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Why can’t developers kick in the extra $25 million?

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This week, developers unveiled details of $250 million plan to build a casino and resort facility in the Amsterdam NY area. One of the sticking points of the plan, however, is that developers want NY State to lower its required license fee from $50 million to $25 million in exchange for an increase in the amount of tax revenue that NY State and the municipalities receive. They say that without the change, the plan simply won’t move forward.

The developers propose that state’s tax rate increase from 45% to 48% and that an additional 2% be paid to Montgomery County, Town of Florida, and the City of Amsterdam. The increase would only be applicable once the gross gaming revenues exceeded $135 million.

Given the total size of the investment, and the reported total assets of the development companies, it was puzzling to me why the license fee amount would be a deal breaker.

At Tuesday’s Common Council meeting, I got to talk about the problem with Jeff Parr, CEO of Clairvest Group Inc, an investment firm and one of the development partners.

Parr explained that there are different fee amounts for different regions of the state. He said that given that the estimated revenues for the facility would be lower than those in neighboring Albany or Saratoga Counties,  that it wasn’t fair for the state to lump Montgomery into the same fee structure.

According to the NY State Gaming Commission, the licensing fees can be as high as $70 million in Dutchess or Orange Counties, to as low as $20 million for counties such as Broome, Chemung, Schuyler, Tioga and Tompkins.

Parr said that they could have cut $25 million from the project to make up the difference, but that they wanted to build a facility that the community could be proud of.

He also explained that his company uses economic “models” to make their decisions and that the extra $25 million simply didn’t “fit the model.” He said that there are certain fixed costs to operating a casino regardless of the location, and given that revenue would be comparatively lower in Montgomery County, the project posed a greater risk.

I asked Parr that if he was certain the project would be a success, why they would sacrifice long-term income for a short-term reduction in their investment. His answer, essentially, was that it was a matter of risk.

My understanding of the situation boils down to this: Regardless of the good intentions of  everyone involved with this project, it always comes down to the numbers. I don’t doubt that the developers truly want to help hard hit areas like ours. I think that they are even willing to look at our area at all speaks positively about their character. But at the end of the day, a certain amount of profit has to be made by the investors or it’s not worth it to them. The investment partners have calculated the odds, run the numbers through their formulas and have come up with a figure that they are willing to risk. In other words, they don’t want to risk losing any more than the amount they’ve proposed should the project fail.

The problem as I see it, however, is that by asking for the reduction, the investors are looking to shift a certain amount of risk from themselves to the state and municipalities. If the fee is reduced and the project should fail, the investors will lose less, but the state will lose more.

No one really knows how the state will respond to the request. I asked Community and Economic Development Director Robert von Hasseln if he thought the reduction request would put us at a disadvantage compared to other competing proposals. He replied, “Yes, there’s no two ways about it.”

Von Hasseln went on to say that the state had “sharpened the process but dulled the intent” of the original legislation that was passed allowing for casino proposals to be considered. He clarified by saying that while the state had made efforts to make the process transparent, it had lost sight of the original intent to bring economic development to areas in need such as Montgomery County.

There’s no doubt that a “social justice” case is being made by the developers and proponents like County Executive Matthew Ossenfort, who has cited several statistics showing Montgomery County ranking amount the lowest in the state in terms of unemployment and poverty rates.

It seems to me that the success of this venture will depend on whether developers and elected officials can reach a sympathetic soft spot for the plight of Montgomery County in the hearts of the Gaming Commission members. There’s no other way to say it – it’s a quite a big gamble.

(Photo Copyright iStock/Feverpitched)

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About Tim Becker

Tim Becker is the owner of AnthemWebsites.com LLC which publishes The Compass. He serves as both editor and a writer.

One Response to Why can’t developers kick in the extra $25 million?

  1. There is a contradiction in what the developers are saying. We are told the casino is going to attract tourists, but they are making a case for a reduction based on the economic status of the residents of the county not on the alleged thousands of tourists who are supposed to visit the casino.

    A casino’s location in a poor county does not necessarily make it a riskier venture. The poor often spend more at casinos than the middle class or wealthy. One reason Occupy Albany is against a casino in Albany is because they know that casinos often target and exploit the poor.

    My best guess is that the developers know that most of the gamblers will come from the region and that they are not risking a thing, even if they do pay the full fee. They are simply using the faulty formula the state came up with for licensing fees to justify a cut in their fee, thus increasing their bottom line.

    When it comes to casinos, the house never gambles and the house always wins. The reasons the developers are giving for a reduction in the fee are, in my opinion, as honest as the average slot machine.