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Virginia study projects $262m in tax revenue from legal casinos


The Virginia Joint Legislative Audit and Review Commission has completed its impact assessment of legislation that could see the state’s first bricks and mortar casinos constructed, projecting annual tax revenue of $262m.

However, it added, the lack of problem gambling support in the state must be urgently addressed, whether or not new gambling products and verticals are rolled out.

The study also noted that Virginia could benefit from additional tax revenue of up to $55m from legal sports betting when the market reaches maturity.

A further $84m could come from the launch of online casino gaming. As this would most likely be linked to the construction of land-based facilities, the study noted, sports betting regulations could be passed, implemented and the market launched sooner.

Ultimately the study concluded that casino gambling could have a “positive, but modest” impact on the state’s local economies.

The study was commissioned following the passage of Senate Bill 1126, which was signed into law by Governor Ralph Northam in March this year. The provisions of the bill must then be revisited in the 2020 legislative session before they can be enacted, something that Representative Barry Knight aims to do with House Bill 4, which was pre-filed last week.

It said that under the conditions set out in SB1126, five cities would be eligible to host casinos: Bristol, Danville, Norfolk, Portsmouth and Richmond. The bill states that cities must meet a number of criteria based on unemployment, property tax rates and population decline if they are to allow resort-style venues. 

In these five cities, the study estimated that each project would require initial capital expenditure of between $200m and $300m, with the venues to generate around $970m in net revenue, and $262m in gaming tax revenue by 2025. In comparison, it noted, the Virginia Lottery generates $600m per year after prizes are paid out.

These venues would benefit from out of state visitors, which could account for up to a third of each venue’s revenue. The cities of Danville, near Virginia’s border with North Carolina, and Bristol, which borders Tennessee, would rely on these visitors especially, which in turn would make them vulnerable to new venues being opened up in neighbouring states. 

While the Commission noted that no city in northern Virginia would be eligible to host a casino under the provisions set out in SB1126, a venue here would increase statewide gaming tax revenue by $155m. 

In terms of job creation, the study again highlighted Bristol and Danville as the big beneficiaries. A casino in Bristol, with a 3.6% unemployment rate currently, could provide up to 1,067 jobs, or work for 1.0% of its labor force. Danville, with a 4.1% unemployment rate, could create 1,582 new roles, meaning a casino could employ 3.2% of its workforce.

However, the report also highlighted a number of potential negative consequences from gambling expansion in Virginia. The state’s existing forms of gambling – horse racing, the state lottery and charitable gaming – would all take a hit should casinos be legalized.

Casino competition for horse racing alone could erode revenue by as much as 45%, while lottery revenue could fall by $30m and charitable gaming by $3.1m.

Furthermore, expanded gambling would lead to expanded risk of increased problem gambling levels. 

“The prevalence of problem gambling in Virginia has not been measured, but evidence from national studies and states with a broad array of gaming options suggests that an estimated 5 to 10% of adults may experience gambling problems,” the Commission explained. 

It noted that the state’s existing problem gambling prevention and treatment efforts were “minimal” despite there already being widespread public access to different forms of gambling. As such, gaming tax revenue could be allocated to fund services for those suffering from gambling harms, it suggested.

The additional tax revenue would also have to be used to cover the expanded regulatory costs. The study estimates that oversight of casino gambling would require an additional $16m in regulatory costs, though maintaining the lottery’s dual role as a regulator could achieve limited economies of scale, of up to $2m. 

In conclusion, the Commission came up with a series of 16 recommendations, which range from ensuring casinos pay licensing fees to cover regulatory costs, to probity checks for casino owners, staff, service providers and consultants. In addition, a responsible gambling strategy should be provided by each operator as part of their application. 

Licensing should be handled by a dedicated committee, which would oversee a competitive bidding process, it added.

However, it added, even if the provisions of SB1126 are ultimately not enacted, the state must establish a dedicated, stable funding source for problem gambling and treatment. 

Whether or not the Commission’s recommendations are adopted hinges upon HB4 being passed by the Virginia legislature next year. Should this happen, it is estimated that it would take at least four years before the first venue would open its doors to the public.