What’s at stake with Pennsylvania online gambling regulation?

by , Apr 30, 2017 | 10:25 pm

Pennsylvania has been contemplating various approaches to regulating online gambling for the better part of the current decade. Each session to date, lawmakers have failed to act – despite the increasingly significant pressure of an escalating budget gap.

That gap – forecast to be in the area of $3 billion by many reports – can only be closed in two ways. The state can either cut spending, or take in more revenue.

Where can Pennsylvania find the money?

It does not appear that the first option is a viable one. Pennsylvania may be able to realize some savings from consolidating agencies and other efficiencies. But for those savings to approach hundreds of millions of dollars, let alone billions, would be a surprising outcome.

The leaves option two: more revenue. The traditional path for a state looking for more revenue has been to raise taxes. But politicians on both sides of the aisle in Pennsylvania have made it clear that they’re not interested in raising taxes. That includes an opposition both to increases in personal or business taxes.

States do have a few other options for raising revenue. They can privatize state-run industries. Pennsylvania considered this route with the state lottery a few years back, but the initiative collapse with no small amount of scandal and is unlikely to be proposed again. Other privatization efforts may help to chip away at the budget issue. But those efforts have yet to be articulated by legislators or observers. That suggests there is not a silver bullet for Pennsylvania’s budget problems waiting in the privatization wings.

Another option: Regulate existing industries, or introduce new industries to regulate. This is where online gambling comes in.

How much revenue could regulated online gambling produce for Pennsylvania?

Pennsylvania would realize two streams of revenue from regulating online gambling. The first: upfront license fees paid by operators and suppliers. The second: ongoing tax revenue from the operation of regulated online casino and poker games.

How much could Pennsylvania expect from upfront licensing fees? According to one report, the state could receive in excess of 100 million dollars from license fees charged to operators and the companies that supply them. That money would provide Pennsylvania with an immediate injection of revenue. License fees would be guaranteed and collected by the state before the first online casino took its first bet. In addition to upfront licensing fees, Pennsylvania would realize additional fee-based revenue in the long run thanks to renewal charges for both operators and suppliers.

The second source of revenue from regulated online gambling in Pennsylvania: ongoing taxation. Legislation currently in play in Harrisburg calls for tax rates upwards of 25% on gross gaming revenue (GGR) – basically a tax on house win. Based on the performance of regulated online gambling in New Jersey, experts expect that Pennsylvania will collect upwards of $72 million a year in GGR taxes once the market reaches maturity.

A meaningful step toward a balanced budget

Put it all together, and you’re left with one strong piece for completing the puzzle that is Pennsylvania’s budget deficit. The state receives a significant amount of money right at the start. Then the state can count on a regular stream of escalating tax payments from regulated online casino and poker games, much as Pennsylvania has benefited from the taxation of similar games at land-based casinos spread across the Keystone State.

Regulated online gambling alone will not close the gap. But in a state where raising taxes is not an option, and savings are hard to come by, it would be a strange choice by lawmakers to continue to ignore an option that could quickly provide material relief to what will otherwise devolve into a continually worsening financial situation.

 


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