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Higher slot machine taxes ‘one more nail in the coffin’

By Gabriel Parra Blessing
August 17, 2006

Casino closings, job losses and the stunted development of hotel projects are a few of the consequences that may befall the tourism industry if the Puerto Rico Tourism Co. (PRTC) goes through with its plan to raise slot machine taxes, several developers and casino operators told CARIBBEAN BUSINESS. They pointed to several hotel developments in the pipeline that may be scuttled, given that the predicted revenue stream from proposed casino operations would be staunched, forcing investors and lenders to reassess their financial commitments to said projects. One such project is the troubled Sheraton Convention Center Hotel, whose financing one developer called “precarious” and which may fall apart if the projected revenue stream from its casino were altered.

All the operators and developers contacted contended they had not been consulted by the PRTC prior to learning about its efforts to increase the government’s take of slot machine revenue, and seethed at being “blindsided” with the news. “Unbelievable,” said Ismael Vega, controller/treasurer of the Radisson Ambassador Plaza Hotel & Casino, whose slot machine revenue is the highest of any casino on the island. “The Tourism Co. used to be on our side when measures like these were floated by others in the past, and now they’re the ones proposing it.”

“The perception in banking and investment circles is already that Puerto Rico is not an easy place to do business, with the rules of the game changing capriciously,” explained Rick Newman, president of Flagship Services Corp. “If suddenly your projected revenue stream changes, what will happen to the debt service and equity distribution of projects coming down the pipeline?

“And it is very dismaying that the Tourism Co. should be proposing this, when they’re supposed to be advocates and proponents of the industry,” Newman continued.

John Siddons, casino manager of the Ritz-Carlton—the number two or three casino on the island in any given week—said the PRTC “is cutting the legs off the golden goose, and it primarily benefits them. I understand the government is looking for money wherever they can find it, but they’ve got to understand this represents one more nail in the tourism coffin.”

Hugh Andrews, president of International Hospitality Enterprises, assailed the PRTC for a lack of transparency, contending that he had “no idea” why the projected operational expenses for the agency’s gaming division will go up to $21 million in fiscal 2007, up from $14 million in fiscal 2006—a 50% increase.

“The industry has invested millions in automation to streamline operations. With TITO [a coinless Ticket-In, Ticket Out system for slot machines], which we’ve implemented at enormous expense to us, it’s much easier to keep track of every transaction. There is no reason why the gaming division’s budget should increase 50% when, if anything, it should be half of what it is today,” Andrews argued.

Hoteliers promised to vigorously oppose any effort to raise the slot machine tax, with at least one suggesting the industry may do well to look into closing down all the island casinos, as the industry did briefly in the 1990s prior to hotels being given operational control of slot machines in 1997. Such a move would effectively bankrupt the PRTC, given that $79 million of its $122.8 million fiscal 2007 budget is derived directly from slot machine taxes.

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