Ehrlich alters split in overhaul of slots bill

Gov. Robert L. Ehrlich Jr. unveiled a sweeping overhaul of his slot machines legislation last night that would cut the share of proceeds going to education by 20 percentage points and roughly double the total allotted to racetrack owners.

The long-awaited revision would reduce the schools' share of the money from 64 percent to 44 percent in answer to complaints from the racetrack industry that the original bill gave them too little money to justify their investment. The tracks' share of the money would increase from 25 percent to 46 percent - giving them an additional $350 million to cover their operating costs.

Ehrlich said the state's outside consultant had compared the split of the proceeds with other states that tie gambling revenue to education.

"This is the best arrangement to benefit public education by far," he said.

The revised bill would allow 3,500 slots each at three Central Maryland tracks - up from 3,000 each in the original bill. Another 1,000 would be permitted at a track planned in Allegany County, bringing the statewide total to 11,500.

The revised proposal provides less than 4 percent for racing purses - less than in the original bill and a far smaller percentage than surrounding states.

"We need a tourniquet, and this is a Band-Aid," said Gerard E. Evans, lobbyist for the Maryland Thoroughbred Horsemen's Association. "If this bill is about horse racing, we need 7 or 8 percent."

Ehrlich outlined the changes at a late-night news conference attended by state schools Superintendent Nancy S. Grasmick and several leading legislators.

Administration officials distributed a chart showing that the decrease in the education share brought the percentage down to 59 percent.

But that number was not comparable to the 64 percent that was announced in the first draft. The 59 percent is based on a smaller dollar amount that is calculated after track owners' expenses have been deducted. The 64 percent was predicated on the track owners absorbing those expenses themselves.

House Speaker Michael E. Busch, when reached at home late last night, said that when administration officials briefed him on the bill, they presented the percentages as being comparable with the original bill. He said he was surprised the track owners would settle for the 29 percent the administration presented as their share.

"I'm waiting to digest the difference in the numbers," the Anne Arundel County Democrat said.

The proposal also weakens the link between slots and next year's budget by cutting the up-front fees charged to the racetracks from $100 million each to $40 million each and would defer up-front fees at the Allegany track. The fees are now projected to bring in $120 million for next year's budget. Ehrlich's budget bill is based on the state receiving $350 million in up-front fees, leaving a new gap of $230 million.

Ehrlich did not rule out new taxes to fill that gap, but said his first choice would be spending cuts. He said he wouldn't consider sales and income taxes, but that other types of revenues might be palatable. "We will review every tax proposal, not within the scope of sales and income taxes, on its own merits," Ehrlich said. "We will see if common ground exists. We think there might."

Ehrlich presented the revision as though it had been the administration's plan all along to submit a "holding" bill and then work out the real split.

But Paul E. Schurick, a policy and communications adviser for the governor, conceded the governor made serious errors in his initial plan, and needed to give much more money to track owners. "We were wrong," Schurick said. "We significantly underestimated their capital expenses, and how much it would cost them to borrow money."

The new slots plan also does not address several issues that have been identified as critical to passage of the legislation:

  • Provisions guaranteeing a minority share in the ownership of the slots operations have not been settled.

  • Language guaranteeing that the Preakness remains in Maryland is not part of the bill.

  • No money is provided directly to the neighborhoods that would be most affected by the influx of slot machine gamblers - a key concern to residents of the Pimlico area and the lawmakers who represent them.

    The legislation does add a provision requiring existing racetracks that get slots to spend a minimum of $100 million on capital investments, and it requires them to maintain live racing.

    The revision released last night comes in the form of amendments to the original Ehrlich legislation, but the changes are so drastic they amount to an entirely new bill. The overhaul was announced on the 57th day of the 90-day session - more than a week after hearings were held on a bill that was already obsolete.

    The bill Ehrlich proposed in January would have placed 10,500 slot machines at four Maryland tracks - Pimlico, Laurel Park, Rosecroft and one to be built in Allegany County.

    The revised bill brings the number of slots at Pimlico, Laurel and Rosecroft closer to the figures proposed by the racing industry in a report to Ehrlich. The industry sought 4,500 machines at each of the three sites - an amount that would have required a facility larger than most of the major casinos in Las Vegas and Atlantic City.

    The administration briefly considered proposing gambling halls that large, but backed down after the numbers leaked out and were criticized by legislative leaders.

    In the original bill, Ehrlich gave the tracks 25 percent of the proceeds after payouts to winners - an amount industry analysts called unworkable. The revised bill gives them 46 percent after payouts to winners - or 29 percent after operating expenses.

    The original bill was drafted by a small team of Ehrlich aides in isolation from industry input. Stung by the reaction to the first bill, the administration opened its doors to industry participation in drafting the revisions.

    Sen. Ulysses Currie, chairman of the Senate Budget and Taxation Committee, stood at Ehrlich's side to praise the plan, but had just emerged from a lengthy meeting and was not aware of all its components. After reporters pointed out inconsistencies, Currie responded with an expletive.

    "Once we committed solely to the racetracks, they were in the driver's seat," Currie said. "This is just the beginning on the process. I'm sure some of these percentages will change."

    Del. Peter Franchot, sponsor of a bill to defer action on slots until a commission can study the issue, sharply criticized Ehrlich's new plan and his decision to release it at a late-night news conference.

    "The fact that it's held at 9 p.m. at night, two-thirds of the way through the session, blowing a [$230] million hole in his budget, calls out for a postponement of the whole issue," said the Montgomery County Democrat.

    Slots opponents said last night Ehrlich appeared to have succumbed to lobbying by racing interests.

    "The track owners have got to be very happy," said Minor Carter, a lobbyist for a coalition of anti-slots groups.

    He said the deal was worked out "in the back room" and clearly favors racetrack owners and slot machine manufacturers over the state. "This is what happens when you're in partnership with gambling interests," he said. "If we get slots, this is what we're going to see over the next 20 years."

    Tom Hucker, executive director of Progressive Maryland, a nonprofit advocacy group that represents labor unions and faith-based groups, also blasted the new plan.

    "You can put lipstick on a pig but that doesn't make it pretty," Hucker said. He said the administration spent more than a week reworking its numbers "to get some millionaire track owners on board when the public is in revolt against this. He certainly doesn't have the churches or community groups on board."

    Ehrlich insisted last night that his changes will win General Assembly approval.

    "I firmly believe the votes will be there ultimately for slots," he said. "We think this is the best deal in the country and we think the time is right."

    Sun staff writer Howard Libit contributed to this article.

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