The Las Vegas gambling company offers that state 53 percent for slot licenses. For a "destination-resort casino" here, it offers a 25-percent rate.

01:00 AM EST on Tuesday, February 14, 2006

BY KATHERINE GREGG
Journal State House Bureau

PROVIDENCE -- For the opportunity to break into Pennsylvania's huge, new gambling market, Harrah's Entertainment has indicated that it is willing to pay the Keystone State more than twice the tax rate it has offered to pay here.

Should Harrah's get the new slot licenses it is seeking at the Chester Downs track, outside Philadelphia, and Station Square in Pittsburgh, it would have to pay a 53-percent tax.

Here, by comparison, they have offered to pay the state a graduated tax -- starting at 25 percent of the first $400 million in net gambling revenue -- for what would amount to an exclusive license to operate Rhode Island's only full-service casino.

In interviews last week, top Harrah's executives said there is no comparison between the "slot parlors" they are planning in Pennsylvania and the "destination-resort casino" they are proposing to build here in an 85-acre industrial park off Route 95 in West Warwick.

The $650-million development they have promised here includes a 500-room hotel, restaurants, spa, 2,500-space parking garage, convention center, 1,500-seat entertainment hall and 115,000-square-feet of gambling space to accomodate 3,000 slot machines and 100 table games.

"Higher tax rates, you get more casino, less resort. Lower tax rates, you get more resort, with a casino. It's simply a matter of capital investment," said Harrah's senior vice president Jan Jones.

"If you want an integrated resort where the operator is going to put in all of the retail and shopping and the spa to compete with Foxwoods and Mohegan Sun, then you need a lower tax rate," Jones said.

Arriving here late last week for a casino-strategy meeting and Friday night promotional event at a popular Federal Hill eatery, Jones' colleague David Satz took umbrage at questions about the tax disparity.

"Attack and attack and attack. It is obvious you are getting information from our competitors who have an agenda," Satz said.

But the questions are, in fact, coming from Rhode Island lawmakers who know that, within weeks, they will see a retooled version of Harrah's twice-thwarted bid to put its Harrah's-Narragansett Indian casino proposal on the November ballot.

"It may be apples and oranges in terms of what the type of venue is, and I am sure there are arguments," said House Majority Leader Gordon D. Fox, D-Providence. "We'll give Ms. Jones a chance to make her case."

But, "I think that's an issue we need to raise with them," Fox said. If they "are willing to pay an upfront $50-million application or entrance fee and then commit to paying [53] percent . . . We need to find out exactly what's going on in Pennsylvania."

"There may be a different market situation in Pennsylvania than there is in Rhode Island," said House Finance Committee Chairman Steven M. Costantino. But "certainly it is the intent of Finance to do what's best for the State of Rhode Island in terms of license fees [and] tax rates," Costantino said. And, "one of the things we look at in Finance is what other states are doing . . . what relationship the tax rates are to investment and the type of casino."

Harrah's excursion into the Pennsylvania gambling market is the result of Act 71, signed on July 5, 2004, that permitted up to 61,000 new slots at 14 sites.

Among the stated aims were job-creation, property-tax relief and the revival of the state's horse-racing industry.

The law allows up to 500 slot machines at each of the two resorts, in exchange for a $5-million license fee. It also permits up to 5,000 slots at each of five casinos and seven racetracks. The fee for each license: $50 million.

And it is in these latter two arenas that the Las Vegas-based Harrah's and its partners are seeking two of the new licenses.

In June 2004, Harrah's -- which already had an ownership stake in five other racetracks in Louisiana, Iowa and Kentucky -- announced it had won the approval of the Pennsylvania state harness racing commission to acquire a 50-percent interest in Chester Downs & Marina, a harness track approximately six miles south of Philadelphia International Airport.

Satz said the track is slated to open this spring and the slot license will follow if Harrah's and its partners pass what he described as an integrity review.

With no hotel, Satz said the development is more akin to the Lincoln dogtrack than either of the two big Connecticut casinos with which Harrah's hopes to compete in West Warwick.

Harrah's also has casino plans for Pittsburgh's Station Square, described by its owners as already "the most successful tourist attraction in Western Pennsylvania."

On January 23, Harrah's partner in that project, the NYSE-listed national real-estate company, Forest City Enterprises, issued a glowing description of it that promised "ground-floor retail, sidewalk dining and cafe eateries, a 400,000-square-foot, $512-million Harrah's Station Square casino with 3,000 slots, an additional 200 rooms at the Sheraton Station Square Hotel and 1,250 residential condominium units."

"The plan also allows for future expansion of the casino to 5,000 slots and the creation of a new hotel tower with 300 to 500 rooms."

For this lone casino license within Pittsburgh city limits, Harrah's and Forest City have competition.

On January 24, the Pittsburgh Post-Gazette quoted Jones as saying: "It's more than just a slots parlor,"

But in an interview here last week, Jones said Harrah's is only contributing $80 million toward the proposed $512-million investment and its role is limited to managing a "slot parlor," in which Harrah's would have no ownership.

"You throw these tax rates around like there is no difference. There is a huge difference," said Satz when questions about the tax disparity first surfaced last week.

"It is one of the larger capital investments ever in this state, but you don't report that," said Satz, of the Rhode Island proposal.

In the 11 states with commercial casinos, tax rates run the gamut. With dozens of gambling outlets each, Mississippi levies a 4 percent "state gaming tax," and Nevada, 6.75 percent. By comparison, Illinois' graduated tax ranges from 15 percent to 70 percent.

The two existing slot parlors in Rhode Island -- Lincoln Park and Newport Grand -- each pay the state approximately 60 percent of their slot revenue. Between them, the two cash cows are expected to generate $267.1 million for the state this year, and $305 million next.

kgregg@projo.com / (401) 277-7078