Detroit City Council relies heavily on economist deSeve

["Charles Brown" <CharlesB@xxxxxxxxxxxxxxxxxxxxx>]

Council holds firm on casinos

"Economist Charles deSeve of the American Economics Group said in a report to council, which the council also sent to Kilpatrick, that the casinos can afford to pay more. DeSeve estimated the casinos will spend fewer than $1.5 billion under Kilpatrick's casino agreements. They would have spent $2.4 billion under the agreements negotiated in 1998 by former Mayor Dennis Archer."


 Detroit could get $300 million more, mayor told
May 15, 2002

BY TINA LAM
FREE PRESS STAFF WRITER

Detroit's casinos could afford to pay the city as much as $300 million more per year than what they'll pay under agreements proposed by Mayor Kwame Kilpatrick, according to a study by an economist hired by the Detroit City Council.

A unified City Council told Kilpatrick in a letter Monday that his new casino agreements cost the city too much and the casino developers too little. Without changes, the council will not approve them, the members said.

They said their economic study found the casinos could pay a combined $40 million to $300 million more per year without seriously hurting their profit margins.

Members also said they won't consider voting on the agreements until the casinos have given them details of the locations of each permanent casino and what each will look like. The city's current agreements with MotorCity, MGM Grand Detroit and Greektown casinos expire June 15.

"This is what we think has to be in any agreement," Council President Maryann Mahaffey, said Tuesday. "This is what Detroit's citizens deserve."

Kilpatrick's office did not return several calls for comment. The mayor returned from a trade mission to Dubai, in the United Arab Emirates, late Monday.

MGM Grand Detroit Casino is the only one of the city's three casinos that has not announced a site. Spokeswoman Yvette Monet said Tuesday the casino is still looking at property.

Only MotorCity has unveiled new plans for its permanent casino. It will build a 16-story hotel with 100,000 square feet of gambling all on one floor, a spa, 400 large hotel rooms, more parking, a theater, ballrooms and 50,000 square feet of convention space.

MotorCity said it plans to spend $300 million on the new casino hotel, where its temporary casino now stands. Greektown Casino also plans to stay where it is but has not shown its plans.

The Washington, D.C., economic consulting firm hired by City Council said the new casino agreements Kilpatrick negotiated will mean 1,800 fewer jobs and less revenue from income tax and property tax. That's because the casinos will build smaller hotels and spend less on them than originally planned.

Economist Charles deSeve of the American Economics Group said in a report to council, which the council also sent to Kilpatrick, that the casinos can afford to pay more. DeSeve estimated the casinos will spend fewer than $1.5 billion under Kilpatrick's casino agreements. They would have spent $2.4 billion under the agreements negotiated in 1998 by former Mayor Dennis Archer.

Under any new casino agreements, council wants the casinos to pay at least $75.5 million more to the city for minority business development, $198 million for a capital improvement fund, and $350 million for a college tuition fund for Detroit students.

Mahaffey said the $75.5 million for business funds is a firm requirement, but amounts for other items such as tuition fund and capital improvements are negotiable.

All of those extras, deSeve estimated, would bring the tab for Detroit's casinos to $2.1 billion -- less than what the casinos agreed to spend in 1998.

The extras would reduce the casinos' profit margin, after taxes, from 16.4 percent to 6.2 percent, which he said is close to the industry average. Now, "it is common knowledge that the Detroit temporary casinos are exceeding industry profit rates by a wide margin," deSeve said.

The Detroit casinos' tax rate is fourth-highest among 11 states with casinos, he said.




Contact TINA LAM at 313-223-4407 or lam@xxxxxxxxxxxxxx