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Economic Cost Benefit Calculation for Pittsburgh’s Casino Project. Prepared by Mike Mucha  Elliot Schwartz  Matt Voit May 3, 2006 Public Expenditure Analysis. Gambling Legislation was approved July 4, 2004

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economic cost benefit calculation for pittsburgh s casino project

Economic Cost Benefit Calculation for Pittsburgh’s Casino Project

Prepared by

Mike Mucha  Elliot Schwartz  Matt Voit

May 3, 2006

Public Expenditure Analysis

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

Act 71

Source: Barnes, Tom. 1/2/2005, Pittsburgh Post Gazette, [online] www.post-gazette.com/pg/05002/435951.stm, 4/30/06.

costs and benefits of a pittsburgh casino
Costs and Benefits of a Pittsburgh Casino
  • Benefits
    • Government Revenues
    • Social Benefits
  • Costs
    • Social Costs
    • Substitution Effects
  • Synthesis
benefits
Benefits

PITTSBURGH

Pennsylvania

benefits1
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

Benefits
the slots law created 14 pa casinos
The Slots Law created 14 PA casinos

Source: PA Gaming Control Board

benefits from pittsburgh casino
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

total benefits total 3 4 billion for the first 10 years of operation
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

tax paid by allegheny county residents is not an incremental benefit
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

indirect costs
Indirect Costs
  • Gambling Addiction
  • Social Services
    • Pittsburgh Police
    • Pittsburgh Fire
    • Emergency Medical Services
  • Pennsylvania Lottery

Substitution Effect

gambling addiction
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

police
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.
slide14
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

emergency medical services
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 EMS’s resources.
  • Isle of Capri estimates that EMS resources will only be needed 322, which is a 1% increase
pennsylvania lottery benefits older pennsylvanians every day
Pennsylvania Lottery“Benefits 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
slide17
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.
do the costs and benefits add up
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

discounted cash flows suggest pittsburgh and the casino win
Discounted cash flows suggest Pittsburgh and the casino “win”
  • NPV Result: $143,013,456 over 12 years.
    • City of Pittsburgh looks like a winner…
    • Harrah’s 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

results are sensitive to discount rate and benefit multiplier
Results are sensitive to discount rate and benefit multiplier
  • Analysis can be quite limited due to sensitivity of these two parameters.
  • Multiplier Effects Range (r=7%) 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 Harrah’s (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

games of chance are uncertain
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.

monte carlo analysis argues that the casino is a risk worth taking

Crystal Ball Student Edition

Forecast: Total NPV

Not for Commercial Use

1,000 Trials

Frequency Chart

989 Displayed

.032

32

.024

24

.016

16

.008

8

.000

0

($628,205,184.41

$316,096,551.37

$1,260,398,287.1

$2,204,700,022.9

$3,149,001,758.7

$

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!