Sep 29, 2016 6 min read

The Pennsylvania Supreme Court on Wednesday struck down a requirement that has forced casinos to pay tens of millions of dollars to their host communities for a decade, potentially dealing a crippling blow to local budgets around the state if lawmakers do not act quickly.

The court ruled that the roughly 4 percent “local share assessment” is unconstitutional because it is not uniform and affects Pennsylvania’s 12 casinos differently.

The justices said they would delay the effect of their decision striking down the tax for four months to give lawmakers an opportunity to fix it.

“We are mindful that our decision may significantly affect many counties and municipalities that have ordered their affairs in reliance upon” the casino tax revenue, Justice David Wecht wrote in the 18-page opinion.

The ruling could have some serious implications for Washington County and North Strabane Township, home to The Meadows Casino.

Under the state’s original 2004 casino law, casinos must pay at least 4 percent of gross slot-machine gambling revenues to their host communities. That includes 2 percent to counties and 2 percent or $10 million, whichever is greater, to municipalities.

SugarHouse Casino in Philadelphia is exempt, as are two smaller “resort” casinos: Valley Forge Casino in suburban Philadelphia and Lady Luck Casino Nemacolin in Fayette County.

But Mount Airy Casino in northeastern Pennsylvania’s Pocono Mountains had asked the court to strike down the $10 million host fee, arguing that it violates the state constitution by imposing a heavier tax burden on lower-performing casinos.

Some $141 million in slots revenue was paid in the last fiscal year to counties and municipalities, according to Pennsylvania Gaming Control Board data. That included about $48 million paid by casinos to satisfy the $10 million host fee requirement.

Gov. Tom Wolf’s office declined comment on the ruling Wednesday. Senate officials said the decision could have far-reaching effects.

“We will take action and we’ll do it in such a way to maintain the casino obligation to our local communities,” Senate Appropriations Committee Chairman Patrick Browne, R-Lehigh, told the Morning Call of Allentown. “This would absolutely devastate these towns.”

Douglas Hill, executive director of the County Commissioners Association of Pennsylvania, said the money is significant for counties.

“Very clearly, the gaming revenue has gone to legitimate and worthwhile local purposes, all aimed at improving the community, and equally for the host municipalities,” Hill said.

The court also awarded relief to Mount Airy Casino, although the amount was not immediately clear.

When it passed legislation to allow casinos in 2004, the state government allowed host communities to receive annual slots and table revenues totaling 50 percent of its budget or $10 million, whichever is smaller.

As the The Meadows Casino’s host community, North Strabane Township Manager Frank Siffrinn said Thursday the township receives about $2.7 million annually – $2 million of which comes from slots revenue.

While the township doesn’t use that money for day-to-day operations, about $900,000 is used annually to pay a bond taken out in 2010-11.

“The impact would definitely be felt by the township,” Siffrinn said. “I would say if it were the worst-case scenario and suddenly the tap was turned off and the township would receive nothing, the next couple of years we would be OK. In three to four years, taxes would probably be impacted and we would have to wrestle with that because of the annual debt service obligation.”

Money from the casino is also used for equipment purchases for the various township departments, such as police, fire and parks and recreation, as well as road paving.

“I think a lot of people are going to look at this and the first reaction is panic, but there is some consolation in knowing the Supreme Court stayed for four months,” Siffrinn said. “What those changes and revisions are going to be and what the impact is going forward, that remains to be seen. I suspect they’ll be able to come up with some method to guarantee host municipalities receive comparable funds.”

State Rep. Brandon Neuman, D-North Strabane, said Thursday the court’s decision gives legislators 120 days to come up with a solution to the tax inequality problem. He said that while the 4 percent local share requirement in the original legislation isn’t in itself unconstitutional, the court said it couldn’t separate the 2 percent paid by casinos to the host county from the additional 2 percent or $10 million floor paid to host municipalities, so it struck down the section of the law specifying the local share amounts.

Neuman said reaching a remedy within the 120-day time frame will require “a bipartisan, bicameral and administrative agreement.” If that agreement can’t be reached, Neuman said, “we may have to go to the court and ask for an extension.”

He acknowledged that opening the gaming legislation could also expose it to “outside pressure” to make other changes not related to a remedy for the tax inequality.

Neuman said his goal is to find a solution that ensures that Washington County and its municipalities’ local share is “close to” what it now receives.

State Rep. Jim Christiana, R-Beaver, whose district includes about half of Washington County, agreed with Neuman’s assessment, adding that it may be necessary to request additional session days to reach a quick resolution.

“Theoretically, the Legislature could wait to resolve this after the election and when new members are sworn in, but it’s not fair to local communities” which may have established budgets that count on the LSA funds, he said.

“We’re all on the same page out here,” state Sen. Camera Bartolotta, R-Carroll Township, said Thursday from Harrisburg, adding that she would favor adding session days to achieve a solution quickly.

Jeff Kotula, president of the Washington County Chamber of Commerce, who also chairs the county’s LSA panel for community and economic development projects, said the 2 percent that goes to Washington County has averaged between $10 million and $11 million per year. Of that amount, about $3 million is distributed to the county’s townships, which each receive $25,000 plus $10 for each resident.

That leaves the LSA panel with an annual average of between $6 million and $8 million in LSA funds to apply to qualified projects with matching funds vetted by the county’s nonprofit organizations and municipalities. The money helps to pay for everything from local infrastructure upgrades and recreation projects to business park expansions that in turn leverage community improvements and job creation or retention.

Kotula said the county is reviewing the court’s decision.

“If the gaming law opens up, what’s this going to mean for Washington County?” he asked. “The court’s decision could threaten future investment and growth in Washington County and the money our municipalities receive.”

Troy Stremming, executive vice president of government relations and public affairs for Pinnacle Entertainment, the new owners of The Meadows, said Thursday it was too early to know what a resolution of the court’s decision would bring.

“We are obviously aware of the recent court decision, but are simply not in a position to comment, based on many uncertainties,” he said in a statement.