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Tax Law

State Net Capitol Journal – June 2, 2014; Pennsylvania Gambling Played Out?

Budget & Taxes

PA GAMBLING PLAYED OUT? Born only eight years ago, Pennsylvania's gambling industry may already have reached maturity. The state legalized gambling in 2004. Its first two casinos opened in 2006. Four more opened the following year. Another two opened two years after that. And three more opened between 2010 and 2013, bringing the total to 12. Last year, those gambling facilities generated over $1.4 billion in tax revenues for the state. But after five consecutive years of growth, the state's gambling revenue curve has flattened. \

"We are entering into a slower growth year," said John Colestu, general manager of Mount Airy Casino Resort in the state's Poconos region. "The new norm is just being equal to the previous quarter," he said.

Competition from surrounding states appears to be the culprit. New Jersey has 11 casinos and online gaming. Delaware has three casinos, as well as sports betting and online gaming. Maryland has four casinos. West Virginia has five racinos, a race-track casino and a stand-alone casino. And Ohio has four casinos and four slot-machine facilities at race tracks.

"The Northeast is certainly saturated," said Mount Airy's Colestu.

And his state is about to face a new and even bigger challenger: New York, where voters recently authorized seven commercial casinos — on top of the five tribal casinos and nine racinos already operating in the state.

The next likely step for Pennsylvania will be to develop other gambling revenue sources, like Internet gambling and sports betting, with that conversation already under way in the state's General Assembly, according to Colestu.

"Internet gaming has the best chance of being implemented and successful going forward. From what I've read, legalizing sports betting is a much bigger challenge, an uphill battle," he said. (POCONO RECORD)

SLASHED OIL ESTIMATE THREATENS 'FRACKING' IN CA: In 2011, an energy firm hired by the state of California estimated that a 1,750-square-mile rock formation extending from Sacramento to Los Angeles could yield 13.7 billion barrels of oil, based on existing extraction technologies. That projection spurred hopes of an energy boom in the state like those that have boosted the economies of North Dakota and Texas. In fact the University of Southern California forecast last year that the Monterey Shale formation could create up to 2.8 million new jobs and generate as much as $24.6 billion per year in new tax revenue in California by 2020.

But last month scientists from the U.S. Energy Information Administration issued a report indicating that current extraction methods, including hydraulic fracturing, or "fracking," would yield only 600 million barrels of oil from the Monterey Shale, 96 percent less than the earlier projection.

"From the information we've been able to gather, we've not seen evidence that oil extraction in this area is very productive using techniques like fracking," said John Staub, who led the energy agency's study.

Staub added that compared with oil production at North Dakota's Bakken Shale formation and the Eagle Ford Shale in Texas, "the Monterey formation is stagnant."

USC economics professor Adam Rose, who coauthored last year's study on the economic impact of the Monterey Shale, called the new estimate "a phenomenal cutback."

"It's amazing in terms of that much refinement in the numbers," he said.

The news had some environmental activists stepping up their calls for California Gov. Jerry Brown (D) and lawmakers to put an end to "fracking" in the state.

"The myth of vast supplies of domestic oil resources and billions in potential revenue from drilling in California by the oil industry has been busted," said San Francisco billionaire Tom Steyer, founder of the nonprofit group NextGen Climate. "Our leaders in Sacramento can no longer afford to pin our hopes on the false promises of a fossil fuel windfall — especially when our state is poised to lead the nation and the world toward a cleaner, more sustainable energy economy."

Zack Malitz, campaign manager for the San Francisco-based liberal activist group CREDO, likewise, said the new estimate means "there is now no longer any political gain to be had for the governor in supporting fracking and putting our state at risk from water contamination, earthquakes and climate change."

"He must enact a moratorium," he said.

But a push for such a ban failed in the state's Legislature last year. And a bill (SB 1132) introduced this year by Sen. Holly Mitchell (D) has failed to make it out of the Senate.

The oil industry, meanwhile, doesn't appear ready to raise the white flag.

"We've always been quite clear that there are challenges to producing oil out of the Monterey" Shale that differ from those associated with the formations in North Dakota, Texas and elsewhere, said Tupper Hull, vice president of the Western States Petroleum Association. "I have every confidence that the oil companies possess the experience and the ability to innovate. If anyone can figure it out, they can figure it out."

And Severin Borenstein, director of the University of California Energy Institute, said that although "this is definitely a huge setback to the expansion of oil production in California...I would not at all say the game is over."

"It is way too early to say that this is the death of fracking in California. Technology only moves forward, and I am sure there is going to be millions of dollars spent trying to make it better specifically for California because there is so much potential." (SAN JOSE MERCURY NEWS, LOS ANGELES TIMES, STATE NET)

BUDGETS IN BRIEF: The U.S. Supreme Court has agreed to hear a challenge to a ruling by MARYLAND's highest court that some taxes on out-of-state income are unconstitutional. The challenge was brought by a Maryland business owner and his wife, who allege they were taxed twice on some income (BALTIMORE SUN). • The Internal Revenue Service could impose daily tax penalties on large employers who shift workers into the health care exchanges created under the Affordable Care Act and then make tax-free cash contributions to offset the premiums of that coverage. Some employers have reportedly determined that course of action would be more cost effective than providing coverage to their employees themselves (CALIFORNIA HEALTHLINE). • MISSOURI's GOP-controlled Legislature passed a raft of bills on the last day of the session, including tax breaks for country club members, dry cleaners and fast food restaurants, that Gov. Jay Nixon (R) said will cost state and local governments $776 million. The governor pledged deep budget cuts to offset the lost dollars (ST. LOUIS POST-DISPATCH). • The MASSACHUSETTS House approved a $1.1 billion expansion of the Boston Convention and Exhibition Center. The bill still needs approval from the Senate and Gov. Andrew Cuomo (D) (BOSTON GLOBE). • The NORTH CAROLINA Senate gave preliminary approval last week for a broad tax bill that includes a provision revoking the authority of municipalities to levy privilege taxes on businesses beginning in July 2015. The House approved a more modest privilege-tax cap, of $100, the week before, but House members are expected to agree to the Senate's version (NEWS OBSERVER [RALEIGH]). • OKLAHOMA Gov. Mary Fallin (R) signed legislation (HB 2562) setting the state's oil and natural gas gross production tax at 2 percent for the first three years of production (NEWS.OK, STATE NET). • NEW YORK and NEW JERSEY will receive $2.5 more in Hurricane Sandy relief. The money constitutes the third installment of federal aid from the $50 billion approved by Congress in early 2013 (NEW YORK TIMES). • The OHIO Tax Credit Authority approved tax credits for eight projects — including the relocation of General Electric Co.'s U.S. Global Operations Center to the Cincinnati area — expected to create more than 3,200 jobs (CLEVELAND.COM). • An ILLINOIS House panel approved a proposal backed by House Speaker Michael Madigan (D) that would ask voters in November if they support a 3-percent increase in the tax on incomes over $1 million per year. The millionaire tax ballot measure is only an advisory and wouldn't have the force of law (CHICAGO TRIBUNE). • NEW HAMPSHIRE Gov. Maggie Hassan (D) signed into law a 4-cent increase in the state gas tax that will go toward construction and maintenance of state and municipal roads and bridges. The law marks the first time the state's gas tax has been increased in 23 years (WMUR [MANCHESTER], STATE NET). • MINNESOTA Gov. Mark Dayton (D) signed off on $1.17 billion in construction projects expected to create more than 33,000 jobs (STAR TRIBUNE [MINNEAPOLIS]). • NEW JERSEY Gov. Chris Christie (R) announced plans to reduce state payments into the public pension system by $2.43 billion over two years to balance the state's budget (NJ.COM).

- Compiled by KOREY CLARK

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