Unshackle Harrah's to maintain state revenues

As the culture in Louisiana changes, partial adaptation to that by policy-makers is as bad as not adapting to it at all, as the nexus of nonsmoking and casino revenues demonstrates.

Once may be a coincidence, but twice looks like a trend: monthly revenues are down year-over-year at Harrah’s New Orleans’ land-based casino twice in a row, just after the city banned smoking almost everywhere indoors making it the only casino in the state so circumscribed. It’s likely that a good portion of the $9.2 million fall, or about three-tenths of June, 2014 revenues, came because those who gamble and smoke don’t like to hover outside when lighting up and either don’t patronize the place or use time they would have gambled to puff away outside.

This has consequences for the bottom line of all of state and local governments. The state is required to receive the greater of 18.5 percent of gross revenues or $60 million a year from Harrah’s. Lopping off $110 million a year makes it rather difficult for Harrah’s to meet this expense and thereby stay in business; in fiscal year 2014 it paid just over $72 million to the state. Until 2001, the state demanded $100 million a year.

Not that the state or local governments aren’t getting a lot of their equivalent take back despite the lower revenues at this location, as Jefferson Parish hosts two riverboats and lots of video poker outlets without any smoking restrictions. And other Orleans gambling locations have alternative means of earning; video poker outlets also can’t have smoking, but their main sources of revenue are food and drink, and the same goes with the Fair Grounds racetrack, where less-addictive pari-mutuel betting on the ponies (and some of that not on site) mainly drives revenue. So everybody takes a hit, but government not very much and Harrah’s, entirely dependent upon indoor gambling, disproportionately so because the same addictive personality trait that leads one to smoking also encourages one to engage in high-speed gambling. Make indulging in the former difficult that disrupts the latter, and therefore some will abandon that provider.

While barring smoking likely makes for healthier customers and employees, even as it may cost the state some tax revenue and increase its health care expenses down the road, if this is the cause of the revenue decline at Harrah’s that puts the company in an unfair situation. In most businesses, personnel costs comprise the majority of their expenses, and so when 30 percent of revenues are lost changes in the number of employees to shed those made redundant and/or reducing wages logically should occur.

But Harrah’s doesn’t have these options. By state law, not only does Harrah’s have to maintain a force level pegged to a mark over 14 years ago, but also the same with the wage level. Given inflation, the latter is not so much an issue, but the roughly 2,400 required employees puts a legal mandate on the corporation no other casino operator must face – contracts with other operators may have force level requirements, but none other are written into state law and these can be adjusted by the state’s Gaming Control Board.

Harrah’ solution would be modification of the New Orleans ordinance to allow for a restricted indoor smoking area, yet this would throw the baby out with the bathwater if the public policy intent remains a healthier environment and an improved ability to do so of those wishing to engage in this form of commerce whose health becomes immediately and involuntarily negatively impacted by those who smoke voluntarily. Better would be adjustments to the employment and wage requirements.

During an inevitable special session to be called early next year, the new governor could include in the call an item mimicking the 2001 adjustments in the law. The Legislature could not only reduce the FY 2016 payment for one year, but also eliminate the employment and wage requirements, effective immediately. In essence, this would create an extra but temporary welfare payment by the state (forgoing revenues to allow Harrah’s to pass through this money to support unneeded employees) but then free the casino to use more tools in managing its financial affairs to keep it in business. In the final analysis, that’s only fair.

Of course, this would rub some policy-makers the wrong way, who see Harrah’s as a job and income provider to their constituents. But just as the culture is changing that has it looking less and less favorably upon letting smokers externalize the costs of their choices onto unwilling nonsmokers, so also has it changed in its tolerance of government having to control economic activities to the extent that the public sector is conceived as a mechanism that must directly provide work.

This issue illustrates another example of how the still-potent while eroding attitudes of populism hamper Louisiana. Driving Harrah’s New Orleans casino into bankruptcy because of the imposition of arbitrary personnel practices doesn’t do gamblers, employees, or taxpayers any good. The state changing the counterproductive practices in law accomplishes much more than New Orleans weakening the ordinance.