Branstad tax plan would lead to Iowa casino closings, industry leader says

A former state economist hired by gambling interests to assess the impact of Gov. Terry Branstad's proposed casino tax increase is predicting dire financial and employment consequences if the governor succeeds in raising the state tax on gaming profits to 36 percent this legislative session.

In a report issued Tuesday, Economist Harvey Siegelman of the Strategic Economics Group concluded that four of Iowa's 17 state-licensed casinos most likely would close, two more would face financial difficulties that could lead to closure or restructuring, and another two would lack the resources needed to pay all their tax liability.

He said the downsizing that likely would be caused by the increased tax liability could result in 2,600 employee layoffs even if none of the facilities were forced to close and that number could grow to more than 4,500 if forced closures were necessary – a consequence that would cut current payrolls by $150 million annually.

Siegelman, whose group was commissioned by the Iowa Gaming Association to analyze the impact of Branstad's proposed gaming tax increase, said the financial fallout also would negatively impact state tax collections, jobless benefit payouts, revenue to local communities that share in gaming tax receipts and business activities for thousands of Iowa vendors that provide food, supplies and services to the casinos and racetracks.

According to Siegelman's three-page summary, vendors doing business with state-licensed casinos potentially could lose as much as $265 million in yearly sales if the negative impacts envisioned from the gambling operations would could to fruition. Overall, he said the ripple effect could jeopardize up to 6,800 jobs, cost about $940 million in consumer spending in Iowa and diminish total personal income of Iowans by $190 million as a result of Branstad's proposed tax increase.

“Notwithstanding the widely held perception that the industry is awash in cash, we found that four facilities currently show negative corporate equity. Another five had income on their books of less than $10 million – much of which may already be obligated in support of loans,” according to Siegelman's report. Interviews with individual casino managers indicated they likely would consider “downscaling” by reducing payrolls, amenities, purchases and advertising if confronted with a proposal to raise taxes of 22 percent for riverboats and 24 percent for racetrack casinos to 36 percent as the governor has proposed.

Branstad proposed the tax increase to generate $195 million in new receipts that would offset his plan to reduce the state corporate income tax from 12 percent to 6 percent. He scoffed at suggestions that the proposed casino tax increase would jeopardize their operations and noted the gambling facilities have “an army” of lobbyists at the state Capitol protecting their interests.

“The governor's position remains clear, and that is if we are going to have job growth in Iowa, it will come from the thousands of small businesses who locate or expand here, not from the existing 18 casinos,” said Branstad spokesman Tim Albrecht. “Iowa needs to be at a competitive advantage, and currently, we are in an uncompetitive situation due to our tax and regulatory restrictions on businesses. The casinos have been successful, and we believe they will continue to flourish under Gov. Branstad's proposals.”

Wes Ehrecke of the Iowa Gaming Association – an umbrella organization for the state-licensed casinos which commissioned the Siegelman study – said the governor's proposal has not generated much legislative support this session and they want to keep it that way.

“We want certainty. We'd like to see this completely put to bed and that has not happened. We're going to vigorously oppose this,” Ehrecke said. “We're not crying wolf. This would have a serious impact on the industry. This would jeopardize businesses that have invested millions based on a specific rate.”