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Governor Patrick testifies on casinos

Text of governor's speech

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December 18, 2007

Governor Deval L. Patrick

Testimony to the Joint Legislative Committee on Bonding, Capital Expenditures and

State Assets

As Prepared for Delivery

December 18, 2007

Chairman Montigny, Chairman Flynn and the members of the joint committee Good morning, and thank you for convening today. We appreciate your allowing me and the members of my administration this first opportunity to present our views for your consideration.

As we are all aware, Massachusetts faces significant structural budget challenges. The budget for the current fiscal year relies heavily on one-time, non-recurring resources.

Projections for the coming year show shortfalls in lottery funds so vital for local services.

And the forecast is for slower overall revenue growth.

At the same time, costs to meet essential programs and to fulfill commitments such as to health care reform continue to rise. For example, in the current fiscal year, health service costs comprise nearly 45% of our state budget. Those costs have continued to grow at three times the rate of inflation. Maintaining our health care commitments in the next budget cycle could occupy fully half of our available resources. Combine this with the softening revenue picture and you begin to appreciate why a serious discussion about new revenue sources is so timely.

And they have begun to yield positive returns. This year alone -- in the face of national economic unease -- the Massachusetts economy has created over 25,000 new jobs. We have moved from 49th in the country in job creation last year to 15th this year. We need to keep that momentum going.

At the same time, we have put forward a variety of measures both to generate new revenue and to reduce spending. We have submitted measures for cutting health care and pension costs at municipal levels, and we submitted a budget last year that reflected some $700 million in efficiencies in state government. We have further proposals to capture efficiencies in state health care and transportation.

We have also proposed measures to close unintended corporate tax loopholes and to give cities and towns the option to decide, as they see fit, whether a 1- or 2-penny levy on restaurant meals or hotel bills would reduce reliance on the property tax. I continue to believe those proposals are important and helpful to our overall economic strategy. In that spirit, and the spirit of this hearing, I would like to formally resubmit my previous testimony on the Municipal Partnership Act. I will look forward to giving testimony on the loopholes proposal in due course.

Though not the centerpiece of our economic strategy, our proposal to authorize three resort casinos is a piece of that whole. Today, I want to focus on that piece, and I thank the committee for giving us this first opportunity to do so. Several senior members of my administration, and many other stakeholders, are here to address the specific aspects of our proposals. I would like to make a few general points to introduce the subject.

As you know, we proposed to authorize up to three resorts with casinos in the Commonwealth. They would be destinations for tourists, business travelers and conventioneers as well as residents. They would be dispersed in different regions of the state to take advantage of differences in the tourist market. They would not be limited to gaming halls, but consist of meeting and entertainment facilities, restaurants and shopping, hotels and recreation facilities, so that they would be attractive to a range of interests and tastes.

Local communities would decide whether such a resort was right for them. Resort developers -- not taxpayers -- would bear the cost for road and other infrastructure improvements and expansions necessary to make the new facilities work (which would, of course, promote other economic activity). And the resort would thereafter guarantee a regular annual revenue stream to the host and surrounding communities -- before any proceeds to the state -- to cover the cost of public safety and other ongoing impacts.

Our proposal incorporates the best practices learned from other jurisdictions with real experience with casinos. With the assistance of independent, expert financial advisors, the proposed Massachusetts Gaming Authority will conduct a competitive auction process to award up to three operating licenses. With competitive bids in each of three regions, a minimum fee of $200 million per license, and annual operating license fees of at least 27% of gaming revenues, requiring applicants to compete for a license from the Authority assures both the maximum capital investment and maximum value to Massachusetts.

We have included provisions to accommodate any potential short-term impact on the lottery. In fact, our proposal provides security to cities and towns against drops in lottery proceeds -- security they do not enjoy today and that would make a big difference in times like these when we must close a projected lottery gap of $124 million in next year’s budget. The payments to make up for lottery shortfalls would be distributed before payment of any proceeds into the General Fund.

To ensure the integrity of legalized gaming, a thorough and professional regulatory scheme is essential. Our approach features separate investigatory and enforcement functions, and puts in place rigorous reporting requirements and monitoring functions as well as tough new criminal and civil penalties.

The full cost of regulation and enforcement will be assessed against the casinos through licensing and other fees. We are not creating any new public financial obligations to perform this critical oversight role. To make sure that the Authority remains independent, it will have ethics rules more stringent than what currently exist in Massachusetts for any similar authority or agency.

For a few unfortunate individuals gaming is more than recreation, and we have provided for them as well. We have proposed to dedicate 2.5% of state gaming revenues to prevent and treat compulsive gambling, as well as drug and alcohol abuse and other related public health concerns, the largest such allocation in the country.

When you consider that hundreds of thousands of Massachusetts residents travel across the border to casinos right now and bring back issues of gambling addiction and substance abuse, we are proposing to commit more than 50 times what we commit today for prevention and treatment programs. Here again, these programs get paid for first, before any proceeds to the General Fund.

The resort casino plan we have proposed would generate, by our conservative estimates, over $2 billion annually in new economic activity, primarily by enhancing our already strong tourist, leisure and entertainment sectors. We have (again conservatively) estimated that licensing fees will generate $600 million in new revenue.

We value the net operating revenue to the state at over $400 million each year. While some commentators have questioned these estimates, financial analysts with experience in the industry have projected even higher returns. Certain investment banks have valued these licenses alone as high as $800 million.

We have also put measures in place to support resort casino jobs with a living wage, benefits and opportunities for training and advancement. According to newspaper reports about the recent Foxwoods union drive, casino employees make on average $45,000 to $50,000 per year.

This is a chance to open up a broader spectrum of economic opportunities throughout the Commonwealth adding jobs in industries like hospitality and construction to our growth in clean energy, high tech and the life sciences. In addition, 20,000 new jobs in that salary range will generate another $50-80 million in new tax revenue.

I would also like to address the concern that bringing resort casinos to Massachusetts might alter the character of our state. For a very long time now, gaming has been in practice in Massachusetts and gaming revenues have been used to support public projects. In 1762 John Hancock raised lottery money to rebuild Faneuil Hall after a fire.

Lottery funds were used to finance the Revolution. The dorm I lived in during my freshman year in college was built in the 1800s entirely on lottery funds, as were most of the other dorms in Harvard Yard. The current state lottery has for years helped us provide a steady infusion of support for local aid.

My late mother used to ask me to take her to Foxwoods. And if she were alive today,my mother would be like the many adults I meet from all across the state who tell me that they have been making their own decisions their whole lives and that it’s not up to the state to tell them how they should and shouldn’t spend their entertainment dollars.

Indeed, our residents spend between $900 million and $1.1 billion dollars a year at Connecticut casinos.1 Hundreds of thousands of our residents visit Foxwoods and Mohegan Sun regularly and 1 in 4 Massachusetts residents says they make an annual trip to the casinos. The point is: Massachusetts gambles today. For over 90% of those who do, it is harmless entertainment. Not only are we losing that revenue by not engaging this market, but we are forfeiting the opportunity to create those jobs here.

The communities around the Connecticut casinos are functioning. In fact, you may have seen in the news recently that in response to our proposal, economic leaders in Connecticut are suggesting that their state authorize the construction of another casino.They see the upside that we do.

I understand that this is a revenue hearing, but our casino bill is first and foremost a jobs proposal. As you consider alternative revenue sources, as we hope you will, please remember that there is no tax loophole we can close that will create 20,000 permanent jobs. No gas tax will spur the need for 30,000 construction workers. Any other industry proposing a steady stream of new revenue, tens of thousands of construction jobs, and tens of thousands of good permanent jobs for our communities deserves serious consideration. So does this one.

We have struck a careful balance between maximizing economic and revenue growth and minimizing negative community and personal impact. Ours is like no other proposal you have considered at any time in the recent past.

I think you will find – much as I did – that the reality of the matter is far removed from the emotionally charged back-and-forth around gaming in Massachusetts. Let’s have a robust debate, but let’s be sure that we are debating facts based on actual experience.

Resort casinos can bring significant economic benefits to the Commonwealth, boost state revenues, and play a role in our overall plan for long-term success. Done the right way, they can join the many reasons why Massachusetts is an international destination for travelers and tourists and a wonderful place to live. I welcome your partnership on this and other measures, and look forward to working with all of you.

Thank you.

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