In what’s beginning to feel like a Rhode Island tradition, seven ballot questions will be posed to voters on November 6 having to do with casinos and debt. Those with a personal financial or ideological stake are making their cases, but small-government, free-market ideals should lead voters to be wary of the pitches.
On questions 1 and 2, authorizing state-operated table games at Twin River and Newport Grand, making them full-fledged casinos, a philosophically free-market perspective isn’t opposed to gambling as a business. However, it does raise concerns about the implications of any “state-operated” businesses. Given not only the state’s disproportionate stake in the success of these two enterprises, but also the occupational interests of the state employees hired to “operate” them, the risk is high that they will be favored in terms of policy in the larger marketplace.
When push comes to shove, will the Rhode Islander residents and businesses that make up the regular tax base be a priority, or will the two businesses that provide up to a 60% cut to the state government?
The genesis of this legislation is a good example. After months of public discussion premised on a report that assumed a 35% revenue take for the state, the final agreement calls for 16-18%, and it isn’t clear who the negotiating parties were. Moreover, as presented to the Joint House and Senate Finance Committee, by 2017, the state is projected to receive $8.0 million annually from table games while losing $112.7 million from video slots. Meanwhile, Twin River will receive $38.4 million from table games, but take only a $45.2 million hit on video slots.
That begins to look like a special deal for the companies that operate the facilities, not “revenue protection” for taxpayers. In essence, the argument has become that the state must take the blow for Massachusetts casinos so that Twin River and Newport Grand stay in business at all, which seems like a specious position designed to keep the private interests nearly whole.
If the state’s two gambling facilities have difficulty competing, then the government should ease its grip on the industry so they (and others) can innovate, not double-down on the risky model.
On questions 3 through 7, a strong preference against public debt should combine with a belief that the state should focus all of its attention on addressing our dire economic circumstances. According to the Secretary of State’s ballot handbook, the total cost of the intended projects is $208,164,000, while the projected interest and fees to borrow total $99,407,716. In other words, the expense to finance these projects is nearly half the total cost of undertaking them, or nearly $5 million per year over the 20 year amortization period
If the state were to save for such projects, rather than borrow, it would only have to put aside about $7 million per year, with a 4% return on investment. By contrast, the total cost of the bonds, $307,571,716, comes out to $15,378,586 per year for 20 years.
After a budget year in which the state broadened the sales tax to include new services like taxi rides and pet care to increase revenue by a little bit less than $10 million per year, new spending even greater than that should not be undertaken lightly, especially when none of these bonds is likely to have any real effect toward creating permanent jobs for Rhode Islanders.
Indeed, they are arguably at odds with economic recovery, as the government uses borrowed money to buy up and otherwise restrict the use of land within its borders. At cross purposes, borrowed money would also be used to increase and subsidize low-income housing, which may serve further to reduce the value of less expensive houses on our deflating real estate market. That is, by reducing the land available for housing, the state limits the opportunity for private affordable developments, and by subsidizing such housing, it distorts the value of Rhode Islanders’ property.
If the state is going to undertake hundreds of millions of dollars in new spending, as these bonds provide, elected representatives should instead consider funding substantial changes that would have a dramatic and positive effect on the local economy. The RI Center for Freedom & Prosperity’s study of the effects of eliminating the sales tax, for example, found that a four-year phase-out would reduce state and local revenue by a cumulative $122 million over the first three years, while allowing the creation of 16,709 new jobs.
Rather than providing $99 million in profit to those in the finance industry who process and purchase the government’s debt, an approach that frees Rhode Islanders to create and advance their own businesses and careers and that switches from borrowing to saving for projects could lay the foundation for a long-term resurgence of the Ocean State’s economy.