CHARLESTON, W.Va. -- There's been much discussion about the cause of the $260 million funding gap the state Budget Office is projecting for the 2014-15 budget -- about whether recent Legislatures cut taxes too much, or the irresponsibility of governors and Legislatures in the 1970s and '80s, who created a $5.5 billion unfunded liability in the state Teachers Retirement System, requiring $390 million annual payments to pay down the sins of the past.
Another cause is that already-declining state Lottery revenues could well be in free-fall by then -- particularly with new casinos on the horizon for downtown Baltimore, and just outside of Washington, D.C., that will severely cut into revenues for the Hollywood Casino in Charles Town.
Considering that Charles Town accounted for about 75 percent of the $726 million in 2012-13 revenues from racetrack casinos, and those revenues account for about 55 percent of Lottery total revenues of $1.328 billion, the new competition will be a major blow to Charles Town, to Lottery revenues, and to the state budget.
As noted here last week, Charles Town's parent company, Penn National, is one of three casino companies bidding to operate the mega-casino outside of Washington. That would seem to be a rational business decision, since Charles Town's fate is sealed, regardless of which company gets that license.
However, on the other side of the state, Penn National is building a 1,000- to 1,500-slot machine racino outside of Youngstown, Ohio, which will be the closest competition to the two Northern Panhandle racetrack casinos, just 40 miles from Mountaineer Casino in Chester. (And, unlike Chester, Hollywood Slots at Mahoning Valley Race Course will be located just off the interstate.)
Slated to open in mid-2014, it will probably be the final blow to Mountaineer and Wheeling Island, already beat down by competition from casinos in Pittsburgh, Columbus and Cleveland. (The Panhandle facilities will probably survive in some much scaled-down capacity, catering to state residents, and the few remaining loyal overnight guests.)
Meanwhile, keep in mind the state has to pay off about $726 million outstanding in Lottery revenue bond obligations, and that's just in bonds issued for Higher Education Policy Commission and School Building Authority construction projects.
Don't forget that in 2011, the Legislature passed a bill (SB550) -- over fierce objections from Republicans, among others -- requiring the Lottery Commission to set aside $10 million a year for 10 years for a matching fund (actually 50 cents on the dollar) that the four racetrack casinos can tap into to replace slot machines and upgrade gaming areas.
Given the reality that no amount of polishing is going to persuade residents of metropolitan Washington, Baltimore, Pittsburgh, Cleveland, Columbus or Cincinnati to drive past bigger, newer casinos in their backyards to come gamble in West Virginia, and the extent the operators of West Virginia casinos are helping contribute to their downfall, lawmakers may wish to revisit that legislation when they return in January.
On a positive note, data from the Lottery Commission shows that the racetrack casinos have not come anywhere close to matching the full $10 million a year.