Harrah’s New Orleans casino future doubtful without tax relief

Wednesday, Sept. 20, 2000 | 11:14 a.m.

SUN STAFF AND WIRE REPORTS

For months, speculation had been not if, but when, Harrah's New Orleans Casino will go to the Louisiana Legislature for relief from its $100 million annual state tax.

"When" is still a question. But if it's not done before March 31, the gambling hall will close, the casino's ownership company says.

"JCC Holding and this casino will not be able to remain in business after March 31 under the current weight of the $100 million payment," company President Fred Burford said during a teleconference Tuesday with financial analysts and reporters.

In remarks for his weekly radio-television address, Gov. Mike Foster said Wednesday that he was surprised a bit by the casino's statement because the deadline is right before the next regular legislative session.

But Foster said he was not prepared to call a special session because "There's no consensus. You don't call a special session until you have a consensus."

Earlier Tuesday, JCC Holding was told by the Louisiana Gaming Control Board that it is in default of its contract with the state because of the company's financial state. A casino attorney said the action was welcomed because it would focus attention on the tax issue.

Officials of JCC Holding and Harrah's Entertainment Inc. of Las Vegas said the first step in that process would be a "fair tax," lower than the current $100 million minimum, which must be paid no matter how little the casino wins.

Harrah's Entertainment, which manages the casino and holds about 45 percent of JCC Holding stock, has agreed to guarantee the daily tax payments of $274,000 through March 31. Harrah's Chief Executive Phil Satre said that unless the tax is cut, it is unlikely he would recommend to Harrah's board that the company renew the guarantee.

Harrah's has been making the actual payments for several months to free up capital for JCC Holding.

Without the tax guarantee, the state can close the casino, which has a state-granted monopoly on land-based casino gambling in Orleans Parish.

Satre told analysts and reporters that he believes that the casino, which employs about 3,000 people, can be a successful project over the long term if a flat tax rate, such as the 18.5 percent paid by riverboat casinos, is approved by the Legislature. Burford said the casino's minimum state payment translates into an annual tax rate of about 40 percent on winnings from gamblers.

Longtime casino opponent C.B. Forgotston said the move was not surprising.

"First they come in and get the exclusive right to run a land-based casino in New Orleans," Forgotston said. "They come in under the guise of this big tax they are willing to pay, run off all the competitors and then doublecross the taxpayers."

Burford said JCC Holding had been talking with hotel and restaurant trade associations about the current ban on the casino having its own hotel and fancy restaurants, but "it is much too early" to say whether the casino might seek an easing of those restrictions.

The gambling board's action gives JCC Holding seven months to show that it can pay all debts for the 12 months that started July 1. JCC Holding attorney Basile Uddo said the casino welcomed Tuesday's action because it does focus attention on the problem of payments to the state.

Burford would not speculate on whether Foster might call a special legislative session to deal with the issue.

"We are going about a process to educate the administration and the Legislature about the importance of resolving this issue before the March 31 deadline," Burford said.

The next regular session of the Legislature opens the last Monday in March, too late to deal with the question. Foster earlier said he would do nothing until after the Nov. 7 election, which includes a constitutional amendment to increase personal income taxes, abolish some sales taxes and raise an additional $200 million in the process.

The governor said Wednesday that he wanted to wait until he gets recommendations from a special panel that includes representatives of the city and the state. Foster has appointed State Treasurer John Kennedy and Commissioner of Administration Mark Drennen to the committee, but Mayor Marc Morial has said he is having trouble finding local appointees who have not done business with the committee.

Foster said if all parties agree the casino will fail without tax relief, "then it will be a business decision."

If Harrah's and JCC are successful in reducing their tax rate to the 18.5 percent paid by other Louisiana operators, Harrah's New Orleans would be able to operate at a slight profit, said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown.

"Adding hotel rooms and a greater variety of food options would clearly help make the property more profitable, but I don't necessarily think that's an option, given the strong position (against it) that the hotel association and restaurant association have in New Orleans."

"The key is that the politicians cannot afford for this casino to close its doors, both from the standpoint of taxes generated and jobs created. At some point, they have to reach a compromise with JCC or another operator on taxes to allow the casino to operate at profitability. I believe today's announcement opened the door for constructive negotiations between JCC and the state."