La Center alters tax rate to aid cardrooms

LA CENTER — The La Center City Council voted unanimously Wednesday to change the gambling tax rate to a sliding scale for the year in an effort to help the city’s two remaining cardrooms.

The new tax rate, which is retroactive to the start of the year, is based on the cardrooms’ monthly gross revenue, as opposed to a flat 10 percent tax rate, like it had been. The two remaining cardrooms — Last Frontier and The Palace — will have a 5 percent tax rate if they gross up to $400,000, a 7.5 percent rate for bringing in between $400,001 and $700,000 a month, a 10 percent rate for months that see a gross between $700,001 and $1 million, a 12.5 percent rate for months between $1,000,001 and $1.3 million, and a 15 percent rate should the cardrooms gross more than $1,300,001 in a month.

The average monthly gross revenue for May to December in 2017 was around $850,000, according to a report from Paul Lewis, finance consultant for La Center.

The cardrooms will have an exception for the months of April, May and June, when they’ll have to pay a 5 percent tax rate for revenue up to $800,000 due to expected impacts of roundabout construction and full implementation of new utility taxes in the city.

“It’s important to work together to keep us alive,” Chris Swindell, general manager of the Last Frontier, said during public comment at Wednesday’s meeting.

The deal included some other changes for the cardrooms, including decreased penalties for late payments and new closure fees. The cardrooms will have to pay $25,000 for a closure before June 30 and $15,000 for a closure between July 1 and Oct. 31. There is no fee for closing after Nov. 1, and the cardroom must notify the city within one hour of permanent closure or two days ahead of temporary closure. The agreement runs through the end of the year, and then the tax rate will revert to 10 percent unless the councilors vote on a new deal.

The vote for a sliding tax scale comes nearly three months after councilors declined to vote on a measure to reduce the gambling tax rate to 5 percent for Oct. 1 through Dec. 31. The councilors were looking at options for lowering the tax rate at the request of the cardrooms and because the rooms out-performed expectations to that point of the year. In the city’s 2017 budget, the cardrooms were expected to bring in around $1.9 million in tax revenue, but the city ended up collecting $2,374,000. That made up about 55 percent of the city’s general fund revenue for 2017, a decrease from the 70-plus percent of city revenue gambling taxes had previously represented for La Center.

“The city has prospered (due to the cardrooms),” Michael Santoro, La Center resident and casino manager for the New Phoenix and Last Frontier from 2005 until he retired in 2013, said during public comment Wednesday.

The city’s 2018 budget was anticipating $1,572,000 in gambling tax revenue, but with the new tax scale, that figure falls to $1,329,000. The city also planned for a deficit in the 2018 budget, and with the new tax scale, that deficit is expected to increase from $390,000 to $633,000. The deficit will be made up from the city’s roughly $6.8 million in general and reserve funds.

City’s ‘golden goose’

Throughout the public hearing and discussion on the sliding tax scale, residents and councilors spoke about the importance of helping out the two remaining cardrooms. Councilor Joe Valenzuela said he calculated that the cardrooms have given the city more than $40 million since coming to La Center in the late 1980s, and called the cardrooms a “golden goose” for the city. He also compared the struggles of the cardrooms since the opening of nearby Ilani Casino Resort in April to what happens to small businesses when a Walmart opens.

“The Walmart has shown up,” he said.

Councilor Randy Williams said he didn’t think the cardrooms would struggle as much as they have since Ilani opened. According to Lewis’ presentation, the cardrooms brought in more than $2 million in revenue in February, March and April in 2017, the only three months of the year the cardrooms grossed that much.

A few councilors quoted Jack Davis — a La Center resident who spoke during public comment, saying it was better to get 6 or 7 percent of cardroom revenue as opposed to 10 percent of nothing, should the cardrooms close. He was in favor of the new tax scale as a way to help out “great neighbors,” as he called the cardrooms.

“We took their money for granted in the good times,” he said Wednesday. “With the casino opening, those good times are over.”