VGM taxes bounce back to positive territory
Analysis by Cole Boehler
Short-run volatility characterizes recent Montana video gaming machine (VGM) tax collection figures statewide, but is even more pronounced at the local level. Billings, for example, was down 7.82 percent in the second quarter, but was up 7.02 percent in the third quarter at the end of March, a swing of almost 15 percent and $180,000 in taxes collected.å
Historically, the third quarter has marginally outpaced theå second.
Third quarter Fiscal Year (FY) 2009 (Jan.-March 2009) state-wide bounced back into positive territory, but barely, growing just .35 percent compared the same quarter the previous year. Total VGM taxes collected in the most recent quarter were $15.63 millon compared to $15.58 million the same quarter one year previous, and $15.21 million the previous quarter.
But that's good news considering gaming taxes had actually declined in the second quarter (Oct.-Dec. 2008) by 5.08 percent, an unprecedented occurance. First quarter tax collections were also flat, growing just .32 percent compared to the previous year.
So far tax collections for the first three quarters of the fiscal year (July 1, 2008-March 30, 2009) in total are down 1.47 percent, from $47.40 million in FY 08 to $46.70 million in FY09—a difference of $709,642.
While collections had been increasing at around 6 percent per year for several years, there was some softening apparent during the third and fourth quarters of FY 2008 (Jan.-June 2008) with the whole year up 4.38 percent.
It is apparent the recession has come to Montana and people are more conscientious about how they use disposable income, but gaming here is doing well compared to some other big gaming jurisdictions where it is reportedly down 10-20 percent.
Some Montana operators report they are seeing good growth at their stores, and even sales increases in all departments, including alcohol sales. Other licensees, however, especially in localities more hard hit economically, are reporting revenue drops of 5 to 10 percent.
Mark Staples, government affairs counsel for the Montana Tavern Association, said when asked for comment: "Basically I think trying to characterize the 'whys' and 'why nots' of tax collections is like trying to explain the weather; in the end it's all conjecture.
"But, for conjecture's sake, the recent uptick could just be in contrast to last quarter's downtick, it could be based on improved promotions, cabin fever, people getting tired of worrying about the economy, or maybe global warming. Who knows?
"I don't think until you see at least a full year's percentage of growth or downtrend can you even plausibly cite cause and effect," Staples continued.
"I'd say the licensees should just keep offering clean, hospitable, exciting, quality gaming and gaming surroundings, and the rest will take care of itself," he said.
"We'll have our hills and valleys, but the Montana public has consistently shown over decades now, that they enjoy this form of entertainment. Given the level of professionalism at which most of our licensees operate, I'm confident that patronage will continue."
Billings' remarkable comeback was even outpaced by Kalispell's, which went from a 16.06 percent drop in Q2 to a 10.71 percent gain in the Q3—an almost 27 percent swing.
Havre's was almost as dramatic, going from a 9.83 percent Q2 decline to a 14.7 percent Q3 increase—nearly a 25 percent change.
Dillon's experience was opposite: it went from a 26.92 percent second quarter gain to a 9.37 percent third quarter drop. And Whitefish simply went from bad to worse, from a 3.7 percent decline in Q2 to a 9.25 perent contraction in Q3.
Gaming Industry Association Executive Director Neil Peterson told the Montana Tavern Times, “I was pleased to see that gaming tax revenues were up slightly over the same quarter for the previous year. While it's way too early to say the business downturn in Montana is over, it was good news there was not another drop in gaming tax revenues. I am hopeful this trend continues for future quarters and the financial conditions continue to improve for all Montanans.”
Peterson also attributes the rebound to improving customer service and improving quality in goods and services—including gaming entertainment—offered at licensed businesses.
Bozeman and Belgrade were still down—2.96 and 2.95 percent respectively—but that's an improvement from the previous quarter's shrinkage of 9.92 percent and 7.62 percent, also respectively.
Sidney, in the heart of the recent eastern Montana oilfield frenzy, now also slowing dramatically, saw 26.86 percent 2Q growth flopped to 1.93 percent Q3 shrinkage. Missoula flipped the other way, from a 5.61 drop in Q2 to a positive 4.76 growth in Q3. So did Helena, from a 7.07 Q2 decline to a 5.03 Q3 gain.
(See the charts presented on this page for a complete county-to-county and major city-to-city comparison. Keep in mind, the least populous jurisdictions routinely show wild volatility as a few new machines [or a few taken out of service] or a single new establishment [or one closing] have substantial impacts on totals.)
The number of permits issued for VGMs in the third quarter was down 281 from the year previous, now 812 compared to 1,093 last year.
Also, according to the Gambling Control Division, card table permitted were down to 425 from 468 in 2008, but card dealer licenses were up 29 since July 1—now 876. Live keno and bingo games continued to slide with now just 61 permitted, six fewer than last year.
At the end of the third quarter, 86 percent of all video gaming machine activity was being reported via the state's automated Internet based system.
Video Gambling Machine Tax collections
Comparison of Third Quarter FY 2008-2009
Source: The Montana Tavern Times, May 2009, published monthly by Continental Communications, 125 W Granite, Suite 102, Butte, MT 59701.