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Existing taxes, not gaming tax revenue, would bolster Bristol

BRISTOL, Va. — Casinos permitted by public referendum through new, landmark legislation are forecast to generate millions in new revenues for Bristol and four other economically challenged Virginia cities — over and above any taxes on gaming revenue.

The legislation sprang from a novel alliance of rural Republican and urban Democrat lawmakers from opposite sides of Virginia who on Wednesday completed a 20-month odyssey. A strikingly rare display of bipartisanship during a legislative session frequently punctuated by sharp divides along party lines on issues like gun control and the environment.

At its core were five very different cities — Bristol, Danville, Norfolk, Portsmouth and Richmond — bound loosely together because each faces different economic challenges. Locally, that situation is now exacerbated by the COVID-19 pandemic as more than 10,000 people in Bristol and 10 Southwest Virginia counties lost jobs and filed for unemployment benefits in recent weeks.

At stake locally is the proposed Hard Rock Bristol Casino and Resort planned for the Bristol Mall by local business leaders Jim McGlothlin and Clyde Stacy. A $300 million or greater investment funded solely through private dollars and forecast to generate thousands of jobs and millions in tax revenues.

The onus here is now on Bristol, Virginia city officials and the casino backers to formalize their relationship and bring the gaming question to voters, who will make the ultimate decision Nov. 3.

Gaming in Virginia logo

The legislation requires the city to receive and consider proposals for a casino operator. Those must be submitted by May 8 and the City Council is expected to make the selection in the near future, according to City Manager Randy Eads. The city’s selection is then submitted to the Virginia Lottery Board — which newly empowered to oversee all Virginia casinos — to review and approve.

The 34 pages of House Bill 4 and Senate Bill 36 spell out how casinos will operate, how and when the referendum occurs, funding an expansion of the Virginia Lottery Board to oversee casino operations and imposing tax rates.

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United Company Chairman and CEO Jim McGlothlin

McGlothlin thanked lawmakers, city, local and state officials for their efforts to finalize the legislation and reiterated its value of creating jobs both at the resort and across the region.

“We find ourselves in even more difficult economic conditions than when this legislation started and completion of this project could not come soon enough considering the overall economy of our city and nation at this time,” McGlothlin said.

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Clyde Stacy, President, Par Ventures, LLC

“In addition to these jobs, the city will benefit from the resort bringing in thousands of people to Bristol and the related areas. Bristol, Virginia, itself, will share the gaming tax along with other counties in Southwest Virginia. But, most importantly Bristol will also receive new personal and real estate property taxes which will amount to around $5 million annually on just the resort itself.”

McGlothlin said Bristol, Virginia stands to be the “big winner” because it stands to collect millions of dollars through existing taxes, including lodging, restaurant meals and other sources from the resort and increased activity at other restaurants, bars, hotels and other city businesses.

“The resort project is definitely worth pursuing by our city and all the hard work is worthwhile if we accomplish the end result,” McGlothlin said. “However, the best thing about it all is that you know the asset will continue to be here locally, generating jobs and tax income for our community for a long, long time.”

How much money does Bristol stand to gain?

Much of the debate and focus at the state level was how much tax could be collected on net gaming revenues from slot machines, blackjack tables and all other forms of wagering found in shiny new casinos.

That is a moving target. Theoretically, the larger and more successful the casino operation is, the more gaming occurs. In an economic slowdown, amounts might plummet.

For the host city, the greater financial impact comes from myriad pre-existing taxes on real estate, local sales, lodging and prepared meals.

“The city has worked hard to get this passed so we have an opportunity for financial success in the future. With the amount of projected revenue that will come into the city it will be a substantial benefit to the city and the citizens,” City Manager Randy Eads said.

A 2018 financial impact study by Chmura Economics and Analytics of Richmond forecasts a Bristol casino would generate $28 million annually in those city-only taxes, including $9.8 million in annual meals taxes, $8.3 million in lodging taxes, $1.8 million annually from business, professional and occupational license fees and $1.8 million in annual admission taxes from special events.

All those revenues would go directly to the city and not be shared with any other locality or the state.

Localities receive 1% of Virginia’s 5.3% sales tax and the study forecasts the city and surrounding localities would realize $5 million annually from taxes on the sale of food, beverages, lodging and merchandise.

The city would realize those revenues from within the casino resort or other city businesses, but visitors could spend money downtown, in nearby communities or anywhere along their routes. The figure also anticipates gasoline taxes from visitor spending — which could be anywhere across the region.

An estimated 80% of the people visiting the casino resort would be from out of town.

But the Chmura study is just that, a study. Some have criticized it as too optimistic.

“In reality, if you take half of what Chmura is predicting, that is a substantial amount of money coming into the city we don’t have right now,” Eads said. “If you take out the state and federal dollars, the local part of our [$55 million general fund] budget is about $35 million. If you’re talking $14 million or $15 million from this project, that’s almost half our annual local revenue.

The legislation requires a minimum total investment of $300 million in the casino. The Bristol project is expected to range between $300 million and $400 million.

The city’s current real estate tax rate is $1.17 per $100 of assessed value so, for example, if the real property is assessed at $200 million, its annual tax bill would be about $2.34 million.

If an additional $100 million is invested, the personal property tax of $2.60 per $100 would generate another $2.6 million annually — or a combined nearly $5 million.

A 2019 Virginia’s Joint Legislative Audit and Review Commission study forecasts a Bristol casino would generate $3.6 million in annual real estate and local sales taxes, but was based on a $226 million capital investment — not $300 million.

The city’s current 2019-20 budget forecasts $1.3 million in lodging tax revenues for this year from existing hotels, based on a 7% levy on hotel room occupancy.

The casino hotel’s final capacity hasn’t been determined but developers previously said it could ultimately be built out to 1,000 rooms. The Chmura study forecasts 3 million annual visitors. Using half those totals — 500 rooms and 1.5 million annual visitors — with 80% occupancy and charged at the prevailing regional rate, the casino hotel could generate $3 million annually in hotel tax revenues, or more than double the city’s current total, casino backers said.

That doesn’t include visitors who stay at other hotels in the city, on the Tennessee side or elsewhere in the region.

Taxes on meals from an assortment of restaurants planned for the property are forecast to generate between $5 million to $6 million annually — which could effectively double the $5.3 million in prepared restaurant meals in the city’s current budget that is based on existing city restaurants.

None of these estimates take into the account the 1,400 jobs, hundreds of indirect jobs and hundreds of construction jobs — and the related spending each is forecast to generate by the state study.

Looking long-term

Those kinds of annual revenues — whether $14 million or $28 million or some other figure — would be welcome relief for a city where its leaders have worked tirelessly for four years to reduce spending, refinance and extend payments on its more than $100 million in long-term bond debt, build up cash reserves and eliminate short-term borrowing just to make payroll or pay other bills between semi-annual tax collections.

Through those and other strides, a more stable financial position has improved the outlook issued by credit rating agencies.

The key, Eads said, would be continuing to be good stewards of any new money.

“You’ve got to be very smart with this money as it comes in,” Eads said. “We don’t need to spend it frivolously. I would say a minimum of 50% of any revenue coming in from this project should be set aside for debt. The remaining 50% should be set aside for capital projects that are needed. We have schools with issues, older public works equipment that needs to be upgraded; a lot of our buildings need work to make sure we’re maintaining them to the level so they’ll be here for years to come.”

The amended casino legislation would dedicate the state’s share of gaming tax revenues to a fund for construction and repair of public school buildings statewide but that too is a moving target.

“The city can’t count it [fund]. First it will take five to seven years for the casinos to open and revenue to build up. It will take years for gaming tax revenue to put a dent in projects,” Eads said. “And that will go for the entire state so there’s no guarantee we would get any of it.”

Splitting gaming revenue

The JLARC study forecasts the five proposed casinos could generate $260 million annually for state coffers assuming all are approved and financially successful.

It projected all five proposed casinos would be financially viable, with the Bristol casino forecast to generate $130 million in annual net gaming revenue and $35 million in gaming tax for the state and locality — but that figure was based on a median 27% tax rate.

The legislation imposes an 18% tax rate on the first $200 million of net gaming revenue from each casino with 6%, or a third, going to the locality and the balance going to the state.

Using the $130 million estimate, the 18% levy would generate $23.4 million in annual tax revenue. Of that, the state would receive $15.6 million and the local share would be $7.8 million — or about half the city’s estimated pre-existing tax revenues.

It is that local amount of gaming tax revenue which is to be shared.

The legislation establishes the “Regional Improvement Commission” which would receive the entire local share of gaming tax revenue from a Bristol casino and distribute it among Bristol and the dozen counties included in the Virginia Department of Transportation’s Bristol service district. Those include Bland, Buchanan, Dickenson, Grayson, Lee, Russell, Scott, Smyth, Tazewell, Washington, Wise and Wythe counties.

Split evenly, that would be about $600,000 apiece.

Bristol is the smallest city included in the legislation and the only one required to share gaming taxes. That provision raised some eyebrows, but those involved in getting the legislation approved said it was important in securing widespread support.

“This project, from the get-go when Mr. McGlothlin and Mr. Stacy proposed it, was to help Southwest Virginia,” Eads said. “This is one of the ways these funds can go back to Southwest Virginia communities to help them with things they need. It’s the type of infusion into budgets that localities have not had to give them a little flexibility when it comes to spending.”

Del. Will Wampler, R-Abingdon, whose district includes Dickenson County and parts of Russell, Washington and Wise counties, agreed.

“The revenue sharing piece was a major part of the legislation,” Wampler said. “Many were concerned it [casino] would draw income from across the region into one place and not be spent across the region if it [gaming tax revenue] was only allowed to go to Bristol.”

20-month marathon

Reaching this point in the process has required a 20-month marathon for the casino backers, city officials, state lawmakers and countless others who moved a once-seemingly unmovable mountain in the Virginia General Assembly. Legislation patron Sen. Louise Lucas, D-Portsmouth, spent more than a decade trying to convince other state leaders that a casino could provide some economic relief and desperately needed jobs for her financially depleted hometown. She found allies in the mountains of Southwest Virginia.

Talk of a proposed Bristol casino at the mall surfaced in late August 2018. On Sept. 1, 2018, then-state Sen. Bill Carrico, R-Galax, confirmed he’d been asked by the mall owners to consider legislation paving the way for casino gaming in Virginia.

The original bill language, which was based on letting the public decide through a referendum, was unveiled that November. Carrico and Del. Israel O’Quinn, R-Bristol, described themselves then as the two “most unlikely” legislators to carry such legislation, but championed the referendum component allowing local residents to decide.

What eventually became Senate Bill 1126 worked its way through the General Assembly in 2019 but its final form — at the behest of Gov. Northam — only directed the Joint Legislative Audit and Review Commission to study the potential impacts of gaming in Virginia.

Days before the report was released, the Bristol group announced Florida-based restaurant, hotel and casino operator Hard Rock International agreed to manage the facility which is to be called Hard Rock Bristol Casino and Resort.

McGlothlin later revealed that Hard Rock, which is owned by the Seminole Indian tribe, would become an equity partner and project investor.

The casino legislation was reintroduced for the 2020 session and, after working its way through the General Assembly’s labyrinth of subcommittees and committees, secured final bipartisan approval during the assembly’s March 8 overtime session.

Rather than sign it, Gov. Ralph Northam proposed amendments — the most consequential of which would dedicate much of the state’s portion of gaming tax revenue from all casinos to fund replacement or rehabilitation of Virginia’s aging public school building stock.

Both bodies reconvened Wednesday — not inside Mr. Jefferson’s capitol building — but with the House outside beneath a tent and the Senate in the Science Museum in response to public health concerns. Both overwhelmingly again registered support for the legislation and Northam’s proposals — setting the stage for whatever happens next.

dmcgee@bristolnews.com | 276-645-2532 | Twitter: @DMcGeeBHC 

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