Last September, the Pennsylvania Supreme Court struck down a vital component of the Commonwealth’s Gaming Act, known as the “local share assessment” – a section of law that provides local governments with a significant funding stream backed by an assessment on certain gross revenue from casinos located in or around their municipality. The court’s ruling, prompted by a lawsuit filed by Mount Airy Casino, located in Monroe County, put in jeopardy hundreds of millions of dollars in local funding for counties and municipalities across the Commonwealth.

The basis of Mount Airy’s lawsuit revolved around its belief that the local share assessment violated the Article VIII, Section 1 of the Pennsylvania Constitution – the Uniformity Clause – which provides, “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.”

Mount Airy argued that the local share assessment violated the Uniformity Clause because language contained in statute set a minimum amount of tax certain casinos were required to pay, regardless of how much gaming revenue they produced. Specifically, the Gaming Act required casinos, except those located in Philadelphia and resort-based casinos (referred to as “Category 3” casinos), to pay 2 percent of their gross gaming revenue, or $10 million, whichever was higher, to their local municipalities. Since none of the state’s 12 operational casinos had gross gaming revenue from slot machine gaming above $500 million, casinos located outside of Philadelphia were required to pay the minimum $10 million amount.

Mount Airy argued that the flat fee of $10 million created variable tax rates between casinos outside of Philadelphia, in violation of the Uniformity Clause. The Supreme Court agreed, and struck down the tax, and in doing so gave the Pennsylvania General Assembly a mandate to fix the problem, or have this important funding stream end for several municipalities across the Commonwealth.

After several months of negotiation, and amid a larger debate on gaming expansion, on October 26, 2017, the General Assembly passed a sweeping gambling reform bill that included a “fix” for the local share assessment issue. The legislative fix removes any reference to the $10 million minimum local share assessment. To ensure that municipalities continue to receive the same level of funding, however, the new law imposes a “slot machine operation fee” on all casinos with the exception of Category 3 casinos, (but including casinos in Philadelphia), that is anticipated to result in $10 million paid by each casino per year.

It is yet to be seen whether the new fee structure created under this legislation will be challenged by any of the state’s casinos, and if so, how the courts may react to the language. But at least for now, municipalities who received local share funding from slot machine gaming can expect to continue to receive the same level of funding they previously received, and municipal officials can once again budget in reliance on the receipt of these funds for their municipality.

The author thanks William Thomas, who assisted in the preparation of this post. Bill served as the Executive Director of the House Gaming Oversight Committee from 2010-2014, and remained heavily involved in gaming policy for the House as the Leadership Executive Director for the House Democratic Caucus Secretary from 2014-2017. He now is President of Mid-Atlantic Strategic Solutions, a McNees subsidiary government affairs and political consulting firm. Bill can be reached at 717-574-2923.