Pennsylvania Lottery. Substitution Effect. Gamblin

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Economic Cost Benefit Calculation for
Pittsburghs Casino Project

• Prepared by
• Mike Mucha ? Elliot Schwartz ? Matt Voit
• May 3, 2006
• Public Expenditure Analysis

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Act 71

• Gambling Legislation was approved July 4, 2004
• 14 venues are expected to produce about 1
  Billion in tax revenues from a 34 tax
• Plans for 61,000 slot machines in PA
• Pittsburgh was granted one stand alone casino

Source Barnes, Tom. 1/2/2005, Pittsburgh Post
Gazette, online www.post-gazette.com/pg/05002/43
5951.stm, 4/30/06.
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Costs and Benefits of a Pittsburgh Casino

• Benefits
• Government Revenues
• Social Benefits
• Costs
• Social Costs
• Substitution Effects
• Synthesis

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Benefits
PITTSBURGH
Pennsylvania
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Benefits

• Tax Revenue
• Local Tax
• County Tax
• Business Privilege Tax
• Property
• Earned Income
• Payroll
• EMS Fee
• Hotel Tax
• Development Fund

• Employment
• Construction
• Operation
• Secondary (Related)
• Giveaways
• Food and Beverage
• METB

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The Slots Law created 14 PA casinos
Source PA Gaming Control Board
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Benefits from Pittsburgh Casino
Additional Spending
Incremental Taxes
Giveaways
METB
Employment
Calculations based on data contained in Economic
Impact Study conducted by Christiansen Capital
Advisors, LLC for Forest City Enterprises and
numerous Pittsburgh Post Gazette articles
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Total benefits total 3.4 Billion for the first
10 years of operation
Calculations based on data contained in Economic
Impact Study conducted by Christiansen Capital
Advisors, LLC for Forest City Enterprises and
numerous Pittsburgh Post Gazette articles
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Tax paid by Allegheny County residents is not an
incremental benefit
Calculations based on data contained in Economic
Impact Study conducted by Christiansen Capital
Advisors, LLC for Forest City Enterprises and
numerous Pittsburgh Post Gazette articles
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Costs
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Indirect Costs

• Gambling Addiction
• Social Services
• Pittsburgh Police
• Pittsburgh Fire
• Emergency Medical Services
• Pennsylvania Lottery

Substitution Effect
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Gambling Addiction

• The estimated population of Allegheny County in
  2007 is 1,228,486
• Allegheny County Population change per year
  -.6
• Pathological Gamblers .9
• Problem Gamblers 2.00
• Cost to Society per compulsive gambler
• Low estimate 14,006
• High estimate 22,077
• Increase in Gambling because of opening of Casino
• Low estimate 1.5
• High estimate 2.5
• The first year the Casino opens, the increase in
  the cost to society is 199,158,787 - 523,207,737

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Police

• The Casinos underestimates 3 key factors
• The number of officers the City of Pittsburgh
  needs to hire
• The cost to hire them
• The increase in Casino related crimes.

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Fire

• The Fire Station in the Hill District that would
  service Isle of Capri CLOSED.
• The closest fire station would be in the Strip
  District, Mercy Hospital, or Upper Oakland.
• Underestimates the number of firefighters needed
  to service casino (2 firefighters).
• A fire station on the development site would be
  beneficial especially since the recent station
  closing in the nearby Hill District
• - Fire Chief Huss

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Emergency Medical Services

• 60 of medical emergencies at a Casino require
  transportation to a hospital.
• The Casino will then need to call on the
  Pittsburgh EMSs resources.
• Isle of Capri estimates that EMS resources will
  only be needed 322, which is a 1 increase

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Pennsylvania LotteryBenefits Older
Pennsylvanians. Every Day

• Benefits Program gets less funding
• Property Tax and Rent Rebates
• Shared Ride/ Free Ride Programs
• PACE (Pharmaceutical Assistance Contract for the
  Elderly)
• PACENET (Pharmaceutical Assistance for the
  Elderly needs Enhancement Tier) 
• Area Agencies On Aging
• Hot Meals Program

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• With a Casino the Benefits Program for Allegheny
  County looses 7,467,919 in the first year
• By year 2018 the Benefits Program receives
  135,125,206 LESS a year.

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Grandma Becomes Unhappy ?
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Synthesis
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Do the costs and benefits add up?

• Assumptions
• Cash flows start one year from now
• Budgetary cycle parallels costs and benefits
• Multiplier Effects 1.75
• Discount Rate 7
• Inflation 3
• Revenue streams from the casino begin in year 3.

Calculations based on data contained in Economic
Impact Study conducted by Christiansen Capital
Advisors, LLC for Forest City Enterprises and
numerous Pittsburgh Post Gazette articles
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Discounted cash flows suggest Pittsburgh and the
casino win

• NPV Result 143,013,456 over 12 years.
• City of Pittsburgh looks like a winner
• Harrahs estimate was 7.7 billion

Calculations based on data contained in Economic
Impact Study conducted by Christiansen Capital
Advisors, LLC for Forest City Enterprises and
numerous Pittsburgh Post Gazette articles
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Results are sensitive to discount rate and
benefit multiplier

• Analysis can be quite limited due to sensitivity
  of these two parameters.
• Multiplier Effects Range (r7) from 1.6
  billion loss to 613 million net gain.
• Discount Rate (M 1.75) 52 to 173 million
  NPV
• No discount rate or multiplier effect used in
  Harrahs (as far as we know)

Calculations based on data contained in Economic
Impact Study conducted by Christiansen Capital
Advisors, LLC for Forest City Enterprises and
numerous Pittsburgh Post Gazette articles
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Games of chance are uncertain
Calculations based on data contained in Economic
Impact Study conducted by Christiansen Capital
Advisors, LLC for Forest City Enterprises,
Pittsburgh Post Gazette articles and academic
research regarding the social cost of gambling.
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Pittsburgh Do you feel lucky?
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Monte Carlo Analysis argues that the casino is a
risk worth taking
Results indicate that there is a 4.3 chance the
casino will have a negative NPV!
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Questions? Comments?