The fierce competition among potential casino operators pitching billion-dollar investment deals for Pittsburgh provides strong evidence that Gov. Ed Rendell and state lawmakers are making a costly mistake by planning to sell slots licenses for a set fee rather than auctioning the licenses to the highest qualified bidders.

Recent analysis by an Allegheny County think tank suggests Pennsylvania will be leaving some $2 billion on the table if the state moves forward with selling the 14 slots/casino licenses for $50 million each.

Jake Haulk, president of the Allegheny Institute for Public Policy, noted in a press release that recent sales of horse racing tracks suggests the coming slots licenses will be worth between $220 million and $325 million. His figures are based on the huge jump in prices for the race tracks from the estimated values before slots were announced and the prices recently paid now that slots are known to be coming.

By failing to sell slots licenses at their true market value, Pennsylvania could be missing out on $2 billion. And, as an upfront fee, that $2 billion would be immediately available to provide property tax relief — the reason Rendell advanced for his support for bringing slot machine gambling to Pennsylvania.

As currently designed, whatever property tax relief comes to Pennsylvanians from slots-related tax revenue is still several years down the road.

Rather than state officials setting an arbitrary fee of $50 million for the right to operate a slots casino in Pennsylvania, an auction would have allowed the strongest applicants — most likely experienced casino operators — to determine the price through competitive bidding and their own analysis of the profit potential offered by the different locations.

The casino operators would bear most of the risk under such a scenario. As it now stands, the state is assuming risk — in accepting that the potential casino operators will fulfill their promises to complete their billion-dollar complexes that all look so promising now. But if profits aren't up to expectations, casino operators' grand plans could change and lavish plans could be scaled back.

In addition to setting a fair, market-based value on casino licenses, an auction of licenses would help take politics out of the process. Even though the state gaming board is supposed to be free of politics, its members are appointed by the governor and the legislature. And in recent years, gambling interests have been spending millions of dollars in Harrisburg through lobbying and campaign contributions, in hopes of tilting the licensing selection in their favor.

Even those citizens not already worried about the influence of money in politics have to wonder how many ways casino interests are working to gain influence in the capital and to secure their slots license — a license to print money.

A Philadelphia newspaper noted that among the people involved as investors or otherwise tied to companies applying for the slots licenses are a fund-raiser for Rendel, a donor to state Sen. Vincent Fumo, a former campaign manager for Rendell, a former state representative from Montgomery County, a former president of the Philadelphia 76ers.

It's reasonable to wonder if the bidders with the best plans for taxpayers will win licenses or if the winners will be those with the best connections.

Increasingly, it looks as though state taxpayers will be left with the financial crumbs of expanded legalized gambling, while casino operators and investors will make the big money from slot machines in Pennsylvania.

Rendell and state lawmakers should find ways to improve taxpayers' cut of the coming slots bonanza. Changing the rules at this point and auctioning off licenses at fair market value would be problematic, but charging each casino operator an annual fee tied to its license in order to recoup some of the $2 billion left on the table might be a reasonable way to compensate for giving away the slots licenses for a song.

— J.L.W.III