1. Economic Cost Benefit Calculation for Pittsburgh’s Casino Project Prepared by Mike Mucha Elliot Schwartz Matt Voit May 3, 2006 Public Expenditure Analysis

2. Act 71 Gambling Legislation was approved July 4, 2004 14 venues are expected to produce about $1 Billion in tax revenues from a 34% tax Plans for 61,000 slot machines in PA Pittsburgh was granted one “stand alone” casino Source: Barnes, Tom. 1/2/2005, Pittsburgh Post Gazette, [online] www.post-gazette.com/pg/05002/435951.stm, 4/30/06.

3. Costs and Benefits of a Pittsburgh Casino Benefits –Government Revenues –Social Benefits Costs –Social Costs –Substitution Effects Synthesis

4. Benefits PITTSBURGH Pennsylvania

5. Benefits Tax Revenue –Local Tax –County Tax –Business Privilege Tax –Property –Earned Income –Payroll –EMS Fee –Hotel Tax –Development Fund Employment –Construction –Operation –Secondary (Related) Giveaways Food and Beverage METB

6. The Slots Law created 14 PA casinos Source: PA Gaming Control Board

7. Benefits from Pittsburgh Casino Employment Additional Spending Incremental Taxes Giveaways METB Calculations based on data contained in Economic Impact Study conducted by Christiansen Capital Advisors, LLC for Forest City Enterprises and numerous Pittsburgh Post Gazette articles

8. Total benefits total $3.4 Billion for the first 10 years of operation Calculations based on data contained in Economic Impact Study conducted by Christiansen Capital Advisors, LLC for Forest City Enterprises and numerous Pittsburgh Post Gazette articles

9. Tax paid by Allegheny County residents is not an incremental benefit Calculations based on data contained in Economic Impact Study conducted by Christiansen Capital Advisors, LLC for Forest City Enterprises and numerous Pittsburgh Post Gazette articles

10. Costs

11. Indirect Costs Gambling Addiction Social Services –Pittsburgh Police –Pittsburgh Fire –Emergency Medical Services Pennsylvania Lottery Substitution Effect

12. Gambling Addiction The estimated population of Allegheny County in 2007 is 1,228,486 Allegheny County Population % change per year = -.6% Pathological Gamblers =.9% Problem Gamblers = 2.00% Cost to Society per compulsive gambler –Low estimate $14,006 –High estimate $ 22,077 Increase in Gambling because of opening of Casino –Low estimate 1.5% –High estimate 2.5% The first year the Casino opens, the increase in the cost to society is $199,158,787 - $523,207,737

13. Police The Casinos underestimates 3 key factors –The number of officers the City of Pittsburgh needs to hire –The cost to hire them –The increase in Casino related crimes.

14. Fire The Fire Station in the Hill District that would service Isle of Capri CLOSED. The closest fire station would be in the Strip District, Mercy Hospital, or Upper Oakland. Underestimates the number of firefighters needed to service casino (2 firefighters). “A fire station on the development site would be beneficial especially since the recent station closing in the nearby Hill District” - Fire Chief Huss

15. Emergency Medical Services 60% of medical emergencies at a Casino require transportation to a hospital. The Casino will then need to call on the Pittsburgh EMS’s resources. Isle of Capri estimates that EMS resources will only be needed 322, which is a 1% increase

16. Pennsylvania Lottery “Benefits Older Pennsylvanians. Every Day” Benefits Program gets less funding –Property Tax and Rent Rebates –Shared Ride/ Free Ride Programs –PACE (Pharmaceutical Assistance Contract for the Elderly) –PACENET (Pharmaceutical Assistance for the Elderly needs Enhancement Tier) –Area Agencies On Aging Hot Meals Program

17. With a Casino the Benefits Program for Allegheny County looses $7,467,919 in the first year By year 2018 the Benefits Program receives $135,125,206 LESS a year.

18. Grandma Becomes Unhappy 

19. Synthesis

20. Do the costs and benefits add up? Assumptions: –Cash flows start one year from now –Budgetary cycle parallels costs and benefits –Multiplier Effects: 1.75 –Discount Rate: 7% –Inflation: 3% –Revenue streams from the casino begin in year 3. Calculations based on data contained in Economic Impact Study conducted by Christiansen Capital Advisors, LLC for Forest City Enterprises and numerous Pittsburgh Post Gazette articles

21. Discounted cash flows suggest Pittsburgh and the casino “win” NPV Result: $143,013,456 over 12 years. –City of Pittsburgh looks like a winner… –Harrah’s estimate was $7.7 billion Calculations based on data contained in Economic Impact Study conducted by Christiansen Capital Advisors, LLC for Forest City Enterprises and numerous Pittsburgh Post Gazette articles

22. Results are sensitive to discount rate and benefit multiplier Analysis can be quite limited due to sensitivity of these two parameters. Multiplier Effects Range (r=7%) from $1.6 billion loss to $613 million net gain. Discount Rate (M = 1.75) = $52 to $173 million NPV No discount rate or multiplier effect used in Harrah’s (as far as we know) Calculations based on data contained in Economic Impact Study conducted by Christiansen Capital Advisors, LLC for Forest City Enterprises and numerous Pittsburgh Post Gazette articles

23. Games of chance are uncertain Worst Case Base Case Best Case Social Cost Per Pathological Gambler Per Year $22,077$18,000$14,006 Percentage of Pathological Gambler (as a percentage of adult population) 2%.9%.5% Yearly Revenue Increase-3%3%6% Revenue Per Day Per Machine$200$256$400 Visitors Per Year to in Initial Year Casino 4,000,000 4,800,000 Percentage of Population Outside of Pittsburgh 0%10%25% Calculations based on data contained in Economic Impact Study conducted by Christiansen Capital Advisors, LLC for Forest City Enterprises, Pittsburgh Post Gazette articles and academic research regarding the social cost of gambling.

24. Pittsburgh: Do you feel lucky?

25. Monte Carlo Analysis argues that the casino is a risk worth taking Worst CaseMeanBest Case -$628 Million$1.26 Billion$3.149 Billion Results indicate that there is a 4.3% chance the casino will have a negative NPV! Crystal Ball Student Edition Not for Commercial Use Frequency Chart $.000.008.016.024.032 0 8 16 24 32 ($628,205,184.41$316,096,551.37$1,260,398,287.1$2,204,700,022.9$3,149,001,758.7 1,000 Trials 989 Displayed Forecast: Total NPV

26. Questions? Comments?