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Tax Law

State Net Capitol Journal – July 7, 2014; Early Internet Gambling Revenues Disappointing

Budget & Taxes

EARLY INTERNET GAMBLING REVENUES DISAPPOINTING: Last year Delaware, Nevada and New Jersey became the first states in the nation to legalize Internet gambling. But so far, their online gambling revenues have been falling far short of projections.

New Jersey officials initially estimated that legalized Internet gambling would boost the state's fiscal 2014 tax revenues by $180 million, a figure that was revised down to $160 million by the time Gov. Chris Christie (R) signed the state budget last June. But by the end of May — with just a month to go in the 2014 fiscal year — the state had only taken in $9.3 million in online gaming revenues. And the revenues in April and May were actually lower than those in March, meaning they aren't even trending upward.

"Clearly, the results so far have not met our expectations," the state's treasurer, Andrew Sidamon-Eristoff, told lawmakers earlier this year.

Officials in Delaware, which has a much smaller population than New Jersey, projected online gambling would only generate $7.5 million in additional revenues in FY 2014. But Internet gambling hasn't made any net increase in the state's revenues.

Nevada officials chose not to make any revenue predictions regarding online gambling.

"We just didn't feel that it would be wise to put out a number," said Michael Lawton, a senior research analyst with Nevada's State Gaming Control Board. "It was just too much unknown."

The state's take from online poker, which is the only form of Internet gaming it legalized, was a modest $700,000 from May 2013 through April of this year.

The states' officials have blamed the lackluster revenues on technology glitches, payment processing issues and startup costs, such as for software design and data servers to host the gambling. Some also say legalized Internet gambling will simply take some time to catch on.

"This is an industry that requires consumer education," said Chris Grove, editor of the Online Poker Report. "It exists in a weird gray area because it was perceived to be illegal for so long."

However, Grove added that New Jersey's revenue projections were overly optimistic from the start, "driven far more by political need and budgetary magic math than by sober, rational analysis of the market."

But New Jersey's Sidamon-Eristoff told lawmakers that despite lingering challenges with Internet gambling, he's still "bullish over the medium and long term."

"We have seen enormous and growing interest in this form of gaming." (STATELINE.ORG)

DESPITE LOW BOND RATES GOVERNMENTS DECLINE TO BORROW: According to the American Society of Civil Engineers, state and local governments would have to spend about $3.6 trillion through 2020 to get their crumbling infrastructures back into decent shape. That figure is about $1.6 trillion more than states and localities are expected to spend, however. And they've actually been spending less on construction every year since 2009, resulting in a $39-billion, or 13-percent, decline over that period, U.S. Commerce Department data shows. Public infrastructure investment as a percentage of total U.S. economic spending is now at its lowest level since at least 1947.

"Infrastructure is one of the only ways that states and local governments directly affect commerce in the United States — the trucks have to use the roads and bridges, the boats have to use the ports," said Daniel White, an economist at Moody's Analytics. "If we continue to let them deteriorate, it could have disastrous consequences."

Despite the dire state of affairs, state and local governments aren't borrowing money to pay for construction projects — even with borrowing costs at their lowest level in almost four decades. Bond issuance through mid-June is down 20 percent from last year and down 30 percent from 2010, according to data compiled by Bloomberg. Meanwhile, corporations like Apple Inc. and Verizon Communications Inc. have been borrowing at a record pace, selling $648 billion of dollar-denominated debt this year.

Governments haven't forgotten — or completely recovered from — the worst financial crisis since the Great Depression.

"There's a psychological hangover," said Uri Monson, chief financial officer for Montgomery County, Pennsylvania. "We're not going to go out and borrow unless we absolutely have to."

Investors approve of the austerity kick.

"There's actually some sanity at senior levels of government," said Thomas Metzold, co-director of municipal bond investments at Eaton Vance Management in Boston. "People are saying just because times are good again, we still have to think about what's going to happen five years from now." (BLOOMBERG)

CITIES AND STATES LOOKING TO BOOST ECONOMIES WITH BIKE LANES: City and state leaders across the country have been making bike lanes and cycling programs a priority issue lately. Evidently their hope is that creating a bike-friendly image will help them attract the 20- and 30-somethings known as "millenials," along with their creative and economic energy.

"States and cities are competing for the most mobile generation ever and so the job creators and the innovators are really pushing for these amenities," said Bill Nesper, who leads the "Bicycle Friendly America" program at the League of American Bicyclists.

Less than 1 percent of all American workers commute by bike. But the rate is higher in cities like Washington, D.C (4.1 percent), where residential neighborhoods are near workplaces. And 16- to 34-year-olds, who comprise a sizeable portion of the population of those cities, have shown more interest in alternatives to cars than previous generations.

Portland, Oregon may be the poster city for bike-friendliness. Relying on an aggressive program of protected bike lanes and other initiatives, such as bike-sensitive traffic signals, the city boosted its rate of bike commuters from 1 percent in 1990 to 5.8 percent in 2009, according to a 2011 study by John Pucher, a professor at Rutgers University's Bloustein School of Planning and Public Policy.

"Portland's comprehensive package of cycling policies has succeeded in raising cycling levels six-fold and provides an example that other North American cities can follow," Pucher said. (STATELINE.ORG)

BUDGETS IN BRIEF: NEW JERSEY Gov. Christie (R) signed the $32.5 billion budget passed by the state's Democrat-controlled Legislature, after using his line-item veto to remove over $1 billion in appropriations, including a pension fund payment that was the subject of a court battle. Christie also delayed property tax relief until next year (NORTHJERSEY.COM). • PENNSYLVANIA Gov. Tom Corbett (R) refused to sign the no-tax budget his state's GOP-controlled General Assembly passed just 90 minutes before the state budget deadline last week because it failed to address the issue of pension reform (PHILLY.COM). • An Oklahoma City attorney has filed a lawsuit in OKLAHOMA's Supreme Court seeking to block a new state law setting the tax on oil and natural gas production at 2 percent for the first 36 months. Attorney Jerry Fent, who has successfully sued the state in the past, alleges the Legislature violated Constitutional provisions prohibiting the passage of revenue bills in the last five days of the legislative session, requiring such bills to receive a three-fourths vote in the House and Senate and prohibiting them from taking effect until 90 days after the legislative session adjourns (OKLAHOMAN [OKLAHOMA CITY]). • Unable to convince state lawmakers to raise his state's gas tax by ten cents, DELAWARE Gov. Jack Markell (D) intends to raise weekend tolls by $1 on Route 1 to help fund road projects (WDDE 91.1 FM [DOVER], STATE NET). • Six months after approving a multimillion-dollar tax credit for rehabilitating historic buildings, WISCONSIN Gov. Scott Walker (R) is halting the tax break due to concerns about its potential impact on the state budget (MILWAUKEE JOURNAL SENTINEL). • The over 18,000 students who dropped out of ARIZONA high schools this year will end up costing the state $7.6 billion over their lifetimes, according to a new report commissioned by the state's mayors. The report said high school dropouts are less likely to find jobs or earn a living wage, more likely to require public assistance and more prone to poor health and criminal behavior than those who finish high school (AZCENTRAL.COM).

- Compiled by KOREY CLARK

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