Gov. Kasich leapfrogs OH Constitution, cuts deal with Big Casinos

“Kasich said he is not sure what state-sanctioned gambling “ought to look like, although I have a sense that the state ought to own it and lease it if it’s going to work. As governor, he said he would ensure that the state gets a maximum return from gambling operations and that proceeds are used to reduce taxes, not fill budget holes. Kasich was critical of Democratic Gov. Ted Strickland’s decision to reverse his opposition to an expansion of gambling and order that video slot machines be permitted at Ohio’s seven horseracing tracks.”  Columbus Dispatch, July 31, 2009

Four months later,  Ohio’s citizens voted to amend the Constitution to allow for limited casino gambling.  The amendment was quite extraordinary.  It was essentially a business plan enshrined in the Ohio Constitution – written by the casino industry.  It mapped out precisely where the casinos would be built, with an entire PDF page of Article XV of the Constitution now reading like a real estate property survey:

“Being an approximate 1.83 acre area in Cuyahoga
County, Ohio,  as identifi ed by the Cuyahoga County
Auditor, as of 02/27/09, as  tax parcel numbers 101-
30-002 and 101-30-003 and all lands and air  rights
lying within and/or above the public rights of way adjacent  to such parcels”

“Consisting of  floors one through four, mezzanine,
basement,  sub-basement, Parcel No. 36-2, Item III,
Parcels First and Second,  Item V, Parcel A, and Item
VI, Parcel One of the Higbee Building  in Cuyahoga
County, Ohio, as identifi ed by the Cuyahoga County
Auditor, as of 2/29/09, as tax parcel numbers 101-23-
002 and  101-23-050F and all lands and air rights lying
within and/or above  the public rights of way adjacent
to such parcels. “

The preamble of the Constitution says,

“We, the people of the State of Ohio, grateful to Almighty God for our freedom, to secure its blessings and promote our common welfare, do establish this Constitution.”

So I guess, when Ohio passed this (I don’t say “we” since I voted against it), promoting “our common welfare” was expanded to include promoting the specific general welfare of Rock Ohio Caesars’ (ROC) and Cleveland Cavaliers owner Dan Gilbert.  But I digress.

The amendment specified that only four casinos would be built, one each in Cleveland, Cincinnati, Franklin County (Columbus),  and Toledo and that they would allow:

“…any type of slot machine or table game  wagering, using money, casino credit, or any representative of  value, authorized in any of the states of Indiana, Michigan,  Pennsylvania and West Virginia as of January 1, 2009.. and shall  include slot machine and table game wagering subsequently authorized by, but shall not be limited by subsequent restrictions placed on such wagering in, such states.”

Which means, in essence, that Ohio’s Constitution could change at any time, without specific approval of the the voters, based upon the laws of surrounding states.  So if West Virginia passed a law allowing – I don’t know – strip poker in casinos, it would immediately become legal in Ohio as well, enshrined in and protected by the Constitution.  The Constitution would actually have to be amended to ban it.

Although four previous ballot issues attempting to legalize casino gambling had failed, voters had a change of heart in 2009.  Its success was mostly due to the tanking economy after years of mismanagement by Governors Taft and Strickland and millions of dollars poured into the campaign by gambling special interests and those who would profit from the deal.  Voters were given the false choice of increasing taxes or plugging the budget holes with casinos. They were promised thousands of high paying jobs and thriving, prosperous cities.  One look at Detroit should have been enough to convince voters that this was a Trojan horse, but a majority believed the glitz and hype and ignored the fact that the gambling industry wrote themselves a sweetheart deal.

Work began on the casinos this spring, leaving my husband wondering where he’s going to park in downtown Cleveland once they tear down the main parking garage at Tower City and build a casino on top of the free parking in the flats (maybe he can work out some kind of valet parking system with a strung out grandma who needs quarters for the slots).

Enter Governor Kasich and the GOP-controlled Ohio House in 2011.  In addition to the 33% tax on the “gross casino revenue” (defined in the Constitution as “the total amount of money exchanged for the purchase of chips, tokens, tickets, electronic  cards, or similar objects by casino patrons, less winnings paid to  wagerers”), the casino amendment stipulated that casinos are subject to taxes that every other business in Ohio must pay.  This includes the Commercial Activity Tax (CAT), which amounts to 26 cents on ever $100 of revenue.  The Ohio Department of Taxation makes it clear that this is a tax paid on gross receipts, before any deductions for the cost of doing business.

Dan Gilbert and other casino owners knew this (or should have known it) when they wrote the amendment and submitted the ballot language for consideration by Ohio voters.  It’s in no way unclear.  If a homeschooling soccer mom can understand it,  the gambling industries’ highly paid attorneys should certainly have been able to figure it out.

When the Ohio House passed its budget earlier this year, it included language clarifying that the casinos would be expected to pay the CAT based upon gross receipts. They apparently felt this was necessary because there were no casinos when the CAT was created and it had never been specifically addressed.  The casino operators went ballistic and acted like no one had ever heard of “gross receipts” and “CAT” in the same sentence in Ohio.  Eric Schippers from Penn National released a statement:

“This unique and discriminatory tax hike on the casinos — which we believe is patently unconstitutional — will likely have severe consequences on our more than $1 billion planned investment in Ohio and the 34,000 jobs we were hoping to create…In a state that has lost 500,000 jobs in the last decade … we are flabbergasted by these continued anti-business attempts to increase taxes on the statewide voter-approved casinos. What kind of message does this send to other businesses seeking to invest in Ohio?”

Well, for starters, it sends the message that we are a state and a nation of laws.  We don’t have a separate set of laws for wealthy casino owners who make backroom deals with the governor.

They halted construction and a standoff ensued.

Fortunately for everyone for the gambling industry,  Governor Kasich and Dan Gilbert were able to iron out their differences in a backroom deal and my downtown guys inform me that construction has already resumed.

Mark Duncan / AP

Mark Duncan/AP

Here’s the deal:

  • $110 Million in Additional Payments: ROC would provide an additional $10 million annually for the first five years and $12 million annually for the five years after that;
  • CAT: Ohio’s Commercial Activity Tax (CAT) would be applied to, what in the gaming industry is referred to as, ROC’s “gross,” – total dollars wagered minus winnings and prizes to customers;
  • Capital Expenditures: ROC would make a combined capital expenditure of at least $900 million in its two casino facilities (Cleveland and Cincinnati), up from the combined $500 million currently required by Article 15 of the Ohio Constitution;
  • ROC Site: The two parcels of land on which ROC will build its Cleveland casino would be treated as a single facility for licensing and regulatory purposes;
  • License Transfers: Casino license transfers must be approved by the Casino Control Commission and would require a $1.5 million application fee;
  • License Renewals: ROC’s casino licenses must be renewed every three years for an amount designed to cover the Casino Control Commission’s administrative costs

So in exchange for Gilbert’s Cleveland and Cincy casinos only having to pay the CAT on their net revenues (after paying the winners) in opposition to what the Ohio Constitution requires, Gilbert will have to fork out $110 million in “additional payments” and an additional $400 million in capital improvements.  Kasich either didn’t read the amendment or he is flagrantly violating it:

“Except as otherwise provided in section 6(C), the casino section of the Constitution: no other  casino gaming-related state or local fees, taxes, or other charges (however measured, calculated, or otherwise derived) may be,  directly or indirectly, applied to, levied against, or otherwise  imposed upon gross casino revenue, casino operators, their  operations, their owners, or their property.”

Here’s what the Governor tweeted yesterday:

John Kasich

Food banks?  In what section of the constitution will I read that gambling revenues are to be designated for food banks? It’s a nice sentiment, but again, Governor Kasich has gone rogue and bypassed the Constitution.

In addition, there is another provision that sweetens the pot and likely sealed the deal for Gilbert:  Kasich promised him Video Lottery Terminals (VLT’s) in horse racing tracks.  Gilbert owns one of Ohio’s seven racetracks and five of the other six are controlled by casino interests.  While proponents claim that VLT’s are merely a “lottery” and not subject to the state’s gambling and casino prohibitions, everyone knows that they’re really Vegas-style slot machines, designed to bypass the rules.  Is it a coincidence that gambling interests have gobbled up Ohio’s racetracks over the past couple of years?  Kasich said,

“We want this to be legitimate, we want it to be professional and that’s exactly what it will be.”

He’s just expanded casino gambling – slot machines – into seven racetracks across Ohio without voter approval, clearly violating the Ohio Constitution’s ban on additional casinos and he wants this to be “legitimate”?

Dave Zanotti, whose AP Roundtable has battled the legalization of gambling in Ohio for many years said in a statement released Wednesday,

“[A]ny “deal” to place slot machines at Ohio race tracks is a clear violation of the Ohio Revised Code and the Constitution. Such a practice cannot become legal by edict of the Governor or any “deal” struck with casino operators. If the Governor wants to open racetrack casinos with Vegas-style slot machines, he is required by law to take such a proposal to the voters.”

Zantti also said,

“So the Kasich people are going to put VLT’s in the racetracks, in essence grant casino licenses to these facilities without a statutory amendment, without a public hearing. How does that work? Is this King George III? Did we just lose our whole form of government?”

Zanotti’s group has announced it will pursue litigation if the legislature approves Kasich’s backroom deal with Gilbert.

It’s worth quoting esteemed author and blogger, Dan Phillips:

“Raise one of the men who died to free us from King George and show him our lives, and he’d ask who conquered us, and when.”

Indeed. The governor has no right to ink a backroom deal on behalf of the state with Gilbert or with anyone else, especially agreements that are in conflict with the Constitution. In this deal, Kasich is forcing asking Gilbert to pay “additional payments” in direct violation of the state Constitution. Kasich simply leapfrogged the Constitution and decided he didn’t want to waste time on another ballot issue.  This is not the limited government we voted for last fall.

We must insist that Governor Kasich follow the Constitution and other laws of the state.  We will not stand for backroom deals and secret negotiations out of view of the public.  He must be called to account by the Ohio House and Senate.  Attorney General Mike DeWine needs to advise him immediately that his actions are unconstitutional and they must be stopped.