 0.34 percent over 2009. This was the first time the industry has seen an increase in revenue since 2007 reports RubinBrown, one of the Midwest’s largest accounting and business consulting firms.  Commercial  and Tribal Gaming Stats 2011, available at http://www.rubinbrown.com, pools 2010 data from 448 commercial land-based and riverboat casinos in 14 states with legalized gambling. Data was compiled from state gaming regulatory authorities and the American Gaming Association.

From a regional perspective, the Midwest held steady again in 2010, with the five Midwest states referenced in the report comprising 25 percent of 2010 AGR of the 14 states with commercial gaming. Gaming in the Midwest experienced a $21 million decline in revenues during 2010, which is much improved compared to the $74 million decline in 2009. Missouri and Colorado were the only two Midwest states to see a boost in gaming revenue, with 3.35 and 3.4 percent increases respectively. Other states to see an increase in revenue include Pennsylvania, which led the nation in revenue growth with a drastic 26 percent increase; Nevada, which, although the state only saw a slight increase of 0.12 percent, is faring better than the double digit decrease it saw in 2009; and South Dakota, which experienced a moderate increase of 3.92 percent.

Missouri continues to lead the Midwest in casino revenue growth, bringing in over $1.7 billion in revenue and more than $450 million in commercial gaming tax revenue in 2010. Due to the opening of the River City Casino in St. Louis in early 2010, the St. Louis region increased its AGR by 7.52 percent to lead the market in Missouri, comprising nearly half of state-wide revenue. The Kansas City region followed behind with almost 40 percent and other communities in the state made up the remaining 10 percent. However, with the surrender of St. Louis’ President Casino license and the development of the Isle of Capri Casino in Cape Girardeau, which is expected to bring in over $67 million in new gambling revenues, these breakdowns may change in 2012.

Colorado, the only other state to see an increase in AGR, experienced an increase of $25 million during 2010 and generated more than $107 million in commercial gaming tax revenue. The passage of Amendment 50 by Colorado voters in 2009, which allowed the maximum bet at casinos to be raised from $5 to $100 and permitted properties to remain open 24 hours a day, can be attributed as one of the main causes for Colorado’s revenue increase in 2010.

The report credits the slight increase in overall gaming revenues to the continued economic recovery throughout the nation. Although operators have felt the impact of the Great Recession with reduced consumer spending, mergers, bankruptcies, strict lending requirements and stalled capital projects, the rebound for the gaming industry is starting to occur.

“Gaming continues to expand through changes in gaming legalization, updates in technology and expansion into new markets,” said Chelle Adams, partner-in-charge of RubinBrown’s Hospitality and Gaming Services Group. “One of the trends that we’re currently seeing and expecting to see more of in the next few years is an expansion of non-gaming amenities at casinos, such as entertainment venues, restaurants, spas and golf courses. These additions are being utilized to draw patrons to the casinos’ complete destination experience as several patrons are cutting back on traveling and vacations.”

Despite the growth in Missouri and Colorado, not all Midwest states experienced similar success in 2010. Indiana saw its gaming revenues decline again by a slight 1.27 percent and overall admissions decreased by 0.4 percent, a significant change from the 4 percent increase in 2009. Although AGR and admissions declined in 2010, 1.59 and 3.59 percent respectively, Iowa-based casinos saw patrons spending more per trip on average from the previous year.

All Ashore?

Indiana and gaming have a now 20-year-old relationship that continues to evolve. The question (long ago) was not whether there should be gaming but what form it would take. Among the latest issues is the potential transition away from riverboats in at least several instances.

The Evansville Courier-Press reports that the Casino Aztar, among other casinos, may be seeking dryer quarters as state legislators tackle the issue of gaming boats in Indiana. The paper reports:

With Indiana officials considering allowing land-based casinos, officials with Evansville’s Casino Aztar are looking at moving their business ashore.

Tom Dingman, an “attorney-in-fact” managing Aztar, said he and others have begun working on a master plan that considers moving the casino off its Ohio River riverboat and placing it inside a building. Doing so would eliminate many costs associated with running and maintaining a boat and allow Aztar to be closer to nearby restaurants, hotels and other attractions, he said.

Perhaps, most important, it would make the casino a stronger competitor against Kentucky horse tracks should they ever be allowed to have slot machines.

“It’s well known that customers have a perception of boats as second-class when they are compared to land-based casinos,” Dingman said.

Dingman said the plans don’t contain a great amount of detail. He was unsure where Casino Aztar would be if it were moved to land.

Aztar is one of 10 casinos in Indiana that state law requires to be on the water. Recently, two of them — Majestic Star I and II in Gary — have sought permission to move ashore.

Argosy Going Hollywood, Adding Jobs in Process

The Argosy in Lawrenceburg is about to get an overhaul and, unlike many business-related overhauls over the past year, this one will actually create jobs.

Cincinnati’s Business Courier explains:

When Penn National Gaming this summer opens its $326 million expansion at Lawrenceburg, it will be celebrated for the 125 contractors it employed during construction.

And the 250 new employees now being hired to operate the Hollywood-themed attraction.

And the glitzy trappings of the Vegas-scale gaming parlor, with its 300 plasma screens and 60-foot video board.

And the fancy décor, with its indoor replicas of the Hollywood Bowl, a city park and an urban streetscape.

But few will recognize the new Lawrence­burg casino for what it really is: an act of self-defense.

“This will expand our boundaries,” said Tony Rodio, general manager of the Penn National property on the Lawrenceburg riverfront, which will change its name from Argosy to Hollywood upon its opening in mid-July.

During a recent tour of the nearly finished casino, Rodio said the 270,000-square-foot expansion and its Hollywood rebranding will be part of a larger attempt by Wyomissing, Pa.-based Penn National to lay down roots in Cincinnati. Rodio wants to reclaim customers lost to two new horse-track casinos in Indianapolis and prevent encroachment by developers who have staked claims to potential casino sites from Louisville to Wilmington…

The casino will have 800 more slots, two dozen more poker tables and a VIP lounge that can host up to 110 people for dinners and private parties. Its 60-by-8-foot serpentine video screen will play movie trailers, promotional messages and memorable movie scenes on a 24-7 scrolling loop.

Making a Safe Bet Against Gaming Reversal

Those who know me are aware that I’m not averse to a little "gaming" now and then. In other words, I truly enjoy an annual trip or two to Las Vegas and I’ve managed to find all but one or two of Indiana’s various riverboat/horse track facilities.

The intention is not to start a debate on the morality of gambling. (If you wish to do so, have at it). My reasoning is to point out that I would be shut out of any such activity in Illinois, if professor John Warren Kindt had his way.

The Urbana-Champaign prof testified before state lawmakers that the key to the state’s economic recovery is to ban gambling. That is despite the state’s $1.3 billion in casino tax and lottery revenue in 2008.

It’s not going to happen in Illinois — or Indiana. The "will we have gambling or not?" argument was settled about 20 years ago. Indiana is a big player in the gaming business. Despite numerous calls from lawmakers and others for no further expansion, don’t bet on it.

By the way, I was a winner picking against the professor’s Illini in its NCAA basketball tournament first-round loss to Western Kentucky.

Welcome Back, Warlocks

If you’re walking around downtown Indianapolis the next few days, you might just bump into a wizard, a warlock or an enormous gathering of average Joe’s with comic book heroes on their black t-shirts and backpacks full of gaming items. Gen Con Indy is one of the many massive conventions in Indianapolis’ growing convention market. 
 
Gen Con Indy claims the top spot at the sorcerer’s round table as the original, best attended and longest running gaming convention in the entire galaxy. In 2007, over 26,000 gamers attended Gen Con Indy. This is another example why Indianapolis must offer the best facilities available in Lucas Oil Stadium and the expanding Indiana Convention Center. The tax revenue generated from Gen Con and other conventions is very important to downtown’s economy, not to mention the boon to local restaurants and hotels.
 
Here’s a list of upcoming events at Lucas Oil Stadium and the Indiana Convention Center. The expected attendance numbers are critical for Indiana tourism.
 
If you do bump into one of our visiting gamers, be nice, ok? They might have horns or claim to have powers to place a spell banishing you to the planet Zog, but they never cause any trouble and they go about their own business. 

Welcome back, Gen Con folks!