RI Has No Plan to Deal with $307M in Looming Deficits

Rhode Island is headed for a likely loss of hundreds of millions of dollars in revenue, punching ever deeper holes into its annual budgets, thanks to the expansion of casino gaming in Massachusetts.

State officials have known about how much they can expect to lose at least since January 2012, when a consultant's report showed Rhode Island losing $108.8 million a year in casino gaming revenue by 2017. And that was a best case scenario. The worst case had the state bleeding $158.4 million by 2017.

Two years later, state officials have yet to develop a plan to deal with the looming deficits.

“We do not have a plan to replace any revenue that is lost in the gaming area,” said Ed Mazze, an economist and business professor at the University of Rhode Island. “There is no plan.”

For a time, there was a glimmer of hope: a grassroots anti-casino movement gained steam, successfully getting a question on the ballot that would allow voters to repeal the 2011 law that allowed for the expansion of casino gaming in the Bay State. But such hopes were extinguished in Tuesday’s election, after Massachusetts voters rejected the measure on a vote of 59.5 percent to 40.5 percent, according to an Associated Press tally.

“Now we’re in a situation where the state is going to lose revenue not only from the gaming part but from the other businesses that support that industry,” said Mazze, who authored a study on the impact of expanded gaming at Newport Grand.

The impending revenue loss posed by competition from Massachusetts was compounded by the defeat of a plan to expand table games at Newport Grand, where gaming-generated revenues for the state have already slumped from $50 million to $25 million, according to Joe Paolino, who led a team of investors and developers who would have poured $40 million into remaking the Newport Grand into an entertainment center with amenities such as a health spa and theater.

Paolino says he is now concerned that state revenues may drop further. (There’s also a risk to jobs. His proposal would have added 350 jobs, not counting an additional 400 construction jobs, according to Paolino.)

Without table games the concern is that Newport may be unable to compete with full-fledged casinos in Massachusetts: Mazze predicts that the facility could close within a few years, meaning the loss of yet more revenues for Rhode Island.

‘We are not aware of a plan’

Updated figures on the losses are expected to be presented to the Revenue and Caseload Estimating Conference today. Paul Dion, the chief of the Office of Revenue Analysis for the state, declined to release any preliminary figures to GoLocalProv, but he said the current approved locations for casinos in Massachusetts are close to what was envisioned as a likely scenario two years ago.

Under that scenario state gaming revenues were expected to drop from a high of $364.6 million in 2014 to $242.2 in 2017. And that was with the approval of table games at Twin River Casino in Lincoln.

Over four years, the loss could amount to $307 million.

GoLocalProv asked several key state policy makers what the state’s plan for absorbing the loss of revenues in a budget that has already been battered by spending cuts and other recession-driven measures to streamline expenditures. The answer across the board: the state doesn’t yet have one.

“To my knowledge, there is no formal plan at this time to address the revenue shortfalls that will likely result from the onset of legalized gaming in MA,” Dion wrote in an e-mail yesterday.

The same question was posed to other state officials.

“How to address the revenue loss will be determined as part of the annual budget process. There has been no specific analysis done as to how to make up the shortfall attributable to MA gaming. We have accounted for the projected losses in our five year forecasts, so they are at least identified for decision makers to consider when examining budget options and their long-term impact,” said Thomas Mullaney, the state budget officer.

“We are not aware of a plan,” added Faye Zuckerman, spokesperson for Governor Lincoln Chafee.

Dion said the first hit to revenues will be felt in the budget for fiscal year 2016. That’s the one state officials are just now beginning to work on. It will be Governor-elect Gina Raimondo’s first budget once she takes office next January. “Any deficit that exists in FY 2016 will have to be resolved in the Governor-elect’s FY 2016 Recommended Budget. This can be accomplished through expenditure reductions, revenue enhancements or some combination of the two,” Dion said.

A spokesperson for Raimondo did not respond to a request for comment.

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There may not be a comprehensive plan in place, but that doesn’t mean state lawmakers and other officials have neglected the issue, said state Rep. Raymond Gallison, a Bristol Democrat who is the chairman of the House Finance Committee. “I think we started working on it last year,” he told GoLocalProv.

Gallison is still relatively new in his seat as House Finance Chairman, a position he did not assume until March of this year, when a new leadership team took charge after the resignation of House Speaker Gordon Fox after a joint FBI and State Police raid on his offices in an apparent investigation. Gallison noted his team had just 12 weeks to put together an $8.7 billion for the state.

He said the solution rests in pursuing measures to retain and attract businesses. He pointed to the reduction of the corporate tax rate from 9 to 7 percent and the raising of the exemption for the estate tax from $922,000 to $1.5 million—measures included in the budget—as examples.

“We cannot raise taxes. We know that that would cripple us,” Gallison added.

Gallison expressed confidence that the state would have a plan in place to deal with the lost revenues by the time is has hashed out a budget for the upcoming fiscal year. “We’re taking it very seriously,” he said. “We have to do it.”

Casino puzzle in Massachusetts almost complete

Massachusetts is eyeing three resort casinos and a slots parlor, to be distributed throughout various regions throughout the state. So far, three out of four locations are known, as are the casino developers. MGM Resorts is coming to Springfield. Wynn Resorts will be opening a casino in Everett.

A slots parlor is also in the works for Plainville.

That leaves a third resort-casino. Gallison worries that the leading candidate for a host community is Somerset, Massachusetts. If that community is ultimately chosen, he warns of “serious, serious economic impacts” due to the competition that would be posed to Newport Grand.

Paolino said the New England Governors’ Conference should have coordinated the locations of casinos in their respective states to avert any one being adversely affected. He declined to fault any state leaders in Rhode Island for taking initiative on the issue. (Instead, he expressed confidence that Raimondo and House Speaker Nicholas Mattiello are up to the task.)

Economist: state economy needs to be rebuilt

Gallison likewise declined to criticize his predecessors for not planning for a revenue hit that has now been a part of revenue forecasts at least since early 2012, noting that state policy-makers have had to confront a myriad of other issues, such as steering the state through the recession.

And that’s part of the problem, Mazze said. “We tend to deal with one crisis at a time and we don’t resolve the crisis. The crisis just never seems to go away.”

Recent history is not lacking in examples: “When the 38 Studios thing blew up, we had no other plans,” Mazze said.

Put simply, he said the state needs to work on rebuilding its economy. That won’t happen until state policymakers, business leaders, and other groups like unions start focusing on what the state’s strengths and assets are. We should be talking more about what we’re good at instead of talking about things we think we can get but that other states already have, Mazze said. (His example of a state strength: the hospitality industry. A sought-after strength: a bio-chemical or nano-tech industry.)

“We need to have a much more thorough discussion about what Rhode Island would like to be when it grows up,” Mazze said.

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