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politics

The Great Casino Myth

The mayor's excited about Toronto getting up to $200 million a year from casinos. Based on all publicly available information, there's no reason to think that will happen.

Today at City Hall the powerful Executive Committee will debate, and almost certainly authorize, a round of public consultations about the prospect of building a casino in Toronto. Their discussion—and any public consultations that follow—will be based on a report prepared by City staff, with the help of external consultants Ernst & Young, which outlines the economic impact a casino here might have. Rob Ford has been touting the report’s findings, which he says include the tantalizing prospect of putting $200 million a year into the municipal government’s bank account. Indeed, the day the report was released, most articles in the mainstream press suggested the same thing.

Those numbers, however, are worse than hypothetical—they are entirely misleading.

Municipalities get a portion of the gaming revenue from the facilities they host, according to a calculation determined by the province. Currently, different municipalities earn revenue at different rates based on what kind of site (racetrack, casino, or resort casino) they have. A few months ago the Ontario Lottery and Gaming Corporation released a modernization plan, a blueprint for streamlining its operations and increasing its revenue, with an eye to helping fight the province’s $14 billion deficit. Part of that strategy is to introduce a new revenue-sharing formula, one which is “consistent across municipalities,” and based simply on the level of revenue at a gaming site. Though calculated differently, the OLG’s goal is to have municipalities wind up with roughly the same portion of revenue in the new formula as in the old one. “OLG’s perspective,” writes Ernst & Young in its report, “is that any growth in the amount of hosting fees paid to a municipality would be driven by increases in the number of customers and customer spend rather than a greater proportion of the gaming revenue.”

The table at right shows the new formula, based on Ernst & Young’s discussions with the OLG (note that municipalities only get a portion of slots revenue, not revenue from all games). According to that formula, an “integrated entertainment complex” (a casino plus hotels, restaurants, and other attendant developments) would get Toronto between $16 and $18 million a year. If you add in the expected property tax increases, we’re up to somewhere between $28 and $45 million of new revenue each year.

And that’s the catch: the dazzling number promised in the report—that shiny, siren-song $200 million—isn’t based on that new, streamlined, consistent formula. It is based, rather, on the notion that Toronto, because of its particularly lucrative location compared to other potential casino sites in the province, deserves to get a greater share of the revenue, and will be able to convince the OLG to hand it over.

Ernst & Young and the City have drawn up two scenarios to capture what they believe to be appropriate revenue-sharing options for a casino in Toronto:

A summary of projected annual revenue the City of Toronto could see from a casino. The red bar shows the OLG's new formula, the blue and green bars show "illustrative scenarios".

The first starts with the current formula and then adds a 50 per cent premium on the incremental revenue projected from placing a casino in Toronto as opposed to a suburban location. Essentially: think about how much more the province will make from a casino by building it in downtown Toronto rather than, say, Richmond Hill, and then imagine the province handing over half that money to the municipal government. “The concept behind this scenario,” explains the City staff report, “is that the City should share in the direct benefit realized by OLG and the Province from a decision to site a casino in Toronto.” This proposal would give us between $70 and $106 million a year in hosting fees.

(By way of comparison, in 2011–12 the OLG reports that host municipalities got approximately $92 million from hosting fees. Which is to say, the Toronto report envisions that we alone would get as much or more than all other cities in Ontario put together do.)

The second scenario is simpler: a 50/50 split between the municipal and provincial governments. This is where the numbers really pop: between $120 and $168 million in hosting fees for Toronto. “The equal partner approach,” the report goes on, “recognizes that, unlike the City, the Province (and Federal government) would benefit from GDP related income and sales tax revenues above and beyond a share of direct gaming revenue. Therefore, the City as host should at least be an equal partner in the direct gaming revenues from the casino operation.”

That’s a lot of “should”s. And maybe they are reasonable ones—maybe those proposals do reflect the fairest distribution of revenue, given that it’s in virtue of our infrastructure and culture that everyone wants to put a casino in here.

But you can’t take “should”s to the bank. And right now, the province has provided exactly zero indication that it would be willing to negotiate a Toronto-specific revenue sharing agreement that strays so very far from its brand new formula—one whose virtue, recall, is that it will be applied consistently across all municipalities in the province.

The OLG declined to answer our questions about whether it would consider introducing location-based premiums and the numbers contained in the Toronto report. Tony Bitonti, senior manager of media relations, was only able to tell us this: “The hosting fees will be negotiated between OLG and the City of Toronto. It is too early to speculate on exact dollar figures for hosting fees as we don’t know the type of facility Toronto will approve, or where the facility will be located.”

Right now, the safe bet is that a casino in Toronto would get us a minimum of $28–45 million. (This, like all the revenue projections above, does not account for increased costs due to new pressures on social services, policing, and the like.) $200 million? Perhaps the City could negotiate that—but as far as we know, it hasn’t yet. As far as we know, the province wants to build a casino in Toronto to help fill its own coffers, not ours.

Torontonians are being asked to weigh in on whether the benefits of a casino outweigh the costs. Some will oppose a casino on principle, convinced that no amount of money is worth the social dangers (and depending on location, the lost opportunities to build new communities by the waterfront). Some will endorse a casino just as readily, eager to use the gaming facilities or convinced that the costs are small and the potential economic spin-offs are great. (A full-fledged complex is predicted to create 6,000–7,000 new jobs, for instance.) But a great many residents are somewhere in the middle: willing to consider a casino, perhaps, if we really stand to gain enough. Maybe that $200 million is real. On the basis of the evidence before them right now though, Torontonians have no reason to believe that it is.

If the goal of public consultations is to both inform interested residents about what it would truly mean to have a casino here, and in turn to gain an informed understanding of what those residents want, those consultations needs to start with real numbers and straight talk about what they mean. Right now, neither are particularly abundant.

The City of Toronto’s report on a casino: [PDF]
Ernst & Young’s report: [PDF]
OLG’s modernization plan: [PDF]

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