State legislators and Gov. John Bel Edwards are giving up what could amount to tens of millions of dollars over the next 32 years while agreeing to a tax settlement offer from the Harrah’s New Orleans casino.
Instead, the state will receive a one-time $39 million tax payment from Harrah’s that officials can use now to plug a short-term budget hole. They will also receive a fixed annual payment of $1.3 million from the casino company over the next 32 years, although inflation will erode its value over time.
The deal is taking place through the passage Thursday of House Bill 137, sponsored by Rep. Royce Duplessis, D-New Orleans.
The details of the settlement are spelled out in an amendment to the bill provided by Harrah’s officials, said Kimberly Lewis, the secretary at the Department of Revenue. Duplessis noted that it was not part of his original bill.
The analysis estimates that the state is giving up $45 million to $70 million in tax payments over the 32 years.
Two things are driving the deal: Harrah’s parent, Caesars Entertainment, lost a tax case before the Louisiana Supreme Court in February that put the casino giant on the hook to the state for up to $43 million.
Company officials have been contending for years that Harrah’s doesn’t have to pay state taxes on rooms it comps to guests who stay at either the Harrah’s hotel or at non-Harrah’s hotels. The Supreme Court ruled that Harrah’s does owe the state taxes on comped rooms at its hotel, but not at the others’ hotels.
A court hearing is scheduled for later this year to determine if Caesars will have to pay the full $43 million, as the state contends, or something less.
State lawmakers and the Edwards administration are opting for a $39 million settlement to receive money now that they can use to fill pandemic-caused budget gaps at the Louisiana Stadium and Exhibition District (which oversees the Superdome, among other things) and the Ernest N. Morial New Orleans Convention Center.
“This brings to an end long-standing litigation where the state was found to have been owed this revenue,” Duplessis said in an interview.
As part of the deal, the state also will no longer tax the comped rooms. That was worth $1.6 million to the state in 2019, according to a Department of Revenue analysis.
In exchange for no longer being liable for the tax, Harrah’s will make a $1.3 million annual payment to the state until 2054, when the casino’s operating agreement with Louisiana is scheduled to end. But that amount will steadily be worth less over time.
With an average 2% inflation rate, that $1.3 million payment will be worth only $689,000 in inflation-adjusted dollars in 2054, according to an analysis by Steven Sheffrin, a Tulane economics professor.
“When looking at dollars far into the future, it’s important to take into account inflation adjustments,” Sheffrin said.
A full accounting of how much the state is potentially losing over time has to account for Harrah’s plans to build a new hotel above the casino at Poydras and Canal streets that will double the number of rooms it offers.
In theory, if the state was owed $1.6 million in taxes for comped rooms in 2019, it would be owed roughly double that amount once the hotel opens in 2023.
Assuming that, along with an average 2% inflation rate, the state could collect about $100 million by 2054 in comped room taxes, compared to the $41 million projected from the annual $1.3 million payment. The $41 million would actually be worth $31 million over the next 32 years in inflation-adjusted dollars. This means that under the deal, the state could collect about $70 million less than it would have otherwise.
Under a more conservative analysis where the state collects only $2.4 million in taxes per year beginning in 2023, with the inflation adjustment, the state would have collected about $75 million -- or $45 million less than it will collect under the new deal.
Lewis said the state agreed to stop taxing the comped rooms because Harrah’s was the only casino in Louisiana subject to that tax – which was established as part of the agreement giving Harrah’s a monopoly casino in New Orleans.