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The new $1 billion MGM Resorts International casino opened in Springfield will be credit positive, Moody’s Investor Service said Tuesday.
The company gave the commonwealth’s first ever casino a Aa1 rating and said it would produce financial and economic opportunities in Springfield, noting the host community agreement with MGM that details terms including its annual payment in lieu of property tax (PILOT) payments to the city.
Springfield has received $18.7 million of advance payments since 2013 while the casino has been in planning and under construction. MGM is scheduled to make an annual PILOT payment of $17.6 million as of fiscal 2019, which began July 1.
The PILOT payment will increase annually by at least 2.275 percent starting in 2026. MGM’s PILOT payment is significantly more than the $11.7 million 2018 property tax paid by Springfield’s largest taxpayer, Western Massachusetts Electric Co.
The agreement lists additional payments including annual community impact payments to be used for public safety and education costs, as well as variable payments tied to a percentage of MGM’s gross gaming revenue.
Based on the casino’s projected $479.5 million of gross gaming revenue assumed in the community agreement, the PILOT plus these other payments would total $26.2 million annually in new revenue for Springfield. The amount equals 3.7 percent of the city’s general fund revenue in fiscal 2017, which ended June 30, 2017.
The additional revenue is significant given Springfield’s limited flexibility in raising revenue. The city is highly dependent on state aid, which accounts for 65 percent of annual revenue. Since 2014, this revenue stream has increased by an average of only 1.9 percent annually.
Additionally, the second largest revenue source is property tax, which contributed just over 26 percent of revenue. Although the casino will not be added to the city’s total taxable assessed value, the surrounding development projects have helped increase the city’s tax base in the past five years and we expect it to contribute to modest ongoing growth.
Springfield has historically been challenged by its 30 percent poverty rate, which is double the national rate. The city’s 6.3 percent May unemployment rate was twice the state’s 3.3 percent rate and the nation’s 3.6 percent rate.
The host community agreement states that MGM will use its best efforts to employ 3,000 people and that no fewer than 2,200 jobs will be full-time equivalent. Terms also stipulate that 35 percent of the workforce are city residents.
