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December 3, 2010

Spending money to make money

Maryland's fiscal wizards were busy this week talking to the rating agencies about an upcoming deal to finance slots machines for two casinos.

If all goes according to plans in early January the state will borrow about $41.6 million to buy 1,825 machines for the the new Hollywood Casino Perryville and the Ocean Downs gaming house expected to open later this month. The price tag does not include the maintenance contracts or costs of leasing some additional machines.

Comptroller Peter Franchot and others have questioned the price the state attached to the machines. In response the state's Lottery Commission asked two outside industry analysts to evaluate the costs. Neither was overly alarmed by the costs, though their evaluations did not include millions in maintenance contracts.

The money that the state is borrowing must be paid back within five years, a time period that matches the useful life of the machines (most of the state's debt is repaid over 15 years).

Also, in this case, the debt will be repaid from Maryland's anemic general fund. For next year, Gov. Martin O'Malley would have to ask the General Assembly for a $8.3 million chunk to cover the costs.

Naturally, the state hopes to make a significant return on its investment, and revenues from the sole operating casino are exceeding expectations. The latest slots revenue projections from the Department of Legislative Services are as follows:

FY12: $105 million, from revenue at Ocean Downs and Perryville
FY13: $228 million, adds expected revenues from the casino at Arundel Mills
FY14: $448 million, adds expected revenues from a casino in Baltimore
FY15: $491 million
Posted by Annie Linskey at 2:27 PM | | Comments (1)
Categories: Slots
        

Comments

I have a couple of questions. First, there is no mention in this posting about the $660 million that voters were promised by Fred Puddester, Mike Miller, Martin O'Malley, and other slots cheerleaders during the 2008 campaign. Why are there no comments from any of these men about their failed promises? $491 million in 2015 is a travesty.

Secondly, the Amendment authorized 15,000 machines. If this level of costs ($23k each) keeps up, there will be costs of $345 million every five years coming from the General Fund. Based on some quick math, 15% of all proceeds go to buy machines. This is an outrageous amount. Why are these questions not being asked?

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About the bloggers
Annie Linskey covers state politics and government for The Baltimore Sun. Previously, as a City Hall reporter, she wrote about the corruption trial of Mayor Sheila Dixon and kept a close eye on city spending. Originally from Connecticut, Annie has also lived in Phnom Penh, Cambodia, where she reported on war crimes tribunals and landmines. She lives in Canton.

John Fritze has covered politics and government at the local, state and federal levels for more than a decade and is now The Baltimore Sun’s Washington correspondent. He previously wrote about Congress for USA TODAY, where he led coverage of the health care overhaul debate and the 2010 election. A native of Albany, N.Y., he currently lives in Montgomery County.

Julie Scharper covers City Hall and Baltimore politics. A native of Baltimore County, she graduated from The Johns Hopkins University in 2001 and spent two years teaching in Honduras before joining The Baltimore Sun. She has followed the Amish community of Nickel Mines, Pa., in the year after a schoolhouse massacre, reported on courts and crime in Anne Arundel County, and chronicled the unique personalities and places of Baltimore City and its surrounding counties.
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