As legislatures throughout the U.S. return to business in 2021 – albeit under COVID-19 health and safety guidelines – gaming expansion is being considered in several states. Lawmakers and governors view casinos, sports betting, and igaming as providing a new form of tax revenue in an effort to repair massive budget deficits caused by the pandemic.
Nevada, however, could be on the wrong path.
The Clark County Education Association – the state’s largest teachers’ union representing members in the Las Vegas Valley – qualified a pair of ballot initiatives calling for increases in current taxes.
Virginia Valentine, president, Nevada Resort Association
One initiative seeks to raise the state’s gaming tax rate from 6.75% to 9.75%, a 44% increase. The other would nearly double the portion of the sales tax directed toward local school support. Both initiatives could be addressed in the first 40 days of Nevada’s 120-day session.
The Nevada Resort Association called the gaming tax increase “misleading.” The hike “would further damage Nevada’s recovery efforts, create permanent job losses and further jeopardize capital investment and future economic development.”
The trade group is correct.
Nevada’s casino industry is headed toward its largest single-year gaming revenue decline in some 35 years.
Deutsche Bank gaming analyst Carlo Santarelli said none of the “historical downturns” Las Vegas has faced – the Great Recession, the 9/11 terrorist attacks, the economic crash in the mid-1980s – can compare to the financial damage caused by COVID-19.
Closed casinos on the Las Vegas Strip during the pandemic. Via Shutterstock
On the Las Vegas Strip, casino revenues are down 43.6% through October, which includes more than two months without any measurable gaming revenues due to a 78-day industry shutdown.
November’s numbers are expected to be crushing, given the lack of visitation during the traditionally busy Thanksgiving Holiday. Results from December, which is missing the National Finals Rodeo and the cancellation of the customary New Year’s Eve extravaganza, will be equally depressing.
Statewide, gaming revenues are down 36% through October.
The Strip is the primary contributor to Nevada’s gaming industry, which is the state’s largest taxpayer, the largest source of employment, and the largest contributor to the General Fund – roughly 40%.
Most analysts predict Las Vegas won’t see any meaningful recovery until the second half of 2021, taking into consideration the timing of vaccine distribution, a potential return of international and business travel, and an overall economic rebound throughout the U.S.
Nevada topped $12 billion in gaming revenue in 2019, the first time the milestone number was reached in 12 years. Strip gaming revenues topped $6.58 billion. Several analysts have said it will be 2024 before Nevada returns to pre-COVID-19 numbers.
This is not the time to increase the Nevada gaming tax.
Nevada’s tax rate is structured: 3.5% on gaming revenue up to $50,000 per month and 6.75% on revenue of more than $134,000 per month. The figure is one of the lowest in the country, but that’s an unfair comparison.
The state currently has 226 non-restricted casinos without a limitation on the number of potential licenses.
Other states have higher tax rates, but restrict the number of casinos, oftentimes giving licensed operators a monopoly in a metropolitan market.
For example, Florida has eight racetrack casinos that pay a 35% tax on gaming revenues; Maryland’s six casinos pay up to 61% on slot revenues and 20% on table game revenues; Pennsylvania’s 12 casinos pay a 55% tax on slot revenues and 16% on table game revenues; Ohio’s four casinos pay a 33% gaming tax and the state’s seven racetrack casinos pay a 33.5% gaming tax.
The other difference between those states and Nevada is their diversified economies. Nevada remains highly dependent on tourism, gaming, and conventions, all of which have been damaged by COVID-19.
“As Nevada’s largest industry and economic engine continues to do all it can to recover and bring employees back to work, now is not the time to target the resort industry,” said Resort Association President Virginia Valentine.
The teachers’ union submitted initiatives signed by nearly 200,000 voters to election officials last month. The state had required just 97,598 signatures. Union head John Vellardita told The Nevada Independent, “We want legislators, the business community to understand that all we want to do is have a conversation about how to rebuild this economy and invest in education.”
Valentine agreed with the idea, but not the method.
“To be very clear, the gaming industry has consistently supported a broad-based business tax to support public education and has a long history of investing in Nevada’s classrooms,” Valentine said. “Broad-based taxes are a sound and stable approach, rather than the volatility that comes with taxing a single industry, particularly one that is struggling to recover.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
