Did municipalities bet too big on casinos?

The pandemic shut down casinos across the province, cutting off a major revenue source for many communities. Now they have to figure out how to balance the budget
By Rob Csernyik - Published on Sep 16, 2020
A reopening date has not yet been set for Fallsview Casino. (iStock/JHVEPhoto)

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Since March 16, the Casino Niagara and Fallsview Casino have sat mostly empty — the crowds of tourists, local gamblers, and performers having been kept away by pandemic restrictions.

And that’s a problem for Niagara Falls. Thanks to the Municipalities Contribution Agreement, the municipality, like 25 other communities across the province, receives a portion of its casino revenues. The agreement, between the Ontario Lottery and Gaming Corporation and municipalities, dictates that 5.25 per cent of the first $65 million earned on slots (and a sliding scale for revenue higher than $65 million) and 4 per cent of revenue on table games go back to the host community. In the 2019-20 fiscal year, the host communities received $135,403,330; Niagara Falls saw $22,120,660.

But with COVID-19 closures, there is no revenue. For the first time ever, the first quarter of 2020-21 paid out nothing at all to any community.

Niagara Falls mayor Jim Diodati says that about 26 per cent of MCA returns are used to offset property taxes, though the city is working to rely less on that revenue — both to account for emergency situations and because the OLG can cancel the MCA with just 30 days’ notice. “I mean, we don't anticipate that happening in the province,” he says. “We also didn't anticipate a global pandemic.”

About half of the money is used for long-term capital investment — rehabilitating anything from sidewalks, to sewers, to neighbourhood parks. Diodati calls it “debt avoidance” because it spares the city from having to tap into other financial resources. Roughly 2 per cent goes to the hospital fund and economic development, and a portion also goes to the Niagara Regional Police — about $4 million last year.

“Everything still will get done,” Diodati says. “We just have to adjust. Like they say, ‘You can’t adjust the wind, but you can adjust your sails.’”

Diodati says the city should be in good fiscal shape this year, all things considered. “But the question is, how quick are we going to get a recovery on our numbers? How soon are we going to have revenues again? And we don't know these answers.”

The 25 other Ontario communities covered by the agreement are asking similar questions. Some casinos announced they’d be opening in late September, with a maximum of 50 gamblers at a time. (As of now, Niagara Falls’ casinos, which typically draw more than 9 million gamblers each year combined, don’t have a reopening date.)

But the second fiscal quarter is set to end September 30, which means that reopened casinos will be able to provide only three days of revenue. With drastically lowered capacity, and with interest expected to wane given pandemic concerns, the true impact on Ontario communities is not yet clear.

Robert Williams, a health-sciences professor at the University of Lethbridge who researches gambling, says the sustained closure of casinos, which has caused gamblers to seek other forms of entertainment, may permanently change recreation patterns — reducing revenues and, in turn, MCA payments. “[There] might be a bit of a resurgence when all restrictions are lifted,” he told TVO.org via email. “But, in the long run, I think it will take years, if ever, for revenue to return to ‘normal.’”

This is a problem for local governments both small and large. In 2019-20, Toronto received $26,385,580 from the MCA, while the Township of Centre Wellington, with 28,000 residents, earned $2,726,074. A spokesperson for the municipality told TVO.org via email that “we still do not know the total impact of OLG funding at this point,” adding that the income reduction will hurt the south-central Ontario township’s ability to fund capital projects, such as roads and bridges, in 2021 and will be reviewed during budget discussions in December.

In Toronto, where MCA income from Casino Woodbine is spent offsetting tax revenue, a May 2020 variance report anticipated a $17.5 million shortfall in casino revenues this year — a forecast that assumed “an August reopening with social distancing protocols in effect.” (Casino Woodbine will open on September 28.)

Two hours east, in Belleville, mayor Mitch Panciuk says it’s too early to assess the financial impact. His government spends MCA revenues ($3,244,624 in 2019-20) the following fiscal year. “As we look at next year's budget, it will be impacted by that,” he says, adding that the city hasn’t yet committed those funds and that he views MCA revenues the way some people do income-tax refunds: as found money. “They try to do things that they wouldn't normally do with those funds,” he says. “That's how we've approached our casino revenues.”

In 2020, Belleville used prior MCA revenues to purchase new police vehicles and to expand a boulevard in the hopes of attracting a Costco. Because the city has already received $3.7 million in safe-restart and transit funding, he’s not immediately concerned for the city’s fiscal future. Belleville delayed setting its budget until July due to COVID-19, and Panciuk says that, due to such measures as staff reallocations and transit reductions, it had a negative tax increase “for the first time that anyone can ever remember.”

Panciuk is, though, concerned about the 10 per cent of MCA revenues that flow into Belleville’s social-infrastructure fund, which supports community groups and organizations. Before COVID-19, he notes, the municipality had received $900,000 in funding requests and had just more than $350,000 available to disperse. “When we look at that, seeing an expected drop in 2020 for revenues, I'm concerned about the 2021 intake for those organizations and those programs,” he says. “And we're going to have some tough decisions to make.”

Niagara Falls has already made some tough calls: it has, for example, decided to hold off on future capital expenditures. And the police, Diodati says, won’t be receiving their typical funding this year: “We told them, you guys get a percentage of what we bring in, and, considering the number is zero, the percentage is zero. You're not going to get anything.”

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