Since the Racing Act of 1933 that authorized horse track racing, Michigan has a long history with the legalization of gambling to leverage a cash-flow heavy industry to support sustainable economic growth.
In 1996, Michigan voters approved Proposal E authorizing three licensed casinos to be built in Detroit. The ballot proposal was amended with more regulatory power and signed into law as the Michigan Gaming Control & Revenue Act. The law enabled casinos to operate in three specific locations on non-tribal land in Detroit.
A “wagering tax” was passed on the casinos’ adjusted gross receipts (AGR) to be paid to the state at 8.1 percent and the city of Detroit at 10.9 percent AGR.
Since the City Wagering Tax passed, the city has relied on the casino industry as a significant contributor to the fiscal budget.
On September 12, the city of Detroit’s Office of the Chief Financial Officer, Office of Budget, presented the office’s latest review during the Revenue Estimating Conference.
The Recurring Wagering Tax for fiscal year 2022 is reported at $243.2 million, from which $164.8 million comes from onsite gaming and $78.4 from internet gaming/sports betting.
Where is the city’s wagering tax revenue being allocated?
The casino’s annual wagering tax accounts an estimated 20 percent of the city’s revenue General Fund.
Per State law, General Fund must be allocated toward city services and programs, including:
- Hiring, training and deployment of street patrol officers;
- Neighborhood and downtown economic development programs designed to create local jobs;
- Public safety programs such as emergency medical services, fire department programs and street lighting;
- Anti-gang and youth development programs;
- Other programs that are designed to contribute to the improvement of the quality of life in the City;
- Relief to the taxpayers of the City from one or more taxes or fees imposed by the City;
- The costs of capital improvements; and
- Road repairs and improvements.
Historically, the reoccurring taxation policy has been a major player in keeping Detroit afloat during economic hardship.
“Casino revenues were not immune but remained relatively stable through the Great Recession of 2008-2009 and the municipal bankruptcy in 2013 and have been a great help to the fiscal stability of the City,” said a spokesperson from the City of Detroit, Office of Budget.
During the Great Recession, the city wagering tax from all Detroit casinos paid the city $148.1 million.
In 2013, Detroit filed for Chapter 9 bankruptcy, the largest municipal bankruptcy in U.S. history by debt, estimated at $18-20 billion. That year, the wagering tax paid $147 million toward the city’s working revenue fund.
During COVID-19, social distancing and shut downs dramatically slowed or reduced in-person traffic to many businesses, including the casinos, threatening their economic sustainability.
The Office of Budget said, “The onsite casino activity during the pandemic was limited because of the restrictions to slow the spread of COVID-19, but the hold harmless agreement and new revenue streams through the internet gaming and sports betting laws passed in December 2019 helped the City recover quickly.”
Last year, the Michigan Gaming Control Board (MGCB) approved a $40.5 million “hold harmless” payment from the state’s internet gaming taxes to relieve the City of Detroit for tax revenues lost due to the pandemic shutdowns and capacity limits.
“A provision in the 2019 Lawful Internet Gaming Act calls for a ‘hold harmless’ payment to the city if wagering tax revenue drops below the statutory minimum of $183 million for any reason during the preceding city fiscal year,” said Henry Williams, MGCB executive director, in a press release.
“The Detroit casinos experienced a revenue drop during 2020 and early 2021 because of COVID-19-related shutdowns and capacity limits, which reduced wagering tax and development agreement payments,” Williams said.
Before the pandemic, the casinos generated more than $1.5 billion yearly in gambling revenue. While that number took a significant hit in 2020, indications point towards a robust recovery in 2022
“Wagering taxes from internet casino gaming and online sports betting did not begin until both gaming forms launched on January 22. This was about seven months into the city’s fiscal year, which ended June 30. The provision took effect because of an unusual set of circumstances caused by the casinos’ closings and reduced capacity due to COVID-19 health concerns.”
In January 2021, Michigan joined more than 10 states, including Nevada, New Jersey, Delaware, Mississippi, West Virginia, Pennsylvania, Rhode Island, and New York, Iowa and Indiana in fully legalizing sports betting.
This enabled the casino industry to have more regulatory power, instead of folks placing bets through offshore sites or private bookies.
Regarding sports betting revenues, the City of Detroit’s Office of Budget said, “The tax rate for internet sports betting is only 8.4 percent, of which the City of Detroit gets 30 percent (2.52 percent of total adjusted gross receipts). Retail sports betting is taxed at a higher rate: 4.62 percent of total adjusted gross receipts.
“Additionally, sports betting has not contributed a large portion of the city wagering tax; our September Revenue Estimating Conference total for the 2022 fiscal year (July 2021 to June 2022) held retail sports betting as 0.5 percent of the total base tax and internet sports betting as 1.7 percent of the total base tax.
“Internet sports betting revenue is expected to triple though between the 2021 fiscal year and the 2022 fiscal year ($1 million to $3.6 million). The largest revenue sources are retail gaming (69 percent of fiscal year 2022 base tax revenue, $141.5 million) and internet gaming (28.8 percent of fiscal year 2022 base tax revenue, $58.9 million).”
“More than 19 million people visit metro Detroit every year, and the three casinos are a major attraction for visitors and locals alike,” said Christopher Moyer, senior director of communications at Visit Detroit.
“There are many reasons why people come to Detroit’s casinos from all over the region, nationally and internationally. With great restaurants, fantastic live events and accessibility to gambling, the casinos provide people with a platform for entertainment, camaraderie and connection.”
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