The governor and the Senate president collaborate on a plan that would add video slots, cut the car tax and give revenue guarantees to the park's prospective buyer.

08:44 AM EDT on Wednesday, May 25, 2005

BY SCOTT MAYEROWITZ and KATHERINE GREGG
Journal State House Bureau

PROVIDENCE -- Governor Carcieri and Senate President Joseph A. Montalbano have struck a deal to use money from 1,750 new video slot machines at Lincoln Park to eliminate the unpopular automobile tax.

By tying the two issues together in a year when everybody is talking about tax relief, Carcieri and Montalbano raised the political pressure on lawmakers to back a complex agreement that Lincoln Park's prospective buyers are pushing for.

That agreement would lock in Lincoln Park's tax rate for the next 18 years and allow the 1,750 new video slot machines on top of the 3,002 currently there. In exchange, the track's new owners would spend at least $125 million in capital improvements to the aging facility.

In February, BLB Investors, a consortium of hotel and gambling companies, offered to purchase Lincoln Park from its British parent company, Wembley plc, for $435 million. The long-term contract is one of the conditions of the sale.

Carcieri and Montalbano unveiled the latest version of the legislation yesterday afternoon, moments before the Senate Committee on Constitutional and Gaming Issues voted 7-1 to send it to the Senate floor. The committee spent less than 30 minutes reviewing the bill.

The House Finance Committee will hear its own version of the BLB legislation tomorrow.

The measure introduced yesterday does not change much for BLB. The gambling company would still get 28.85 percent of the money from the existing slot machines and 26 percent from the new machines.

What changed is how the state would spend its cut of the money.

The largest chunk of new slot revenue would be used to eliminate the state's motor vehicle excise tax. In 1998, the state started to phase out the tax, but stopped within a few years. Currently, only the first $4,500 of a car's value is exempt from the tax.

Carcieri and Montalbano hope to permanently eliminate the tax within six years. The bill would allocate up to $125 million a year to reimburse communities for the tax loss.

Another portion of the money would go to a tax-rebate program for low-income residents and low-income elderly residents. The so-called "circuit breaker" tax-rebate program currently gives $250 back to low-income elderly, but has not benefited younger residents. This bill would double those payments and open the program up to both groups within four years. The revenue allocated to this program would be capped at $10 million a year.

Another slice of the revenue -- up to $20 million a year -- would be split among each of the state's "distressed communities": Providence, Woonsocket, Central Falls, Pawtucket and West Warwick.

Montalbano, a North Providence Democrat whose district includes parts of Pawtucket and Lincoln, pushed to increase the Town of Lincoln's share of new slot revenue from 1.25 percent to 1.5 percent. The town would continue to get 1.25 percent from the old machines -- about $5 million next year.

Carcieri pushed to give the Narragansett Indian Tribe -- which has been seeking its own casino with Harrah's Entertainment -- 5 percent of the new revenue, up to $10 million a year, to use however it sees fit.

Absent from yesterday's announcement was House Speaker William J. Murphy, who is not yet willing to sign on to the bill.

"It is a work in progress," Murphy said yesterday.

The bill does appease some House interests. Rep. Joanne M. Giannini, D-Providence, has been pushing for the elimination of the car tax for years. House Finance Committee Chairman Steven M. Costantino, D-Providence, has in recent weeks talked about reducing it.

But Murphy said the bill should include Newport Grand as part of a long-term agreement setting the state's share of revenue in exchange for investment in infrastructure.

Montalbano said he is open to the idea.

Carcieri has been a long-time opponent of gambling, particularly a casino proposed for West Warwick, Murphy's hometown.

"Why is he all of the sudden in favor of a long-term deal? In essence, it's to kill any casino legislation," Murphy said.

Speaking about the $10 million for the Narragansett Indians, Murphy said: "That was a brilliant political move on the part of the governor, because he figures now he can dissuade the Narragansett Indians from their attempt to have a full-fledged casino."

Narragansett Indian Chief Sachem Matthew Thomas said last night that "we understand and appreciate what the governor is trying to do," but "we are looking for self-sufficiency," which he said a casino could bring.

Murphy is also concerned about a so-called parity clause that would guarantee that no other gambling facility in the state would have a more favorable tax structure than BLB's.

The move has been seen as a way to block the casino, which would give the state about 25 percent of revenue, compared to the 60 percent that the state gets from Lincoln Park.

"The taxpayers in Rhode Island should not have to suffer for the price [BLB] paid on the open market for Wembley," Murphy said yesterday.

Carcieri defended the gambling expansion, saying: "We have these facilities already," and "I felt this was a good opportunity for our citizens."

Meanwhile yesterday morning, the state's Department of Business Regulation held a hearing on BLB's bid to acquire Lincoln Park's license.

BLB is a consortium of partners including hotel giant Starwood Capital and two of the original developers of the Mohegan Sun casino in Uncasville, Conn.: the Waterford Group and Kerzner International.

Top executives took turns introducing themselves in the Community College of Rhode Island classroom where the hearing was held, including gambling tycoon Sol Kerzner's son, Howard B. "Butch" Kerzner, CEO of Kerzner International. His father is chairman.

Then, lawyers from Willkie Farr & Gallagher, the New York law firm that the department hired to investigate the executives' backgrounds, explained their decision to give BLB a thumbs-up.

But animal-protection activists who testified did not let the Kerzner company off as readily as Willkie Farr, whose clients include Trump Hotels and Casinos and Colony Capital.

Colony is the company that bought Kerzner's Resorts Casino Hotel in Atlantic City. Kerzner still holds the $40-million note.

The lawyers gave no weight to allegations that Sol Kerzner paid the equivalent of $918,000 in 1986-87 to benefit the prime minister of an apartheid-era South African homeland, where Kerzner was seeking casino rights.

They also mentioned but put no credence in stories in The Boston Globe that said the principals in Kerzner and Waterford, who were partners in Trading Cove Associates, had received "an excessive share of the profits from the Mohegan Sun under the management contract they negotiated with the Mohegan Tribe."

Len Wolman, chairman and CEO of the Waterford Group, yesterday denied there were any irregularities. Willkie Farr lawyer Daniel D. Rubino said his firm did not see the report, issued in 2002 by the U.S. Department of the Interior's inspector general, that gave rise to the allegations. He said there was no need, since no one in Congress had pursued them.

The report, obtained yesterday by The Providence Journal through a freedom-of-information request, said the management contract between the Mohegan Tribe and Trading Cove Associates "exceeded the 30 percent cap" on profit-taking set by Congress for non-Indian entities, and was approved by the chairman of the National Indian Gaming Commission, over the objections of other commissioners. One year, the report said, Trading Cove's take exceeded 40 percent of the casino's net revenue.

The arrangement was ultimately judged to be outside the commission's purview. But the National Indian Gaming Commission's deputy general counsel "concluded the amount of money to be paid to [Trading Cove Associates] was egregious."

Christine Dorchak, vice president of Grey2K USA, posed this question to Department of Business Regulation hearing officer Catherine R. Warren: "Why trade one bad actor for another?"

"Allowing Solomon Kerzner to operate a gambling enterprise in Rhode Island is like putting a kid in charge of a candy shop. But in this case, the candy shop is the state of Rhode Island," Dorchak said.

Added Dennis Tabella, of the group Defenders of Animals: "What I wonder is how much time was spent talking to a black person in Cape Town. Kerzner took advantage of apartheid in South Africa. It's disgusting that we're even talking about letting a company like this come into Rhode Island."

With BLB racing to meet a self-imposed deadline, Warren agreed to try to make her decision by Tuesday.