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Pennsylvania Casinos

What do actor Sylvester Stallone, musician Quincy Jones, basketball coach Dawn Staley, fitness guru Pat Croce, and ex-centerfielder Gary Maddux have in common with power lawyer Richard Sprague, builder Dan Keating, and zillionaire Donald Trump? If you've been following the progress of Pennsylvania's long march toward gambling nirvana, you know: They're all among the crowd of celebrities, ex-pols, fixers and rainmakers hoping to help land casino licenses in Pennsylvania. Harrisburg plans to award a mere 14 of these cash-cow franchises later this year, handing a select few operators the right to create slot-machine parlors across the state. As of late last month, when the application deadline passed, 25 investor groups had put in bids. Actually, bids isn't technically correct. When the wise persons of our legislature set up this system, they purposely rejected suggestions that slots franchises be priced and sold through open auction. Instead, each operator will pay a onetime license fee of $50 million. Doesn't matter whether the proposed casino is in Center City or the Western Pennsylvania outback - the same flat fee applies.

Some think this was a dumb move on Harrisburg's part. Casino properties in Pennsylvania are expected to be worth hundreds of millions of dollars - a point that was underscored recently when two of the racetracks slated to get slots licenses were sold. One went for $225 million, up from $53 million before Pennsylvania legalized slots. The other jumped from $20 million to $280 million. In other words, the prospect of slots at each racetrack added between $172 million and $260 million to their value. Now recall why Pennsylvania decided to legalize gambling in the first place. It wasn't to enhance the state's reputation as a wholesome family destination, but rather out of government's cold-blooded need for revenue. Faced with mounting resistance to property- or business-tax increases, the legislature resorted to an ancient idea, known as far back as Roman times, called tax farming. Instead of imposing taxes on the citizenry directly, the state is, in effect, outsourcing revenue collection to casino operators. They'll gently separate people from their money, keeping about half the take for themselves. (Pennsylvania plans to tax 54 percent of what gamblers leave behind.) Forget for a moment the moral or social debate over legal gambling. Does this make business sense? It might - but not if the state leaves money on the table by charging slots operators less than full value for the privilege.