Spending money to make money

Maryland's fiscal wizards were busy this week talking to the rating agencies about an upcoming deal to finance slots machines for two casinos.

If all goes according to plans in early January the state will borrow about $41.6 million to buy 1,825 machines for the the new Hollywood Casino Perryville and the Ocean Downs gaming house expected to open later this month. The price tag does not include the maintenance contracts or costs of leasing some additional machines.

Comptroller Peter Franchot and others have questioned the price the state attached to the machines. In response the state's Lottery Commission asked two outside industry analysts to evaluate the costs. Neither was overly alarmed by the costs, though their evaluations did not include millions in maintenance contracts.

The money that the state is borrowing must be paid back within five years, a time period that matches the useful life of the machines (most of the state's debt is repaid over 15 years).

Also, in this case, the debt will be repaid from Maryland's anemic general fund. For next year, Gov. Martin O'Malley would have to ask the General Assembly for a $8.3 million chunk to cover the costs.

Naturally, the state hopes to make a significant return on its investment, and revenues from the sole operating casino are exceeding expectations. The latest slots revenue projections from the Department of Legislative Services are as follows:

FY12: $105 million, from revenue at Ocean Downs and Perryville
FY13: $228 million, adds expected revenues from the casino at Arundel Mills
FY14: $448 million, adds expected revenues from a casino in Baltimore
FY15: $491 million

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