DOMINIC MODICAMORE DGA Economics, LLC April 23, 2009

1. USING REMI POLICY INSIGHT TO FORECAST THE ECONOMIC & FISCAL IMPACT OF RESORT CASINOS IN MASSACHUSETTS DOMINIC MODICAMORE DGA Economics, LLC April 23, 2009

2. PRESENTATION OUTLINE • Project Description • Approach / Methodology • Casino Prototype • Casino Data • REMI Input Variables • Results

3. Project Description The plan called for the development of three resort style Casinos in Massachusetts; one each in the Boston Area, Southeastern Massachusetts, and Western Massachusetts. The casinos would be privately owned and operated. The State would collect revenue through the sale of casino licenses (a yearly fee) and a tax on gaming revenue. All other state taxes would also be applicable including the income tax, sales tax, and hotel room taxes.

4. Approach / Methodology • The study consists of three parts: • The economic impact of the construction phase of the casino developments • The economic impact of the casino operation (post construction) • The fiscal impact on state and local government from the casino operation • A three region REMI Policy Insight model of Massachusetts was used to conduct the study. One casino was simulated in each Region. The regions consisted of the following: • Suffolk County (Boston) • Four County Region (suburban area surrounding Boston) • Rest of Massachusetts

5. Approach / Methodology – Resort Prototype • To construct the REMI simulations, a prototype casino model was developed. The prototype represents a typical large destination resort casino. Casino Prototype: • 160,000 SF casino • 3,000 slot machines • 180 live table games • 2,000 room hotel • 100,000 SF of convention/meeting space • 20,000 SF of retail space • 1 indoor pool and spa • 6 restaurants • 2 bars & 1 nightclub • 5,000 space guest parking garage • 1,800 space employee parking facility

6. Approach / Methodology - Data • Based on the prototype, the following sets of assumptions or data were developed. This became the basis of the economic and fiscal impact simulations. Construction Data: • Construction cost total $1.35 billion for each casino. This includes the engineering/design cost which represent 25% of the total. • The build out period is two years for each casino. • REMI’s default intermediate input responses and investment spending responses were left as is in the model and the model’s average construction wage for each region was also left as is.

7. Approach / Methodology - Data Casino Operation Data: • Each casino would employ 4,377 workers at an average wage of roughly $27,600. • A displacement factor of 50% is assumed for each casino – 50% of casino visitors would be from out-of-state or retained from CT and RI casinos and 50% would be in-state visitors whom do not frequent the CT and RI casinos. • Each Casino will spend $33 million on non-payroll items, this includes roughly $4.9 million on professional services, $4.8 million on maintenance services, $16.9 million on utilities, $4.1 million on retail goods, and $2.3 million on administrative and support services. • Total Casino revenue, for each casino, is estimated at $769 million, including $500 million in gaming revenue, $208 million in retail and restaurant revenue, and $61 million in hotel room revenue.

8. Approach / Methodology - Data Fiscal Impact Data: • The Casino license fee is $20 million per year for each casino • The gaming revenue tax is 27% (estimated to be $135 million for each casino each year). • 11% of the gaming revenue tax would be returned to Massachusetts property owners in the form of a property tax credit. This was estimated to total $55 million per year for each casino. • All other state taxes would also be applicable including an effective income tax rate of 4.7%, sales tax rate of 5%, and a hotel room tax rate of 8.45%. • The casinos would also be subject to local taxes, including an estimated $45 million in property taxes for all three casinos combined, and a municipal hotel room tax rate of 4%.

9. REMI Input Variables – Construction Phase REMI INPUT VARIABLES - Construction Phase – Industry Sales / Exogenous Production (construction & professional Services) The Industry Sales/Exogenous Production variable is used to model the direct construction spending and the spending on engineering and design (professional Services). Industry Sales/Exogenous Production represents sales to exogenous non-export sources of demand REMI Inputs – Construction Phase (for each casino)

10. REMI Input Variables – Operational Phase REMI INPUT VARIABLES – Operational Phase • Industry Employment (Amusement, Gambling, & Recreation): 50% • Firm Employment (Amusement, Gambling, & Recreation): 50% • The Industry Employment and Firm Employment variables are used to model the direct casino employment. • 50% of the employment is modeled under industry employment and 50% is modeled under firm employment. This accounts for the 50% displacement factor, where half of the casino visitors are estimated to be from out-of-state or retained from other casinos and half would be in-state visitors whom do not frequent other casinos. • The Industry employment variable represents export based employment and, thus, does not displace existing employment in the respective industry sector, since it is assumed not to compete with local businesses. This is used to represent the employment associated with out-of-state visitors and visitors retained from other casinos. • The Firm employment variable represents non-export based employment and, thus, does displace existing employment in the respective industry sector, since it is assumed to complete with local businesses. This is used to represent the employment associated with the in-state visitors whom do not frequent other casinos. • This displacement results from lost business at competing firms, as customers whom would otherwise spend disposable income at these firms now spend some portion of it at the casinos.

11. REMI Input Variables – Operational Phase REMI INPUT VARIABLES – Operational Phase: Industry and Firm Employment (for each casino)

12. REMI Input Variables – Operational Phase REMI INPUT VARIABLES – Operational Phase – Wage Bill (Amusement, Gambling, & Recreation) The Wage Bill variable is used to adjust the default wages in the model (for the amusement, gambling, and recreation sector) to represent the actual wages that will be paid by the casinos. The Wage Bill is the total dollar amount paid in compensation to employees within the region, industry, and year selected. The difference between the estimated total wages paid by the casino and the total wages used as the default in the model for the amusement, gambling, & recreation sector is entered as the wage bill for that sector. REMI Inputs – Operational Phase: Wage Bill

13. REMI Input Variables – Operational Phase REMI INPUT VARIABLES – Operational Phase – Firm Sales The Firm Sales variable is used to model the spending by each casino on non-payroll items at firms within the respective industry sectors. REMI Inputs – Operational Phase: Firm Sales (for each casino)

14. REMI Input Variables – Operational Phase REMI INPUT VARIABLES – Operational Phase – Personal Taxes The Personal Taxes variable is used to model the property tax credits granted to property owners in Massachusetts, which would be allocated from the gaming revenue tax collected by the state from each casino. The Personal Taxes policy variable changes total personal taxes in the region by the amount entered. In this case, since tax credits will be granted to property owners, the total personal taxes declines in each region by the amount of the credit. The tax credit is distributed to the three region’s in model based on the number of households in each region. REMI Inputs – Operational Phase: Personal Taxes (for each casino)

15. REMI Input Variables – Operational Phase REMI INPUT VARIABLE – Operational Phase – Government Spending (State & Local) The Government Spending variable is used to model the state & local government revenue collections associated with each casino. State Government will collected revenue from the casinos through the license fee, the gaming revenue tax, and from income, sales, and hotel room taxes. State government spending by region is calculated based on the population of each region in proportion to the state as a whole. Local Government, consisting of the three municipalities that will host the casino’s, will collect revenue through property taxes and the local hotel room tax. Average tax rates across each region were used to calculate direct revenue by region. REMI Inputs – Operational Phase: State & Local Government Spending

16. REMI Results – Construction Phase Results – Economic Impact of Construction Phase Total employment represents the direct, indirect, and induced impact of the construction of the three casinos combined. The construction and professional services employment is primarily the direct employment associated with the casino construction. Much of the employment in the other sectors represents the induced jobs associated with the spending of the wages earned by the construction workers, which are primarily in the retail and services sectors. The Gross Regional Product is roughly $1 billion less then the total construction cost of the three casinos, indicating that there is significant leakage out of state. This is primarily due to the construction materials and equipment being imported from out of state.

17. REMI Results – Operational Phase Results – Economic Impact of Operational Phase The three casinos produce a employment multiplier of roughly 1.6; for every direct casino job an additional .6 jobs are created in the Massachusetts economy. Much of these additional jobs are associated with the casino spending on goods and services at Massachusetts firms, representing the indirect impact. Many of the additional jobs are also induced employment from the spending of wages by casino workers, these are primarily in the retail trade and service sectors. The Gross Regional Product, which represents the net economic impact on the state totals $2.04 billion, roughly 89% of the casinos gross revenue. The output, which can be viewed as total sales, equals $2.9 billion, roughly 126% of total casino revenue.

18. REMI Results – Operational Phase • The amusement, gambling, & recreation sector, contains the direct casino jobs. The smaller number of jobs in this sector, compared to the direct casino employment, signifies the displacement effect that the casinos have on competing businesses. Direct casino jobs totaled 13,131 and total net job gain in amusement, gambling and recreation totals 6,904; indicating that the casinos displaced 6,227 jobs from competing businesses across the state. The net gain in the sector is the 6,904 jobs. • Other sectors with large employment gains include retail trade, construction, administrative services, and food services. • The retail and food service jobs are induced from the spending of wages by casino workers and other jobs created by the casinos. • The Construction jobs result from capital investments made as a result of the casino impact and the administrative service jobs primarily result from direct spending by the casino on these services. Results – Economic Impact of Operational Phase: Employment Impact by Sector

19. Results - Fiscal Impact • When direct, indirect, and induced impacts are considered, it is projected that Massachusetts state government will collect roughly $551 million per year in revenue as a result of the three casinos. • Of the total state revenue collected from the casinos, $165 million would be returned to property owners in Massachusetts in the form of a property tax credit. The state would, thus, net roughly $386 million in revenue from the casino operations. • The municipalities where the casinos would be located would collect an estimated $52.7 million per year, combined, from property taxes and hotel room taxes. Results – Fiscal Impact of Operational Phase