Gov. Martin O’Malley and state legislators must stop fooling themselves. The rules governing how slots take root in Maryland doomed them from the start.
The running of the 124th Preakness Stakes this weekend on a track owned by bankrupt Magna Entertainment Corp. is a perfect example of why. Slots were supposed to subsidize a downtrodden industry. But the opposite is true: Taxpayers are potentially on the hook for buying race tracks because promised revenue has all but evaporated.
That’s why Marylanders need a do-over – or at least a partial one. Sending the constitutional amendment allowing slots back to the people is not worth the debate it would generate given the years of rancor surrounding the issue.
But legislators next year can and should lower the taxes collected by the government and eliminate the fees associated with the bidding process. That would open the process to more people, not just those with millions to burn, and give bidders the incentive to maximize their investment, ultimately bringing more money to the state.
The current terms outlined in the legislation passed in November require bid winners to return 67 percent of revenue to Maryland – one of the highest tax rates in the nation. Combined with the downturn in the economy and credit freeze, the tax rate did not lure many potential investors. Only six groups bid for five licenses, a horrible turnout regardless of the economic circumstances.
Two of those bids didn’t make the cut because they did not include the required fees. That leaves four developers for locations in Anne Arundel, Cecil and Worcester Counties and Baltimore City. Baltimore-based Cordish Cos. proposed to build the largest facility at Arundel Mills Mall with 4,750 slots. Overall, the state has bids for fewer than half of the 15,000 machines permitted by the amendment.
That means Maryland is poised to earn less than half of the $600 million government analysts estimated slots would generate each year. And it could be under $100 million per year if the Anne Arundel County Council rejects the Cordish plans. At that rate, it could not even afford to buy the race tracks without an extra infusion of taxpayer dollars; Magna bought a controlling interest in Pimlico Race Course and Laurel Park in 2002 for $117.5 million.
It’s not clear if members of the Anne Arundel County Council will pass the bill. They have delayed a vote multiple times on slots, giving residents opposed to transforming the mall into the entertainment Mecca promised by Cordish time to mount a vigorous campaign against it.
The Video Lottery Facility Location Commission is in the middle of reviewing the four proposals. It is poised to deliver a yes or no answer to the bidders by the fall, according to Donald Fry, the chairman of the commission.
Instead of pondering the bids, Fry and the other members should delay a decision on them until after the next legislative session ends. That would give legislators the ability to make the licenses more attractive to bidders without eliminating those who have already submitted proposals. In the interim, the state should return licensing fees immediately to all those who submitted them.
As a 2003 Maryland Public Institute Policy report by Jeffrey Hooke and Thomas Firey said, a “reverse auction” would have been the best way to sell the licenses. They proposed letting bidders compete against one another to offer the best deal to the state and estimated that a process structured that way could generate about $1.6 billion in tax revenue per year.
While starting over is no longer feasible, reworking a process rigged to eliminate all but the richest bidders and discourage large investments in a way that satisfies both the law and fairness makes sense. It could delay projects already proposed, but the payoff is worth the wait so long as taxpayers are not put on the hook for a bigger government in the process.
Examiner columnist Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute.
