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Reverse Payout 

Gov. Ed Rendell passed through Pittsburgh last week trying to sell his plan to legalize video poker in bars and restaurants -- an initiative Rendell says would raise $550 million a year to help Pennsylvanians pay for college tuition.

But if Rendell's plan goes through, it could end up costing taxpayers $550 million -- money that could be a jackpot for the state's casino operators.

Rendell's plan involves allowing 18,000 bars, restaurants and social/fraternal clubs across the state to operate up to five video-poker machines each. During a Feb. 18 stop at the Community College of Allegheny County, he said the state has been practicing the "ostrich theory" of government -- sticking its head in the sand and ignoring the illegal machines for too long.

Rendell said the state estimates there are at least 17,000, "and likely more," illegal machines currently operating in Pennsylvania. When asked by a reporter how many more he'd expect if the machines become legal, Rendell said about 10,000. However, there are roughly 18,000 establishments that would be eligible to have video poker. Opponents have mused that that means there is the potential for as many 90,000 video-poker machines.

"We're not expanding gambling," Rendell says. "It already exists but we're not getting a dime from it."

But in the short term, the wager could cost the state plenty.

In 2004, when Act 71 legalized slot machines at up to 14 casinos and race tracks (11 licenses have since been awarded), each casino had to pay a $50 million "slot-license fee." But under certain conditions, casino operators can get some or all their money back: One of those conditions, the law spells out, would be the state "increas[ing] the statutory maximum number of permissible licensed facilities" engaged in gambling.

That provision "is something we're looking at right now," says state Rep. Curt Schroder (R-Downington), an opponent of the governor's plan and the chairman of the House Gaming Oversight Committee. "I'm sure, based on conversations I've had, that the casino operators are also looking very hard at this. If this proposal passes and is enacted into law, I absolutely expect the licensees to petition the state or take us to court to get the $50 million licensing fee back.

"I personally don't like the fee-return provision," Schroder adds. "There's no reason for it to be there. But I fully expect the casinos are going to use it to protect their interests."

Under Act 71, the amount casino owners can claw back depends on when gambling is expanded. If the number of gambling locations increases within the first five years after the license is issued, a licensee can get back the full $50 million paid. After that time, licensees could get back a portion of the fee, based on a sliding scale that ranges from $41.6 million for a state expansion after six years to $8.3 million for after 10 years.

Not to worry, says the Rendell administration. If video poker is allowed in bars and other locations, maintains the governor's spokesman Chuck Ardo, "We believe the legislation can be written in a way to differentiate video-poker machines from the slot machines found in casinos." That will prevent the expansion from triggering Act 71's protections.

Ardo says the state revenue secretary has indicated that video-poker machines are more like lottery terminals than slot machines. "The new law will be clear," he adds.

But Schroder, who chairs the house's gaming oversight committee, says there's another possible outcome. "I've heard from people who are close to the casino lobby that the casinos expect [Rendell's video-poker plan] to pass, and then they expect the state to offer up table games as a way to settle the matter of the licensing fees."

It's unclear how local casino operators would respond, however. Calls to The Rivers, which is building a slots parlor on Pittsburgh's North Side, and The Meadows race track were not returned. A spokesperson for MTR Gaming -- the West Virginia company that owns Presque Isle Downs in Erie -- seemed surprised to hear about the license-refund provision, and said MTR would have no comment.



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