Sunday, December 20, 2009

New York Schools Lose To Empire City Casino

While New York’s schools are scrambling to replace state aid that’s being withheld by Governor David Paterson and anticipating even bigger shortfalls in funding for next year, a little-noticed change in a formula in the regulations covering Empire City at Yonkers Raceway is taking even more money out of their budgets. It’s part of a bailout just like those that Washington used to save Wall Street banks, multinational insurance companies, and Detroit automakers. But Washington didn’t step in to rescue the casino—this particular $56,000,000 bailout was funded by New York’s school children.

Even without the bailout, the casino has generated some exceptionally good income for the Rooney family, owners not only of the Yonkers Raceway and Empire City Casino but also of the six-time Super Bowl Champion Pittsburgh Steelers. Before I get into some mind-boggling numbers, a little background might be helpful. Empire City, the home of what must be one of the world’s largest collection of 25-cent slot machines (more than 5,000 coin guzzlers of all denominations), opened in October 2006, five years and many lawsuits after the New York legislature authorized it. Advocates of video gaming pointed to the economic boon it would bring to the city and their arguments eventually won the day.

Today, thousands of gamblers flock to Empire City from Westchester, the Bronx, and beyond, filling the 5,000-car parking lot and streaming off buses from Long Island, Queens, and Northern New Jersey. There seems to be a crowd at any time of the day or night, a mix of the under-employed, the over-worked, retirees, guys with dates, gals in groups, butchers, bakers, and candlestick makers, all looking for a little escape and a chance to stick their hand in the pot of gold at the end of the rainbow. According to Empire City General Manager Robert Galterio, the average visitor spends $75 in the casino, less than the cost of a ticket to a Broadway play or two tickets in the cheap seats at the new Yankee Stadium.

Empire City is certainly a major contributor to the local economy. The casino and track is Yonkers' biggest single taxpayer and largest private employer with 1,250 on staff, up from about 300 in 2005 before the casino opened. The annual payroll is now about $30 million and the majority of the employees are from lower Westchester and the Bronx.

Here’s the mind-boggling part: in the fiscal year ending in March 2009, Empire City raked in nearly $500 million dollars after paying off the winners. Of that, the Rooney family kept about $212 million, which they used to cover operating expenses, marketing, and debt service on the $285 million construction cost of the facility. While they don’t reveal net profits, Galterio doesn’t deny that there’s plenty left over.

The state education fund comes out a winner, too, since it receives a big chunk of all gaming in New York as part of the incentive for communities to allow the casinos and lottery to operate. In the 2008/09 fiscal year, though, the state’s school children did without a cool $56 million less than they should have received because the share of casino profits allocated to the education fund was cut as part of a bailout of Empire City engineered to help them meet mortgage payments and increase the amount spent on marketing the casino and racetrack. The loss in the current fiscal year will be the same if not larger. The original formula included in the legislation authorizing the establishment of the casino called for nearly 59% of the “Net Win” from the gaming machines (the amount lost by bettors) to go the state education fund. Under the new formula approved by the state legislature, that share became 44%, with the difference going to the casino operators.

Galterio explains that the formula was temporarily corrected to adjust for a planning error. He said all the studies done to arrange construction financing for the facility proved to be grossly optimistic. "In the summer of 2007, our lenders came down pretty hard on us and our interest rates went up," he says. "We borrowed $285 million to do the job, and our interest expense went up to $30 million per year." Without that big interest payment, he says, the operation would be profitable. That shortfall was covered by reducing the amount sent to the state education fund.

This year’s casino revenue grew as a result of another change in the formula. The amount allocated to marketing was doubled, again at the expense of the education contribution. "They allowed us to promote more, to advertise more, do better marketing, increase direct mail, do a lot more promotions and contests on the property," Galterio explains. He also said that the company is now allowed to use those funds to promote the racetrack as well as the casino.

The idea was that more advertising would increase the revenue, which would pay off in the long run with more dollars for everyone, including the education fund. Play has indeed increased, with average revenue per machine per day growing substantially this fiscal year so far. While the distribution formula phases back to the original levels starting in 2010 (unless there's another bailout), the education fund will be short-changed in the meantime, although it will receive some benefit from the additional marketing. For the April-November, 2009, period, the casino's "Net Win" is up about $47 million over the same period last year. Of that increase, $17 million went to the schools, which is nothing to sneeze at. Under the old formula, though, the state education fund would have received $43 million more at a time when it sorely needs it.

In all fairness, it should also be pointed out that the "lost" funding for schools wouldn’t exist in the first place if the casino hadn’t been opened. And the City of Yonkers receives about $20 million which goes to the city's schools. Still, Empire City’s owners seem to have profited most from the latest deal. If the operation was profitable before the interest rates increased, it must be considerably more so now that their entire interest expense is covered—-and then some—-by the shift in fund distribution away from schools and into their coffers.

The bargain is one that NY State Assemblyman Mike Spano of Yonkers had no trouble supporting. He and Assemblyman Gary Pretlow of Mount Vernon sponsored the legislation. "This is the big kahuna," Spano says. "The biggest beneficiaries of that track are Yonkers and the state of New York. No one wants to see it falter. It is imperative that that track operates and thrives and continues to do well."

The school children? Their well-being is apparently not quite so imperative.

Dave Donelson, author of Heart of Diamonds a about in the

Monday, December 14, 2009

Call For Support For Westchester Libraries

It's budget crunch time in Westchester, which means it's time to review the importance of libraries to our way of life. Following is some information I sent recently to my county legislators.

Westchester County funding support many of the services the Westchester Library System provides to our 38 members libraries and the 480,000+ Westchester citizens who have library cards. I venture to say that the 7.5 million visits paid to Westchester’s libraries annually exceeds public use of just about any other institution in the county. County support is vital in providing the services that make those libraries important contributors to our economy and our way of life.

Here are some of the WLS functions funded in whole or in part by the county:

Central Catalog of 5.4 million items. We expect to add 280,000 listings in 2010, handle 850,000 “holds” for patrons, and continue to expand El Catalogo En Espanol, our unique service for this growing portion of the Westchester community. By supporting the Central Catalog instead of expecting each library to provide its own catalog, the county not only provides an essential service to library users, but saves local libraries hundreds of thousands of dollars annually.

Inter-Library Loan Service delivering 2.8 million items. This county-funded program enables local libraries to purchase fewer items for their individual collections while still giving patrons access to a wide range of materials. Through WLS, the cost per delivery transaction is only eighteen cents.

WLS IT Services provides maintenance and support (not to mention centralized purchasing) for over 1,000 computers at member libraries. The free public Internet access enabled by this service is essential to job-hunters, students, and others with limited or no Internet access at home.

The WLS WEBS Education and Career Counseling provides employment counseling for over 3,000 Westchester job seekers in programs held at member libraries.

The WLS Health Advocacy Resource Centers assists 2,800 senior citizens (and others) navigate health insurance and services.

All of these programs and services contribute to the economic well-being of Westchester County, which is but one compelling reason for continued support in the county budget. In addition, of course, our quality of life is greatly enhanced by the libraries in our communities. This year, for example, over 43,000 children attended more than 2,650 programs at member libraries and read more than 557,000 books as part of the Summer Reading Program. Westchester librarians answer some 1.6 million reference inquiries each year.

As economic hardships press upon them, we can only expect Westchester’s citizens to turn more and more to their local libraries for help finding jobs, learning new skills, improving their business operations, managing their health care expenses, and dealing with the vicissitudes of today’s economy.

The generous support provided in past years by Westchester County has helped WLS and its member libraries meet the demands of the county’s citizens in an efficient, cost-effective manner. I urge the County Legislature to continue that support in the 2010 budget year.

Dave Donelson, author of Heart of Diamonds a about in the

Sunday, December 13, 2009

Insightful Interview of Christiane Amanpour

My colleague Rima Abdelkadar recently interviewed journalist Christiane Amanpour about her new program on CNN. I was particularly intrigued by Amanpour's thoughts on the difference between fact-based reporting and commentary that's passed off as news by many voices in both old and new media. Her thoughts on why Americans don't get intelligent news coverage of international affairs are spot on.

Dave Donelson, author of Heart of Diamonds a about in the

Tuesday, December 1, 2009

Can Votes Save The Third World?

I just finished one of the most thought-provoking books I've ever read. It's Wars, Guns, and Votes: Democracy in Dangerous Places

Paul Collier, professor of economics at Oxford and Director for the Center for the Study of African Economies, contends that our obsession with democracy as the be-all and end-all of governance for every nation in the world is a big mistake. He points out that voting is good but far from a panacea for developing countries who lack the social structure, legal systems, stability, and economic prospects to make the results of their elections work. Collier's contentions aren't based on guesswork, either, but rather on statistical studies that examine not our beliefs about developing countries but the reality of them.

I was particularly intrigued by his comments about the Democratic Republic of Congo, which provides numerous examples of the situations he explores. Here's one passage that neatly sums up the current status of the legitimate Congolese mining industry:

"Is democracy the key to peace in these societies?....The recent record is not entirely encouraging....

"Take the transitional government of the Democratic Republic of Congo. Knowing that they had only three years in power before facing elections and the possible loss of office, ministers set about plundering the public purse. But the public purse was pretty small because tax revenue had withered away: as you will see, low taxation is part of the strategy of misgovernance. But plunder can extend beyond tax revenue. One strategy would be to borrow: saddle future citizens with liabilities and run off with the proceeds. Unfortunately for the new leaders of the DRC, this strategy was not feasible: President Mobutu had already used it to the hilt so that the country was beyond its neck in debt. No bank was going to lend.

"But there was an alternative. The Congo is mineral-rich. Much of these resources are unexploited because under President Mobutu it would have been folly for a company to incur investment necessary to sink a mine. The president was stuck in what economists call the time-consistency problem: because he could not bind himself from confiscating investments, no sane company would make them. But by the time of the transitional government the global boom in commodity prices had changed the calculus of risk: it was worth paying a little something for the exploitation rights that the transitional government could legally confer. And so the ministers of the transitional government of the DRC mortgaged the future of its citizens as surely as if they had issued debt, by selling off national assets at bargain prices. A few months ago I had lunch with one of the shrewd purchasers of these rights: a good lunch it was too. He became a little upset when I told him that the rights ought to be renegotiated."

While I found most of Collier's observations highly believable, I can't say the same for his proposed solutions, which I found mostly impractical or even totally impossible except in theory. Still, the solutions he proposes are like the rest of the work--very tasty food for thought.

Dave Donelson, author of Heart of Diamonds a about in the