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Gaming Resorts Preparing to Rebuild Along the Gulf Coast Would
 Qualify for Federal Tax Breaks on Hotel Flannel Sheets
 but Not Casino Table Felt
Las Vegas Review-Journal
Knight Ridder/Tribune Business News

Dec. 17, 2005 - WASHINGTON -- Gaming resorts preparing to rebuild along the Gulf Coast would qualify for federal tax breaks on hotel flannel sheets but not casino table felt under a hurricane relief bill that Congress finalized on Friday.

The House and Senate approved $8 billion in Hurricane Katrina tax incentives while prohibiting casinos, massage parlors, country clubs, liquor stores and suntan and hot tub shops from sharing in the benefits.

Casino company representatives, while happy they were getting some measure of tax relief, said the compromise offends the gaming industry and casts aside the impact casinos had in bringing tourism to the Mississippi Gulf Coast over the past decade.

"You're telling Mississippi citizens who work in the gaming industry that they are somehow of a different status than everyone else," MGM Mirage spokesman Alan Feldman said. "I'm disappointed that anyone gave Frank Wolf the platform to take out his vendetta on the hardworking casino folks of Mississippi."

The restrictions were promoted by social conservatives led by Wolf, a House Republican from Virginia, who argued that "sin businesses," and particularly profitable gaming companies, did not merit assistance from federal taxpayers.

But in a deal brokered with House Republican leaders, Sen. Trent Lott, R-Miss., added provisions to the final bill drawing distinctions between casino areas and other parts of damaged or destroyed gaming resorts in Mississippi and Louisiana.

Under the bill, corporations including MGM Mirage and Harrah's Entertainment would qualify for a first-year depreciation deduction of 50 percent of the cost of rebuilding hotel facilities, convention halls, showrooms, swimming pools and common areas.

However, any spending for casino construction and equipment, furniture and software "used directly in connection with gambling" would not qualify.

MGM Mirage is rebuilding the Beau Rivage in Biloxi, Mississippi's largest casino-hotel and one that sustained heavy damage in the storm. The casino is not expected to reopen until late next year.

While insurance is expected to cover much of the rebuilding, Feldman said tax relief could help the company recover some of its losses.

"It's absolutely appalling to segregate and discriminate against one industry," Feldman said. "The gaming industry built roads, built schools, built libraries and built hospitals in Mississippi. We've made the state a better place to live."

Harrah's Entertainment lost four casinos during Gulf Coast hurricanes that left 9,600 company employees without jobs. In total, 17,000 casino workers were displaced when Hurricane Katrina wiped out 13 casinos in the Mississippi communities of Biloxi, Gulfport and Bay St. Louis. In 2004, the casinos reported gaming revenues of $1.2 billion.

While not troubled with a compromise that eliminates tax incentives to replace slot machines, leaving the damaged casino structures out of the picture was short-sighted, said Harrah's Senior Vice President Jan Jones.

She said other businesses that cater to the gaming industry, such as suppliers and service operations, also are affected as long as the casinos remain shuttered.

"I'm disappointed that elected officials continue to treat this industry as a second-class citizen when we are the driver of (Mississippi's) regeneration," Jones said. "To be disrespected is unconscionable. It borders on ignorance. These people can't get back to work until we rebuild."

The limits on tax relief will hurt smaller, privately held casinos that aren't backed by large corporations, casino observers said.

The Treasure Bay in Biloxi and the Copa in Gulfport, destroyed by the storm and subsequently demolished, might have trouble rebuilding. The casinos had small hotels as part of their properties, but without incentives to rebuild the gambling halls, the properties now might be part of history.

Lott called the final product a compromise. He told the Biloxi Sun-Herald he planned to provide a remedy for casinos with "the next moving tax vehicle I can get ahold of."

"This will help get cash back into the pockets of businesses and individuals who are trying to rebuild their lives and communities," Lott said.

Sen. Harry Reid, D-Nev., "reluctantly supported the final version of the Katrina relief package after it became clear the House was insisting on some kind of prohibition" on gaming, spokeswoman Tessa Hafen said.

Lott said he had arranged to qualify all businesses except casinos for the tax breaks.

But, according to remarks reported by the Congress Daily newsletter, he said that plan was blocked by Reid, who did not want gaming to be the only industry singled out.

Hafen confirmed Lott's account. Once a deal was reached to limit industries, "it was easier to accept that than to start parsing who was good and who was bad, and delay the whole bill," she said.

Frank Fahrenkopf, the president of the American Gaming Association, said the major resorts would be eligible to claim a tax benefit on between 75 to 90 percent of their rebuilding costs because casinos tend to be relatively small components of the properties.

He declined to estimate the dollar benefits, saying they would vary by company. But other industry officials said the tax break could be worth millions of dollars.

"We are of course disappointed in any piece of legislation that does not treat the gaming industry as any other legal business is treated," Fahrenkopf said. "But we are pleased that there is a limitation on the benefits the gaming industry will not receive. Really, the vast amount of rebuilding costs, we will be able to get the benefit."

Fahrenkopf also directed criticism at Wolf, who for years has clashed with the gaming industry as its leading critic in Congress.

"Frank Wolf and those who are morally opposed to gaming were themselves immoral in what they attempted to do here," Fahrenkopf said. "What is immoral is doing anything that would impede the redevelopment of the Gulf Coast and getting back to work 16,000 people who have lost their jobs and homes."

Rep. Shelley Berkley, D-Nev., said the episode illustrated "the extraordinary and unfortunate clout the far right has in the House, but it also showed the Senate used common sense.

"Eighty percent is better than nothing," Berkley said, "but the principle remains that the gaming industry is being singled out, discriminated against and treated differently than other businesses."

Wolf's office did not respond to a telephone call, and Wolf could not be reached for comment. But in remarks reported by Congress Daily, he said he was satisfied with the compromise.

"I am going to follow up with the IRS and make sure that the intent of the law is followed, that there is a clear delineation between casino and hotel property," he said.

The clash over gaming had delayed approval of the relief bill, which creates a Gulf Opportunity Zone among counties and parishes in Louisiana, Mississippi and Alabama devastated by hurricanes Katrina and Rita in late summer.

Qualified businesses in the zone would be granted the bonus depreciation on rebuilding costs. Among other benefits, the bill also authorizes $14.8 billion in tax-exempt bonds to finance reconstruction of homes and businesses, and it allows local governments to restructure their debts.

By Steve Tetreault and Howard Stutz


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