Gaming stocks fall on proposed N.J. tax hike

Wednesday, Feb. 5, 2003 | 11:12 a.m.

SUN STAFF AND WIRE REPORTS

Shares of casino companies including Harrah's Entertainment Inc. and Trump Hotels & Casino Resorts Inc. fell Tuesday after New Jersey Gov. James McGreevey proposed raising casino taxes to plug a $5 billion budget deficit.

McGreevey, in his 2004 budget, proposed raising the tax on revenue from Atlantic City's casinos to 10 percent from 8 percent, and taxing the value of free rooms and meals that casinos give to gamblers at a 7 percent rate.

Shares of Harrah's, operator of the Harrah's and Showboat casinos in Atlantic City, fell $1.40 to $35.20 in New York Stock Exchange composite trading, while Trump Hotels, which runs three casinos there including the Trump Taj Mahal, fell 18 cents to $2.22. Park Place Entertainment Corp., the biggest casino operator in New Jersey, fell 42 cents to $7.18. Aztar Corp., owner of the Tropicana, fell 73 cents to $11.92.

The proposal would generate $135 million in additional taxes from the state's Atlantic City casinos, which had 2001 gambling revenue of $4.2 billion. The taxes would cost Harrah's 14 cents a share in annual profit and Park Place Entertainment Corp. about 8 cents a share, analysts estimated. The proposal would halt casino development and may force job cuts, the companies said.

"We've created 50,000 jobs in Atlantic City -- why would you want to hurt that?" said Republican State Sen. William Gormley, whose district includes Atlantic City.

Casino gambling, legalized in New Jersey in 1976, has contributed $5.4 billion in aid to state programs, according to the Casino Association of New Jersey. Atlantic City is the second-largest casino market behind Las Vegas.

McGreevey, a first-term Democrat, said dealing with the budget gap "demands sacrifice." The $23.7 billion budget would cut 109 programs and 1,000 jobs.

New Jersey is among several states, including Nevada, looking to raise gaming and other taxes that casino resorts pay.

"Gaming has always been one of the first looked to for tax dollars, whether it be legalizing gaming in new states or potentially raising taxes in other states," said Marc Falconi, a Deutsche Bank casino industry analyst.

Last year Illinois took similar action in a budget crunch, boosting the top tax rate for casinos. Plans for "racinos" -- racetracks equipped with slot machines -- have gained momentum as potential budget-boosters in Maryland, Pennsylvania and elsewhere.

Gambling proponents say new casino taxes are counterproductive.

"It's bad economics, because what happens is that you end up retarding capital investment, retarding economic expansion," said Frank Fahrenkopf Jr., president of the American Gaming Association.

In Atlantic City, where casinos are a $4.4 billion-a-year business, the proposals are about as welcome as a black cat in a baccarat pit.

"He'd be killing the golden goose," said Dennis Gomes, president of the Casino Association of New Jersey.

Gambling officials say new taxes could force casinos to reconsider expansion plans worth millions of dollars and to lay off workers. And they warn the suffering wouldn't be limited to casino balance sheets.

New Jersey casinos, through the 8 percent tax, raised $348 million last year to underwrite a state prescription drug program for seniors and the disabled. The money also goes toward home heating costs, transportation and home-delivered meal programs for those who qualify.

"The time is right for the states to use this political climate as an opportunity to deliver bad news, but this proposal is the wrong piece of bad news," said Michael Pollock, publisher of Michael Pollock's Gaming Industry Observer, a newsletter about Atlantic City casinos.

The die isn't cast yet, though.

Republican state Sen. William Gormley, a casino industry proponent who chairs the Senate Judiciary Committee, promises to oppose the governor's plan.

"Why say, 'Raise these fees' and just focus on them? What you do is create an environment that does not attract that initial investment," Gormley said.