SCRANTON, Pa. -- Pennsylvania's move to expand gambling may have limited fiscal upside, said Moody's Investors Service.
On May 24, the state Senate passed a bill allowing the state to add online intrastate gambling. Proponents expect the measure to provide nearly $150 million to the deficit-riddled state.
The bill will return to the House of Representatives for debate next month.
"We think ultimately some form of online gaming will be introduced in Pennsylvania since lawmakers need revenue to close a persistent budget deficit," Moody's senior vice president Peggy Holloway said May 25.
"However, it is less clear how much the casinos in the state will actually benefit from a profit perspective due to the high tax rate, associated fees and other considerations."
Moody’s, Fitch Ratings and S&P Global Ratings have cited budget imbalance and pension underfunding in downgrades to Pennsylvania's general obligation bonds over the past three years.
Moody’s rates Pennsylvania GOs Aa3 with a stable outlook. Fitch and S&P each assign AA-minus ratings with outlooks of stable and negative, respectively.
Under the Senate version, existing licensed casinos and other entities could offer online poker, blackjack, roulette and slots. Existing licensees have an exclusive 90-day period to file for an interactive gaming certificate, and if they don’t apply, they cannot apply for two years.
Pennsylvania has 12 brick-and-mortar casinos, operated by the likes of Caesars Entertainment, Penn National Gaming, Las Vegas Sands and Mohegan Sun.
An interactive gaming certificate would cost $5 million for poker and $5 million for other games, plus $250,000 every five years. The number of interactive gaming certificates for each type would equal the number of slot machine licenses the gaming board issues.
The tax rate is 16% on poker and 54% on other games.
"There are added costs for advertising, payment processing and geo-location services, and so the proposed 54% tax rate would eat into online profits," Holloway said.