National gambling companies -- already rushing to rebuild casinos on the Gulf Coast -- would be granted access to millions of dollars in tax breaks under President Bush's plan to entice businesses into the Katrina disaster zone.
In a break from previous Gulf Coast economic development practices, White House officials said they do not plan to exclude the gambling industry from huge tax write-offs for investment in equipment and structures in the president's proposed Gulf Opportunity Zone. Mississippi Gov. Haley Barbour (R) endorsed that policy yesterday, saying, "They should be treated like any other business. That's the way we do it in Mississippi."
But economic development officials in the state say Mississippi does not do it that way. The gambling industry largely has been excluded by statute from economic development incentives, said Brian Richard, former director of research at the Mississippi Gaming Association and an economic development expert at the University of Southern Mississippi. Until recently, the casinos even were prohibited from conducting employee training on state property, said Bill Crawford, deputy director of the Mississippi Development Authority.
"The casinos don't need this," said William F. Shughart II, an economist at the University of Mississippi. "If they are [eligible], that would be a complete waste of money."
In fact, the casino industry is trying to appeal to governments by saying it will provide jobs and tax revenue, said Alberto Lopez, director of strategic communication at Harrah's Entertainment Inc., which lost two major casinos on the Mississippi coast. "We're actually scratching our heads. We can't ever remember an instance of being offered a tax credit -- ever."
The indiscriminate nature of the president's proposal is likely to sharpen criticism of the administration's rebuilding effort. Already, Republicans and Democrats have castigated the Federal Emergency Management Agency's $5 billion effort to purchase 300,000 trailers and mobile homes, despite record-low apartment occupancy rates in the states just beyond Katrina's reach.
Democrats moved yesterday to repeal Bush's suspension of federal wage supports, which require federal contractors to pay workers prevailing local wages, on federally financed construction projects not just in Louisiana, Mississippi and Alabama but also in lightly affected South Florida. Dozens of House Republicans yesterday proposed significant spending cuts -- many of them on signature Bush programs -- to finance hurricane relief.
Sen. Max Baucus (Mont.), the ranking Democrat on the Senate Finance Committee, recommended yesterday that the panel convene fact-finding hearings to examine how many properties are insured and what incentives different industries need to rebuild. A senior Republican tax aide on the committee, speaking on condition of anonymity because he was not authorized to comment, said lawmakers have not decided whether to exclude casinos from tax relief, but, he added, doing so has been routine. Existing legislation creating similar tax-favored zones has excluded gambling facilities as well as golf courses, country clubs, massage parlors, tanning salons, hot tub facilities and liquor stores -- due to political reluctance to subsidize unpopular industries as well as the understanding that businesses like gambling simply do not need such support.
"What Hurricane Katrina destroyed in hours will take years to rebuild," Baucus said. "The public expects the government to be careful with taxpayer dollars and put them to use in a smart and practical manner."
But White House spokesman Trent Duffy said the federal government should not be picking which businesses should or should not rebuild. The emphasis of tax incentives should be to get people back to work, he said, and that means rebuilding structures as fast as possible.
Stuart M. Butler, an economic policy analyst at the Heritage Foundation who encouraged the administration to propose the Gulf Opportunity Zone, said past efforts to tailor incentives to particular industries have greatly diminished the programs' effectiveness.
"In some cases, you're going to give tax write-offs to someone who would have been there anyway," he said, "but that's the only way you can do this and make it work."
Under the Gulf Opportunity Zone -- or GO Zone -- proposal, any company would be able to immediately deduct half the cost of investments in equipment or buildings. MGM Mirage owns an $800 million casino and hotel in Biloxi, Miss., the Beau Rivage. If, for example, uninsured damage reaches $100 million, the gambling giant could end up with a tax break as high as $50 million, congressional tax aides said.
Tax experts say national casino corporations such as MGM and Harrah's could use a GO Zone write-off to reduce taxable profit from their larger empires, whereas local Gulf Coast companies may have no outside profit from which to deduct their tax break.
Such complexity has limited the success of such tax-favored zones, development experts say. Western Mississippi already has one of the oldest such zones in the country in the Mid-Delta Empowerment Zone, founded in 1994. Crawford said tax incentives to write off business investment or deduct some of the cost of new employees have helped land some employers, such as Dollar General Corp., Viking Range Corp. and a catfish processor.
But the region remains extremely poor, said Shughard, the University of Mississippi economist. Empowerment zone designations, he said, "have had zero impact."
In contrast, the corners of the state with gambling have thrived since the casinos moved in, and they needed no enticement.
"The only incentive to the casinos was that it became legal," Crawford said.
The large casinos have made it clear that they badly want to rebuild. All they need is clearance from the state legislature next week to rebuild on land, not on fake riverboats and piers that met the technical requirement of keeping gambling off Mississippi soil.
"What our CEO said was, 'We'll come back bigger and better,' " Harrah's Lopez said.
The American Gaming Association did approach the White House and Congress for tax relief in the wake of Katrina, said a gambling company official, who spoke on condition of anonymity for fear of jeopardizing industry lobbying. But the association did not ask for any incentives to rebuild. It was seeking a tax credit for the employee salaries the companies continue to pay, despite the destruction of property. It so far has not gotten one.
But just because the casinos did not ask for the investment write-off doesn't mean they won't take it. "Anything that the federal government can provide, obviously we'll take advantage of it," the official said.