Pennsylvania may use slot bonds to cut taxes

Wednesday, July 28, 2004 | 9:23 a.m.

BLOOMBERG NEWS

Pennsylvania may speed up $1 billion in property tax cuts by becoming the second state to sell bonds backed by slot-machine revenue, Treasurer Barbara Hafer said.

Pennsylvania's Legislature earlier this month approved installing about up to 61,000 slot machines at horse-racing tracks and other sites. Hafer said 34 cents of every dollar put into the slots will go for property tax cuts. Selling bonds would allow the state to cut taxes immediately rather than wait until slot revenue grows enough to pay for them, Hafer said.

West Virginia is the only state that has sold bonds backed by slots, said Robert Kurtter, senior vice president of Moody's Investors Service. Investors would be cautious about buying until they learned more about the bonds, said Paul Brennan, vice president of Nuveen Asset Management, in a phone interview.

"This could be a highly rated issue if structured right," said Brennan, who manages $1 billion in five Pennsylvania bond funds. "It depends on the amount borrowed and estimates of the revenue stream."

Hafer, in an interview from Boston where she is attending the Democratic National Convention, said the state might dedicate only some of the projected gambling revenue to paying off the bonds.

"There's talk about issuing bonds against future gambling revenue," Hafer said. "It would jump-start the property tax relief."

The treasurer said the state might wait until it has collected the slot revenue for a year before it goes ahead with the bond sale. A committee will be formed in the next two months that would make the decision on whether to sell bonds and speed relief to taxpayers.

Kurtter said slot machine bonds may emerge as a new source of securities as additional states consider expand gambling.

"We're starting to see a much more aggressive penetration and interest in states for slots," Kurtter said in a phone interview from his New York office. "So, we may be seeing more bonding programs like this."

He said part of the risk for the bonds would be uncertainty over future competition, particularly as other states, such as Ohio and Maryland, consider more gambling sites.