Taxpayers beware! Encouraging granny to gamble may be the only way that Columbus and Franklin County residents can avoid an unexpected $100 million increase in the cost of the publicly financed Nationwide Arena, according to the Columbus Coalition for Responsive Government. In a press release provided to The Columbus Free Press by Coalition spokesperson Jonathan Beard [Beard also serves as Chair of the Editorial Board of the Free Press], the Coalition reports that Ohio’s four casinos are not generating enough tax revenue to the state of Ohio to fully cover bond payments due from the Franklin County Facilities Convention Authority for that agency’s purchase of Nationwide Arena. Ohio Department of Taxation reports show that actual statewide casino revenues have landed far from the rosy amounts originally projected. During the 2009 campaign for Ohio casinos, backers projected $1.9 billion in casino gambling revenue in Ohio. By 2011, the state of Ohio revised its budget forecast for the casinos downward to just $1.1 Billion. And actual gambling revenues over the past 12 months have been just $868 Million. Of the state casino gross receipts tax on that amount, $10.3 million was distributed to Columbus, of which 25 percent is the amount dedicated to fund the City’s leasehold interest in Nationwide Arena. Columbus City Auditor Hugh Dorrian is not overly concerned, “The estimate made for the City of Columbus was practically on target,” he said. “I estimated $10.1 million in total revenue in 2013 and it came in at $10.2 million. So that was the estimate I had and you can't get much closer than that.” Dan Williamson, the Mayor’s media spokesperson, echoed this line: “We're about where we anticipated. Our auditor, Hugh Dorrian, anticipated less revenue. His projection was fairly accurate,” Williamson said. “So for us this is not a surprise.” The practical impact of low gambling and the resulting state tax revenue shortfall to Columbus and Franklin County residents is that a quarter of the $10.3 million received by Columbus that is dedicated to the arena lease is just $2.6 million – not enough money to pay the $3.3 million required to cover the bond payment schedule for 2013. This has resulted in a bond payment deficit of $765,833 for 2013. Beard says that according to public records requested and received by the Coalition, it appears as though the shortfall of $765,833 for 2013 will then be an outstanding bond amount that will be paid at the end of the loan by extending the term of the loan and making additional payments. And with the 4.875 percent compounding interest charged by Nationwide for the arena financing over the next 26 years, the Coalition calculates the future value of this $765,833 deferral through the 2039 projected life of the bonds would actually add $2.3 million to the lease costs billed to Columbus. The purchase of the arena was controversial, after Columbus taxpayers had turned down such a deal five times in the past. How the deal was done has been called into question and outlined in this paper. An interesting article appeared this year in The Hasting Constitutional Law Quarterly written by David Ebersol entitled “Democracy in Ohio: Ohio’s Fiscal Constitution and the Unconstitutional Nationwide Arena Deal.” The article makes a detailed case for the unconstitutionality and illegality of the Columbus City Council’s Arena bailout. There are six steps involved. The first three raise the money, the last three transfer the wealth to the wealthy. 1. The Franklin County Convention Facilities Authority (CFA) issues bonds to Nationwide allowing them to raise (borrow) at least $44 million. These proceeds end up being used primarily to purchase the Arena in step four. 2. The CFA turns around and enters into a lease agreement and sublease agreement with the City of Columbus and Franklin County. The government entities agree to give the casino tax revenue that should be going to the City and County to the CFA. Under this bizarre money-laundering scheme, the City and County lease from the CFA and agree to pay “rent,” that is, the casino tax money. Then, under a sublease agreement, the City and County declare themselves the lessors and transfer the Arena back to the CFA. Although it is hard to believe, the CFA cuts the deal of the century and rents the Arena back by giving $10 to the City and County. 3. Its coffers filled with casino tax revenue, the CFA next borrows $10 million at an interest rate of 1 percent from the State of Ohio. Five million of this loan will be forgiven by Ohio state government if timely payments are made by the CFA. 4. The flush CFA then purchases Arena from Nationwide Arena LLC for $42.5 million. 5. After purchasing the Arena with public funds, the CFA gives use of the publicly-owned Arena to the Blue Jackets, free of charge. 6. Under the new agreement, the CFA is responsible for managing the Arena and for its upkeep. In order to do this, it creates the new group, Columbus Arena Management (CAM). Thus in six easy steps, Nationwide gets bailed out for a bad investment in the Arena, and the four families who own the Blue Jackets get a huge subsidy by not having to rent an Arena for their hockey team. The tax money that could have flowed to re-developing low income neighborhoods and abandoned houses throughout the city is now earmarked to maintain the Arena. The Ohio Constitution in Article 6, Section 6 states that, “No law shall be passed authorizing any county, city, town, or township by vote of its citizens, or otherwise, to become a stockholder in any joint stock company, corporation, or association, whatever; or to raise money for, or to loan its credit to, or in aid of, any such company, corporation, or association….” In 1965, Section 13 updated the Ohio Constitution and allowed economic development bonds to be issued for public purposes as long as “moneys raised by taxation” are not used to finance the bond issue, meaning to repay the debt. In 1984, the Supreme Court of Ohio told us exactly what this means. Ohio cities and municipalities are forbidden to subsidize for-profit businesses with below market arrangements financed with “moneys raised by taxation.” Shockingly the casino tax is a tax, and the Blue Jackets are a for-profit business. The Supreme Court case State ex rel. Ryan v. City Council of Gahanna suggests that the Arena financing deal is illegal money laundering. In another case, State ex rel. Saxbe v. Brand, the Ohio Supreme Court found that State of Ohio money lent through a commission constituted the lending of the State of Ohio’s credit, thus making the Arena deal likely illegal. Convention facility authorities like Franklin County CFA fall under this statute and ruling. It appears that the Arena deal is illegal under the Ohio Constitution. Go Granny, Go Granny, Go! So why does Granny need to get to the slots? According to Coalition projections, if the current 23 percent shortfall happens in every year of the lease, the total added costs will be $97 million and a bond payment schedule that extends an additional 7 years – to 2046. The only thing that can prevent such a shortfall: more gamblers willing to belly up to the poker table to bet their pension on a three-of-a-kind. Coalition committee member Willis Brown says, “It is a shame when our public policy must be to promote more gambling so we can subsidize our sports and entertainment whims. For this deal to be exploding in the very first year of casino tax payments is frightening. We’ve got to understand why there is cause to believe gambling will increase by more than 23 percent next year and into the future while the scheduled bond payments are also increasing. If any deal ever needed revisiting because it doesn’t well-serve the people, this is it.” Beard says, “Also troubling is that our projections show that if these results from the very first year of the casino tax payments hold true through 2039, Columbus residents will still be paying in the year 2046 for what will then be a 45-year-old arena, though the average life of an arena is just 30 years. And in addition to this old debt from 2011, there will be substantial rehabilitation costs during the life of our lease payments that will run into the many tens of millions of dollars – who pays for that?” Beard believes, “This has the potential to turn into the next generation’s version of our own generation’s Cash Burning Power Plant, where public dollars are drained by a facility that is obsolete or no longer in use. Ironically, the citizens’ petition we filed to require a public vote on the lease that is opposed by public officials may be their saving grace – the only thing that can extricate the public from the results of the decisions that officials made without the voters’ approval.” Dorrian sees it differently, “One reporter said to me, 'Well Dorrian, what's going to happen after 2039?' I said, 'I don't know what's going to happen after 2039.' But I can tell you what the game plan is or what we've tried to prepare ourselves for. If the casino taxes stay low, we'll be paying for it for a longer period of time. If they get better, you pay it off earlier than that.” Dorrian added: “We do not owe and will not owe anything other than casino taxes, Obviously that's money that comes from the gamblers in the state of Ohio and there's not going to be a nickel of income tax or fines or fees or anything like that. I've tried to make that clear a number of times but I'm not sure the message is getting across properly. So people, grab your Grandma, grab your Grandpa and train all the young ‘uns to know when to hold ‘em and when to fold ‘em, because sadly, we need to see a lot more people losing a lot more money for a very long time at Ohio’s casinos, if we are to avoid a publicly-financed arena fiasco.