BANGOR, Maine — Hollywood Casino plays a significant role in the city of Bangor’s finances. It pays more property taxes than any other entity, as well as a portion of the city’s debt for the Cross Insurance Center.
This relationship could be tested, given the casino’s Jan. 9 request for a $36.8 million reduction of its property value, the second tax break sought by the casino since 2009.
If approved, the city would repay $876,840 of the $2.6 million in property taxes already paid by the casino for 2014.
While the city considers this request, it also is dealing with a declining share of the casino’s gaming revenue — down 19.5 percent over the past two years. The city relies on that revenue to help pay the $3 million annual debt service payments for the Cross Center.
An official with Hollywood Casino said the gaming operation’s request for a tax abatement is not a sign the casino is struggling, but he also acknowledged the economy remains soft and competition has increased.
Nearly 130 miles away, competing Oxford Casino continues to snag more gaming revenue than the Bangor gambling establishment.
“Just like all businesses in Maine, we are managing continued softness in the economy with increased competition, so we have to tighten our belt and stay focused on our bottom line,” Hollywood Casino General Manager Jose Flores said. “But Hollywood Casino remains healthy, and it is business as usual.”
Flores attributed the abatement request primarily to the increase in assessed value applied by the city for the 2014 tax year.
The city increased its assessment of the casino’s fair market value by 3.6 percent in the 2014 tax year, from $94.8 million in 2013 to $98.2 million.
Under state law, City Assessor Phil Drew has until May 9 to issue a written decision on the request. He also could ignore the request, which would result in an automatic denial.
Drew would not comment this week on the reason for the increased valuation but said he plans to issue a written decision instead of letting the request die without a response.
He is expected to deny the request, as the City Council already hired outside legal counsel to represent its interest in the tax dispute.
Voting unanimously April 27, the City Council ratified an agreement with the Kennebunkport-based Jensen, Baird, Gardner and Henry law firm for legal services related to the abatement request at an estimated cost of $20,000 in order to represent the city’s interest in the tax dispute.
Drew would not comment on the particulars of the dispute, but he advised the council’s Finance Committee on April 22 that he was “comfortable that the assessment is fair and equitable” and that his office would “like to move toward a vigorous defense.”
“My opinion would be, given the value that’s been invested in the Cross Center, in the new hotel, in the waterfront, the value should have at least stayed the same, if not increased,” Councilor Ben Sprague said at the time.
If the casino disagrees with Drew’s decision, it can appeal to the city’s Board of Assessment Review for a hearing.
Abatement requests are not particularly unusual in Bangor, according to city officials. Drew estimated that, on average, his department gets 10 to 12 formal abatement requests annually.
In its latest request, Hollywood alleged the city’s assessment overvalued the casino properties.
The casino has engaged a U.S. branch of Ernst & Young Global Ltd., the third largest financial auditing firm in the world. Its services include tax consulting and advising.
Flores said the casino is “relying on their expertise” in valuation matters.
Meanwhile, city records show that in the 2009 tax year — before Drew served as city assessor — the city granted Hollywood Casino a $16.1 million reduction in its property valuation, cutting its estimated fair market value from $100.7 million to $84.6 million.
Under the tax rate at the time, that was equal to $307,101 in property taxes abated by the city. That abatement request did not go to the appeals board.
Drew said he could not comment on why former City Assessor Ben Birch approved that request. The Bangor Daily News has requested a copy of the casino’s request for that abatement under the Maine’s Freedom of Access Act.
Despite the abatement, Hollywood Casino’s two local property holding companies, GLP Capital LP and HC Bangor LLC, remained the first and the fifth highest property taxpayers in the city in fiscal 2014, shelling out a combined $2.6 million in personal and real property taxes, according to city records.
That equaled 2.7 percent of the city’s total budgeted income of $95.5 million from property taxes and non-tax income for the 2014 tax year, including revenue for schools and the county.
In addition to property taxes, the city gets a share of the casino’s gambling revenues. In fiscal 2014, the casino paid the city $1.96 million in rent and percentages of its gambling revenue.
That was down 6.3 percent from fiscal 2013 and 19.5 percent from fiscal 2012, the highwater mark for the casino’s gambling revenue to date and the same year Oxford Casino opened.
The city uses that money and revenue from the downtown tax increment finance district to pay most of the $3 million annual debt service for the Cross Insurance Center Arena, which opened in 2013.
Through its annual budget process, the council decides how much should come from the downtown TIF and how much should come from gambling revenues.
To fund the arena’s construction, which Bangor voters approved via referendum, the city used $12.2 million already received from casino operations and borrowed $56.5 million through a bond issue to cover the total $68.7 million cost.
In fiscal 2014, gaming revenues from the casino covered about 50 percent of the debt service, despite an earlier projection they would cover about 75 percent of the debt service over the 30-year repayment period.
City Manager Cathy Conlow said this week casino revenues were expected to climb 1 to 2 percent annually through the life of the bonds. Instead, they have remained flat or fluctuated slightly in recent years, she said.
“There’s nothing happening that’s terribly unexpected, except that their revenue isn’t increasing,” she said.
According to records maintained by the Maine Gambling Control Board, net gambling income at the Bangor casino has fallen 13.1 percent since hitting its peak in 2012, dropping from $62.7 million to $54.4 million in 2014.
They stabilized somewhat between 2013 and 2014, dropping a lesser $221,164, or 0.4 percent. In comparison, Oxford Casino, which opened in mid-2012, saw a 1.7 percent increase between 2013 and 2014 with net gaming income totaling $72.8 million.
Those do not include nongambling income, such as hotel and food sales.
For fiscal 2015, the city budgeted $800,000 from the downtown TIF for debt service on the arena. In the proposed 2016 budget, which is still being reviewed by the council, city officials propose dedicating $1 million from the downtown TIF for debt service related to the arena.
The change comes as city officials also propose diverting $255,000 in gambling revenues away from debt service in order to pay for operations of the Cross Center in fiscal 2016.
In her budget letter to the council, Conlow wrote that revenues at the Cross Insurance Center are projected at $2.5 million for fiscal 2016, down 9 percent from the $2.7 million estimate the year before.
She attributed the change to the center’s management, Global Spectrum, having more time to better understand operations and “lower than anticipated revenues in the convention center.”
“Central to this issue is that the market is slow to respond to the costs that premium facilities usually command,” she wrote.
City officials project total expenses at the center will be $2.8 million in fiscal 2016, down about 1 percent from the year before. That leaves a deficit of approximately $299,368, necessitating the proposed shift of gambling funds away from debt service.
The downtown TIF captures all revenue resulting from property value assessment increases since its formation in 2006. In fiscal 2015, that amounted to $112.4 million.
However, in order to mitigate property tax increases for Bangor residents, the City Council reduced the amount captured by the downtown TIF to 65 percent in fiscal 2015 instead of 100 percent of the increased property value. That meant a lesser $73.5 million went into the TIF in fiscal 2015.
According to the city, as of July 30, 2014, the Arena Fund, which includes all gambling funds from the casino and payments for naming rights by Cross Insurance, had a reserve of $1.05 million.
According to city tax records, Hollywood Casino’s properties in Bangor belong to HC Bangor LLC and GLP Capital LP. HC Bangor LLC, which owns the casino’s personal property such as gambling machines and furniture, formed in August 2013 as part of Hollywood Casino, according to state records.
GLP Capital LP is a wholly owned subsidiary of Gaming and Leisure Properties Inc., a real estate investment trust formed in 2013 as a corporate spinoff of Pennsylvania-based Penn National Gaming Inc.
The spinoff enabled Penn National to continue running the casinos while reducing taxes and overcoming casino licensing restrictions by having the real estate investment trust take ownership of roughly half of Penn National’s casino properties, including the Bangor casino.
As publicly traded companies, Penn National and Gaming and Leisure Properties file annual earnings reports with the U.S. Securities and Exchange Commission. According to those reports, Penn National had a net loss attributable to shareholders of $233.2 million in 2014.
Gaming and Leisure Properties had a net income of $185.4 million the same year, according to those reports.
According to an annual report by the national accounting firm RubinBrown LLP, gaming nationwide set a new record in 2014, generating $68.7 billion in revenues.
However, brick-and-mortar casinos, which account for 54.6 percent of all gaming revenues nationally, saw a 0.6 percent decline across the nation.
The accounting firm attributed that decline to increased online gaming and video lottery terminals offered in restaurants, truck stops and bars. Those devices are not allowed in Maine.
Maine was one of eight states to see an increase in commercial gaming revenues, up 0.8 percent to $127.27 million, according to RubinBrown.
Follow Evan Belanger on Twitter at @evanbelanger.