Today we will focus on three articles from three different newspapers to explain where the economy is and what to make of news of our recent resurgence. The first article, Article One, is from the Delaware State News, “Chips are down, Dover Downs executives say” (http://bit.ly/15votif). Delaware’s casinos have suffered heavy losses due to two main factors: high casino taxes at 43.5% (along with 11% for the horsemen at the racetrack and 7% to vendors) and, required by law, high payouts to slot-players.
“With $60 million in debt, declining share prices and consistently lower quarterly revenues, the casino can no longer produce enough income to weather state taxes, Dover Downs Gaming & Entertainment Inc. President and CEO Denis McGlynn said.
Mr. McGlynn said the casino has had 150 layoffs over the past four years, frozen pension plans, pushed more medical benefit costs onto employees and lost its ability to pay dividends to shareholders.
“We’re left with nowhere else to cut,” Mr. McGlynn said. “You get in a death spiral where you can’t recover.”
In 2012, $118.9 million in gaming revenue went to the state, leaving Dover Downs with $74.4 million.
However, after net expenses for payroll and payout to stakeholders, Mr. McGlynn said the casino garnered only $4.8 million for capital improvements.”
Delaware’s economy will suffer if the casinos reduce services or shut down completely. Harrington Raceway in particular, which is smaller than Delaware Park and Dover Downs, is particularly vulnerable. Competition from other states has hurt business, but the main reason the casinos are struggling is directly due to government meddling. The problem is, the state spends so much money they cannot afford for the short-term to allow for tax cuts, and so Markell’s office has been on record stating they do not intend to touch the tax rate right now. Assuming nothing is done before June 30, that means if the casinos are being forthcoming about their losses, they may be forced to lay off more workers, reduce tables or slot machines, or cut hours, or do other things to reduce costs.
OK, so if employees get laid off, they can qualify for unemployment insurance from the state until they find work, right?
Not so simple. This brings us to Article Two, from the News Journal, “1-week waiting period, higher taxes proposed in jobless benefits reform” (http://delonline.us/ZomTxO)
The state of Delaware took on a a lot of debt to give checks to unemployed workers in the state over the past few years, running up a deficit of about $70 million by borrowing money from the Federal government, which now needs to be paid. Seeing as how the Feds and many states are either broke, going insolvent, or running deficits (Delaware does, even if they insist by law they must balance the budget), Delaware is going to need to get the money from somewhere. Turns out it will be businesses and the unemployed who will pay. A bill will be circulated this week to increase taxes on businesses, and to ask the unemployed to wait 1 week before collecting benefits. The intent is to pay the bill before 2015, when higher Federal taxes would kick in to make up the pay. Although Delaware’s official unemployment is 7.2%, a study of DE’s employed in Delaware Today showed that 15% of workers are public sector, and another 15% work in health and social services, heavily reliant on public funds. There are now only 26,000 manufacturing jobs reported in the state.
OK, so working in Delaware is a toss-up, but not bad. At least housing is affordable, right? Well yes and no; Delaware has more affordable housing for residents, but the current resurgence in home prices may be a false alarm. Moving to Article Three Heidi Moore, a U.S. finance editor at The Guardian newspaper in the U.K., believes the current housing “comeback” is really a sham predicated on just seeing housing prices go up. (http://yhoo.it/14oD24G) and (http://bit.ly/1aykQZQ)
Basically what has happened is that the Federal Reserve is holding interest rates to record lows by printing money to subsidize purchases on things like cars, homes, student loans, and personal loans, all of which have seen an increase in volume moved over the last 3 years (this includes the fact that the government has bought many of these items with taxpayer money), that does not mean people have more money necessarily. What it means in housing, for example, is that “house-flippers” (those who buy homes, fix ‘em up, and sell ‘em quickly for profit) are driving up the cost as their bids become more and more ridiculous. Who is buying homes? The banks, using fresh money hot off the printing presses (literally) to buy homes to make even more money off future sales, and also who are collecting on foreclosed homes.
The point is, when the media tells you home prices are surging, the implication is that housing has recovered and people are finally looking forward to buying a nice home or property. In reality, the same sharks who made money off the last housing bubble are the ones who are making money off this one, set to burst at any time.
Later, we’ll address health care law and what you need to know. Stay tuned.